PAPER 1
Prepare a three (3) page (minimum) paper (double spaced, 12-point Arial
font, 1” margins (top, bottom and both sides) based on the following information.
The paper should have an opening paragraph and a closing paragraph and follow
APA format. See the Rubric provided.
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 paper a list of items that require additional
disclosure, either on the face of the statement or in a note.
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, 2016, Rice’s controller prepared the following financial statements:
RICE CORPORATION
Balance Sheet At December 31, 2016
($ in 000s)
Assets
Cash
Marketable securities
Accounts receivable
Inventories
Allowance for uncollectible accounts
Property and equipment, net
?Total assets
Liabilities and Shareholders’ Equity
Accounts payable and accrued liabilities
Notes payable
Common stock
Retained earnings
?Total liabilities and shareholders’ equity
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$ 275
78
487
425
(50)
160
$1,375
$ 420
200
260
495
$1,375
RICE CORPORATION
Income Statement
For the Year Ended December 31, 2016
($ in 000s)
Net sales
Expenses:
Cost of goods sold
Selling and administrative
Miscellaneous
Income taxes
$1,580
$755
385
129
100
?Total expenses
1,369
Net income
$ 211
Additional Information:
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.
3. The remaining investments will not be sold until the year 2018.
4. Notes payable consist of two notes:
Note 1: $80,000 face value dated September 30, 2016. Principal and
interest at 10% are due on September 30, 2017.
Note 2: $120,000 face value dated April 30, 2016. Principal is due in two
equal installments of $60,000 plus interest on the unpaid balance. The two
payments are scheduled for April 30, 2017, and April 30, 2018.
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.
5. Selling and administrative expenses include $90,000 representing costs incurred
by the company in restructuring some of its operations. The amount is material.
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