a. Homer recently had the building assessed and it was determined that its fair value is $730,000.

b. Included in the land account was $50,000 of land held for speculative purposes.

c. One third of the notes-payable will be due within the coming year. All of the interest is due within the current year.

 d. The equipment was purchased two years ago. It has a $10,000 salvage value and a 30-year useful life. However, Homer only expected to use it for 20 years.

e. On December 30, 2015, Homer paid its insurance policy for two years in advance.

f. The company is authorized to issue 100,000 shares of stock. There have been no additional shares of stock sold or repurchased since the initial issuance.

g. The original cost of the inventory was $185,600. The company uses the LIFO method to value its inventory.

Instructions:

1.  Prepare a classified balance sheet in good form.

2.  Compute Homer's a) Current ratio, b) Quick Ratio, c) Debt-to-Equity Ratio

3.  Do you consider Homer Corporation to be very liquid?

4.  Does Homer finance its operations using primarily debt or equity?

    Which ratio(s) did you use to determine this answer?

5.  Which principle, constraint or assumption did the company follow or violate by reporting the building at its purchase price?

6.  Which principle, constraint or assumption did the company follow or violate by using the lower useful life in determining the depreciation for the equipment?

7.  What was the selling price of the common stock?

8.   In your own words, define the following terms:

     a)  Related-party transactions

     b) Operational risk

     c) Financial leverage

9.  Homer Corporation recently had their financials audited and they received an unqualified opinion. Should Homer Corporation be concerned about this evaluation? Explain.

10.  Why would a company not want to issue all of its authorized stock?