Problem 1: How are assets, liabilities, and equity shown on the balance sheet?

Jupiter Products is preparing a balance sheet for the year ended June 30, for 2012. The following amounts were correct at June 30, 2012:

• Cash, $68,000.
  • Accounts receivable, $81,000.
  • Merchandise inventory, $134,000.
  • Prepaid insurance, $1,500.
  • Investment in stock of Z Corporation (classified as a long-term investment), $40,000.
  • Store equipment, $87,000.
  • Used store equipment held for disposal, $8,000, accumulated depreciation, store equipment, $29,000.
  • Accounts payable, $62,500.
• Long-term note payable, $42,000.
  • Income taxes payable, $10,000.
  • Retained earnings, $126,000.
  • Common stock, 100,000 shares outstanding, par value $1.00 per share (originally sold and issued at $1.50 per share).

Based on the data provided above, prepare a June 30, 2012, balance sheet. To complete this problem, you may wish to use the Excel template provided in the resources. Use the following major captions, and list the individual items under these captions:

1. Assets: Current Assets, Long-Term Investments, Fixed Assets, and Other Assets.
2. Liabilities: Current Liabilities and Long-Term Liabilities.
3. Stockholders' Equity: Contributed Capital and Retained Earnings.

Then, answer the following:

• What is the net book value of the store equipment? Explain what this value means.

Problem 3-2: Reading Published Financial Statements

In Units 1 and 2, you located the 2011 10-K for Lowe's Companies; you will refer to this information for this assessment. Use the Lowe's financial statements and your prior knowledge of accounting, supplemented by textbooks or other references of your choosing, to answer the following questions. For each answer, provide the page number references to the Lowe's 2011 10-K, if applicable.

1. How much cash and cash equivalents does the company report at the end of 2011?
2. What was the change in accounts receivable and how did it affect net cash provided by operating activities for the year 2011?
3. Compute the company's gross profit percentage for the most recent two years of 2011 and 2012. Has it risen or fallen? Explain the meaning of the change.
4. Where does the company disclose its revenue recognition policy? When does the company record revenues for the "sale" of gift cards?

Problem 3-3: Comprehensive Problem 1

In this problem, you will demonstrate your understanding of the various steps of the accounting cycle starting with the recording of transactions through the preparation and analysis of the financial statements. This is the first of two comprehensive problems in this course through which you will demonstrate your mastery of assessment topics. To complete this problem, you may wish to use the Excel template provided in the resources.

Patricia Allison began an engineering consulting business on January 1, 2011, organized as a corporation (PA Engineering, Inc.) under the laws of Delaware. The annual reporting period ends December 31. The trial balance on January 1, 2012, is provided in the following table:

Problem 3: PA Engineering Trial Balance, January 1, 2012

Transactions during 2012 are as follows:

1. Borrowed $20,000 cash on a five-year, 10 percent note payable, dated July 1, 2012.
2. Purchased land for a future building site; paid cash, $10,000.
3. Earned $200,000 in revenues for 2012, including $60,000 on credit and the rest in cash.
4. Sold 4,000 additional shares of capital stock for cash at $1.15 market value per share on January 3, 2012.
5. Incurred $120,000 in remaining expenses for 2012, including $20,000 on credit and the rest paid in cash.
6. Collected accounts receivable, $40,000.
7. Purchased other assets for $8,000 cash.
8. Paid accounts payable, $18,000.
9. Purchased office supplies on account for future use, $25,000.
10. Signed a three-year, $33,000 service contract to start February 1, 2013.
11. Declared and paid cash dividends, $10,000.

Data for adjusting entries:

1. Supplies counted on December 31, 2012, $18,000.
2. Depreciation for the year on the equipment, $21,000.
3. Interest accrued on notes payable (to be computed).
4. Wages earned by employees since the December 24 payroll but not yet paid, $15,000.
5. Income tax expense, $10,000, payable in 2013.

Complete the following for this problem:

• Set up T-accounts for the accounts on the trial balance and enter beginning balances.
• Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.
• Journalize and post the adjusting entries (l) through (p).
• Prepare an income statement (including earnings per share), statement of stockholders' equity , balance sheet, and statement of cash flows.
• Journalize.
• Compute the following ratios for 2012 and explain what the results suggest about the company.
  • Current ratio. (Industry average is 2.2 to 1.0.)
  • Total asset turnover. (Industry average is 3 times a year.)
  • Net profit margin. (Industry average is 5.00%.)