Week 3

Practice Question Solutions

EXERCISE 5-2 (1520 minutes)

1.

11.

2.

12.

3.

13.

4.

14.

15.

6.

16.

7.

17.

8.

18.

9.

19.

10.

20.

E5-2 (Classification of Balance Sheet Accounts) Presented below are the captions of
Faulk Companys balance sheet.
(a) Current assets.
(b) Investments.
(c) Property, plant, and equipment.
(d) Intangible assets.
(e) Other assets.
(f) Current liabilities.
(g) Noncurrent liabilities.

(h) Capital stock.

(i) Additional paid-in capital.
(j) Retained earnings.
Instructions
Indicate by letter where each of the following items would be classified.
1. Preferred stock (h) Capital stock.
2. Goodwill. - (d) Intangible assets.
3. Salaries and wages payable. - (f) Current liabilities.
4. Accounts payable. - (f) Current liabilities.
5. Buildings. - (c) Property, plant, and equipment.
6. Equity investments (trading). - (a) Current assets.
7. Current maturity of long-term debt. (f) Current liabilities.
8. Premium on bonds payable. - (g) Noncurrent liabilities.
9. Allowance for doubtful accounts. - (a) Current assets.
10. Accounts receivable. - (a) Current assets.
11. Cash surrender value of life insurance. - (b) Investments.
12. Notes payable (due next year). - (f) Current liabilities.
13. Supplies. - (a) Current assets.
14. Common stock. (h) Capital stock.
15. Land. - c) Property, plant, and equipment.
16. Bond sinking fund. - (b) Investments.
17. Inventory. - (a) Current assets.
18. Prepaid insurance. - (a) Current assets.
19. Bonds payable. - (g) Noncurrent liabilities.
20. Income taxes payable. - (f) Current liabilities.

EXERCISE 5-3 (1520 minutes)

1.

10.

2.

11.

3.

12.

4.

13.

a or e (preferably a)

14.

c and N

6.

15.

7.

16.

8.

17.

9.

18.

E5-3 (Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses
the following headings on its balance sheet.
(a) Current assets.
(b) Investments.
(c) Property, plant, and equipment.
(d) Intangible assets.
(e) Other assets.
(f) Current liabilities.
(g) Long-term liabilities.
(h) Capital stock.

(i) Paid-in capital in excess of par.

(j) Retained earnings.
Instructions
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 balance sheet, use the letter X.
1. Prepaid insurance. - (a) Current assets.
2. Stock owned in affiliated companies. (b) Investments.
3. Unearned service revenue. - (f) Current liabilities.
4. Advances to suppliers. - (a) Current assets.
5. Unearned rent revenue. - (f) Current liabilities.
6. Preferred stock. (h) Capital stock.
7. Additional paid-in capital on preferred stock. - (i) Paid-in capital in excess of par.
8. Copyrights. - (d) Intangible assets.
9. Petty cash fund. - (a) Current assets.
10. Sales taxes payable. - (f) Current liabilities.
11. Accrued interest on notes receivable. - (a) Current assets
12. Twenty-year issue of bonds payable that will mature within the next year. (No
sinking fund exists, and refunding is not planned.) - (f) Current liabilities.
13. Machinery retired from use and held for sale. - a or e (preferably a)
e: Other assets.
14. Fully depreciated machine still in use. - (c) Property, plant, and equipment & N.
15. Accrued interest on bonds payable. - (f) Current liabilities
16. Salaries that company budget shows will be paid to employees within the next
year. X
17. Discount on bonds payable. (Assume related to bonds payable in item 12.) (f)
Current liabilities

18. Accumulated depreciationbuildings. (c)

Property, plant, and equipment.

19. Noncontrolling interest.

EXERCISE 5-14 (2535 minutes)

Constantine Cavamanlis Inc.

Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ............................................................

$44,000

Adjustments to reconcile net income

to net cash provided by operating
activities:
Depreciation expense .....................................

$ 6,000

Increase in accounts receivable ....................

(3,000)

Increase in accounts payable ........................

5,000

Net cash provided by operating activities ..........

8,000
52,000

Cash flows from investing activities

Purchase of equipment ........................................

(17,000)

Cash flows from financing activities

Issuance of common stock ..................................

20,000

Payment of cash dividends ..................................

(23,000)

Net cash used by financing activities..................

(3,000)

Net increase in cash ...................................................

32,000

Cash at beginning of year ..........................................

13,000

Cash at end of year .....................................................

$45,000

PROBLEM 5-3

EASTWOOD COMPANY
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ........................................................

$ 41,000

Accounts receivable .............................. $163,500

Less: Allowance for doubtful
accounts ................................

8,700

154,800

Inventory (LIFO cost) .............................

208,500

Prepaid insurance ..................................

5,900

Total current assets .........................

$ 410,200

Long-term investments
Equity investments
($120,000 have been pledged as
security for notes payable)
339,000

at fair value ..........................................

Property, plant, and equipment

Cost of uncompleted plant facilities
Land ..................................................

85,000

Construction in process
(building).......................................

124,000

Equipment ..............................................

400,000

Less: Accum. depreciation

equipt. ....................................

240,000

209,000

160,000

369,000

Intangible assets
Patents (less $4,000 amortization) ........

36,000

Total assets ......................................

$1,154,200

PROBLEM 5-3 (Continued)

Liabilities and Stockholders Equity
Current liabilities
Notes payable (secured by
investments of $120,000) ...................

$ 94,000

Accounts payable ................................

148,000

Accrued liabilities ................................

49,200

Total current liabilities ...................

$ 291,200

Long-term liabilities
8% bonds payable, due
January 1, 2025 .................................

200,000

Less: Discount on bonds payable .....

20,000

Total liabilities ................................

180,000
471,200

Stockholders equity
Common stock
Authorized 600,000 shares of $1
par value; issued and
outstanding, 500,000 shares ........ $500,000
Paid in capital in excess of
parcommon stock.........................
Retained earnings ................................
Total liabilities and
stockholders equity ...................

45,000

545,000
138,000

683,000
$1,154,200