P.A.Whitehorse owns a successful gardening company called Valley Gardening Ltd.(Valley).The company,which has a year-end of December 31,2015,has asked you,the company accountant,to prepare a report outlining how the following items should be reported in its financial statements.
A.On January 1,2015,Valley took advantage of a vendor-provided financing offer to acquire computer equipment.Valley signed a $30,000 note payable in full on January 1,2017.Interest is payable annually at a rate of 4% per annum.Valley's bank previously advised that it would charge an interest rate of 8% per annum for a loan on similar terms.
B.A client of Valley was injured when she tripped on a piece of Valley's equipment that was in her yard.The injured party is suing Valley for $500,000 for pain and suffering and loss of income.Valley's solicitors advise that the company will almost certainly be found liable.Based on previous verdicts,counsel estimates that there is a 50% probability that the courts will award $400,000,and a 50% probability that the judgment will be $200,000.
C.Valley has guaranteed $100,000 of the indebtedness of Healthyway Inc.(HWI),a related corporation.HWI has a long record of profitability and the probability of default is thought to be remote.
D.Valley's loan agreement with the bank includes a covenant that Valley will maintain its current ratio of no less than 1.30:1.If Valley fails to meet this or any of the other covenants at year-end,all loan facilities become immediately due and payable.It appears that Valley's current ratio at year-end will be slightly less than this.
Required:
Prepare the report.

Question

Quizplus · Accepted Answer

The Answer of P.A.Whitehorse owns a successful gardening company called Valley Gardening Ltd.(Valley).The company,which has a year-end of December 31,2015,has asked you,the company accountant,to prepare a report outlining how the following items should be reported in its financial statements.
A.On January 1,2015,Valley took advantage of a vendor-provided financing offer to acquire computer equipment.Valley signed a $30,000 note payable in full on January 1,2017.Interest is payable annually at a rate of 4% per annum.Valley's bank previously advised that it would charge an interest rate of 8% per annum for a loan on similar terms.
B.A client of Valley was injured when she tripped on a piece of Valley's equipment that was in her yard.The injured party is suing Valley for $500,000 for pain and suffering and loss of income.Valley's solicitors advise that the company will almost certainly be found liable.Based on previous verdicts,counsel estimates that there is a 50% probability that the courts will award $400,000,and a 50% probability that the judgment will be $200,000.
C.Valley has guaranteed $100,000 of the indebtedness of Healthyway Inc.(HWI),a related corporation.HWI has a long record of profitability and the probability of default is thought to be remote.
D.Valley's loan agreement with the bank includes a covenant that Valley will maintain its current ratio of no less than 1.30:1.If Valley fails to meet this or any of the other covenants at year-end,all loan facilities become immediately due and payable.It appears that Valley's current ratio at year-end will be slightly less than this.
Required:
Prepare the report.

PA OwnsWhitehorse Owns a Successful Gardening Company Called Valley Gardening Ltd