ACC 302 - Current Liabilities Case - 40 points
Smyth Corporation had the following balances at 12/31/xl:
CASH $ 2,200,000
INVESTMENTS-TRADING $ 3.750.000
ACCOUNTS RECEIVABLE (NET) $ 5.500.000
INVENTORIES $2,600,000
PROPERTY, PLANT, & EQUIP (NET) $5.450.000
ACCOUNTS PAYABLE $4.510.000
INTEREST PAYABLE $90.000
ACCRUED VACATION PAY $7.000
LIABILITY FOR PRODUCT WARRANTIES $21,000
NOTES PAYABLE (long term) $7.000.000
BONDS PAYABLE $5.000.000
COMMON STOCK $1,000,000
COMMON STOCK DIVIDENDS DISTRIBUTABLE $2,000
RETAINED EARNINGS (1/1/x1) $370,000
SALES $19,000,000
COST OF GOODS SOLD $10 900.000
OPERATING EXPENSES $4.700.000
INTEREST EXPENSE $1,900,000
Additional information. No adjustments have been made for any of the additional information. No reversing entrieswere made at 1/1/x1. (Hints!!! Do not change "Cash".) Financial statements are not issued until March of x2.)
A.
Smyth has a policy that allows employees 8 vacation days annually. The vacation days vest after an
employee has been employed for six months. Smyth has a workforce of 20 employees each of whom has
been with the company for at least three years. The average weekly salary is $1,000 (assume a five day work
week). During the year employees took vacation hours totaling 112 days. The bookkeeper debited Wage
Expense when the employees were paid for these days. (Ignore payroll taxes)
b.
Sales include state sales tax at 4%. The bookkeeper debits Sales Tax Expense when sales taxes are paid to
the state. At year end, sales tax of $21,000 is due to the state. Sales Tax Payable at 1/1/xl was zero.
C.
Warranty costs are estimated at 1.6% of selling price. Actual warranty costs incurred during the year totaled
$245,000. The bookkeeper debits warranty expense as these costs are incurred.
d.
The corporate tax rate is 40%.
E.
The company president receives a bonus based upon 10% of net income.
f.
$1,000,000 of the bonds mature 6/30/x2. The minutes of the last board meeting state that the company plans
to refinance the bonds on a long-term basis when they mature. You have determined that the company has no
commitments from any lender to take care of these bonds.
g.
$1,000,000 of the bonds matured 1/31/x2. They were extinguished by issuing common stock. (Today's date
is 2/1/x2).
h.
Smyth issued a 2 year, $90,000, noninterest bearing note on 12/31/x1 for the purchase of a machine. The
market rate of interest is 10%.
i.
Cash dividends of $15,000 were declared on 12/15/x1 to be paid to stockholders of record on 1/ 15/x2 to be
paid 1/31/x2.
j.
The company is suing a competitor for patent infringement. The attorneys believe that Smyth will win the
law suit. The settlement may be for as much as $90,000. The attorneys believe Smyth will probably receive
$40.000.
k.
The company is being sued by a customer who was hurt while visiting the corporate office. The attorneys
believe that Smith may lose as much as $100,000, but that the customer will probably settle for $30,000.
Required:
1.
Prepare a balance sheet and income statement for Smyth Company. Show calculations related to the above
additional information.
2.
Calculate the following financial information:
A. Working capital B. Current Ratio
C. Quick Ratio
