Critical Thinking: Balance Sheet (50 points)
Lander Inc. had the following balance sheet at December 31, 2008:
|
LANDER, INC. Balance Sheet December 31, 2008 |
||||
| Cash | $45,300 | Accounts payable | $33,800 | |
| Accounts receivable | $18,900 | Bonds payable | $35,000 | |
| Investments | $25,000 | Common stock | $190,000 | |
| Plant assets (net) | $78,000 | Retained earnings | $18,400 | |
| Land | $110,000 | |||
| Total Assets | $277,200 | Total Liabilities & Equity | $277,200 | |
During 2009 the following occurred.
- Lander liquidated its available-for-sale investment portfolio at a loss of $6,500.
- A tract of land was purchased for $31,000.
- An additional $20,000 in common stock was issued at par.
- Dividends totaling $5,000 were declared and paid to stockholders.
- Net income for 2009 was $29,000, including $7,000 in depreciation expense.
- Land was purchased through the issuance of $25,000 in additional bonds.
- At December 31, 009, Cash was $72,650, Accounts Receivable was $35,250, and Accounts Payable was $32,500.
- Prepare a statement of cash flows for the year 2009 for Lander.
- Prepare the balance sheet as it would appear at December 31, 2009.
Week 4
Critical Thinking: Bad Debts (50 points)
Chatter Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Chatter’s Accounts Receivable account was $389,000 and the Allowance for Doubtful Accounts had a debit balance of $5,000. The year-end balance reported in the balance sheet for the Allowance for Doubtful Accounts will be based on the aging schedule shown below:
|
Days Account Outstanding |
Amount |
Probability of Collection |
| Less than 16 days |
$293,000 |
.97 |
| Between 16 and 30 days |
$102,000 |
.89 |
| Between 31 and 45 days |
$ 70,000 |
.83 |
| Between 46 and 60 days |
$ 55,000 |
.76 |
| Between 61 and 75 days |
$ 28,000 |
.60 |
| Over 75 days |
$ 8,000 |
.30 |
- What is the appropriate balance for the Allowance for Doubtful Accounts at year-end?
- Show how accounts receivable would be presented on the balance sheet.
- What is the dollar effect of the year-end bad debt adjustment on the before-tax income?
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