Chapter 3

The Balance Sheet and Financial Disclosures

EXERCISES
Exercise 3-1
1.
2.
3.
4.
5.
6.
7.
8.
9.

b
a
-c _
c_
f __
f
a
a
b

Note receivable, due in 2 years

Accounts receivable
Accumulated depreciation
Land, in use
Note payable, due in 10 months
Interest payable
Note receivable, due in 6 months
Cash equivalents
Investment in ABC Corp., long-term

10.
11.
12.
13.
14.
15.
16.
17.
18.

a
Inventories
d _ Goodwill
f
Accrued salaries payable
f _ Accrued taxes payable
a
Prepaid insurance
h _ Common stock
c
Equipment
f _ Unearned revenue
f _ Warranties payable

Exercise 3-2

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2013

3-1

Exercise 3-3

CURTIS CORPORATION
Balance Sheet
At December 31, 2013
Assets

Current assets:
Cash and cash equivalents...................................
Marketable securities ..........................................
Accounts receivable ............................................
Interest receivable ...............................................
Inventories ..........................................................
Prepaid insurance ................................................
Total current assets ........................................

$ 70,000
15,000
110,000
2,000
120,000
3,000
320,000

Investments:
Note receivable ..................................................

50,000

Property, plant, and equipment:

Machinery and equipment...................................
Less: Accumulated depreciation .........................
Net property, plant, and equipment ...............
Total assets .................................................

$230,000
(111,000)
119,000
$489,000

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable ...............................................
Wages payable ....................................................
Interest payable ..................................................
Total current liabilities ...................................

$ 45,000
10,000
3,000
58,000

Long-term liabilities:
Bonds payable ....................................................

100,000

Shareholders equity:
Common stock ....................................................
Retained earnings ...............................................
Total shareholders equity ..............................
Total liabilities and shareholders equity
1. Depreciation method
2. Information on related party transactions
The McGraw-Hill Companies, Inc., 2013
3-2

$200,000
131,000
331,000
$489,000
A
B
Intermediate Accounting, 7/e

3.
4.
5.
6.
7.
8.

Method of accounting for acquisitions

Composition and details of long-term debt
Inventory method
Basis of revenue recognition
Major damage to a plant facility occurring after year-end
Composition of accrued liabilities

Exercise 3-4

1. Current ratio [$150 + 400 + 500] $600 = 1.75

2. Acid-test ratio
3. Debt to equity ratio
4. Times interest earned ratio

Exercise 3-5Action
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

A
B
A
A
B
B

[$150 + 400] $600 = .92

[$600 + 500] [$1,000 + 150] = .96
[$260 + 30 + 200] $30 = 16.3 times
Current Acid-test
Debt to
Ratio
Ratio
Equity Ratio

Issuance of common stock for cash

Purchase of inventory on account
Receipt of cash from a customer on account
Expiration of prepaid rent
Payment of a cash dividend
Purchase of equipment with a 6-month note
Purchase of long-term investment for cash
Sale of equipment for cash (no gain or loss)
Write-off of obsolete inventory
Decision to refinance on a long-term basis
currently-maturing debt

Alternate Exercise and Problem Solutions

I
I
N
D
D
D
D
I
D

I
D
N
N
D
D
D
I
N

D
I
N
I
I
I
N
N
I

The McGraw-Hill Companies, Inc., 2013

3-3

PROBLEMS

The McGraw-Hill Companies, Inc., 2013

3-4

Intermediate Accounting, 7/e

TILLAMOO CHEESE COMPANY

Balance Sheet
At December 31, 2013
Assets
Current assets:
Cash and cash equivalents
ALEXANDRIA EXPLORATION CORPORATION
...............................................................................................
Balance Sheet
Investment in stocks
At December 31, 2013
...............................................................................................
Accounts receivable
Assets
...............................................................................................
Current assets:
Inventories
Cash and cash equivalents ......................................................
...............................................................................................
Short-term investments ...........................................................
Prepaid
Accountsexpenses
receivable, net of allowance for
...............................................................................................
uncollectible accounts of $15,000 .....................................
Totalreceivable
current assets
Interest
...................................................................
.........................................................................................
Inventories ..............................................................................
Supplies ..................................................................................
Investments:
Total current assets ..........................................................
Investment in bonds
...............................................................................................
Investments:
Land held for sale ...................................................................
$ 20,000
Property,
plant, and
equipment:
Note receivable
.......................................................................
50,000
LandTotal investments ............................................................. $ 950,000
...............................................................................................
Buildings
1,200,000
Property,
plant, and equipment:
...............................................................................................
Land .......................................................................................
80,000
Equipment
900,000
Buildings ................................................................................
500,000
...............................................................................................
Machinery ..............................................................................
250,000
3,050,000
830,000
Less:
(600,000)
Less: Accumulated
Accumulated depreciation
depreciation ..............................................
(230,000)
...............................................................................................
Net property, plant, and equipment ..................................
Net property, plant, and equipment
.........................................................................................
Intangibles:

Problem 3-1Problem 3-2

Goodwill .................................................................................
Intangibles:
Total assets ......................................................................
Patent
80,000
...............................................................................................
Liabilities and Shareholders' Equity
Goodwill
220,000
Current
liabilities:
...............................................................................................
Accounts payable ...................................................................
Totalpayable
intangibles
Interest
......................................................................
.........................................................................................
Bonds
payable ........................................................................
Total
assetsliabilities .....................................................
Total
current
......................................................................................
Long-term liabilities:
Liabilities and Shareholders' Equity
Bonds payable ........................................................................
Current liabilities:
Accounts payable
Shareholders
equity:.................................................................
Interest
payable
....................................................................
Common stock, no
par value; 1,000,000 shares
Other
accrued
liabilities
........................................................
authorized; 500,000 shares
issued and outstanding .............
500,000
Notes
payable
.......................................................................
Retained earnings ...................................................................
94,000
Total current
liabilities
...................................................
shareholders
equity
.................................................
Total liabilities and shareholders equity .......................
Long-term liabilities:
Notes payable .......................................................................
100,000
Bonds payable ......................................................................
1,000,000
Total long-term liabilities .............................................
Alternate Exercise
Shareholders
equity:and Problem Solutions
Common stock, no par value; 2,000,000 shares
authorized; 1,000,000 shares issued and outstanding..........
Retained earnings .................................................................

190,000
40,000
300,000
$ 235,000
62,000
130,000
15,000
155,000
780,000
3,000
200,000
3,000
553,000
260,000

70,000

600,000
2,450,000
36,000
$1,259,000

$ 125,000
300,000
40,000
200,000
$3,790,000
365,000
300,000
$

260,000
20,000
60,000
180,000
520,000
594,000
$1,259,000

1,100,000
The McGraw-Hill Companies, Inc., 2013
3-5

1,500,000
670,000