Worksheet 2 Balance Sheet The account balances for Pasquale


Question Description:

35

Worksheet 2 Balance Sheet The account balances for Pasquale Corporation at December 31, 2016, are given below: Cash and Cash Equivalents $305,000 Land 375,000 Equipment 120,000 Accumulated Depreciation – Equipment 40,000 Investment in stock 50,000 Investment in Treasury Bills 5,000 Building 330,000 Accumulated Depreciation – Bldg. 22,500 Notes Payable 170,000 Bonds Payable 200,000 Common stock ($10 par) 300,000 Preferred stock 50,000 Retained Earnings 298,930 Additional Paid in Capital – Common 120,000 Accounts Receivable, net 104,000 Accrued Expenses 13,000 Inventories 173,430 Prepaid Expenses 20,000 Dividends payable 22,000 Selling expenses 51,000 Administrative expenses 27,000 Cost of Goods Sold 58,000 Interest expense 14,500 Sales 389,000 The following additional information was also provided: The building was purchased on January 1, 2014. It had a $30,000 salvage value and a 40-year useful-life, however, Pasquale only intended to use it for 30 years. Pasquale uses the straight-line method to depreciate all assets. (Use this information to solve for accumulated depreciation on the building). The Treasury Bills will mature on February 8, 2017. This amount was previously reported in the “Investments” section. The gross Accounts Receivable balance was $112,000 and the Allowance for Doubtful Accounts balance was $8,000. Pasquale Company invests in the stocks and bonds of other companies in order to take advantage of price increases and dividend opportunities. The “Investment in Stock” account includes $30,000 of Kruger Company stock, which Pasquale intends to hold for several years and $20,000 of Morton Company stock, which Pasquale intends to sell in six months. When reviewing the notes payable balance, the bookkeeper found that  $60,000 of the notes will mature on June 30, 2017.  The remainder of the balance will come due in 2018 and 2019. Included in the “Land” account was $55,000 of land that was held as a future development site. Pasquale paid two year’s worth of its fire insurance on December 31, 2016. They debited prepaid expenses and credited cash for the amount. The inventories had a cost of $175,000 and a net realizable value of $173,430. Pasquale uses the LIFO method to value its inventory. Pasquale is authorized to issue 100,000 shares of its common stock and 50,000 shares of preferred stock. The preferred stock was issued at par. There have been no additional issuances of stock since the company began operations, so the number of shares issued equals the number of shares outstanding. (Hint: Use the common stock, par value and additional paid in capital – common accounts to solve for the number of common shares issued/outstanding). The bonds were issued at par and mature in the year 2025. The accrued expenses represents utility costs that were unpaid as of the end of the year. Required: Calculate the accumulated depreciation on the building. Prepare a pre-closing trial balance. (This will help to cross check and make sure you reported the correct amount for accumulated depreciation on the building.) Prepare a POST-closing trial balance. (Remember, some accounts will not be included in this TB, and one account will have a different balance than it had in the pre-trial TB). Prepare a classified balance sheet in good form for Pasquale Company as of December 31, 2016. Be sure to include all disclosures. What is Pasquale’s current ratio? What does this ratio tell us? What other ratio could we use to determine this information? Does Pasquale finance its operations primarily through the use of debt or equity? Which ratio did you use to determine your answer? Pasquale recently had the land that was held for future use appraised and determined that its fair value was $80,000. Pasquale reported this land on its books at its original purchase price of $55,000. What principle, constraint or assumption did Pasquale apply or violate by reporting the land at th…

Answer

35