Problem 1 (15 Points) You have been asked to assist the chief accountant of the

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Problem 1 (15 Points) You have been asked to assist the chief accountant of the Stephen King Corporation in the preparation of year, 2011. Stephen King Corporation BALANCE SHEET December 31, 2011 Current asscts Investrments Property, plant, and equipment $ 435,000 640,000 1,720,000 5,000 Intangible assets $3.100,000 330,000 1,000,000 770.000 $3,100,000 Current liabilities Long-term liabilities Stockholders' equity Consider the following information 1. The current assets section includes: cash $100,000, accounts receivable $170,000 less $10,000 for allowance for doubtful accounts, inventories $180,000, and unearned revenue $5,000. The cash balance is composed of $114,000, less a bank overdraft of $14,000. Inventories are stated on the lower of the FIFO cost or market. 2· The investments section includes: the cash surrender value of a life insurance contract $40,000. investment in common stock, short-term (trading) $80,000 and long-term (available-for-sale) $270,000; and bond sinking fund $250,000. The cost and fair value of investments in common stock are the same. 3. Property, plant, and equipment includes: buildings $1,040,000 less accumulated depreciation 4. Intangible assets include: a franchise $165,000; goodwill $100,000; and discount on bonds payable 5. Current liabilities include: accounts payable $90,000; notes payable - short term $80,000 and long- 6. Long-term liabilities are compose solely of 10% bonds payable due in 2020. $360,000; equipment $450,000 less accumulated depreciation $180,000; land $500,000; and land held for future use $270,000. $40,000 term $120,000; and taxes payable $40,000. Stockholders' equity has: preferred stock, no par value, authorized 200,000 shares, issued 70,000 shares for $450,000; and common stock, $1.00 par value, authorized 400,000 shares, issued 100,000 shares at an average price of $10. In addition, the corporation has retained earnings of $320,000. 7. The company's management does not elect to use the fair value option for any of its financial assets or liabilities Prepare a Classified balance sheet.

Explanation / Answer

Classified Balance Sheet

Assets Liabilities Current assets Current liabilities Cash $114000 Accounts payable $90000 Accounts receivable $170000 Notes payable (short term) 80000 Allowance for doubtful accounts (10000) 160000 Taxes payable 40000 Inventories 180000 Unearned revenue 5000 Investment in common stock, short term (trading) 80000 Bank overdraft 14000 Total current assets $534000 Total current liabilities $229000 Long-term investments Long-term liabilities Life insurance contract 40000 10% bonds payable 1000000 Investment in available for sale of securities, long term 270000 Add: discount on bonds payable (40000) 960000 Bond sinking fund 250000 Notes payable-long term 120000 Total long-term investments 560000 Total long-term liabilities $1080000 Property, plant and equipment Total liabilities $1309000 Buildings 1040000 Stockholder's equity Less accumulated depreciation (360000) 680000 Preferred stock 450000 Equipment 450000 Common stock 1000000 Less accumulated depreciation (180000) 270000 Retained earnings 320000 Land 500000 Total stockholder's equity 1770000 Land held for future use 270000 Total Property, plant and equipment 1720000 Intagible assets Franchise 165000 Goodwill 100000 Total intagible assets 265000 Total assets $3079000 Total liabilities and Stockholder's equity $3079000

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