Uhura Company

E5-5 (Preparation of a Corrected Balance Sheet)Uhura Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for expansion.

InstructionsPrepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is $160,000 and for the office equipment, $105,000. The allowance for doubtful accounts has a balance of $17,000. The pension obligation is considered a long-term liability.

Uhura CompanyBalance Sheet31-Dec-07AssetsCurrent assetsCash $230,000Trading securities—at fair value $120,000Accounts receivable $357,000Less: Allowance for doubtfulaccounts $17,000 $340,000Inventories, at lower of averagecost or market $401,000Prepaid expenses 12,000Total current assets $1,103,000Long-term investmentsLand held for future use $175,000Cash surrender value of lifeinsurance 90,000$265,000Property, plant, and equipmentBuilding $730,000Less: Accum. depr.—building 160,000$570,000Office equipment $265,000Less: Accum. depr.—officeequipment 105,000160,000730,000Intangible assetsGoodwill 80,000Total assets $2,178,000Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable $135,000Notes payable (due next year)

125,000Rent payable 49,000Total current liabilities $309,000Long-term liabilitiesBonds payable $500,000Add: Premium on bonds payable 53,000$553,000Pension obligation 82,000635,000Total liabilities 944,000Stockholders equityCommon stock, $1 par, authorized400,000 shares, issued 290,000shares 290,000Additional paid-in capital 160,000450,000Retained earnings 784000Total stockholders equity 1,234,000Total liabilities and stock-holders equity $2,178,000E5-12 (Preparation of a Balance SheetPresented below is the trial balance of John Nalezny Corporation at December 31, 2007.

InstructionsPrepare a balance sheet at December 31, 2007, for John Nalezny Corporation. Ignore income taxes.

John Nalezny CorporationBalance Sheet31-Dec-07AssetsCurrent assetsCash $197,000Trading securities (at fair value)$153,000Accounts receivable $435,000Less: Allowance for doubtfulaccounts 25,000410,000Inventories 597,000Total current assets 1,357,000Long-term investmentsInvestments in bonds $299,000Investments in stocks 277,000Total long-term investments 576,000Property, plant, and equipmentLand $260,000Buildings 1,040,000Less: Accum. depreciation -152,000$888,000Equipment $600,000Less: Accum. depreciation -60,000540,000Total property, plant, andequipment 1,688,000Intangible assetsFranchise $160,000Patent 195,000Total intangible assets 355,000Total assets $3,976,000Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable $455,000Short-term notes payable 90,000Dividends payable $136,000Accrued liabilities 96,000Total current liabilities $777,000Long-term debtLong-term notes payable $900,000Bonds payable 1,000,000

Total long-term liabilities 1,900,000Total liabilities 2,677,000Stockholders equityPaid-in capitalCommon stock ($5 par) $1,000,000Additional paid-in capital 80,0001,080,000Retained earnings* 410,000Total paid-in capital andretained earnings 1,490,000Less: Treasury stock -191,000Total stockholders equity 1,299,000Total liabilities andstockholders equity $3,976,000*Computation of Retained Earnings:Sales$8,100,000Investment revenue63,000Extraordinary gain80,000Cost of goods sold-4,800,000Selling expenses-2,000,000Administrative expenses-900,000Interest expense-211,000Net income$332,000Beginning retained earnings$78,000Net income332,000Ending retained earnings$410,000Or ending retained earnings can be computed as follows:Total stockholders equity$1,299,000Add: Treasury stock191,000Less: Paid-in capital1,080,000Ending retained earnings$410,000Note to instructor: There is no dividends account. Thus, the 12/31/07retained earnings balance already reflects any dividends declared.

E24-2 (Post-Balance-Sheet Events)For each of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.

___A___ 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end.

___C___ 2. Introduction of a new product line.

___ B___ 3. Loss of assembly plant due to fire.

___ B ___ 4. Sale of a significant portion of the companys assets.

___ C___ 5. Retirement of the company president.

___ C___ 6. Prolonged employee strike.

___ C___ 7. Loss of a significant customer.

___ B___ 8. Issuance of a significant number of shares of common stock.

___ A___ 9. Material loss on a year-end receivable because of a customers bankruptcy.

___ C___ 10. Hiring of a new president.

___ A___ 11. Settlement of prior years litigation against the company.

___ B___ 12. Merger with another company of comparable size.

E24-4 (Ratio Computation and Analysis; Liquidity)As loan analyst for Utrillo Bank, you have been presented the following information.

Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Inasmuch as your bank has reached its quota for loans of this type, only one of these requests is to be granted.

InstructionsWhich of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.

Toulouse Co. Lautrec Co.

Composition of current assetsCash13.19%28.07%Receivables24.18%26.49%Inventories62.64%45.44%100.00%100.00%Computation of various ratiosCurrent ratio ($910 ÷ $305)2.98 to 1($1,140 ÷ $350)3.26 to 1Acid-test ratio ($120 + $220) ÷ $3051.11 to 1($320 + $302) ÷ $3501.78 to 1Accounts receivable turnover ($930 ÷ $220)4.28 times$1,500 ÷ $3024.97 timesInventory turnover1.14a times1.74b timesCash to current liabilities ($120 ÷ $305).39 to 10.393443($320 ÷ $350).91 to 1a($930 X .70) ÷ $570 b($1,500 X .60) ÷ $518I would definitely recommend Lautrec Co. as a better risk. Lautrec Co. has a higher current ratio, acid-test ratio, A/R turnover, and cash to current liabilities ratio. The cash to current liabilities ratio is of particular interest as Lautrec has only $.91 cash to each $1.00 of liabilities. This is not a good ratio, however, this is a much better ratio then Toulouse Co.s of $0.39 cash to each dollar of debt. Toulouse is going to have cash inflow problems of a very serious nature soon and is a worse risk.