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.

BRUNO COMPANY
BALANCE SHEET
31-Dec-12
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				?

Instructions
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.

Instructions
(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

year-end.

______ 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.

Instructions
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.