require that these costs be expensed as incurred. 5. Cost of a franchise— This is a cost that should benefit several future periods, and only a portion should be expensed in the current period; the cost of the franchise should be treated as an intangible asset and amortized over the periods during which benefits are expected. 6. Office supplies— The portion of the supplies used should be recognized as an expense in the current period; the unused portion should be reported as a current asset. 7. Wages and salaries— All. 8. Computer software— Assuming that the software was purchased, an intangible as- set should be recognized and a portion of the cost recognized as expense in each of the periods benefited. 9. Computer hardware— Only the portion of the cost associated with the benefits pro- vided during the current period would be recognized as depreciation expense; the cost should be written off over the useful life of the hardware.
2-12 FINANCIAL ACCOUNTING SOLUTIONS MANUAL LO 3 PROBLEM 2-3 CLASSIFIED BALANCE SHEET 1. Classified balance sheet: RUTH CORPORATION BALANCE SHEET DECEMBER 31, 2007 Assets Current assets: Cash $ 13,230 Accounts receivable 23,450 Inventory 45,730 Prepaid rent 1,500 Office supplies 2,340 Total current assets $ 86,250 Long-term investments 85,000 Property, plant, and equipment: Land $250,000 Automobiles $112,500 Less: Accumulated depreciation 22,500 90,000 Buildings $200,000 Less: Accumulated depreciation 40,000 160,000 Total property, plant, and equipment 500,000 Intangible assets: Patents 40,000 Total assets $711,250 Liabilities Current liabilities: Accounts payable $ 18,255 Income taxes payable 6,200 Interest payable 1,500 Notes payable, due June 30, 2008 10,000 Salaries and wages payable 4,200 Total current liabilities $ 40,155 Long-term debt: Bonds payable, due December 31, 2011 160,000 Total liabilities $200,155
CHAPTER 2 • FINANCIAL STATEMENTS AND THE ANNUAL REPORT 2-13 PROBLEM 2-3 (Concluded) Stockholders’ Equity Contributed capital: Capital stock, $10 par value, 15,000 shares issued and outstanding $150,000 Paid-in capital in excess of par value 50,000 Total contributed capital $200,000 Retained earnings 311,095 Total stockholders’ equity 511,095 Total liabilities and stockholders’ equity $711,250 2. Current Ratio = Current Assets/Current Liabilities $86,250/$40,155 = 2.15 to 1 3. From the current ratio alone, Ruth appears to be relatively liquid. To fully assess its liquidity, however, it would be useful to look more specifically at the composition of the current assets and liabilities. How long does it take to sell inventory? How long does it take to collect an account receivable? Also, you would want to compare Ruth’s current ratio at the end of this period with those of prior periods, and with the current ratio for companies in the same industry. LO 4 PROBLEM 2-4 FINANCIAL STATEMENT RATIOS
2-14 FINANCIAL ACCOUNTING SOLUTIONS MANUAL PROBLEM 2-4 (Concluded)
You've reached the end of your free preview.
Want to read all 37 pages?