Solutions to Practice Problems - Balance

Sheet
Solutions to Practice Problems - Balance Sheet
Requirement 1:
Construct journal entries for each of the following hypothetical
transactions during the quarter. Also, indicate which of the following
balance sheet categories are affected by the transactions: current
assets (CA), non-current assets (NCA), current liabilities (CL), noncurrent liabilities (NCL), and shareholders equity (SE).
Example: Purchased $2,000 of short-term investments.
Short-term investments (CA) 2,000
Cash (CA)
2,000
1)

Issued common stock for $400,000 cash.

2)

Acquired land and a building costing $250,000. Issued a check

for $180,000, with the remainder payable in 2 years. Assigned a
value of $40,000 to the land and $210,000 to the building.

3)

Acquired $4,800 of inventories on account from vendors.

4)

Collected $22,000 of accounts receivables from its customers

who previously purchased on credit.

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5)

Prepaid $15,000 of selling, general, and administrative expenses.

6)

Collected $16,000 in advance from customers for deliveries to be

made in six months.

7)

Paid research and development costs of $100,000 that had been

accrued last quarter.

8)

Paid a $7,000 invoice from vendors for products purchased last

quarter.

9)

Signed a contract with Boeing to purchase a private jet for the

CEO for $5 million.

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Requirement 2:
Please comment on why the following events would generally not have
an effect on the balance sheet:
1) Placed an order for new equipment with a vendor.
2) Advised by a marketing consultant that the companys patents
are worth considerably more than their cost.
3) Entered into a contract with a hospital to provide a computerized
patient tracking system.

4) Contracted for the services of a financial officer at a high salary,

with employment set to begin next year.

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Requirement 3:
The following are Walt Disney Cos (NYSE:DIS) balance sheets as of the
beginning of October 2010 and 2009:
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)

October 2
,
2010

October 3
,
2009

$ 12,225

$ 11,889

56,981

51,228

$ 69,206

$ 63,117

$ 6,109

$ 5,616

2,350

1,206

2,541

2,112

11,000

8,934

10,130

11,495

2,630
6,104

1,819
5,444

Total current assets

Long-term assets

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and other accrued liabilities

Current portion of borrowings

Unearned royalties and other advances

Total current liabilities

Borrowings

Deferred income taxes

Other long-term liabilities

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Total Equity
39,342

35,425

$ 69,206

$ 63,117

1) Compute Disneys current ratio and Debt/Equity ratio as of October

2, 2010.

Write a journal entry for each of the following transactions and state
how the transaction would affect Disneys current ratio and
Debt/Equity ratio. (Analyze each transaction independently.) All
numbers are in millions.
2) Borrow $1,000, to be repaid in two years, and purchase equipment
with the proceeds.
3) Borrow $1,000, to be repaid in six months, and purchase inventory
with the proceeds.

4) Receive cash of $500 from customers for earlier credit sales.