Answers To Olivia Company

E5-2
(Classification of Statement of Financial Position Accounts)
Presented below are the captions of Nikos Company's balance sheet.
(a) Non-current assets. (c) Equity.

(1) Investments. (d) Non-current liabilities.
(2) Property, plant, and equipment. (e) Current liabilities.
(3) Intangible assets.
(4) Other assets.
(b) Current assets.
Indicate by letter where each of the following items would be classified.
1. Share capital-preference. c
2. Goodwill. a3
3. Wages payable. e
4. Trade accounts payable. e
5. Buildings. a2
6. Trading securities. b
7. Current portion of long-term debt. e
8. Patent. a3
9. Allowance for doubtful accounts. b
10. Accounts receivable. b
11. Accumulated other comprehensive income. c
12. Notes payable (due next year). e
13. Office supplies. b
14. Share capital-ordinary. c
15. Land. a2
16. Bond sinking fund. a1
17. Merchandise inventory. b
18. Prepaid insurance. b
19. Bonds payable. d
20. Taxes payable. e
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E5-4
(Preparation of a Classified Statement of Financial Position)
Assume that Gulistan Inc. has the following accounts at the end of the current year.
1. Share Capital-Ordinary. 14. Accumulated Depreciation–Buildings.

2. Long-Term Note Payable. 15. Cash Restricted for Plant Expansion.
3. Treasury Stock (at cost). 16. Land Held for Future Plant Site.
4. Note Payable, short-term. 17. Allowance for Doubtful Accounts-
5. Raw Materials. Accounts Receivable.
6. Long-Term Investment in Preference 18. Retained Earnings.
Shares.
7. Unearned Rent Revenue. 19. Share Premium-Ordinary.
8. Work in Process. 20. Unearned Subscriptions Revenue.
9. Copyrights. 21. Receivables–Officers (due in one year).
10. Buildings. 22. Finished Goods.
11. Notes Receivable (short-term). 23. Accounts Receivable.
12. Cash. 24. Bonds Payable (due in 4 years).
13. Accrued Salaries Payable.
Prepare a classified statement of financial position in good form. (No monetary amounts are
necessary. List current assets in reverse order of liquidity and current liabilities in
alphabetical order, with notes first.)
GULISTAN INC.
Statement of Financial Position
December 31
Assets
Non-current assets
Long-term investments
Long-term investment in preference shares $XXX
Land held for future plant site XXX
Cash restricted for plant expansion XXX
Total long-term investments $XXX

Property, plant, and equipment
Buildings XXX
Less: Accumulated depreciation-buildings XXX XXX

Intangible assets
Copyrights XXX

Current assets
Inventories
Finished goods $XXX
Work in process XXX
Raw materials XXX XXX
Accounts receivable XXX
Less: Allowance for doubtful accounts XXX XXX
Notes receivable XXX
Receivables-officers XXX
Cash XXX
Less: Cash restricted for plant expansion XXX XXX
Total current assets XXX
Total assets $XXX

Equity and Liabilities
Equity
Share capital-ordinary $XXX
Share premium-ordinary shares XXX
Retained earnings XXX
Less: Treasury stock-at cost (XXX)
Total shareholders' equity $XXX
Non-current liabilities
Bonds payable-due in four years XXX
Long-term note payable XXX XXX
Total non-current liabilities XXX

Current liabilities
Notes payable-short term $XXX
Accrued salaries payable XXX
Unearned rent revenue XXX
Unearned subscriptions revenue XXX
Total current liabilities XXX
Total liabilities XXX

Total equity and liabilities $XXX
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E5-5
(Preparation of a Corrected Statement of Financial Position)
Bruno Company has decided to expand its operations. The bookkeeper recently completed the
balance sheet presented below in order to obtain additional funds for expansion.
BRUNO COMPANY
December 31, 2010
Current assets
Cash $260,000
Accounts receivable (net) 340,000
Inventories at lower-of-average-cost-or-net realizable value 401,000
Trading securities-at cost (fair value $120,000) 140,000
Building (net) 570,000
Office equipment (net) 160,000
Land held for future use 175,000
Intangible assets
Goodwill 80,000
Other identifiable assets 90,000
Prepaid expenses 12,000
Current liabilities
Accounts payable 135,000
Notes payable (due next year) 125,000
Pension obligation 82,000
Rent payable 49,000
Premium on bonds payable 53,000
Bonds payable 500,000
Equity
Share capital-ordinary, $1.00 par, authorized
400,000 shares, issued 290,000 290,000
Share premium-ordinary 180,000
Retained earnings ?
Prepare a revised statement of financial position given the available information. Assume that
the accumulated depreciation balance for the buildings is $160,000 and for the office
equipment, $105,000. The allowance for doubtful accounts has a balance of $17,000. The
pension obligation is considered a non-current liability. (List current assets in reverse order
of liquidity. List multiple entries for Property, plant, and equipment, Intangible assets Non-
current liabilities and Current liabilities from largest to smallest amounts, e.g. 10, 5, 3.
Enter all amounts as positive amounts and subtract where necessary.)
BRUNO COMPANY
December 31, 2010
Assets
Non-current assets
Land held for future use $175,000

Building $730,000
Less: Accumulated depreciation-
160,000 $570,000
building
Office equipment 265,000
105,000 160,000 730,000
office equipment

Intangible assets
Other identifiable assets 90,000
Goodwill 80,000 170,000
Total non-current assets 1,075,000

Current assets
Inventories at lower of average cost or
401,000
net realizable value
Accounts receivable 357,000
Less: Allowance for doubtful
17,000 340,000
accounts
Trading securities-at fair value 120,000
Cash 260,000
Total current assets 1,133,000

Total assets $2,208,000

Equity
Share capital-ordinary, $1 par, authorized
400,000 shares, issued 290,000
$290,000
shares
Share premium-ordinary 180,000 $470,000
Retained earnings 794,000
Total equity $1,264,000

Bonds payable 500,000
Add: Premium on bonds payable 53,000 553,000
Pension obligation 82,000
Total non-current liabilities 635,000

Current liabilities
Notes payable (due next year) 125,000
Rent payable 49,000
Total current liabilities 309,000
Total liabilities 944,000

Total equity and liabilities $2,208,000
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E5-6
(Corrections of a Statement of Financial Position)
The bookkeeper for Garfield Company has prepared the following statement of financial
position as of July 31, 2010.
GARFIELD COMPANY
As of July 31, 2010
Equipment (net) $84,000 Equity $155,500
Patents 21,000 Non-current liabilities 75,000
Inventories 60,000 Notes and accounts payable 44,000
Accounts receivable (net) 40,500 $274,500
Cash 69,000
$274,500
The following additional information is provided.
1. Cash includes $1,200 in a petty cash fund and $12,000 in a bond sinking fund.
2. The net accounts receivable balance is comprised of the following three items: (a)
accounts receivable–debit balances $52,000; (b) accounts receivable–credit balances
$8,000; (c) allowance for doubtful accounts $3,500.
3. Merchandise inventory costing $5,300 was shipped out on consignment on July 31,
2010. The ending inventory balance does not include the consigned goods.
Receivables in the amount of $5,300 were recognized on these consigned goods.
4. Equipment had a cost of $112,000 and an accumulated depreciation balance of
$28,000.
5. Taxes payable of $9,000 were accrued on July 31. Garfield Company, however, had
set up a cash fund to meet this obligation. This cash fund was not included in the cash
balance, but was offset against the taxes payable amount.
Prepare a corrected classified balance sheet as of July 31, 2010, from the available
information, adjusting the account balances using the additional information. (List current
liabilities from largest to smallest amounts, e.g. 10, 5, 3. Enter all amounts as positive
amounts and subtract where necessary.)
GARFIELD COMPANY
July 31, 2010
Assets
Non-current assets
Bond sinking fund $12,000

Equipment 112,000
Less: Acc. dep.-Equipment 28,000 84,000

Intangible assets
Patents 21,000
Total non-current assets 117,000

Current assets
Inventories 65,300
3,500 43,200
accounts
Cash 66,000
Total current assets 174,500

Total assets $291,500

Equity $155,500

Non-current liabilities $75,000

Current liabilities
Notes and accounts payable $52,000
Taxes payable 9,000

Total equity and liabilities $291,500
E5-6
GARFIELD COMPANY
July 31, 2010
Assets
Non-current assets
Bond sinking fund $12,000

Equipment $112,000
Less: Acc. dep.-Equipment 28,000 84,000

Intangible assets
Patents 21,000
Total on-current assets $117,000

Current assets
Inventories *65,300
Accounts receivable **46,700
3,500 43,200
accounts
Cash ***66,000

Total assets $291,500

Equity $155,500

Non-current liabilities $75,000

Current liabilities
Notes and accounts payable ****$52,000
Taxes payable 9,000


Total equity and liabilities $291,500
* ($60,000 + $5,300)
** ($52,000 - $5,300)
*** ($69,000 - $12,000 + $9,000)
**** ($44,000 + $8,000)
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E5-7
(Current Assets Section of the Statement of Financial Position)
Presented below are selected accounts of Aramis Company at December 31, 2010.
Finished goods €52,000 Cost of goods sold €2,100,000

Revenue received in advance 90,000 Notes receivable 40,000
Equipment 253,000 Accounts receivable 161,000
Work-in-process 34,000 Raw materials 187,000
Cash 42,000 Supplies expense 60,000
Allowance for doubtful
Trading securities 31,000 12,000
accounts
Customer advances 36,000 Licenses 18,000
Cash restricted for plant
50,000 Share premium-ordinary 88,000
expansion
Treasury shares 22,000
The following additional information is available.
1. Inventories are valued at lower-of-cost-or-market using FIFO.

2. Equipment is recorded at cost. Accumulated depreciation, computed on a straight-line
basis, is €50,600.
3. The trading securities have a fair value of €29,000.
4. The notes receivable are due April 30, 2012, with interest receivable every April 30.
The notes bear interest at 6%. (Hint: Accrue interest due on December 31, 2010.)
5. The allowance for doubtful accounts applies to the accounts receivable. Accounts
receivable of €50,000 are pledged as collateral on a bank loan.
6. Licenses are recorded net of accumulated amortization of €14,000.
7. Treasury stock is recorded at cost.
Prepare the current assets section of Aramis Company's December 31, 2010, statement of
financial position, with appropriate disclosures. (List current assets in reverse order of
liquidity. Enter all amounts as positive amounts and subtract where necessary.)
Current assets
Inventories at lower of cost (determined

using FIFO) or net-realizable-value
Finished goods €52,000
Work-in-process 34,000
Raw materials 187,000 €273,000
Less: Allowance for doubtful accounts 12,000 149,000
Interest receivable 1,600
Trading securities at fair value 29,000
Cash 92,000
Less: Cash restricted for plant expansion 50,000 42,000
Total current assets €494,600
E5-7
Current assets
Inventories at lower of cost (determined using FIFO) or net-realizable-
value
Finished goods €52,000
Work-in-process 34,000
Raw materials 187,000
Accounts receivable (of which €50,000 is pledged
as collateral on a bank loan) 161,000
Less: Allowance for doubtful debts 12,000
Interest receivable [(€40,000 × 6%) × 8/12]
Trading securities at fair value (cost, €31,000)
Cash *92,000
Less: Cash restricted for plant expansion 50,000
Total current assets
* An acceptable alternative is to report cash at €42,000 and simply report the cash restricted
for plant expansion in the investments section.
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E5-8
(Current vs. Non-current Liabilities)

Pascal Corporation is preparing its December 31, 2010, statement of financial position. The
following items may be reported as either a current or non-current liability.
1. On December 15, 2010, Pascal declared a cash dividend of $2.00 per share to
shareholders of record on December 31. The dividend is payable on January 15, 2011.
Pascal has issued 1,000,000 ordinary shares of which 50,000 shares are held in
treasury.
2. At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 8%
interest every September 30 and mature in installments of $25,000,000 every
September 30, beginning September 30, 2011.
3. At December 31, 2009, customer advances were $12,000,000. During 2010, Pascal
collected $30,000,000 of customer advances, and advances of $25,000,000 were
earned.
For each item above, indicate the dollar amounts to be reported as a current liability and as a
non-current liability. (If the items does not have a current or non-current amount put 0 in
the box. All boxes must be filled to be correct .)
Current Non-current liability

1. Dividends payable $1,900,000 0
2. Bonds payable $25,000,000 75,000,000
Interest payable $2,000,000 0
3. Customer advances $17,000,000 0
E5-8
1. Dividends payable of $1,900,000 will be reported as a current liability [(1,000,000 -

50,000) × $2.00].
2. Bonds payable of $25,000,000 and interest payable of $2,000,000 ($100,000,000 ×
8% × 3/12) will be reported as a current liability. Bonds payable of $75,000,000 will
be reported as a non-current liability.
3. Customer advances of $17,000,000 will be reported as a current liability
($12,000,000 + $30,000,000 - $25,000,000).
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E5-9
(Current Assets and Current Liabilities)
The current assets and liabilities sections of the statement of financial position of Agincourt
Company appear as follows.
AGINCOURT COMPANY
Statement of Financial Position (Partial)
December 31, 2010
Inventories $171,000 Notes payable $67,000
Accounts receivable $89,000 Accounts payable 61,000
Less: Allowance for doubtful $128,000
7,000 82,000
accounts
Cash 40,000
$302,000
The following errors in the corporation's accounting have been discovered:
1. January 2011 cash disbursements entered as of December 2010 included payments of

accounts payable in the amount of $35,000, on which a cash discount of 2% was
taken.
2. The inventory included $27,000 of merchandise that had been received at December
31 but for which no purchase invoices had been received or entered. Of this amount,
$10,000 had been received on consignment; the remainder was purchased f.o.b.
destination, terms 2/10, n/30.
3. Sales for the first four days in January 2011 in the amount of $30,000 were entered in
the sales book as of December 31, 2010. Of these, $21,500 were sales on account and
the remainder were cash sales.
4. Cash, not including cash sales, collected in January 2011 and entered as of December
31, 2010, totaled $35,324. Of this amount, $23,324 was received on account after cash
discounts of 2% had been deducted; the remainder represented the proceeds of a bank
loan.
(a) Restate the current assets and liabilities sections of the statement of financial position in
accordance with good accounting practice. (Assume that both accounts receivable and
accounts payable are recorded gross.) (List current assets in reverse order of liquidity
and current liabilities with notes payable first. Enter all amounts as positive amounts
and subtract where necessary.)
AGINCOURT COMPANY
Partial Statement of Financial Position
As of December 31, 2010
Current assets
Inventories $161,000
Accounts receivable $91,300
Less: Allowance for doubtful accounts 7,000 84,300
Cash 30,476
Total current assets $284,776

Current liabilities
Notes payable $55,000
Total current liabilities $168,000
(b) State the net effect of your adjustments on Agincourt Company's retained earnings balance.
(For negative numbers use either a negative sign preceding the number, e.g. -45 or
parenthesis, e.g. (45).)
Change increase (decrease) to retained earnings $(57,224)
*
Multiple correct answers are possible for this question; please rollover the answer field to see
all possible answers
E5-9
(a) AGINCOURT COMPANY

Statement of Financial Position (Partial)
As of December 31, 2010
Current assets
Inventories *161,000
Accounts receivable **$91,300
7,000 84,300
accounts
Cash ***$30,476

Total current assets $284,776

Current liabilities
a
Notes payable 55,000
b
Accounts payable $113,000
Total current liabilities $168,000
* Inventories $171,000
Less: Inventory received on consignment 10,000
Adjustment to inventory $161,000

** Accounts receivable balance $89,000
Add: Accounts deducted from January

collection
($23,324 ÷ 98%) 23,800
112,800
Deduct: Accounts receivable in January (21,500)
Adjusted accounts receivable $91,300

*** Cash balance $40,000
Add: Cash disbursement after discount
($35,000 × 98%) 34,300
74,300
Less: Cash sales in January ($30,000 -
(8,500)
$21,500)
Cash collected on account (23,324)
Bank loan proceeds ($35,324 - $23,324) (12,000)
Adjusted cash $30,476

a
Notes payable balance $67,000
Less: Proceeds of bank loan 12,000
Adjusted notes payable $55,000

b
Accounts payable balance $61,000
Add: Cash disbursements $35,000
Purchase invoice omitted
($27,000 - $10,000) 17,000 52,000
Adjusted accounts payable $113,000

(b) Adjustment to retained earnings balance:
Add: January sales discounts $476
[($23,324 ÷ 98%) × .02]
Deduct: January sales $30,000
January purchase discounts 700
December purchases 17,000
Consignment inventory 10,000 57,700
Change increase (decrease) to retained $(57,224)

earnings
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E5-11
(Statement of Financial Position Preparation)
Presented below is the adjusted trial balance of Abbey Corporation at December 31, 2010.
Debits Credits
Cash £ ?
Office supplies 1,200
Prepaid insurance 1,000
Equipment 48,000
Accumulated depreciation-Equipment £ 9,000
Trademarks 950
Wages payable 500
Unearned service revenue 2,000
Bonds payable, due 2017 9,000
Share capital-ordinary 10,000
Service revenue 10,000
Wages expense 9,000
Insurance expense 1,400
Rent expense 1,200
Interest expense 900
Total £ ? £ ?
Additional information:
1. Net loss for the year was £ 2,500.
2. No dividends were declared during 2010.
Prepare a classified statement of financial position as of December 31, 2010. (List current
assets in reverse order of liquidity. List multiple entries for current liabilities from largest
to smallest amounts, e.g. 10, 5, 3. Enter all amounts as positive amounts and subtract
where necessary.)
ABBEY CORPORATION
December 31, 2010
Assets
Equipment £48,000
Less: Accumulated depreciation 9,000
Total property, plant, and equipment £39,000

Intangible assets
Trademarks 950

Current assets
Office supplies 1,200
Prepaid insurance 1,000
Cash 6,850

Total assets £49,000

Equity
Share capital-ordinary £10,000
Total shareholders' equity £27,500

Bonds payable 9,000

Current liabilities
Unearned service revenue 2,000
Wages payable 500

Total equity and liabilities £49,000
E5-11
Retained earnings: (£20,000 - £2,500*)
*[£10,000 - (£9,000 + £1,400 + £1,200 + £900)]
Cash [£49,000 – £39,000 – £950 – £1,200 – £1,000]

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E5-13
(Statement of Cash Flows–Classifications)
The major classifications of activities reported in the statement of cash flows are operating,
investing, and financing. Classify each of the transactions listed below as:
1. Operating activity–add to net income.

2. Operating activity–deduct from net income.
3. Investing activity.
4. Financing activity.
5. Reported as significant no-cash activity in the notes to the financial statements.
The transactions are as follows.

(a) Issuance of ordinary shares. 4
(b) Purchase of land and building. 3
(c) Redemption of bonds. 4
(d) Sale of equipment. 3
(e) Depreciation of machinery. 1
(f) Amortization of patent. 1
(g) Issuance of bonds for plant assets. 5
(h) Payment of cash dividends. 4
(i) Exchange of furniture for office equipment. 5
(j) Purchase of treasury shares. 4
(k) Loss on sale of equipment. 1
Increase in accounts receivable during the
(l) 2
year.
(m) Decrease in accounts payable during the year. 2
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E5-15
(Preparation of a Statement of Cash Flows)
Presented below is a condensed version of the comparative statements of financial position

for Yoon Corporation for the last two years at December 31 (000,000 omitted.).
2010 2009
Investments ₩ 52,000 ₩ 74,000
Equipment 298,000 240,000
Less: Accumulated depreciation (106,000) (89,000)
Accounts receivable 180,000 185,000
Cash 157,000 78,000
Share capital-ordinary 160,000 160,000
Retained earnings 287,000 177,000
Current liabilities 134,000 151,000
Investments were sold at a loss of ₩7,000; no equipment was sold; cash dividends paid were
₩50,000 and net income was ₩160,000.
(a) Prepare a statement of cash flows for 2010 for Yoon Corporation. (List multiple entries
from the largest positive to the smallest positive amount followed by the most negative to
the least negative amount, e.g. 15, 14, 10, -17, -5, -1. For negative numbers use either a
negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)
YOON CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2010
Cash flows from operating activities
Net income ₩160,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense ₩17,000
Loss on sale of investments 7,000
Decrease in accounts receivable 5,000
*
Decrease in current liabilities (17,000) 12,000
Net cash provided by operating activities 172,000
Cash flows from investing activities
Sale of investments 15,000
*
Purchase of equipment (58,000)
Net cash used by investing activities (43,000)*
Cash flows from financing activities
Payment of cash dividends (50,000)*
Net increase in cash 79,000
Cash at beginning of year 78,000
Cash at end of year ₩157,000
(b) Determine Yoon Corporation's free cash flow.
Free cash flow ₩64,000
*
Multiple correct answers are possible for this question; please rollover the answer field to
see all possible answers
E5-15
Net cash provided by operating

₩172,000
activities
Less: Purchase of equipment (58,000)
Dividends (50,000)
Free cash flow ₩64,000
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E5-16 (a,b)
A comparative statement of financial position for Orozco Corporation is presented below.
December 31
Assets 2010 2009
Land $71,000 $110,000
Equipment 270,000 200,000
Accumulated depreciation-equipment (69,000) (42,000)
Inventories 180,000 189,000
Accounts receivable 82,000 66,000
Cash 63,000 22,000
Total $597,000 $545,000

Share capital-ordinary ($1 par) $214,000 $164,000
Retained earnings 199,000 134,000
Bonds payable 150,000 200,000
Accounts payable 34,000 47,000
Total $597,000 $545,000
1. Net income for 2010 was $105,000.

2. Cash dividends of $40,000 were declared and paid.
3. Bonds payable amounting to $50,000 were retired through issuance of ordinary shares.
(a) Prepare a statement of cash flows for 2010 for Orozco Corporation. (List multiple entries
from the largest positive to the smallest positive amount followed by the most negative to
the least negative amount, e.g. 15, 14, 10, -17, -5, -1. For negative numbers use either a
OROZCO CORPORATION
Net income $105,000
Depreciation expense $27,000
Decrease in inventory 9,000
*
Increase in accounts receivable (16,000)
Decrease in accounts payable (13,000)* 7,000
Sale of land 39,000
Purchase of equipment (70,000)*
*
Net cash used by investing activities (31,000)
*
Payment of cash dividends (40,000)
Cash at end of year $63,000
Noncash investing and financing activities
Issued common stock to retire $50,000 of bonds outstanding
(b) Determine Orozco Corporation's current cash debt coverage ratio, cash debt coverage
ratio, and free cash flow. (Round ratios to 2 decimal places, e.g. 1.55.)
Current cash debt
2.77 : 1
coverage ratio
Cash debt coverage ratio 0.52 : 1
Free cash flow $2,000
*
E5-16 (a,b)
(a) OROZCO CORPORATION

Net income $105,000
Decrease in inventory 9,000
Increase in accounts receivable (16,000)
Decrease in accounts payable (13,000) 7,000
Sale of land 39,000
Purchase of equipment (70,000)
Payment of cash dividends (40,000)
Cash at end of year $63,000
Noncash investing and financing activities
Issued common stock to retire $50,000 of bonds outstanding
(b) Current cash debt coverage ratio =

Net cash provided by operating activities
=
Average current liabilities

$112,000
=
($34,000 + $47,000) ÷ 2

= 2.77 to 1

Cash debt coverage ratio =

Net cash provided by operating activities
=
Average total liabilities

$184,000 + $247,000
= $112,000 ÷
2

= 0.52 to 1
Free Cash Flow Analysis
Net cash provided by operating activities $112,000
Less: Purchase of equipment (70,000)
Dividends (40,000)
Free cash flow $2,000
Orozco has excellent liquidity. Its financial flexibility is good. It might be noted that it
substantially reduced its long-term debt in 2010 which will help its financial flexibility.
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E5-18 (a,b)
(Preparation of a Statement of Cash Flows, Analysis)
The comparative statements of financial position of Menachem Corporation at the beginning

and end of the year 2010 appear below.
MENACHEM CORPORATION
Assets Dec. 31, 2010 Jan. 1, 2010 Inc./Dec.
Equipment € 37,000 € 22,000 €15,000 Inc.
Less: Accumulated depreciation (17,000) (11,000) 6,000 Inc.
Accounts receivable 106,000 88,000 18,000 Inc.
Cash 22,000 13,000 9,000 Inc.
Total €148,000 €112,000

Share capital-ordinary €100,000 € 80,000 20,000 Inc.
Retained earnings 28,000 17,000 11,000 Inc.
Accounts payable 20,000 15,000 5,000 Inc.
Total €148,000 €112,000
Net income of €34,000 was reported, and dividends of €23,000 were paid in 2010. New
equipment was purchased and none was sold.
(a) Prepare a statement of cash flows for the year 2010. (List multiple entries from the
largest positive to the smallest positive amount followed by the most negative to the
least negative amount, e.g. 15, 14, 10, -17, -5, -1. For negative numbers use either a
MENACHEM CORPORATION
Net income €34,000
Adjustment to reconcile net income to net

cash
Depreciation €6,000
Increase in accounts payable 5,000
Increase in accounts receivable (18,000)* (7,000)*

Purchase of equipment (15,000)*

Issuance of shares 20,000
*
Payment of dividends (23,000)
*
Net cash used by financing activities (3,000)
Cash at end of year €22,000
(b) Compute the current ratio (current assets ÷ current liabilities) as of January 1, 2010, and
December 31, 2010, and compute free cash flow for the year 2010. (Round ratios to 2
decimal places, e.g. 2.25. For negative numbers use either a negative sign preceding the
number, e.g. -45 or parenthesis, e.g. (45).)
Dec, 31, 2010 Jan, 1, 2010
Current ratio 6.40 6.73
*
Free cash flow €(11,000)
*
E5-18 (a,b)
Dec, 31, 2010 Jan, 1, 2010

€128,000 €101,000
(b) Current ratio = 6.40 = 6.73
€20,000 €15,000
Free Cash Flow Analysis
Net cash provided by operating
€27,000
activities
Purchase equipment (15,000)
Pay dividends (23,000)
€(11,000)
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E5-1
Correct.

(Statement of Financial Position Classifications)
Presented below are a number of balance sheet accounts of Cunningham, Inc.
For each of the accounts below, indicate the proper balance sheet classification.
(a) Investment in Preference Shares (readily marketable and held for sale) Current asset
(b) Treasury Shares Equity
(c) Share Capital-Ordinary Equity
(d) Cash Dividends Payable Current liability
Property, plant, and
(e) Accumulated Depreciation
equipment
(f) Warehouse in Process of Construction (for use by this company)
equipment
(g) Petty Cash Current asset
(h) Accrued Interest on Notes Payable Current liability
(i) Deficit Retained earnings
(j) Trading Securities Current asset
(k) Income Taxes Payable Current liability
(l) Unearned Subscription Revenue Current liability
(m) Work in Process Current asset
(n) Accrued Vacation Pay Current liability
Click here if you would like to Show Work for this question
*************************************************************************************
E5-3
Correct.

(Classification of Statement of Financial Position Accounts)
Assume that Masters Enterprises uses the following headings on its balance sheet.
(a) Investments. (g) Current liabilities.

(b) (h) Share capital
equipment.
(c) Intangible assets. (i) Share premium
(d) Other assets. (j) Retained earnings.
(e) Current assets. (k) Accumulated other comprehensive income.
(f) Non-current liabilities.
Indicate by letter how each of the following usually should be classified. If an item should
appear in a note to the financial statements, use the letter "n" to indicate this fact. If an item need
not be reported at all on the statement of financial position, use the letter "x."
1. Unexpired insurance. e
2. Share owned in associated companies. a
3. Unearned subscriptions revenue. g
4. Advances to suppliers. e
5. Unearned rent revenue. g
6. Share capital-preference h
7. Share premium-preference i
8. Copyrights. c
9. Petty cash fund. e
10. Sales tax payable. g
11. Interest on notes receivable. e
12. Twenty-year issue of bonds payable that will mature within
the next year. (No sinking fund exists, and refunding is not g
planned.)
13. Accounts receivable e
14. Unrealized gain on available-for-sale securities. k
15. Interest on bonds payable. g
16. Salaries that company budget shows will be paid to
x
employees within the next year.
17. Accumulated depreciation. b
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E5-10
Correct.

(Current Liabilities)
Mary Pierce is the controller of Arnold Corporation and is responsible for the preparation of the
year-end financial statements. The following transactions occurred during the year.
(a) Bonuses to key employees based on net income for 2010 are estimated to be $150,000.
(b) On December 1, 2010, the company borrowed $900,000 at 8% per year. Interest is paid
quarterly. (Note is due in 2015.)
(c) Credit sales for the year amounted to $10,000,000. Arnold's expense provision for doubtful
accounts is estimated to be 2% of credit sales.
(d) On December 15, 2010, the company declared a $2.00 per share dividend on the 40,000
ordinary shares outstanding, to be paid on January 5, 2011.
(e) During the year, customer advances of $160,000 were received; $50,000 of this amount was
earned by December 31, 2010.
For each item above, indicate the dollar amount to be reported as a current liability. (If a liability
is not reported, enter 0.)
(a) $ 150000
(b) $ 6000
(c) $0
(d) $ 80000
(e) $ 110000
E5-10
(a) A current liability of $150,000 should be recorded.

(b) A current liability for accrued interest of $6,000 ($900,000 × 8% × 1/12) should be reported.
Also, the $900,000 note payable should be a current liability if payable in one year.
Otherwise, the $900,000 note payable would be a long-term liability.

(c) Although bad debts expense of $200,000 should be debited and the allowance or doubtful
accounts credited for $200,000, this does not result in a liability. The allowance for doubtful
accounts is a valuation account (contra asset) and is deducted from accounts receivable on
the balance sheet.

(d) A current liability of $80,000 should be reported. The liability is recorded on the date of
declaration.

(e) Customer advances of $110,000 ($160,000 - $50,000) will be reported as a current liability.
*************************************************************************************
E5-12
Correct.

(Preparation of a Statement of Financial Position)
Presented below is the trial balance of Vivaldi Corporation at December 31, 2010.
Debit Credits
Cash $197,000
Sales $7,900,000
Trading securities (at cost, $145,000) 153,000
Cost of goods sold 4,800,000
Long-term investments in bonds 299,000
Long-term investments in share capital-
277,000
ordinary
Short-term notes payable 90,000
Selling expenses 2,000,000
Investment revenue 63,000
Land 260,000
Buildings 1,040,000
Dividends payable 136,000
Accrued liabilities 96,000
Accumulated depreciation-Buildings 352,000
Allowance for doubtful accounts 25,000
Administrative expenses 900,000
Interest expense 211,000
Inventories 597,000
Provision for pensions (long-term) 80,000
Long-term notes payable 900,000
Equipment 600,000
Bonds payable 1,000,000
Accumulated depreciation-Equipment 60,000
Franchise 160,000
Share capital-ordinary ($5 par) 1,000,000
Treasury shares 191,000
Patent 195,000
Accumulated other comprehensive income 80,000
$12,315,000 $12,315,000
Prepare a statement of financial position at December 31, 2010, for Vivaldi Corporation. Ignore
income taxes. (List liabilities, long-term investments, and intangible assets from largest to
smallest amount, e.g. 10, 5, 3. List current assets in reverse order of liquidity. Enter all
amounts as positive amounts and subtract where necessary.)
VIVALDI CORPORATION
December 31, 2010
Assets
Non-current assets
Investment in bonds $ 299000
Investments in capital shares 277000
Total long-term investments $ 576000

Land 260000
Buildings $ 1040000
352000 688000
buildings
Equipment 600000
60000 540000
equipment
Total property, plant, and equipment 1488000

Intangible assets
Patent 195000
Franchise 160000 355000
Total non-current assets 2419000

Current assets
Inventories 597000
Accounts receivable 435000
25000 410000
accounts
Trading securities 153000
Cash 197000
Total current assets 1357000

Total assets $ 3776000

Equity
Share capital-ordinary $ 1000000
Retained earnings 130000
Accumulated other comprehensive
80000
income
Less: Treasury shares 191000
Total equity $ 1019000

Bonds payable $ 1000000
Long-term notes payable 900000
Provision for pensions 80000
Total non-current liabilities 1980000

Current liabilities
Accounts payable 455000
Dividends payable 136000
Accrued liabilities 96000
Short-term notes payable 90000
Total current liabilities 777000
Total liabilities 2757000

Total equity and liabilities $ 3776000
*************************************************************************************
E5-14
Correct.

The comparative statements of financial position of Connecticut Inc. at the beginning and the
end of the year 2010 appear below.
CONNECTICUT INC.
Statements of Financial Position
Assets Dec. 31, 2010 Jan. 1, 2010 Inc./Dec.
Equipment $39,000 $22,000 $17,000 Inc.
Less: Accumulated depreciation (17,000) (11,000) 6,000 Inc.
Accounts receivable 91,000 88,000 3,000 Inc.
Cash 45,000 13,000 32,000 Inc.
Total $158,000 $112,000

Share capital-ordinary $100,000 $80,000 20,000 Inc.
Retained earnings 38,000 17,000 21,000 Inc.
Accounts payable 20,000 15,000 5,000 Inc.
Total $158,000 $112,000
Net income of $34,000 was reported, and dividends of $13,000 were paid in 2010. New
equipment was purchased and none was sold.
Prepare a statement of cash flows for the year 2010. (List multiple entries from the largest
positive to the smallest positive amount followed by the most negative to the least negative
amount, e.g. 15, 14, 10, -17, -5, -1. For negative numbers use either a negative sign preceding
the number, e.g. -45 or parenthesis, e.g. (45).)
CONNECTICUT INC.
Net income $ 34000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense $ 6000
Increase in accounts payable 5000
Increase in accounts receivable -3000 8000
Net cash provided by operating activities 42000
Purchase of equipment -17000
Issuance of common stock 20000
Payment of cash dividends -13000
Net cash provided by financing activities 7000
Net increase in cash 32000
Cash at beginning of year 13000
Cash at end of year $ 45000
******************************************************************************
E5-17
Correct.

(Preparation of a Statement of Cash Flows and a Statement of Financial Position)
Chekov Corporation's statement of financial position at the end of 2009 included the following
items.
Land $ 30,000 Bonds payable $100,000

Building 120,000 Current liabilities 150,000
Equipment 90,000 Share captial-ordinary 180,000
Accum. depr.-building (30,000) Retained earnings 44,000
Accum. depr.-equipment (11,000) Total $474,000
Patents 40,000
Current assets 235,000
Total $474,000
The following information is available for 2010.
1. Net income was $55,000.

2. Equipment (cost $20,000 and accumulated depreciation $8,000) was sold for $9,000.
3. Depreciation expense was $4,000 on the building and $9,000 on equipment.
4. Patent amortization was $2,500.
5. Current assets other than cash increased by $25,000. Current liabilities increased by
$13,000.
6. An addition to the building was completed at a cost of $27,000.
7. A long-term investment in debt securites was purchased for $16,000.
8. Bonds payable of $50,000 were issued.
9. Cash dividends of $25,000 were declared and paid.
10. Treasury shares was purchased at a cost of $11,000.
(a) Prepare a statement of cash flows for 2010. (List multiple entries from the largest positive
to the smallest positive amount followed by the most negative to the least negative
amount, e.g. 15, 14, 10, -17, -5, -1. For negative numbers use either a negative sign
preceding the number, e.g. -45 or parenthesis, e.g. (45). If two amounts are the same list
alphabetically.)
CHEKOV CORPORATION
Net income $ 55000
Adjustments to reconcile net income to net
cash provided
Depreciation expense $ 13000
Increase in current liabilities 13000
Loss on sale of equipment 3000
Patent amortization 2500
Increase in current assets -25000 6500
Net cash provided by operating activities 61500

Sale of equipment 9000
Addition to building -27000
Investment in debt securities -16000
Net cash used by investing activities -34000

Issuance of bonds 50000
Payment of dividends -25000
Purchase of treasury shares -11000
Net cash provided by financing activities 14000
Net increase in cash $ 41500
(b) Prepare a balance sheet at December 31, 2010.(Enter all amounts as positive amounts and
subtract where necessary.)
CHEKOV CORPORATION
December 31, 2010
Assets
Non-current assets
Long-term investments $ 16000

Land $ 30000
Building $ 147000
Less: Accum. depr.-building 34000 113000
Equipment 70000
Less: Accum. depr.-equipment 12000 58000
Total property, plant, and equipment 201000

Intangible assets
Patents 37500
Total non-current assets 254500

Current assets 301500

Total assets $ 556000

Equity
Share capital-ordinary $ 180000
Retained earnings 74000
Treasury shares 11000
Total shareholders' equity $ 243000

Bonds payable 150000

Current liabilities 163000
Total liabilities 313000

Total equity and liabilities $ 556000
E5-17
(a) CHEKOV CORPORATION

Net income $55,000
Adjustments to reconcile net income to net cash provided
Increase in current liabilities 13,000
Loss on sale of equipment *3,000
Patent amortization 2,500
Increase in current assets (other than cash) (25,000) 6,500

Sale of equipment 9,000
Addition to building (27,000)
Investment in debt securities (16,000)

Issuance of bonds 50,000
Payment of dividends (25,000)
Purchase of Treasury shares (11,000)
Net cash provided by financing activities 14,000
a
Net increase in cash $41,500
* [$9,000 - ($20,000 - $8,000)]
a
An additional proof to arrive at the increase in cash is provided as follows:
Total current assets-end of period $301,500 [from part (b)]

Total current assets-beginning of period (235,000)
Increase in current assets during the period 66,500
Increase in current assets other than cash (25,000)
Increase in cash during year $41,500
CHEKOV CORPORATION
(b)
December 31, 2010
Assets
Non-current assets
Property, Plant, and equipment
Land $30,000
Building ($120,000 + $27,000) $147,000
Less: Accum. depr. ($30,000 + $4,000) 34,000 113,000
Equipment ($90,000 - $20,000) 70,000
Less: Accum. depr. ($11,000 - $8,000 + $9,000) 12,000 58,000
Total property, plant, and equipment
Intangible assets-
Patents ($40,000 - $2,500)
Total non-current assets
Current assets
Total assets

Equity
Share capital-ordinary $180,000
Retained earnings ($44,000 + $55,000 - $25,000) 74,000
Less: Treasury shares 11,000
Total shareholders' equity

Bonds payable ($100,000 + $50,000) 150,000
Current liabilities($150,000 + $13,000) 163,000
Total liabilities
Total equity and liabilities
b
The amount determined for current assets could be computed last and then is a “plug” figure.
That is, total liabilities and stockholders' equity is computed because information is available
to determine this amount. Because the total assets amount is the same as total liabilities and
stockholders' equity amount, the amount of total assets is determined. Information is available
to compute all the asset amounts except current assets and therefore current assets can be
determined by deducting the total of all the other asset balances from the total asset balance
(e.g., $556,000 - $37,500 - $201,000 - $16,000). Another way to compute this amount, given
the information, is that beginning current assets plus the $25,000 increase in current assets
other than cash plus the $41,500 increase in cash equals $301,500.
*************************************************************************************

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E5-2

(Classification of Statement of Financial Position Accounts)

Presented below are the captions of Nikos Company's balance sheet.

(a) Non-current assets. (c) Equity.

(Preparation of a Classified Statement of Financial Position)

1. Share Capital-Ordinary. 14. Accumulated Depreciation–Buildings.

(Preparation of a Corrected Statement of Financial Position)

(Corrections of a Statement of Financial Position)

(Current Assets Section of the Statement of Financial Position)

Finished goods €52,000 Cost of goods sold €2,100,000

1. Inventories are valued at lower-of-cost-or-market using FIFO.

(Current vs. Non-current Liabilities)

Current Non-current liability

1. Dividends payable of $1,900,000 will be reported as a current liability [(1,000,000 -

(Current Assets and Current Liabilities)

1. January 2011 cash disbursements entered as of December 2010 included payments of

(a) AGINCOURT COMPANY

(Statement of Financial Position Preparation)

Retained earnings: (£20,000 - £2,500*)

*[£10,000 - (£9,000 + £1,400 + £1,200 + £900)]

Cash [£49,000 – £39,000 – £950 – £1,200 – £1,000]

(Statement of Cash Flows–Classifications)

1. Operating activity–add to net income.

The transactions are as follows.

(Preparation of a Statement of Cash Flows)

Presented below is a condensed version of the comparative statements of financial position

Net cash provided by operating

(Preparation of a Statement of Cash Flows)

A comparative statement of financial position for Orozco Corporation is presented below.

1. Net income for 2010 was $105,000.

(a) OROZCO CORPORATION

(Preparation of a Statement of Cash Flows, Analysis)

The comparative statements of financial position of Menachem Corporation at the beginning

Dec, 31, 2010 Jan, 1, 2010

(Statement of Financial Position Classifications)

Presented below are a number of balance sheet accounts of Cunningham, Inc.

(Classification of Statement of Financial Position Accounts)

(a) Investments. (g) Current liabilities.

(a) A current liability of $150,000 should be recorded.

(Preparation of a Statement of Financial Position)

(Preparation of a Statement of Cash Flows)

(Preparation of a Statement of Cash Flows and a Statement of Financial Position)

Land $ 30,000 Bonds payable $100,000

The following information is available for 2010.

1. Net income was $55,000.

(a) CHEKOV CORPORATION

Total current assets-end of period $301,500 [from part (b)]

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