Listed here in random order are the balance sheet accounts and related ending balances of the Eubanks Company as of December 31, 2007:

Additional information:

1. The company uses control accounts for inventories and property, plant, and equipment and lists the latter at its book value.

2. The straight-line method is used to depreciate buildings, machinery, and equipment, based upon their cost and estimated residual values and lives. A breakdown of property, plant, and equipment shows the following: land at a cost of $32,000, buildings at a cost of $182,400 and a book value of $120,200, machinery at a cost of $63,900 and related accumulated depreciation of $18,600, and equipment (40% depreciated) at a cost of $53,000.

3. Patents are amortized on a straight-line basis directly to the patent account.

4. Inventories are listed at the lower of cost or market value using an average cost. The inventories include raw materials $22,200, work in process $34,700, and finished goods $41,600.

5. Common stock has a $10 par value per share, 12,000 shares are authorized, 6,280 shares have been issued.

6. Preferred stock has a $100 par value per share, 1,000 shares are authorized, 400 shares have been issued.

7. The investment in bonds is carried at the original cost, which is the face value, and is being held to maturity.

8. Temporary investments in marketable securities were purchased at year-end.

9. The bonds payable mature on December 31, 2012.

10. The company attaches a one-year warranty on all the products it sells.

Required

1. Prepare the December 31, 2007 balance sheet of the Eubanks Company (including appropriate parenthetical notations).

2. Prepare notes to accompany the balance sheet that itemize company accounting policies, inventories, and property, plant, and equipment.

3. Compute the current ratio. Which current assets would you classify as liquid and which as separable according to the FASB’s conceptual guidelines? Why might these classifications be useful?

$ 24,700 Temporary investments Income taxes payable $19,100 Cash surrender value of life insurance Preferred stock Premium on bonds payable Cash Property, plant, and equipment (net) Accounts payable Common stock Retained earnings Land held for building site Allowance for doubtful accounts 8,900 Bonds payable 40,000 Additional paid-in capital on common stock 4,800 Inventories 11,600 Accounts receivable 80,000 30,300 98,500 32,300 Patents (net) 58,000 Investment in bonds 62,800 Additional paid-in capital on preferred stock 123,400 Miscellaneous current payables 19,500 Estimated liability for product warranties 1,500 229,300 18,200 25,000 23,400 6,200 7,300