Practice set-2 FAR _IIM Indore _2014-15

The Balance Sheet

PROBLEM
1.

The following accounts were extracted from the accounting records of Ditka Enterprises:
Accounts payable
Accounts receivable
Buildings
Cash
Equipment
Inventory
Land
Mortgage payable
Prepaid insurance
Retained earnings
Common stock

$ 40,000
24,000
150,000
16,000
50,000
50,000
100,000
125,000
10,000
185,000
50,000

Required: Arrange the accounts into the format of a balance sheet. Separate both assets and
liabilities into current and long-term categories.
2.

The assets, liabilities, and equity of Keltgen, Inc. as of December 31, appear below:
Accts payable
Accts receivable
Accumulated depreciation
Additional paid-in capital
Building
Cash
Common stock
Income tax payable
Inventory
Investment in Endrun
Land
Mortgage payable
Prepaid insurance
Registered trademark
Retained earnings
Store fixtures
Unearned revenue

4,390
5,370
7,500
5,000
107,500
1,978
10,000
9,220
15,830
15,000
25,000
108,000
1,800
7,500
35,788
7,500
7,580

Notes:
The investment in Endrun was made for the purpose exerting influence on that company
The insurance policy covers the next six months.
The mortgage is paid in monthly principle installments of $600.00.
REQUIRED: Arrange all the accounts into the format of a balance sheet. Separate assets and
liabilities into current and long-term categories.

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3.

The January 1 balance sheet for Bachmeier Company is given below:

Cash
Accounts receivable
Inventory
Store fixtures
Building
Land

2,575
6,175
17,100
6,975
75,000
45,000
152,825

Accounts payable
Mortgage payable
Common stock
Additional paid-in capital
Retained earnings

5,450
70,500
10,000
31,125
35,750
152,825

These selected transactions occurred:

1. Purchased delivery truck for $33,000; the full amount was financed through the dealer's
"zero-percent for 36 months" promotion. One-third of the note is due in the next 12 months.
2. Collected 60% of outstanding accounts receivables
3. Paid all but $900 of outstanding accounts payable
4. Borrowed an additional $5,000 on a 6-month note and $30,000 on a 15-year note
5. Paid $12,000 on the principal of the mortgage (ignore interest).
Required: Based on the information provided, prepare the December 31 balance sheet. Classify
and group assets and liabilities by type (current and long-term/noncurrent).
4.

The accounts of the Capitan Company are shown below:

Capitan Company
List of Accounts
December 31
Accounts payable
Accounts receivable
Accumulated depreciation
Common stock
Cash
Cost of goods sold
Building and equipment
Inventory
Long-Term investment
Land
Marketable securities
Mortgage payable
Patents
Prepaid rent
Rent expense
Retained earnings
Sales
Salary expense
Supplies
Taxes payable
Unearned revenue

$20,000
18,000
11,000
75,000
85,000
12,000
81,000
15,000
30,000
27,000
3,000
89,000
4,000
6,000
24,000
?
49,000
19,000
6,000
11,000
19,000

Required: Prepare in good form a balance sheet at December 31 for the Capitan Company.
Assume that no dividends were declared during the year.

5.

You are the accounting supervisor of Spring Hill Industries, a small company whose fiscal year
ends on March 31, 2005. You asked your assistant, a talented accountant and a great practical
joker, to prepare a balance sheet for the year ended December 31, 2005. You found the following
report on your desk on January 1, 2006:
a.
b.
c.
d.
e.

Current assets are 30% of total assets.

Current liabilities are $25,000 and are 25% of total liabilities.
Common stock totals $80,000.
Retained earnings were $20,000 at the beginning of the year and $70,000 at the end.
Dividends declared and paid in 2005 equaled 90% of the net income for the year.

Required: After you fire your assistant, determine the following balances as of December 31,
2005:
a.
b.
c.
d.
e.
6.

Current assets
Long-term assets
Long-term liabilities
Net income in 2005
Dividends in 2005

Appaloosa Corporation had the following account balances as of December 31, 2005:
Accounts Payable
Accounts Receivable
Bonds Payable
Cash
Common Stock
Inventory/Merchandise
Income Taxes Payable
Note Payable
Prepaid Insurance
Property, Plant, and Equipment
Retained Earnings
Supplies

3,600
2,000
14,000
3,000
1,000
3,500
1,200
5,000
800
5,000
2,900
400

Required:
1. Present the accounts in the format of a balance sheet.
2. What is the current ratio? (Round to the nearest whole percentage)
3. What is the debt ratio? (Round to the nearest whole percentage)
4. What is the debt-to-equity ratio? (Round to the nearest whole percentage)
7.

Bruin Corporation's account balances at year end are as follows (note that the balance in retained
earnings is omitted):
Accounts payable
Accounts receivable
Accumulated depreciation - plant and equipment
Additional paid-in capital
Bonds payable
Cash
Common stock, par value

40
52
40
56
48
27
16

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Copyright
Current portion of long-term debt
Inventory/Merchandise
Investment securities, held for temporary investment
Investments, long-term
Mortgage payable
Plant and equipment
Prepaid insurance
Retained earnings
Salaries payable
Office supplies
Taxes payable
Unearned revenue

14
29
90
8
14
64
175
8
?
8
1
13
14

Required:
1. Classify the various accounts as asset, liability, or equity accounts.
2. Derive the balance in retained earnings.
3. Prepare a balance sheet.
4. Comment briefly on whether Bruin probably will or probably will not be able to pay its
short-term creditors as its obligations to them fall due.
3.

Balance Sheet
Cash
Accounts receivable
Investment securities, held for temporary investment
Inventory/merchandise
Office supplies
Prepaid insurance
Total current assets
Investments, long-term
Plant and equipment
Accumulated depreciation - plant and equipment
Copyright
Total assets

27
52
8
90
1
8
186
14
175
(40)
14
349

Current portion of long-term debt

Accounts payable
Salaries payable
Taxes payable
Unearned revenue
Total current liabilities
Bonds payable
Mortgage payable
Total liabilities
Common stock, par value
Additional paid-in capital
Retained earnings
Total equity
Total liabilities & equity

29
40
8
13
14
104
48
64
216
16
56
61
133
349

4. Based upon an analysis of the ratio of current assets to current liabilities, it looks as though
the short-term creditors will probably be paid on time.
Current assets
Current liabilities
Working capital
Current ratio = $186 / $104

186
104
82
1.79

Ivy Corporation
The bookkeeper of Ivy Corporation has assembled the following information:
4-week Treasury bills
Amounts due to merchandise vendors
Bank note to be repaid in 15 months (balloon payment)
Bank note to be repaid in 9 months
Building
Cash generated from issuance of Ivy common stock (10% is par value)
Cash in bank
Cash in safe
Cash in secretary-maintained petty cash fund
Cumulative amount of net income not paid out to shareholders in dividends
Estimated wear and tear on building and fixtures
Five months' rent paid in advance for remote warehouse facility
Interest accumulated on a 15-month indebtedness (payable at maturity)
Investment in Company A (temporary use of excess cash balances)
Investment in Company B (with the intent of exerting influence)
Ivy stock repurchased from various shareholders
Land
Merchandise held for resale
Money market account
Payments from clients in advance of services being performed
Purchased patent
Real estate mortgage ($6,000 to be repaid in the next 12 months)
Store fixtures (racks, shelves, etc.)
Tax savings arising from a deduction that will be taken in 3 years
Value of Ivy's reputation and community standing
Wages earned by employees but not yet paid
8.

5,000
7,500
80,000
50,000
100,000
65,000
5,000
500
34
75,000
5,000
8,000
4,000
50,000
75,000
15,000
20,000
90,000
12,000
5,000
80,000
130,000
7,500
6,900
83,000
15,000

Refer to Ivy Corporation. Use the information from Ivy Corporation to determine the following
amounts:
1.
2.
3.

9.

Total current assets

Cash and cash equivalents
Prepaid assets

Refer to Ivy Corporation. Use the information for Ivy Corporation to determine the amounts of
the following:
1.

Total long-term assets

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2.
3.
4.
10.

Property, plant, and equipment

Intangible assets
Other long-term assets

Refer to Ivy Corporation. Use the information for Ivy Corporation to determine the amounts for
the following:
1.
2.
3.
4.
5.

Accounts payable
Accrued liabilities
Short-term debt
Current portion of long-term debt
Unearned revenue

11.

Refer to Ivy Corporation. Use the information from the Ivy Company to determine total longterm liabilities.

12.

Refer to Ivy Corporation. Use the information from Ivy Company to determine the amounts of
the following:
1.
2.
3.
4.

13.

Common Stock
Additional paid-in capital
Retained earnings
Treasury stock

On its first day of operations, Prairie Enterprises entered into the following transactions.
1. Gilbert Grange contributed $10,000 cash to the new business.
2. Rented a retail location; paying $1,200 for 3 months rent.
3. Hired one individual to help part-time at the store. She will begin work next week.
4. Accepted delivery of $5,000 of merchandise; invoice will be paid within 15 days.
5. Purchased store fixtures for $2,500 with a 10% downpayment and the balance carried on a 3month note payable at First National Bank.
Required:
For each of the transactions, prepare a spreadsheet-type analysis. Total columns to prove equality
of accounting equation.

14.

Below are the asset, liability and stockholders equity sections of the balance sheets for Autumn
Company and Spring Company, both of which operate in the same industry.

Cash
Investment securities
Accounts receivable
Inventory
Total current assets

Autumn
Company
$
500
20,000
45,000
60,000
$125,500

Spring
Company
$ 1,000
25,000
80,000
100,000
$206,000

Investments
Property, plant, and equipment
Intangible assets
Total assets

75,000
120,000
7,500
$328,000

100,000
475,000
154,000
$935,000

Accounts payable
Accrued liabilities
Short-term loans payable
Current portion of long-term debt
Total current liabilities

7,000
6,000
20,000
50,000
$ 83,000

$ 60,000
30,000
200,000
$290,000

Long-term debt
Capital lease obligations
Deferred income tax liability
Total liabilities

120,000
5,000
25,000
$233,000

147,500
35,000
$472,500

Common stock, par value

Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income
Total liabilities and stockholders' equity

5,000
50,000
125,000
(75,000)
(10,000)
$328,000

100,000
250,000
130,000
(17,500)
$935,000

To analyze each companys asset and financing mix, compute the percentage that each asset,
liability and equity item makes up on total assets for the company. Round to 2 decimal places.
Comment on any differences in the asset mix between the two companies. Comment on any
differences in the financing mix between the two companies.

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