3 The Balance Sheet and Notes to the Financial Statements EOC 3-39 Callable Obli
ID: 2337820 • Letter: 3
Question
3 The Balance Sheet and Notes to the Financial Statements EOC 3-39 Callable Obligations The company has the following three loans As of December 31 of this yea,identífy which of the three should be classified as current and which should be classfied as noncurrent (a) On July 15 of next year, Loan A will become payable on demand. (b) Loan B is scheduled to be repaid in three years. In addition, the loan agreement specifies that if the company's current ratio falls below 15, the loan becomes payable on demand. On December 31, the current ratio is 18. (c Loan C is scheduled to be repaid in three years. In addition, the loan agreement specifies that if the company's general financial condition deteriorates significantly, the loan becomes payable on demand. As of December 31, it is reasonably possible that this clause will be invoked Contingent Liabilities The company has the following three potential obligations. Describe how each will be reported in the financial statements (a) The company has promised to make fioxed pension payments to employees after they retire. The company is not certain how long the employees will work or how long they will live after they retire. (b) The company has been sued by a group of shareholders who claim that they were deceived by the company's financial reporting practices. it is possible that the company will lose this lawsuit. ) The company is involved in litigation over who must clean up a toxic waste site near one of the company's factories. It is probable, but not certain, that the company will be required to pay for the cleanup. Using the following information, compute: (a) total contributed capital, (b) ending retained earnings, and (c) total stockholders' equity Stockholders' Equity $8,200 1,300 5,650 3.450 300 9,700 375 950 6,500 150 Additional Paid-In Capital, Common... Accounts Payable Total Expenses Common Stock, at par Sales Treasury Stock Dividends..nning). Retained Earnings Additional Paid-In Capital, PreferredExplanation / Answer
Answer- 1:
A: Current Liability: As the loan is payable within 12 months so it will be classified as current liability.
B: Non-Current: Loan is payable within next 3 years and at present the company’s current ratio is more than 1.5 that is pre-requisite to make the loan repayable on demand, so it will be classified as Noncurrent liability.
C: Current: Although the loan is repayable in three years, but is probable that company’s financial condition will deteriorates that will require to pay the loan on demand, so it will be classified as current liability.
Answer- 3:
A: Contributed Capital
Common Stock, at par
300
Additional Paid in Capital
8200
Prefrence Stock, at par
3450
Additional Paid in Capital- Preferred
150
Total Contributed Capital
12100
B: Retain Earnings
Retained Earnings (Beginning)
6500
Add: Net Profit (9700 - 5650)
4050
Less: Dividends Paid
-950
Retained Earnings (Ending)
9600
C: Total Stockholders’ Equity
Total Contributed Capital
12100
Add: Retained earnings
9600
Less: Treasury Stock
-375
Total Stockholders' Equity
21325
Common Stock, at par
300
Additional Paid in Capital
8200
Prefrence Stock, at par
3450
Additional Paid in Capital- Preferred
150
Total Contributed Capital
12100
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