Concept explainers
Integrating Case 4–12
• LO4–3
Rice Corporation is negotiating a loan for expansion purposes and the bank requires financial statements. Before closing the accounting records for the year ended December 31, 2018, Rice’s controller prepared the following financial statements:
RICE CORPORATION
Balance Sheet At December 3 1, 2018
($ in thousands)
Assets | |
Cash | $ 275 |
Marketable securities | 78 |
Accounts receivable | 487 |
Inventories | 425 |
Allowance for uncollectible accounts | (50) |
Property and equipment, net | 160 |
Total assets | $1,375 |
Liabilities and Shareholders’ Equity | |
Accounts payable and accrued liabilities | $ 420 |
Notes payable | 200 |
Common stock | 260 |
Retained earnings | 495 |
Total liabilities and shareholders’ equity | $1,375 |
RICE CORPORATION
Income Statement
For the Year Ended December 31, 2018
($ in thousands)
Net sales | $1,580 | |
Expenses: | ||
Cost of goods sold | $755 | |
Selling and administrative | 385 | |
Miscellaneous | 129 | |
Income taxes | 100 | |
Total expenses | 1,369 | |
Net income | $ 211 |
- 1. The company’s common stock is traded on an organized stock exchange.
- 2. The investment portfolio consists of short-term investments valued at $57,000. The remaining investments will not be sold until the year 2020.
- 3. Notes payable consist of two notes:
- 1. Note 1: $80,000 face value dated September 30, 2018. Principal and interest at 10% are due on September 30, 2019.
- 2. Note 2: $120,000 face value dated April 30, 2018. Principal is due in two equal installments of $60,000 plus interest on the unpaid balance. The two payments are scheduled for April 30, 2019, and April 30, 2020.
- 3. Interest on both loans has been correctly accrued and is included in accrued liabilities on the balance sheet and selling and administrative expenses on the income statement.
- 4. Selling and administrative expenses include $90,000 representing costs incurred by the company in restructuring some of its operations. The amount is material.
Required:
Identify and explain the deficiencies in the presentation of the statements prepared by the company’s controller. Do not prepare corrected statements. Include in your answer a list of items which require additional disclosure, either on the face of the statement or in a note.
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Intermediate Accounting
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