• Determine the cost of plant assets and depreciation.
• Distinguish between short-term and long-term liabilities.
• Understand accounting for issuance of capital stock and prepare the equity section of a corporate balance sheet.
• Identify the steps of how irregular income items, such as discontinued operations and extraordinary items are presented in the income statement.
• Comprehend the purpose and uses of a statement of cash flows.
LAUNCH: Friday September 4th, 2020 / DELIVERY: Sunday September 6th, 2020, 23:59hrs ON MOODLE
Submission file format: Word document with all the answers, clearly identifying each case separately.
CASE 1 (20 points)
On May 1, 2018, Jarret Corporation purchased new equipment at a cost of €435,000. The useful life of this equipment was estimated at five years, with a
residual value of €35,000.
Instructions:
Compute the annual depreciation expense for each year until this equipment becomes fully depreciated under each of the following depreciation methods
listed. Because you will record depreciation for only a fraction of a year in 2018, depreciation will extend into 2023 for both methods. Show supporting
computations.
1. Straight-line, with depreciation for fractional years rounded to the nearest whole month. (8 points)
2. 200 percent declining-balance, with the half-year convention. Limit depreciation in 2023 to an amount that reduces the undepreciated cost to the
estimated residual value. (8 points)
3. Assume that the equipment is sold at the end of December 2020 for €282,000 cash. Record the necessary gain or loss resulting from the sale under
the straight-line method. (4 points)
CASE 2 (20 points)
As of December 31, 2019, Blake Corporation has prepared the following information regarding its liabilities and other obligations.
20-year bond issue that matures in one year €1,000,000
Accrued interest on the 20-year bond issue as of the balance sheet date €50,000
Notes payable, of which €80,000 will be repaid within the next 12 months €200,000
Interest expense that will result from existing liabilities over the next 12 months €170,000
Cash deposits from customers for goods and services to be delivered over the next five months €300,000
Two-year commitment to John Monroe as chief operating officer at a salary of €120,000 per year €240,000
Note payable due within 90 days (but that is approved to be extended for an additional ten months) €128,000
Income taxes, of which €160,000 are currently payable and the remainder deferred indefinitely €315,000
Lawsuit pending against Blake, in which €450,000 is claimed in damages. Legal counsel can make no reasonable estimate of the company’s ultimate liability at this
time.
Instructions:
(1) Prepare a listing of the Blake Corporation’s current and long-term liabilities as they should be presented in the company’s December 31, 2019 balance sheet.
(10 points)
(2) Briefly explain why you have excluded any of the listed items in your listing of current and long-term liabilities. (10 points)
CASE 3 (20 points)
The stockholders’ equity section of the balance sheet of Greenville Corporation (with certain details omitted) appears below:
Answer the following questions based on the stockholders’ equity section given above.
1. What is the total amount of legal capital? (4 points)
2. How many shares of preferred stock are issued and outstanding? (3 points)
3. How many shares of common stock are issued and outstanding? (3 points)
4. What is the total amount of dividends paid annually to the preferred stockholders? (3 points)
5. What is the average issue price of a share of common stock? (3 points)
6. The balance in retained earnings at the beginning of the current year was €575,000, and there were no dividends in arrears. Net income for the current
year was €360,000. What is the amount of the dividends declared on each share of common stock during the current year? (4 points)
CASE 4 (20 points)
Shown below is information relating to operations of Falcon Corporation Inc. for the year ended 2019:
Continuing operations:
Net sales €2,750,000
Cost and expenses (including income taxes) €2,125,000
Other data:
Current-year loss generated by segment of the business
discontinued in July (net of income taxes) €207,500
Gain on disposal of discontinued segment (net of income taxes) €137,500
Prior-period adjustment (decrease in prior years’ income net of tax
benefit) €45,000
Extraordinary loss (net of income tax benefit) €17,500
Cash dividends declared (€1.50 per share) €150,000
Instructions:
1. Prepare a condensed income statement for 2019, including earnings per share figures. The company had 100,000 shares of a single class of capital stock
outstanding throughout the year. (10 points)
2. Prepare a statement of retained earnings for the year ended December 31, 2019. As originally reported, retained earnings at December 31, 2018, amounted to
€2,468,000. (10 points)
CASE 5 (20 points)
The following data is taken from the Financial Statements of Nancy Corporation for 2019:
Jan. 2019 Dec. 2019
Income Statement:
– Net Income €633,000
– Depreciation Expense €125,000
– Amortization Expense €252,000
– Gain on sale of building €389,000
Balance Sheet:
– Accounts Receivables €323,000 €292,000
– Inventory €558,000 €521,000
– Prepaid Expenses €17,000 €33,000
– Accounts Payables €137,000 €187,000
– Income taxes payables €91,000 €82,000
Additional information:
– Sold a building for €795,000 cash.
– Paid €100,000 dividend to stockholders.
– Paid €85,000 as repayment of long-term debt.
– Collected the principal of a loan made to a borrower in the amount of €65,000.
– Invested €235,000 in marketable securities.
– The balance of the cash account on 1 January 2019 was €361,000.
Instructions:
Using the above information, prepare the complete statement of cash flows for the year ended December 31, 2019. Cash provided by operating activities is to
be presented by the indirect method.
Rubrics
Descriptor
9-10 The student demonstrates an excellent understanding of the
concepts.
8-8,9 The student demonstrates a good understanding of the concepts.
7-7,9 The student demonstrates a fair understanding of the concepts.
6-6,9 The student demonstrates some, but insufficient understanding of the
concepts.
3-5,9 The student demonstrates insufficient understanding of the concepts.
They may mention some relevant ideas or concepts, although it is
clear that the relationship between them is not understood by the
student.
1-2,9 The student demonstrates insufficient understanding of the concepts
and does not mention any relevant ideas or concepts.
0 The student leaves the question blank or cheats.
Points are stated at the end of each question.