Additional information ($ in 000s):
|1.||Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.2. That is, total liabilities are 120% of total shareholders’ equity. Retained earnings at the beginning of the year was $4,000. Net income for 2011 was $1,560 and $560 in cash dividends were declared and paid to shareholders.|
|2.||Management intends to sell the investments in the next six months.|
|3.||Interest on both the note and the bonds is payable annually.|
|4.||The note payable is due in annual installments of $1,000 each.|
|5.||Unearned revenue will be earned equally over the next two fiscal years.|
|6.||The common stock represents 400,000 shares of no par stock authorized, 250,000 shares issued and outstanding.|
Prepare a complete, corrected, classified balance sheet.
|P 3-9||Balance sheet preparation|
Presented below is the balance sheet for HHD, Inc., at December 31, 2011.
The captions shown in the summarized statement above include the following:
|a.||Current assets: cash, $150,000; accounts receivable, $200,000; inventories, $225,000; and prepaid insurance, $25,000.|
|b.||Investments: investments in common stock, short term, $90,000, and long term, $160,000; and bond sinking fund, $250,000.|
|c.||Property, plant, and equipment: buildings, $1,500,000 less accumulated depreciation, $600,000; equipment, $500,000 less accumulated depreciation, $200,000; and land, $800,000.|
|d.||Intangible assets: patent, $110,000; and copyright, $90,000.|
|e.||Current liabilities: accounts payable, $100,000; notes payable, short term, $150,000, and long term, $90,000; and taxes payable, $60,000.|
|f.||Long-term liabilities: bonds payable due 2016.|
|g.||Shareholders’ equity: common stock, $1,000,000; retained earnings, $800,000. Five hundred thousand shares of no par common stock are authorized, of which 200,000 shares were issued and are outstanding.|
Prepare a corrected classified balance sheet for HHD, Inc., at December 31, 2011.
|P 3-10||Balance sheet preparation|
|Melody Lane Music Company was started by John Ross early in 2011. Initial capital was acquired by issuing shares of common stock to various investors and by obtaining a bank loan. The company operates a retail store that sells records, tapes, and compact discs. Business was so good during the first year of operations that John is considering opening a second store on the other side of town. The funds necessary for expansion will come from a new bank loan. In order to approve the loan, the bank requires financial statements.|
John asks for your help in preparing the balance sheet and presents you with the following information for the year ending December 31, 2011:
|c.||The bank loan was made on March 31, 2011. A note was signed requiring payment of interest and principal on March 31, 2012. The interest rate is 12%.|
|The equipment and furniture were purchased on January 3, 2011, and have an estimated useful life of 10 years with no anticipated salvage value. Depreciation per year is $4,000.|
|e.||Inventories on hand at the end of the year cost $100,000.|
|f.||Amounts owed at December 31, 2011, were as follows:
|g.||Rent on the store building is $1,000 per month. On December 1, 2011, four months’ rent was paid in advance.|
|h.||Net income for the year was $76,000. Assume that the company is not subject to federal, state, or local income tax.|
|i.||One hundred thousand shares of no par common stock are authorized, of which 20,000 shares were issued and are outstanding.|
Prepare a balance sheet at December 31, 2011.