Salvador Industries bought land and built its plant 20 years ago. The depreciation on the building...
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Salvador Industries bought land and built its plant 20 years ago. The depreciation on the building is calculated using the straight-line method, with a life of 30 years and a salvage value of $52.000 Land is not depreciated. The depreciation for the equipment, all of which was purchased at the same time the plant was constructed, is calculated using declining balance at 15 percent. Salvador currently has two outstanding loans: one for $54,000 due December 31, 2020, and another one for which the next payment is due in four years. During April 2020, there was a flood in the building because a nearby river overflowed its banks after unusually heavy rains. Pumping out the water and cleaning up the basement and the first floor of the building took a week. Manufacturing was suspended during this period and some inventory was damaged. Due to inadequate insurance, this unusual and unexpected event cost the company $98,000, net. a. Complete the balance sheet and income statement, using any of the above information that is necessary. b. Show how information from financial ratios can indicate whether Salvador Industries can manage an unusual and unexpected event, such as the flood, without threatening its existence as a viable business. First, complete the balance sheet. Start by completing the assets portion and then the liabilities and owners' equity portions. (Round amounts to the nearest whole dollar.) Salvador Industries Balance Sheet as of June 30, 2020 Current assets Cash Accounts receivable Inventories Prepaid services Total Current Assets Long-term assets Building Equipment Assets Less accumulated depreciation Less accumulated depreciation $ 208,000 495,000 342,000 2,810,000 2,008,000 162,000 Salvador Industries bought land and built its plant 20 years ago. The depreciation on the building is calculated using the straight-line method, with a life of 30 years and a salvage value of $52.000 Land is not depreciated. The depreciation for the equipment, all of which was purchased at the same time the plant was constructed, is calculated using declining balance at 15 percent. Salvador currently has two outstanding loans: one for $54,000 due December 31, 2020, and another one for which the next payment is due in four years. During April 2020, there was a flood in the building because a nearby river overflowed its banks after unusually heavy rains. Pumping out the water and cleaning up the basement and the first floor of the building took a week. Manufacturing was suspended during this period and some inventory was damaged. Due to inadequate insurance, this unusual and unexpected event cost the company $98,000, net. a. Complete the balance sheet and income statement, using any of the above information that is necessary. b. Show how information from financial ratios can indicate whether Salvador Industries can manage an unusual and unexpected event, such as the flood, without threatening its existence as a viable business. First, complete the balance sheet. Start by completing the assets portion and then the liabilities and owners' equity portions. (Round amounts to the nearest whole dollar.) Salvador Industries Balance Sheet as of June 30, 2020 Current assets Cash Accounts receivable Inventories Prepaid services Total Current Assets Long-term assets Building Equipment Assets Less accumulated depreciation Less accumulated depreciation $ 208,000 495,000 342,000 2,810,000 2,008,000 162,000
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Related Book For
Intermediate Accounting
ISBN: 9781119790976
18th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
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