ACC301-sol-ch03

ACC301-sol-ch03 - PRACTICE EXERCISES PRACTICE 3-1 WORKING...

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PRACTICE EXERCISES PRACTICE 3 - 1 WORKING CAPITAL Current Assets: Cash $   400 Inventory   4,000 Total $4,400 Current Liabilities: Accounts Payable $1,100 Accrued Wages Payable      250 Total $1,350 Working capital = Current assets  -  Current Liabilities = $4,400  -  $1,350 = $3,050 PRACTICE 3 - 2 CURRENT ASSETS Current Assets: Cash $  400 Investment Securities (trading) 250 Accounts Receivable 700 Inventory 4,000 Prepaid Expenses   1,100 Total Current Assets $6,450 PRACTICE 3 - 3 CURRENT LIABILITIES Accounts Payable $     700 Unearned Revenue 250 Accrued Income Taxes Payable 9,000 Current Portion of Long-Term Debt   10,000 Total Current Liabilities $19,950 PRACTICE 3 - 4 CLASSIFICATION OF SHORT-TERM LOANS TO BE REFINANCED Current: Loan A Because the loan will be repaid, with cash, within one year of the balance sheet date, it should be  classified as current. 
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Loan B In order to classify the loan as noncurrent, the company must have both the intent to  refinance  and  evidence of the intent in the form of actual refinancing or a contract to  refinance  before  the issuance of the financial statements. Noncurrent: Loan C The company intends to refinance Loan C, and the refinancing will be formalized  before  the financial statements for this year have been released. Of course, the actual  formalization of the refinancing must be confirmed; this will occur before the  issuance of the financial statements. PRACTICE 3 - 5 CALLABLE OBLIGATIONS Current: Loan A A loan is current if it is payable on demand or will become payable on demand within  one year. Noncurrent: Loan B The company is exceeding the current ratio constraint in the loan agreement; thus, the  loan is not payable on demand. Loan C It is “reasonably possible” that the company will violate the subjective acceleration  clause. The loan continues to be classified as noncurrent, and the possibility of the  loan becoming payable on demand will be disclosed in a note. PRACTICE 3 - 6 CONTINGENT LIABILITIES a. This is an  estimated liability . The company has a definite obligation that must be  estimated and reported in the balance sheet. b. It is possible that the company will have to make a payment under this contingent  liability. The possibility is described in a financial statement note; nothing is  recognized in the balance sheet.  c. It is probable that the company will have to make a payment under this contingent  liability. Accordingly, the liability is recognized in the balance sheet if it can be  reasonably estimated. 
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PRACTICE 3 - 7 STOCKHOLDERS’ EQUITY a. Total contributed capital: Preferred stock, at par $  1,750 Additional paid-in capital, preferred 50 Common stock, at par
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This note was uploaded on 06/11/2009 for the course ACC 301 taught by Professor Pendarvis during the Spring '09 term at St. Leo.

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ACC301-sol-ch03 - PRACTICE EXERCISES PRACTICE 3-1 WORKING...

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