Corporate finance

You have been asked to assist the chief accountant of the Stephen King Corporation in the preparation of a balance sheet. Presented below is the balance sheet of Stephen King Corporation for the current year 2011.

Stephen King Corporation

Balance Sheet

Dec 31,2011

Current assets $435000

Investments $640000

Property, plant, and equipment $1720000

Intangiable assets $305000

total assets $3100000

Current Liabilities $330000

Long-term liabilities $1000000

total liabilities and stockh equity 3100000

consider the following information:

1-The current assets section includes: cash $100000, accts receivable $170000 less $ 10000 for allowance for doubtful accts, inventories $180000, and unearned revenue $5000. The cash balance is composed of $ 114000, less a bank overdraft of $ 14000. Inventorie are stated on the loweer of the FIFO cost or market.

2- The investments section includes: The cash surrender value of life insurance contract $40000; investment in common stock, short-term (tradind) $80000 and long-term (available-for-sale) $270000; and bond sinking fund $250000. The cost and fair value of investments in common stock are the same.

3- Property, plant, and equipment includes: buildings $1040000 less accumulated depreciation $360000; equipment $450000 less accumulated depreciation $180000; land $500000; and land held for future use $270000.

4-Intangible assets include : a franchise $165000; goodwill $100000; and discount on bonds payable $40000

5- Current liabilities include: accts payable $90000; notes payable-short term $80000 and long-term $120000; and taxes payable $40000

6- Long-term liabilities are compose solely of 10% bonds payable due in 2020

The company’s management does not elect to use the fair value option for any of its financial assets or liabilities.

– Prepare a classified balance sheet

Which of these statements is false? Bonds are always less risky than stocks. The bond market is larger than the stock market. Some bonds offer high potential for rewards and, consequently, higher risk. Bonds are more important capital sources than stocks for companies and governments.

Solution:

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