balance sheet

Project Description:

acc421 – intermediate accounting ii
learning team c tasks – week 4

problem 1:

the following is the adjusted trial balance of the wcv company as of december 31, 2013:

wcv company
adjusted trial balance
december 31, 2013
debits credits
cash $24,800
accounts receivables 98,900
allowance for doubtful accounts $5,300
prepaid insurance 3,600
inventory 186,600
long-term investments 205,100
land 51,400
construction work in process 75,000
patents 21,600
equipment 242,000
accumulated depreciation – equipment 84,700
unamortized discount on bonds payable 12,000
accounts payable 89,500
accrued expenses 29,800
notes payable 56,900
bonds payable 242,000
common stock 302,500
premium on common stock 27,200
retained earnings 83,100
$921,000 $921,000

additional information:

1. the company purchased the patents for $24,000 and amortizes the cost using the straight-line method of amortization.

2. in 2014, $1,200 of the unamortized discount on bonds payable will be amortized.

3. the long-term investments consist of both stocks and bonds. the costs of the investments equal the fair market value of the investments.

4. the company has an outstanding bank loan recorded as a notes payable. the loan is due in 2014 and is secured by long-term investments in the amount of $73,000.

5. the bonds payable pay 8% interest each december 31. they are due on january 1, 2024.

6. the construction work in process represents a new factory building under construction.

7. the land represents the land on which the new factory is being constructed.

8. the company uses the fifo method of inventory valuation.

9. the company has authorized 363,000 shares of common stock with a $1 par value. during 2013, there were 302,500 shares issued and outstanding.

10. the company ends its accounting year on december 31.


prepare a balance sheet in good form as of december 31, 2013 which fully discloses all important information.

problem 2:

you are the audit supervisor performing the external gaap audit of the ezi company for the year ended december 31, 2014. your staff completed the field work on the audit on february 4, 2015 and completed the audit review on february 27, 2015. the financial statements are scheduled to be released to the public on march 10, 2015.

the ezi company manufactures and distributes after market custom auto parts.

you now have the audit results provided to you by your staff. you must review and approve the results before the audit opinion will be released to the ezi company for inclusion in their annual report to the sec and to their shareholders.

during your review, you encounter the following issues that are causing you some concern:

1: on february 12, 2015 a competitor of the ezi company announced a new product that will impact a major product of the ezi company. the new product will complete directly with ezi company’s product but will be offered at a price 50% lower than the current price point of ezi company’s product. the ezi company has notified you that they intend to lower their price point in order to remain competitive. you ask your staff to analyze the impact and they report that the new price point will be more than sufficient to cover the variable costs of the product but that the product will have an overall negative profit margin. you have determined that the impact to future profits is material. since the competitor announced the new product after the end of the year under audit, your staff concluded that there was no need to include any disclosure notation regarding this issue.

2: during 2014 the company replaced its truck fleet by leasing new trucks from ryder truck rental, inc. under a 6 year lease with a monthly lease payment of $12,300 which is recorded by the ezi company on their income statement as a separate line item titled “truck fleet rental expense”. the ezi company is responsible for all operating expenses such as insurance, taxes, fuel, maintenance, etc. the value of the new trucks was $587,000 at the inception of the lease and the trucks have an estimated economic life of 8 years. at the conclusion of the lease term, the ezi company has the option to purchase the trucks for $10 each.

3: in 2012, the ezi company secured a loan in the amount of $411,000. the loan has a term of 12 years and required monthly payments of $5,400. a provision of the loan agreement that was required by the lender was that dividend payments by the ezi company could not exceed net income earned after the origination date of the loan. since the loan was received, the ezi company has paid dividends in the total amount of $376,000 and net income has totaled $669,000. you asked for additional information from your staff and they reported that retained earnings was $493,000 at the time of the loan origination. the retained earnings amount on the current balance sheet under audit is $786,000. your staff concluded that since retained earnings has grown and dividends have not exceeds net income subsequent to the inception of the loan, there is no restriction on retained earnings.

4: the ezi company routinely pays dividends on its common stock each quarter. the company has no outstanding preferred stock. in order to raise cash for building an anticipated new factory complex, no dividends were paid in the fourth quarter of 2014 and they do not intend to pay any dividends during 2015. if everything goes as planned, they will resume dividend payments after next year. you staff did not include any disclosure related to the company’s dividend policy. however the company intends to discuss this issue in their president’s letter to shareholders.


for each of the above items, indicate any adjustments that should be made to the financial statements and any additional disclosures that should be included in the notes to the financial statements.

(note: the president’s letter to shareholders is not audited and is not included within the scope in your audit opinion.)
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