Posted: June 27th, 2021

The Sanchez Corporation is preparing its 2012 balance sheet. The company records show the following

Assessment Instructions unit 7
Note: Some of the assessments in this
course build upon each other, so you are strongly encouraged to complete them
in the order in which they are presented.
For this assessment, complete
Problems 1, 2, and 3. You may use Word or Excel to complete the assessments
throughout this course, but you will find Excel to be most helpful for creating
spreadsheets. Tutorials for using Excel are provided in the Supplemental
Resources in the left navigation menu. If you use Excel, submit the assessment
in one Excel document, using separate tabs for each spreadsheet.
Problem
1: Working Capital, Current Ratio, Quick Assets, Acid-Test Ratio
The Sanchez Corporation is preparing
its 2012 balance sheet. The company records show the following selected amounts
at the end of the accounting period, December 31, 2012:Problem 1: Sanchez Corporation
Selected AmountsAccountDollar AmountTotal assets$600,000Total noncurrent assets$350,000LiabilitiesDollar AmountNotes payable (8%, due in 6 years)$40,000Accounts payable$60,000Income taxes currently payable$15,000Liability for withholding taxes$4,000Rent revenue collected in advance by up to four months$8,000Bonds payable (due in 15 years).$100,000Wages payable$6,000Property taxes payable$3,000Note payable (10%, due in 6 months)$22,000Interest payable$1,200Common stock$200,000Using the information provided in
the table, complete the following:Compute (a) working capital and
(b) the quick ratio (quick assets are $120,000).Then, answer the following
questions?Why is working capital
important to management?
How do financial analysts use
the quick ratio?
Would your computations be
different if the company reported $250,000 worth of contingent liabilities
in the notes to the statements? Explain. Include in your explanation a
definition of contingent liabilities and an example of a contingent
liability.Problem
2: Reading Publically Available Financial Statements
Refer to the Lowe's 2011 10-K. You
should have located these statements for previous assessment problems. Use
these statements and your prior knowledge of accounting, supplemented by
textbooks or other references of your choosing, including the NOTES to the
financial statements found in the Lowe's 2011 10-K, to answer the following
questions, which all refer to the fiscal year end 2012. Indicate the source of
each answer, including the page number from the Lowe's 2011 10-K.How many shares of common stock
are authorized at the end of the current year? How many shares are issued
and outstanding at the end of the current year?
Is there more than one class of
common stock? If so, what is the name of each class of common stock?
Is there any preferred stock?
If so, what is the dividend rate on the preferred stock, as a percentage
of the par value of the preferred stock?
Did the company pay dividends
on the common stock during the most recent reporting year? If so, what was
the total amount of dividends paid and how much were they per share?
Does the company have any
treasury stock? If so how much?
Has the company issued a stock
dividend or a stock split over the past three reporting years? If so, what
percentage and in what year or years?
Does the company's common stock
have par value? If it does, what is the par value?
Did the common buy back a
significant amount of its shares in the current year? You can see this in
the Statement of Stockholders' Equity as a reduction in shares.Problem
3: Comprehensive Problem 2
Bring together various financial
analysis measures and interpret their meaning in order to draw conclusions
about various companies.
Note that each situation provided is
to be considered independently of the others.
Situation A: The following tables represent
selected data from recent financial statements of Lincoln and Samuelson, Inc.
(dollars in thousands of dollars):
. selected items from balance sheets">Problem 3, Table 1: Lincoln and
Samuelson, Inc. Selected Items from Balance SheetsAssets (in thousands)December 31, 2012December 31, 2011Current assets: Cash and cash equivalents$4,000$3,400Accounts receivable (net of allowances of $32 and $28,
respectively)$6,500$5,700Selected
Income Statement Data for the Year Ended December 31
. selected income statement data">Problem 3, Table 2: Lincoln and
Samuelson, Inc. Selected Income Statement DataAccount201220112010Net sales (in millions)$6,020$5,425$5,000Net income (in millions)$300$285$220The company also reported bad debt
expense of $62,000 in 2012; $55,000 in 2011; and $49,500 in 2010.
Using the data provided, complete
the following for Lincoln and Samuelson, Inc.:Compute the dollar amount of
uncollectible accounts receivable that the company wrote off as
uncollectible in 2012. Show all of your work.
Assuming all sales were on
credit, what amount of cash did the company collect on accounts receivable
in 2012? Show all of your work.
Compute the company's net
profit margin for the three years presented. What does the trend suggest
to you about the company?Situation B: The Israel Manners Entertainment
Group uses the allowance approach to estimate bad debt expense, as is required
of all companies with significant sales on accounts receivable. At the end of
2012, the Manners Group reported a balance in accounts receivable of $4,350,000
and estimated that $44,000 of its accounts receivable would likely be
uncollectible. The allowance for doubtful accounts has a $1,500 debit balance
at year-end, prior to the adjustment needed to raise it to the $44,000 desired
amount. Use this information to answer the following questions:How is it possible that the
allowance for doubtful accounts has developed a debit balance instead of a
credit balance?
What amount of bad debt expense
should be recorded for 2012?
What amount will be reported on
the 2012 balance sheet as the net realizable amount of accounts
receivable?Situation C: At the end of 2012, the unadjusted
trial balance of Donovan, Inc. included $6,000,000 in accounts receivable, a
credit balance of $50,000 in the allowance for doubtful accounts, and sales
revenue (all on credit) of $200,000,000. Based on knowledge that the current
economy is in distress, Donovan increased its bad debt rate estimate to 0.4
percent on credit sales. Use this information to answer the following:What amount of bad debt expense
should be recorded for 2012?
What amount will be reported on
the 2012 balance sheet for the net realizable amount of accounts
receivable, after being reduced by the balance in the allowance for
uncollectible accounts?Situation D: BrightStar Company reported the
following inventory records for June, 2012:Problem 3, Table 3: BrightStar
Company Inventory RecordsDateActivity# of UnitsCost/UnitJune 1Beginning balance200$40June 5Purchase600$42June 8Sale @ $100 per unit500June 17Purchase400$45June 23Sale @ $100 per unit500Selling, administrative, and
depreciation expenses for the month were $20,000. BrightStar's tax rate is 35
percent. Use this information and the table above to complete the following:Calculate the cost of ending
inventory and the cost of goods sold under each of the following methods:First-in, first-out.
Last-in, first-out.
Weighted average.Using your answers from
question 1 above, answer the following:What is the gross profit
percentage under the FIFO Method?
What is net income under the
LIFO method?
Which method would you
recommend to BrightStar for tax purposes? Explain your recommendation.
If BrightStar also used the
method that you recommended for tax purposes on its balance sheet, would
BrightStar's current ratio suffer, compared to the use of FIFO?BrightStar uses the lower of
FIFO cost or market method to value its inventory for reporting purposes
at the end of the month. If inventory had a market replacement value of
$44 per unit, what would BrightStar report in its balance sheet for
inventory? Why?Situation E: BlackBurn Company purchased the
following on January 1, 2012:Office Equipment at a cost of
$100,000 with an estimated useful life to the company of five years and a
residual value of $10,000. The company uses the double-declining-balance
method of depreciation for the equipment.
Factory equipment at an invoice
price of $780,000 plus shipping costs of $20,000. The equipment has an
estimated useful life of 100,000 hours and no residual value. The company
uses the units-of-production method of depreciation for the equipment.
A patent at a cost of $450,000
with an estimated useful life of 15 years. The company uses the
straight-line method of amortization for intangible assets with no
residual value.Use the information above to
complete the following:Prepare a partial depreciation
schedule for 2012, 2013, and 2014 for the following assets. Round your
answers to the nearest dollar.Office equipment.
Factory equipment. The company
used the equipment for 8,000 hours in 2012; 9,000 hours in 2013; and
8,500 hours in 2014.On January 1, 2014, BlackBurn
altered its corporate strategy dramatically. The company sold the factory
equipment for $700,000 in cash. Record the entry related to the sale of
the factory equipment.
On January 1, 2014, when the
company changed its corporate strategy, its patent had estimated future
cash flows of $300,000 and a fair value of $250,000. What would the
company report on the income statement (account and amount) regarding the
patent on January 2, 2014? Explain your answer. Hint:You may need
to research this question using Internet sources.

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