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P5

The document provides instructions for preparing corrected financial statements for two companies, Kishwaukee Ltd and Sargent Corporation, based on additional information provided. For Kishwaukee Ltd, the instructions are to prepare a corrected classified statement of financial position based on notes about goodwill being recognized at fair value and notes payable being both current and non-current. For Sargent Corporation, the instructions are to prepare a statement of financial position adjusting amounts in each classification based on additional details provided about current assets, investments, property/equipment, intangibles, liabilities, and equity.

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Monica Hutagaol
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437 views

P5

The document provides instructions for preparing corrected financial statements for two companies, Kishwaukee Ltd and Sargent Corporation, based on additional information provided. For Kishwaukee Ltd, the instructions are to prepare a corrected classified statement of financial position based on notes about goodwill being recognized at fair value and notes payable being both current and non-current. For Sargent Corporation, the instructions are to prepare a statement of financial position adjusting amounts in each classification based on additional details provided about current assets, investments, property/equipment, intangibles, liabilities, and equity.

Uploaded by

Monica Hutagaol
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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P5.

4 (LO1, 2) (Preparation of a Corrected Statement of Financial Position) The statement of


financial position of Kishwaukee Ltd. as of December 31, 2019, is as follows.

Note 1: Goodwill in the amount of £120,000 was recognized because the company believed
that book value was not an accurate representation of the fair value of the company. The gain
of £120,000 was credited to Retained Earnings.

Note 2: Notes payable are non-current except for the current installment due of £100,000.

Instructions
Prepare a corrected classified statement of financial position in good form. The notes above
are for information only.
P5.5 (LO1, 2) (Statement of Financial Position Adjustment and
Preparation) Presented below is the statement of financial position of Sargent
Corporation for the current year, 2019.

The following information is presented.


1. The current assets section includes cash $150,000, accounts receivable $170,000 less
$10,000 for allowance for doubtful accounts, inventory $180,000, and unearned
service revenue $5,000. Inventory is stated at the lower-of-FIFOcost- or net realizable
value.
2. The investments section includes land held for speculation $40,000; investments in
ordinary shares, short-term (trading) $80,000 and long-term (non-trading) $270,000;
and bond sinking fund $250,000. The cost and fair value of investments in ordinary
shares are the same.
3. Property, plant, and equipment includes buildings $1,040,000 less accumulated
depreciation $360,000, equipment $450,000 less accumulated depreciation $180,000,
land $500,000, and land held for future use $270,000.
4. Intangible assets include a franchise $165,000 and goodwill $100,000.
5. Current liabilities include accounts payable $140,000; notes payable—shortterm
$80,000 and long-term $120,000; and income taxes payable $40,000.
6. Non-current liabilities are composed solely of 7% bonds payable due 2027.
7. Equity has share capital—preference, $5 par value, authorized 200,000 shares, issued
90,000 shares for $450,000; and share capital—ordinary, $1 par value, authorized
400,000 shares, issued 100,000 shares at an average price of $10. In addition, the
company has retained earnings of $320,000.
Instructions
Prepare a statement of financial position in good form, adjusting the amounts in each
statement of financial position classification as affected by the information given above.
P5.7 (LO1, 2, 3, 4) (Preparation of a Statement of Cash Flows and
Statement of Financial Position) Luo Ltd. had the following statement of financial
position at December 31, 2018 (amounts in thousands).

During 2019, the following occurred.


1. Luo liquidated its non-trading equity investment portfolio at a loss of \5,000.
2. A tract of land was purchased for \38,000.
3. An additional \30,000 in ordinary shares were issued at par.
4. Dividends totaling \10,000 were declared and paid to shareholders.
5. Net income for 2019 was \35,000, including \12,000 in depreciation expense.
6. Land was purchased through the issuance of \30,000 in additional bonds.
7. At December 31, 2019, Cash was \70,200, Accounts Receivable was \42,000, and
Accounts Payable was \40,000.

Instructions
a. Prepare a statement of cash flows for the year 2019 for Luo.
b. Prepare the statement of financial position as it would appear at December 31, 2019.
c. Compute Luo's free cash flow and the current cash debt coverage for 2019.
d. Use the analysis of Luo to illustrate how information in the statement of financial
position and statement of cash flows helps the user of the financial statements.

CA5.5 (LO2) (Presentation of Property, Plant, and Equipment) Carol Keene, corporate
comptroller for Dumaine Industries, is trying to decide how to present “Property, plant, and
equipment” in the statement of financial position. She realizes that the statement of cash
flows will show that the company made a significant investment in purchasing new
equipment this year, but overall she knows the company's plant assets are rather old. She
feels that she can disclose one figure titled “Property, plant, and equipment, net of
depreciation,” and the result will be a low figure. However, it will not disclose the age of the
assets. If she chooses to show the cost less accumulated depreciation, the age of the assets
will be apparent. She proposes the following.

Instructions
Answer the following questions.
a. What are the ethical issues involved?
b. What should Keene do?

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