SnackTastic’s Corp
Balance Sheet
December 31, 2013
Assets
Current Assets
Cash		$    1,354,600
Available-for-Sale Securities – At Fair Value
Investment in Ferrari Corp Stock		41,250
Accounts Receivable	$        350,400
Less: Allowance for Doubtful Accounts	15,250
Restricted  as Collateral Against Loan	18,200	$        316,950
Inventories – At Average Cost		546,500
Supplies on Hand		27,850
Prepaid Expenses		501,400
Total Current Assets			$    2,788,550
Long-Term Investments
Investment in Sampson Corp Stock	48,750
Investment in Durango Corp Bonds	51,500		100,250
Property, Plant, and Equipment
Land – At Cost		585,000
Buildings – At Cost	1,020,500
Equipment	365,000
Less: Accumulated Depreciation	140,000	1,245,500
Total Property, Plant, and Equipment			1,830,500
Intangible Assets
Trademark			63,000
Total Assets			$    4,782,300
Liabilities and Stockholders’ Equity
Current Liabilities
Notes Payable	$        336,870
Accounts Payable	83,750
Accrued Interest on Notes Payable	124,268
Accrued Salaries, Wages, and Other Liabilities	42,000
Total Current Liabilities			$        586,888
Long-Term Debt
Twenty-Year, 10% Bonds, due 12/31/2020		800,000
Less: Discount on Bonds Payable		73,010	726,990
Long Term Notes Payable			677,500
Total Liabilities			1,991,378

Worksheet 2:  Problem A – Balance Sheet

SnackTastics’s Corp. makes and distributes snacks and beverages which are sold in kiosks at malls, entertainment venues and big-box stores. Below is a list of all of their accounts as of December 31, 2013:

10% Bonds, 20-year bonds, due 12/31/2020	800,000
Accounts Payable				83,750
Accounts Receivable			352,400
Accumulated Amortization – Patent		34,920
Accumulated Amortization – Trademark		34,650
Accumulated Depreciation – Building		120,000
Accumulated Depreciation – Equipment		60,000
Additional Paid-in Capital – preferred stock	28,000
Additional Paid-in-Capital, common stock		150,000
Advertising Expense			86,700
Allowance for Doubtful Accounts		15,250
Amortization Expense			7,030
Bad Debt Expense				9,750
Building					1,020,500
Cash					1,354,600
Common Stock ($5 par)			300,000
Cost of Goods Sold				129,850
Depreciation Expense (Building & Equipment)	35,000
Discount on Bonds Payable			73,010
Dividend Revenue				3,280
Dividends				55,000
Equipment				365,000
Income Tax Expense			242,903
Interest Expense				124,268
Interest Revenue				8,490
Inventories				374,500
Investment in Ferrari Corp stock		41,250
Investment in Sampson Corp stock		48,750
Investment in Durango Corp bonds		51,500
Land					585,000
Long-term Notes Payable			677,500
Patent					77,600
Preferred Stock, ($10 par)			100,000
Rent Expense				88,650
Retained Earnings				?
Sales					1,554,600
Short-Term Notes Payable			336,870
Supplies (office)				27,850
Supplies Expense				47,750
Trademark				63,000
Unrealized holding gain – equity		3,350
Utilities Expense				22,660
Wages Expense				255,640
Wages Payable				42,000

Additional information:

1. The building had a $220,500 salvage value and a 50 year useful life, however, SnackTastics, Inc. only expected to use the building for 40 years. The building was purchased on Jan 1, 2008. SnackTastics uses the straight-line method for depreciation purposes.

• The company had purchased 1,000 shares of Sampson Company stock three years ago for a total of $37.50 per share. They intended to hold the Sampson Company stock for a while, although the exact holding period was undetermined.Non-Current Asset – Long Term Investment
• SnackTastics Corp. purchased 10,000 shares of Ferrari Corp stock two weeks ago for a total of $41,250. They expect to sell Ferrari Company stock as soon as it reaches $4.50 per share, which is expected to happen in the next two months.Short Term Investment – Available for Sale
• SnackTastics purchased the 10-year bonds of Durango Corp. last year. They plan to hold them for two or three years, at which time they hope to sell them and make a profit.Non-Current Asset – Long Term Investment
• Upon further evaluation, it was determined that $180,000 of the land was not being used in operations.
• SnackTastics Corp. had pledged $18,200 of Accounts Receivable as collateral against a $15,000 loan it obtained from First National Bank.
• The value of the inventories was determined using the lower of cost, using LIFO, or market.
• SnackTastics had $172,000 of inventory out on consignment with Stadium Concessions Corp.
• Total Inventory = 374,500 + 172,000 = $546,500
• The interest expense includes interest on the bonds and notes payable,depreciation expense includes depreciation on both the building and equipment and amortization expense includes amortization on both the Trademark and Patent.
• The company is authorized to issue 100,000 shares of common stock  and 25,000 shares of preferred stock. There have been no additional issuances of stock, nor have there been any repurchases of stock since the initial issuance.
• The unrealized holding gain reported above pertains to the Available-for-Sale security(ies) and must be reported in the equity section of the Balance Sheet. You do not need to do a statement of comprehensive income for this problem.

Required: (You MUST show all work to receive full credit)

1. Prepare a classified balance sheet in good form, including all disclosures.

Prepaid Expenses:

            Utilities Expense: 22,660

            Supplies Expense: 47,750

            Wages Expense: 255,640

            Advertising Expense: 86,700

            Rent Expense: 88,650

            Total Prepaid Expenses: $501,400

• What was the beginning Retained Earnings amount (as of December 31st, 2012?)  Hint: You need to find net income to solve for this.
• What is the difference between authorized, issued and outstanding shares of stock?
• Authorized shares are the number of stock units that a publicly traded company can issue.
• Issued shares of stock are the number of authorized shares that is sold to and held by the shareholders of a company. Issued shares include the stock that a company sells publicly in order to generate capital.
• Outstanding shares are a company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shared owned by the company’s officers and insiders.
• What principle, constraint or assumption dictates that we record inventories at the lower of cost or market?
• What is the company’s current ratio? Show formula & answer.

• What are the NET assets of the business? Show formula & answer.

Hints:

Problem One:

1. Separate the accounts into Income Statement, Retained Earnings and Balance Sheet accounts.  (I usually highlight mine in different colors, but you are free to use whatever method works best for you).
2. Determine the Accumulated Depreciation for the building before solving for ending Retained Earnings.

• Remember, your Balance Sheet “equation” is the same as the Accounting Equation.
• To solve for beginning Retained Earnings, you first need to solve for ending Retained Earnings and then work backwards.
• You will only need to adjust the balance in one balance sheet account and add one balance sheet account for this problem.
• See pages 218 and 221 of the loose leaf, 15^th edition of the text for help on how to classify the various Investments.
• Financial ratios can be found on page 246 of the loose-leaf, 15^th edition of the text.

Problem B:  Statement of Cash Flows:

Billingsley Company presented the following comparative financial data at December 31, 2013:

			December 31
			2013	2012
Cash			$10,000	$42,000
Accounts receivable		91,000	53,000
Building and Equipment	300,000	200,000
Accumulated Depreciation	60,000	51,000
Total assets		$341,000	$244,000
Accounts payable		$55,000	$21,000
Dividends payable		42,000	21,000
Common stock		110,000	110,000
Additional paid in capital	60,000	60,000
Retained earnings		74,000	32,000
Total liabilities and stock-	$341,000	$244,000
holders’ equity

Additional information for the year 2013:

1. Equipment costing $80,000 was sold at a $1,000 gain and was 30 percent depreciated at the time of sale
2. Depreciation expense was recorded.
3. Net income was $75,000.

Required

1. In good form, prepare the operating section of the statement of cash flows for 2013 using the INDIRECT METHOD.
2. Can a company have positive net income and negative cash flows or negative income and positive cash flows? Why or why not?

Hints:

Problem 2

1. You are only dealing with the operating section of the Statement of Cash flows for this problem, so concentrate on the accounts that affect that section.
2. Do a T-account for Equipment and one for the Accumulated Depreciation accounts to help determine the depreciation expense for the period.
3. Question 2 was covered in chat, so be sure to review the archive if you missed it.

 

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