Chapter 4, Problem 4.12BYP

Integrating Case 4–12

Balance sheet and income statement; Chapters 3 and 4

• 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. 1. The company’s common stock is traded on an organized stock exchange.
2. 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. 3. Notes payable consist of two notes:
4. 1. Note 1: $80,000 face value dated September 30, 2018. Principal and interest at 10% are due on September 30, 2019.
5. 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.
6. 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.
7. 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.