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ACC421 Week 3 Bruno Vivaldi Sondergaard

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ACC421 Week 3 E5-5 E5-12 E5-15 E24-2 E24-4

E5-5 Bruno Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for expansion.

Current assets 
Cash  260,000
Accounts receivable (net)  340,000
Inventories at lower of average cost or market  401,000
Trading securities' at cost (fair value 120,000 140,000
Property, plant, and equipment 
Building (net)  570,000
Office equipment (net)  160,000
Land held for future use  175,000
Intangible assets 
Goodwill  80,000
Cash surrender value of life insurance  90,000
Prepaid expenses  12,000
Current liabilities 
Accounts payable  135,000
Notes payable (due next year)  125,000
Pension obligation  82,000
Rent payable  49,000
Premium on bonds payable  53,000
Long-term liabilities 
Bonds payable  500,000
Stockholders' equity 
Common stock, $1.00 par, authorized 
400,000 shares, issued 290,000  290,000
Additional paid-in capital  180,000
Retained earnings  ?  

Prepare 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.

Exercise 5-12 Presented below is the trial balance of Vivaldi Corporation at December 31, 2012.

 Debit  Credit 
Cash  197,000
Sales  7,900,000
Trading Securities (at cost, $145,000)  153,000
Cost of Goods Sold  4,800,000
Long-term Investments in Bonds  299,000
Long-term Investments in Stocks  277,000
Short-term Notes Payable  90,000
Accounts Payable  455,000
Selling Expenses  2,000,000
Investment Revenue  63,000
Land  260,000
Buildings  1,040,000
Dividends Payable  136,000
Accrued Liabilities  96,000
Accounts Receivable  435,000
Accumulated DepreciationÑBuildings  352,000
Allowance for Doubtful Accounts  25,000
Administrative Expenses  900,000
Interest Expense  211,000
Inventories  597,000
Extraordinary Gain  80,000
Long-term Notes Payable  900,000
Equipment  600,000
Bonds Payable  1,000,000
Accumulated Depreciation's Equipment  60,000
Franchise  160,000
Common Stock ($5 par)  1,000,000
Treasury Stock  191,000
Patent  195,000
Retained Earnings  78,000
Paid-in Capital in Excess of Par Totals  80,000
 12,315,000 12,315,000

Calculate ending retained earnings and prepare a balance sheet at December 31, 2012, for Vivaldi Corporation. Ignore income taxes.

E5-15 (Preparation of a Statement of Cash Flows) Presented below is a condensed version of the comparative balance sheets for Sondergaard Corporation for the last two years at December 31.

2012 2,011
Cash  157,000 78,000
Accounts receivable  180,000 185,000
Investments  52,000 74,000
Equipment  298,000 240,000
Less: Accumulated depreciation  (106,000) (89,000)
Current liabilities  134,000 151,000
Capital stock  160,000 160,000
Retained earnings  287,000 177,000

Additional information:
Investments were sold at a loss (not extraordinary) of $7,000; no equipment was sold; cash dividends paid were $50,000; and net income was $160,000.

(a) Prepare a statement of cash flows for 2012 for Sondergaard Corporation.
(b) Determine Sondergaard Corporation’s free cash flow.

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.

______ 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at
______ 2. Introduction of a new product line.
______ 3. Loss of assembly plant due to fire.
______ 4. Sale of a significant portion of the company’s assets.
______ 5. Retirement of the company president.
______ 6. Issuance of a significant number of shares of common stock.
______ 7. Loss of a significant customer.
______ 8. Prolonged employee strike.
______ 9. Material loss on a year-end receivable because of a customer’s bankruptcy.
______ 10. Hiring of a new president.
______ 11. Settlement of prior year’s litigation against the company.

______ 12. Merger with another company of comparable size.

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

Plunkett Co.Herring Co.
 Assets Cash   120,000 320,000
 Receivables   220,000 302,000
 Inventories   570,000 518,000
 Total current assets   910,000 1,140,000
 Other assets   500,000 612,000
 Total assets   1,410,000 1,752,000
 Liabilities and Stockholders' Equity  
 Current liabilities   300,000 350,000
 Long-term liabilities   400,000 500,000
 Capital stock and retained earnings   710,000 902,000
 Total liabilities and stockholders' equity   1,410,000 1,752,000
 Annual sales   930,000 1,500,000
 Rate of gross profit on sales  30%40%

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

Which 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.

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