ACCTG 211 Lecture Notes - Lecture 11: Promissory Note, Amortization Schedule, Deferred Income
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Uhura Company has decided to expand its operations. Thebookkeeper recently completed the balance sheet presented below inorder to obtain additional funds for expansion.
UHURA COMPANY | ||
Current assets | ||
Cash | $232,650 | |
Accounts receivable (net) | 342,650 | |
Inventory (lower-of-average-cost-or-market) | 403,650 | |
Equity investments (trading)-at cost (fair value$123,310) | 143,310 | |
Property, plant, and equipment | ||
Buildings (net) | 573,310 | |
Equipment (net) | 163,310 | |
Land held for future use | 178,310 | |
Intangible assets | ||
Goodwill | 82,650 | |
Cash surrender value of life insurance | 92,650 | |
Prepaid expenses | 14,650 | |
Current liabilities | ||
Accounts payable | 138,310 | |
Notes payable (due next year) | 127,650 | |
Pension obligation | 85,310 | |
Rent payable | 51,650 | |
Premium on bonds payable | 55,650 | |
Long-term liabilities | ||
Bonds payable | 503,310 | |
Stockholdersâ equity | ||
Common stock, $1.00 par, authorized 400,000 shares,issued 292,650 | 292,650 | |
Additional paid-in capital | 162,650 | |
Retained earnings | ? |
Prepare a revised balance sheet given the available information.Assume that the accumulated depreciation balance for the buildingsis $162,650 and for the equipment, $107,650. The allowance fordoubtful accounts has a balance of $19,650. The pension obligationis considered a long-term liability.
Krogh Lumber's 2016 financial statements are shown here.
Now suppose 2017 sales increase by 25% over 2016 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its operating costs/sales ratio to 82% and increase its total liabilities-to-assets ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2017 forecasted interest-bearing debt as notes payable, and it will issue bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 11.5%. Any stock issuances or repurchases will be made at the firm's current stock price of $40. Develop Krogh's projected financial statements. What are the balances of notes payable, bonds, common stock, and retained earnings? Round your answers to the nearest hundredth of thousand of dollars. Krogh Lumber Pro Forma Balance Statement December 31, 2017 (Thousands of Dollars) | |||||||||||||||||||||||||||||||||||||||||||||||
2016 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Cash | $1,800 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Accounts receivable | 10,800 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Inventories | 12,600 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Fixed assets | 21,600 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Total assets | $46,800 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Payables + accruals | $9,720 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Short-term bank loans | 3,472 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Total current liabilities | $13,192 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Long-term bonds | 5,000 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Total debt | $18,192 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Common stock | 2,000 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Retained earnings | 26,608 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Total common equity | $28,608 | $ | |||||||||||||||||||||||||||||||||||||||||||||
Total liab. and equity | $46,800 | $ |
Complex Balance Sheet
Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.
Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016 | ||||
Assets | Liabilities and Shareholders' Equity | |||
Cash | $225,000 | Accounts payable | $133,800 | |
Accounts receivable (net) | 345,700 | Mortgage payable | 900,000 | |
Inventories | 560,000 | Notes payable | 500,000 | |
Prepaid income taxes | 40,000 | Lawsuit liability | 80,000 | |
Investments | 57,700 | Income taxes payable | 61,200 | |
Land | 450,000 | Deferred tax liability | 28,000 | |
Building | 1,750,000 | Accumulated depreciation | 420,000 | |
Machinery and equipment | 1,964,000 | Total Liabilities | $2,123,000 | |
Goodwill | 37,000 | Common stock, $50 par; 40,000 shares issued | $2,231,000 | |
Total Assets | $5,429,400 | Retained earnings | 1,075,400 | |
Total Shareholders' Equity | $3,306,400 | |||
Total Liabilities and Shareholders' Equity | $5,429,400 |
Your company has been engaged to perform an audit, during whichyou discover the following information:
Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.
Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.
During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.
Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.
On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.
The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.
The lawsuit liability will be paid in 2017.
Of the total deferred tax liability, $5,000 is considered acurrent liability.
The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.
The company was authorized to issue 100,000 shares of $50 parvalue common stock.
Required:
Prepare a corrected classified balance sheet as of December 31,2016.
Zeus Manufacturing Corporation Balance Sheet December 31, 2016 | |||
Assets | |||
Current Assets: | |||
Cash | $ | ||
Accounts receivable (net) | |||
Inventories | |||
Total current assets | $ | ||
Long-Term investment, at fair value | |||
Property, Plant, and Equipment (at cost): | |||
Land | $ | ||
Building | $ | ||
Machinery and equipment | |||
Total | |||
Less: Accumulated depreciation | |||
Total property, plant, and equipment | |||
Intangible Asset: | |||
Goodwill | |||
Other Assets: | |||
Cash restricted for building purposes | $ | ||
Officer's note receivable | |||
Land held for future building site | |||
Total Assets | $ | ||
Liabilities | |||
Current Liabilities: | |||
Accounts payable | $ | ||
Current installments of long-term debt | |||
Lawsuit liability | |||
Income taxes payable | |||
Deferred tax liability | |||
Total current liabilities | $ | ||
Long-Term Debt: | |||
Mortgage payable | $ | ||
Notes payable | |||
Deferred tax liability | |||
Total long-term debt | |||
Total Liabilities | $ | ||
Shareholders' Equity | |||
Contributed Capital: | |||
Common stock, $50 par value | $ | ||
Additional paid-in capital | |||
Total paid-in capital | $ | ||
Retained earnings | |||
Accumulated Other Comprehensive Loss: | |||
Unrealized decrease in value of long-term investment | |||
Total | $ | ||
Less: Cost of treasury stock | |||
Total Shareholders' Equity | |||
Total Liabilities and Shareholders' Equity | $ |