Question

Walbash Company presents the following December 31, 2016, balance sheet:

Walbash Company

Sheet of Balances for Year Ended December 31, 2016

Current Assets                     $   44,300 Long-term investments            13,600 Property, plant, and equipment            123,500 Intangible assets                       7,700 Other assets                             13,600                                                 ______ Total assets                               $202,700

Current liabilities                      $   66,600 Long-term liabilities                      24,100 Contributed capital                        17,000 Unrealized capital                          22,500 Retained earnings                          72,500                                                        ______ Total equities                                 $202,700

The following information is also available:

Current assets include cash, $3,800; accounts receivable, $18,500; notes receivable (maturity date July 1, 2021), $10,000; and land, $12,000.

Long-term investments include a $4,600 investment in available-for-sale securities that are expected to be sold in 2017 and a $9,000 dollar investment in Dray Company bonds that are expected to be held until their December 31, 2019, maturity date.

Property, plant, and equipment include buildings costing $63,400, inventory costing $30,500, and equipment costing $29,600.

Intangible assets include patents that cost $8,200 (and on which $2,300 amortization has accumulated) and Walbash Co. treasury stock that cost $1,800.

Other assets include prepaid insurance (which expires on November 30, 2017), $2,900; sinking fund for bond retirement, $7,000; and trademarks that cost $3,700 and are not impaired.

Current liabilities include accounts payable, $19,400; bonds payable (maturity date December 31, 2021), $40,000; and accrued income taxes payable, $7,200.

Long-term liabilities include accrued wages, $4,100; and mortgage payable (which is due in five equal annual payments starting December 31, 2017), $20,000.

Contributed capital includes common stock ($5 par), $11,000; and preferred stock ($100 par), $6,000.

Unrealized capital includes premium on bonds payable, $4,300; additional paid-in capital on preferred stock, $2,400; additional paid-in capital on common stock, $14,700; and unrealized increase in value of securities available for sale $1,100.

Retained earnings includes unrestricted retained earnings, $37,800; allowance for doubtful accounts, $700; and accumulated depreciation on building and equipment of $21,000 and $13,000, respectively.

The following occurred in 2016 but were not included in the information above:

Walbash has discovered that a product it began manufacturing and selling in 2016 has defective bearings, sometimes causing a wheel to fall off. Walbash has issued a “recall” notice in newspapers and magazines in which it offers to replace the bearings. It estimates the cost of $200,000 for these repairs. No lawsuits have been filed for injury claims, although the company feels that there is a reasonable possibility that claims may total as high as $2 million.

Walbash has an incinerator behind one of its stores which is used to burn cardboard boxes received in shipments of inventory. The state environmental protection agency filed suit against the company in August 2016 for air pollution. Walbash expects to stop using the incinerator and begin recycling. However, its lawyers believe that it is probable that a fine of between $40,000 and $60,000 will be levied against the company, although they cannot predict the exact amount.

Walbash sold 1000 software packages for $300 each on credit (ignore cost of goods sold). With each software package, Walbash offered a premium in the form of a USB drive for the return of one proof of purchase. The offer expires June 30, 2017. The cost of each USB drive is $5 and Walbash estimates that 80% of the premiums will be redeemed. In 2016, 540 premiums were redeemed.

Required: Based on the preceding information, prepare a properly classified December 31, 2016, balance sheet for Walbash.

Answer 1

LIABILITIES	AMOUNT	TOTAL	ASSETS	AMOUNT	TOTAL
	$	$		$	$
CONTRIBUTED CAPITAL			FIXED ASSTS
COMMON STOCK (2,200 SHARES @ $ 5 PAR)	11,000.00		BUILDING	63,400.00
ADDITIONAL PAID IN CAPITAL ON COMMON STOCK ( INCULDED IN UNREALIZED CAPITAL )	14,700.00		EQUIPMENT	29,600.00
PREFERRED STOCK ( 60 SHARES @ $ 100 PAR )	6,000.00		LAND ( INCLUDED IN CURRENT ASSETS)	12,000.00	1,05,000.00
ADDITIONAL PAID IN CAPITAL ON PREFERRED STOCK ( INCULDED IN UNREALIZED CAPITAL )	2,400.00	34,100.00	CURRENT ASSETS
			CASH	3,800.00
UNREALIZED CAPITAL			RECEIVABLES	18,500.00
UNREALIZED INCREASE IN VALUE OF SECURITIES FOR SALE		1,100.00	NOTES RECEIVABLE	10,000.00
			INVENTORY (INCLUDED IN PROPERTY,PLANT & EQUIPMT)	30,500.00	62,800.00
CURRENT LAIBILITIES
PREMIUM ON BONDS PAYABLE ( INCLUDED IN UNREALIZED CAPITAL )	4,300.00		LONG TERM INVESTMENTS	13,600.00
ACCOUNTS PAYABLE	19,400.00		LESS: AVAILABLE FOR SALE SECURITIES	4,600.00	9,000.00
BONDS PAYABLE	40,000.00
ACCRUED INCOME TAX PAYABLE	7,200.00		SHORT TERM INVESTMENTS
ACCRUED WAGES ( INCLUDED IN LONG TERM LIABILITIES )	4,100.00		AVAILABLE FOR SALE SECURITIES		4,600.00
ALLOWANCE FOR DOUBTFUL ACCOUNTS ( INCLUDED IN RETAINED EARNINGS )	700.00	75,700.00
DEFERRED LIABILITY ( MORTGAGE PAYABLE )		20,000.00	INTANGIBLE ASSETS
			PATENTS	8,200.00
ACCUMULATED DEPRECIATION			LESS: AMORTIZATION	2,300.00
BUILDING ( INCLUDED IN RETAINED EARNINGS )	21,000.00			5,900.00
EQUIPMNT ( INCLUDED IN RETAINED EARNINGS )	13,000.00	34,000.00	WALBASH CO. TREASURY STOCK	1,800.00
			TRADEMARKS (INCLUDED IN OTHER ASSETS)	3,700.00	11,400.00
RETAINED EARNINGS		37,800.00
			OTHER ASSETS
			PREPAID INSURANCE	2,900.00
			SINKING FUND FOR BOND RETIREMENT	7,000.00	9,900.00
		2,02,700.00			2,02,700.00
CONTINGENT LIABILITIES
REPLACEMENT OF DEFECTIVE BEARINGS		2,00,000.00
LAW SUIT ON ENVIRONMENTAL PROTECTION		60,000.00
PREMIUM ON SOFTWARE PACKAGE		1,300.00
NOTES : 1. ESTIMATED COST OF $ 200,000 FOR THE REPAIR OF DEFECTIVE BEARINGS IS A FUTURE ESTIMATED COST.
THIS WILL HAVE NO EFFECT ON THE FINANCIAL STATEMENT. HENCE IT IS A CONTINGENT LIABILITY.
2. LAW SUIT ON ENVIRONMENTAL PROTECTION IS ALSO A CONTINGENT LIABILITY.
3. CALCULATION OF PREMIUM ON SOFTWARE PACKAGE IS AS FOLLOWS.
TOTAL NUMBER OF PACKAGES SOLD                                                  1,000 NUMBERS
COST OF PREMIUM OF EACH USB                                                         $ 5
TOTAL COST      ( 1,000 NUMBERS X $ 5 )                                             $ 5,000
ESTIMATED PERCENTAGE OF REDEMPTION                                         5%
TOTAL ESTIMATION ( 1,000 X 5% )                                                          800 NUMBERS
ALREADY REDEEMED IN YEAR 2016                                                        540 NUMBERS
BALANCE TO BE REDEEMED   ( 800 - 540 )                                             260 NUMBERS
COST PER EACH NUMBER                                                                           $ 5
TOTAL ESTIMATED COST ( 260 NUMBERS X $ 5 )                               $ 1,300