Assessment 2: Balance Sheet, Income Statement, and Cash Flow

Assessment 2 Information, Parts 1–4

Part 1: Classified Balance Sheet

The adjusted trial balance of Jordan Contracting and other related information for the year 2018 is presented below.

Adjusted Trial Balance
December 31, 2018
	Debits	Credits
Cash	$22,550
Accounts Receivable	89,925
Allowance for Doubtful Accounts		$4,785
Prepaid Insurance	3,245
Inventory	169,675
Long-term Investments	186,450
Land	46,750
Construction Work in Progress	68,200
Patents	19,800
Equipment	220,000
Accumulated Depreciation of Equipment		77,000
Unamortized Discount on Bonds Payable	11,000
Accounts Payable		81,400
Accrued Expenses		27,060
Notes Payable		51,700
Bonds Payable		220,000
Capital Stock		275,000
Premium on Capital Stock		24,750
Retained Earnings		75,900
	$837,595	$837,595

Additional Information

1. The LIFO method of inventory valuation is used.

2. The cost and fair value of the long-term investments consisting of stock and bonds is the same.

3. The amount of Construction Work in Progress account represents the costs expended to date on a building in the process of being constructed. The land on which the building sits cost $46,750.

4. The patents were purchased at a cost of $11,000 and are being amortized on a straight-line basis.

5. $1,000 of the unamortized discount on bonds payable will be amortized in 2019.

6. The notes payable are bank loans secured by long-term investments with a fair value of $66,000. The bank loans will mature in 2019.

7. The bonds payable have an interest rate of 11%. Interest is payable each December 31, and the bonds mature January 1, 2020.

8. 600,000 shares of $1 par value common stock are authorized and 150,000 shares have been issued and are outstanding.

Part 2: Income Statement

Presented below is information related to D. B. Stanley Company for 2018.

Retained earnings balance, January 1, 2018	$539,000
Sales for the year	13,750,000
Cost of goods sold	9,350,000
Interest revenue	38,500
Selling and administrative expenses	2,585,000
Write-off of goodwill (not tax deductible)	451,000
Income taxes for 2018	497,750
Gain on the sale of investments (normal recurring)	60,500
Loss due to flood damage-extraordinary item (net of tax)	214,500
Loss on the disposition of the wholesale division (net of tax)	242,000
Loss on operations of the wholesale division (net of tax)	49,500
Dividends declared on common stock	137,500
Dividends declared on preferred stock	38,500

Part 3: Cash Flow Statement Analysis

The financial statements of Falcon Company are found below.

Comparative Balance Sheets
December 31
Assets		2018		2017
Cash		$14,300		$18,150
Accounts receivable		15,400		7,700
Merchandise inventory		20,900		13,750
Property, plant, and equipment	$38,500		$42,900
Less: Accumulated depreciation	-14,850	23,650	13,200	29,700
Total		$74,250		$69,300
Liabilities and Stockholders’ Equity
Accounts payable		$17,050		$23,650
Income taxes payable		14,300		11,000
Bonds payable		11,000		5,500
Common stock		13,750		13,750
Retained earnings		18,150		15,400
Total		$74,250		$69,300
Falcon Company
Income Statement
For the Year Ended December 31, 2018
Sales			$157,300
Cost of goods sold			106,700
Gross profit			50,600
Selling expenses	$15,400
Administrative expenses	4,950		20,350
Income from operations			30,250
Interest expense			3,850
Income before income taxes			26,400
Income tax expense			3,850
Net income			$22,550

Additional Information

1. Dividends of $19,800 were declared and paid.

2. During 2018 equipment was sold for $5,500 cash. The equipment originally cost $8,250 and had a book value of $5,500 at the time of the sale.

3. All depreciation expense, $4,400, was in the selling expense category.

4. All sales and purchases were on account.

5. Additional equipment was purchased for $3,850 cash.

Part 4: Revenue Recognition

Worth More Industries is split into two different divisions—Clear Water Pools and Madoff Securities. Each operates with its own accounting system and revenue recognition method.

Clear Water Pools

For fiscal year ending November 30, 2018, Clear Water Pools worked on one construction project. It was awarded a contract for $1,650,000 on May 18, 2018, to construct a swimming pool, and the construction started on June 19, 2018. Its estimated completion costs were $1,375,000 for a 2-year time period that started at the date of the contract. On November 30, 2018, $429,000 of construction costs had been incurred and $522,500 progress billings had been made. On November 30, 2018, the construction costs to complete the project were reviewed and the estimated amount was $891,000, which was lower than projected. The change was due to a decline in raw material costs. Revenue recognition is based upon a percentage-of-completion method.

Madoff Securities

Madoff Securities uses manufacturers’ agents who forward orders for alarm systems and the down payments. Madoff then ships its products from the factory to customers directly. The balance due is then billed directly to the customer, including shipping costs. Orders for $3,300,000 were received during the fiscal year ending November 30, 2018. Madoff received $330,000 in down payments; it billed $2,860,000 for goods and $55,000 in freight costs. Manufactures agents are paid a 10% commission on product price once goods are shipped to the customer. Madoff offers a 90-day warranty on goods after shipment, and the returns have been about 1% of sales. Revenue is recognized at the point of sale by this division.