Professional Simulation
The professional simulation for this chapter asks you to address questions related to the balance sheet.
Your client, Lance Livestrong, is preparing for a meeting with investors. He would like to provide appropriate information about his company’s financial position. Lance has provided the following accounts and balances at December 31, 2012, for Lance Livestrong Company.
|
Debit |
Credit |
|
|
Cash |
$50,000 |
|
|
Accounts Receivable (net) |
38,500 |
|
|
Inventory |
65,300 |
|
|
Equipment (net) |
104,000 |
|
|
Patents |
25,000 |
|
|
Notes and Accounts Payable |
$57,000 |
|
|
Long Term Liabilities |
100,000 |
|
|
Stockholders’ Equity |
125,800 |
|
|
$282,800 |
$282,800 |
Except for the following items, all adjustments have been recorded in the accounts.
1. Cash includes $200 petty cash and $20,000 in a fund designated for plant expansion in 2015.
2. The net accounts receivable is comprised of (a) accounts receivable $52,000 and (b) allowance for doubtful accounts $13,500.
3. Equipment had a cost of $132,000 and accumulated depreciation of $28,000.
4. Notes and Accounts Payable is comprised of the following: Accounts Payable $32,000; Income Taxes
Payable $8,000; Notes Payable $17,000, due June 30, 2013.
5. Long term liabilities are 10 year bonds paying interest at 9%, maturing June 30, 2020.
6. Stockholders’ equity is comprised of Common Stock ($1 par) $50,000; Additional Paid in Capital $55,000; and Retained Earnings $20,800.
Prepare a corrected classified balance sheet for Lance Live strong Company at December 31, 2012.
Live strong received a call from a concerned investor about the likelihood that Live strong Company would declare bankruptcy. Compute the Altman Z score and interpret it for Live strong in responding to this investor. Sales for 2012 was $210,000; earnings before interest and taxes (EBIT) for 2012 is $14,000. The market value (MV) of equity for Live strong is $225,000. Live strong is proud of his reporting and disclosure practices. He provides the three primary financial statements along with a president’s letter describing the company’s accomplishments for the past year.
He is wondering whether he is required by GAAP to provide any disclosure about his accounting policies. Use the FASB Codification database to provide the authoritative guidance related to accounting policy disclosures. (Provide text strings used in the search.)