Question

Take-home (20 points)

Part I: Classified balance sheet

1. Use the following post-closing balance information at 12/31/20 to create a professional balance sheet. All amounts listed in thousands.

Inventory	250	Deferred tax asset	150
Prepaid insurance	35	Accounts payable	40
Accumulated depreciation	6,000	Bonds payable (2030 maturity)	7,000
Note receivable (2022 maturity)	40	Equipment	3,000
Treasury stock	5	Accounts receivable	40
Premium on bonds payable	100	Preferred stock	500
Accumulated other comprehensive income (debit balance)	25	Goodwill	200
Allowance for doubtful accounts	3	Discount on notes receivable	4
Security FV adjustment – AFS (debit balance)	10	Pension liability	350
Additional paid-in capital	5,000	Cash and cash equivalents	600
Available for sale securities – debt (2025 maturity)	50	Common stock	30
Factories	15,000	Accrued expenses and payables	70

• 10% of the bonds will come due 7/1/21. 5% of the premium will expire with their maturity.
• 10% of the equipment account is no longer used in operations and is being held idle. 5% of the accumulated depreciation is associated with this idle equipment.
• 5% of the cash and cash equivalents are legally-restricted in accordance with agreements tied to the long-term bonds payable.
• Only 70% of the prepaid insurance contract will be used in 2021.
• The inventory in the ledger is presented at cost, the net realizable value of the inventory is $190,000.
• You must calculate retained earnings from the information given.

2. Answer the following questions as completely as possible:
   1. What is the book value of the idle equipment? What does this value indicate about the equipment to investors?
   2. What does the book value of the bonds and note receivable represent? (not the numerical value, explain what the numerical value means)

Part II: Multistep income statement

1. Use the following income-related items to create a multistep income statement for 2020 including EPS disclosures. Assume a 20% tax rate (all amounts listed in thousands and pretax).

Cost of goods sold	700	Impairment of patent used in continuing operations	170
Dividend revenue	70	Selling, general and administrative expenses	650
Sales revenue	3,250	Interest expense	100
Unrealized gain on trading securities	40	Research and development	150
Depreciation and amortization	350	Restructuring costs	200

In addition, the following information is available regarding a division the company decided to discontinue (all amounts in thousands).

Book value of assets	$5,100	Book value of liabilities	$2,700
Fair value of assets	$3,190	Fair value of liabilities	$1,700
Estimated selling costs	$200	Loss from operations of the division	$750

Finally, the company has the following balance sheet disclosure regarding its accumulated other comprehensive income accounts (all amounts in thousands).

	12/31/20	12/31/19
Accumulated other comprehensive income
Available for sale	(150)	(20)
Pension	100	(50)
Cash flow hedges	(20)	150
Total	($70)	$80

The company declared $300,000 of preferred dividends and had 1,000,000 shares of common stock outstanding throughout 2020.

Answer 1

PROFESSIONAL BALANCE SHEET Statement Of Financial Position - 1000s 2 बू 12/31/ 20 600 40 37 - Assets Current Assets Cash & Cash Equivalents | Accounts Recewable dess. Allowance for . doubtful Afc Inventory Prepaid Insurance Notes Recewable Jess. Discount on - Notes Recewable • Available for sale . secwistest Sewwntes fu adjustment cs Scanned with a TOTALAM CURRENT Assets 250 _35 n . ty 36 50 10 1018

12000 200 12,200 13 218 40 20 FIXED ASSETS Factories 15000 Equipment 3000 Lesso Accumulated r 6000 - Depreciation Goodwill e TOTAL FIXEO ASSETS & TOTAL ASSETS LIABILITIES A Equity Accounts Payable Accrued Eenpenses & Payable 2 Bond payable 7000 3 Addo Premuim on bond 100 3 2 payable Pension . liability 3 TOTAL LIABILITIES 3 STOCKHOLDER's Equity 3 Common stock - Additional paid in Capital - Treas why stock 3 Accumulated other comprehensie - Income - Preferred stock - Rularned with Earnings - TOTALMS CIABILITIES L Epury 7100 mum 350 7560 30 5000 (5) (252 500 IS8 13218
RETAINED EARNINGS = $158,000

A) Idle Equiment = 10% of Equipment

Therefore, Idle Equipment = 10% of 3000

= 300

Book Value of Idle Equipment = Idle Equiment - Accumulated Dep. Related to Idle Equipment(5%)

300 - ( 5% of 6000 )

300 - 300 = 0

As the book value of the Idle Equipment comes out to be zero, it clearly indicates that the investors can dispose of the idle equipment .

There will be no depreciation expense recorded after the asset is fully depreciated. No entry is required until the asset is disposed of through retirement, sale, salvage, etc.

B)