101664305 ACC421 ACC 421 Week 4 Learning Team Assignments From the Text

Topics: Balance sheet, Generally Accepted Accounting Principles, Liability Pages: 10 (807 words) Published: January 28, 2015


Acc/421

Week 4 Learning Team Assignments

PROBLEM 5-3

Side Kicks Company
Balance Sheet
December 31, 2007
Assets
Current assets

Cash

$ 41,000

Accounts receivable
$163,500

Less: Allowance for uncertain
accounts

8,700

154,800

Inventory—at LIFO cost

308,500

Prepaid insurance

5,900

Total existing assets

$ 510,200

Long-term investments

Investments in stocks and bonds,
of which investments of $120,000
have been pledged as security for
notes due—at fair value

339,000

Property, plant, and equipment

Expenditure of unfinished plant facilities

Land
85,000

Building in process of
construction

124,000

209,000

Equipment
400,000

Less: Accum. depreciation
140,000
260,000
469,000

Intangible assets

Patents—at cost less amortization

36,000
Total assets

$1,354,200

PROBLEM 5-3 (Continued)

Liabilities and Stockholders’ Equity
Current liabilities

Notes payable, secured by
investments of $120,000

$ 94,000

Accounts due

148,000

Accrued expenditures

49,200

Total existing debts

$ 291,200

Long-term liabilities

8% bonds payable, due
January 1, 2018

400,000

Less: Unamortized discount on
bonds due

20,000

380,000
Total debts

671,200

Stockholders’ equity

Common stock

Authorized 600,000 shares of $1
par value; issued and
outstanding, 500,000 shares

$500,000

Premium on common stock
45,000
545,000

Saved income

138,000
683,000
Total debts and
stockholders’ equity

$1,354,200

30 Points

CA 24-2

Item 1

The staff auditor assessing the loan agreement misunderstood its requirements. Saved incomes are limited in the sum of $420,000 that was the balance of saved incomes on the date of the agreement. The nature and sum of the limitation must be revealed in the balance sheet or a note to the fiscal reports.

Item 2

Unless cumulative preferred dividends are concerned, no recommendation by the CPA is necessary. Common stock dividend policy is understood by readers of fiscal reports to be optional on the part of the board of directors. The corporation need not obligate itself to a future common stock dividend policy or clarify its past policy in the fiscal reports, mainly because dividend policy is to be discussed in the president’s letter. In case cumulative preferred dividends are omitted, this must be revealed in the fiscal reports or a note.

Note that the SEC encourages corporations to reveal their dividend policy in their yearly report. Those that: (1) have earnings however fail to pay dividends or (2) don’t expect to pay dividends in the near future are encouraged to report this information. Additionally, organizations which demonstrate a regular pattern of paying dividends are encouraged to show whether they plan to carry on this practice in the future.

Item 3

A competitive development of this nature usually is considered to be the kind of following event which offers proof with respect to a condition that didn’t exist at the date of the balance sheet. In some situations the auditor may decide that Rem’s poor competitive position was obvious at year-end. In any event, the development must be revealed to users of the fiscal reports since the financial recoverability of the new plant as well as inventory...
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