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ACC305 Wk 1 Assignments - E3-18, E3-20, JCase 3-5.doc

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E3-18 (Page 152)

 !" 
#$%
&'%
#$!" %

!('
)
*+$,
Exercise 3-18
1. Acid-test ratio = Quick assets ÷ Current liabilities = 1 .20
Quick assets = Current assets - Inventories
Quick assets = Current assets - $840,000
Current assets ÷ Current liabilities = 2.25
Current assets - $840,000 ÷ Current liabilities = 1 .20
$840,000 ÷ Current liabilities = 1.05
Current liabilities = $800,000
Current assets ÷ $800,000 = 2.25
Current assets = $1,800,000
2. Debt to equity ratio = Total liabilities ÷ Shareholders’ equity = 1.8
Total liabilities + Shareholders' equity = Total assets
Total liabilities + Shareholders' equity = $2,800,000
Let x equal shareholders' equity
1.8 x + x = $2,800,000
x = $1,000,000 = Shareholders' equity
3. Noncurrent assets = Total assets - Current assets
Noncurrent assets = $2,800,000 – 1,800,000 = $1,000,000
4. Long-term liabilities = Total assets - Current liabilities - Shareholders' equity
Long-term liabilities = $2,800,000 - 800,000 - 1,000,000 = $1,000,000

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E3-20 (Page 152)
-$.
/01###/.1/1
2/)1#3 "
Exercise 3-20
Current Acid-test Debt to
Action Ratio Ratio Equity Ratio
.$, . . .
! ., . . .
 4   
* 4 .  .
5 4 ) )
6 4'#*, ) ) .
7 &   
8 ( . . 
9 :,2  ) .
" 4, ) ) )
;$,
$ . . )
Judgment Case 3-5(Page 161)
<=$-$3;
$$2
&'%
.;.
#'

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Judgment Case 3-5
DEFICIENCIES:
1. Accounts receivable - if material, the allowance for uncollectible accounts
should be disclosed.
2. Note receivable - only the interest receivable of $3,000 should be classified
as a current asset. The $50,000 note receivable should be classified in the
noncurrent Investments category.
3. Inventories - the method used to cost inventory should be disclosed in a
note.
4. Investments - should be classified in the noncurrent Investments category.
Also, disclosures include information about the types of investments and
the accounting method used to value the investments.
5. Prepaid expenses - in the absence of information to the contrary, should be
classified as a current asset.
6. Land - should be classified in the noncurrent Investments category.
7. Equipment, net - should be classified in the Property, plant, and equipment
category. Original cost should be disclosed along with the accumulated
depreciation to arrive at the net amount. Also, the method used to compute
depreciation should be disclosed in a note.
8. Patent - should be classified in the Intangible assets category of noncurrent
assets.
9. Note payable - $20,000, the next installment, should be classified as a
current liability as current maturities of long-term debt. Also, note
disclosure is required for the note and bonds payable that provides
information such as payment terms, interest rates, and collateral pledged as
security for the debt.
10. Interest payable - should be classified as a current liability.
11. Common stock - the par value, if any, and the number of shares authorized,
issued and outstanding should be disclosed.

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