Chapter 5: Q32Q. (page 238)
What is the profession’s recommendation in regard to the use of the term “surplus”? Explain.
Professionals recommend that business entities not use “surplus” in the balance sheet.
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(Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2017 are presented as follows.
EASTWOOD COMPANY | ||
Adjusted Trial Balance | ||
December 31, 2017 | ||
Debit | Credit | |
Cash | \(41,000 | |
Accounts receivables | 163,500 | |
Allowance for doubtful account | \)8,700 | |
Prepaid Insurance | 5,900 | |
Inventory | 208,500 | |
Equity Investment (long-term) | 339,000 | |
Land | 85,000 | |
Construction in the process (building) | 124,000 | |
Patent | 36,000 | |
Equipment | 400,000 | |
Accumulated depreciation – Equipment | 240,000 | |
Discount on bonds payable | 20,000 | |
Account payable | 148,000 | |
Accrued liabilities | 49,200 | |
Notes payable | 94,000 | |
Bond payable | 200,000 | |
Common stock | 500,000 | |
Paid-in-capital in Excess of par – Common stock | 45,000 | |
Retained earnings | 138,000 | |
Total | \(1,422,900 | \)1,422,900 |
Additional information:
1. The LIFO method of inventory value is used.
2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same.
3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed costs \(85,000, as shown in the trial balance.
4. The patents were purchased by the company at a cost of \)40,000 and are being amortized on a straight-line basis.
5. Of the discount on bonds payable, \(2,000 will be amortized in 2018.
6. The notes payable represent bank loans that are secured by long-term investments carried at \)120,000. These bank loans are due in 2018.
7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2028.
8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.
Instructions
Prepare a balance sheet as of December 31, 2017, so that all-important information is fully disclosed.
BE5-2 (L03) Koch Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2017: Cash \(7,000, Land \)40,000, Patents \(12,500, Accounts Receivable \)90,000, Prepaid Insurance \(5,200, Inventory \)30,000, Allowance for Doubtful Accounts \(4,000, and Equity Investments (trading) \)11,000. Prepare the current assets section of the balance sheet, listing the accounts in proper sequence.
E5-6 (L02,3) (Corrections of a Balance Sheet) The bookkeeper for Geronimo Company has prepared the following balance sheet as of July 31, 2017.
GERONIMO COMPANY | |||
Balance Sheet | |||
As of July 31, 2017 | |||
Cash | \(69,000 | Notes and accounts payable | \)44,000 |
Account receivable (net) | 40,500 | Long-term liabilities | 75,000 |
Inventory | 60,000 | Stockholder’s equity | 155,500 |
Equipment (net) | 84,000 | ||
Patents | 21,000 | ||
\(274,500 | \)274,500 |
The following additional information is provided.
1. Cash includes \(1,200 in a petty cash fund and \)15,000 in a bond sinking fund.
2. The net accounts receivable balance is comprised of the following two items: (a) accounts receivable \(44,000 and (b) allowance for doubtful accounts \)3,500.
3. Inventory costing \(5,300 was shipped out on consignment on July 31, 2017. The ending inventory balance does not include the consigned goods. Receivables in the amount of \)5,300 were recognized on these consigned goods.
4. Equipment had a cost of \(112,000 and an accumulated depreciation balance of \)28,000.
5. Income taxes payable of $6,000 were accrued on July 31. Geronimo Company, however, had set up a cash fund to meet this obligation. This cash fund was not included in the cash balance but was offset against the income taxes payable amount.
Instructions
Prepare a corrected classified balance sheet as of July 31, 2017, from the available information, adjusting the account balances using the additional information.
Included in Outkast Company’s December 31, 2017, trial balance are the following accounts: Prepaid Rent \(5,200, Debt Investments (to be held to maturity until 2020) \)56,000, Unearned Fees \(17,000, Land (held for investment) \)39,000, and Notes Receivable (long-term) $42,000. Prepare the long-term investments section of the balance sheet.
P5-4 (L03) GROUPWORK (Preparation of a Corrected Balance Sheet) The balance sheet of Kishwaukee Corporation as of December 31, 2017, is as follows.
KISHWAUKEE CORPORATION | |
Balance Sheet | |
December 31, 2017 | |
Assets | |
Goodwill (Note 2) | \(120,000 |
Building (Note 1) | 1,640,000 |
Inventory | 312,100 |
Land | 950,000 |
Accounts receivable | 170,000 |
Treasury Stock (50,000 shares) | 87,000 |
Cash on hand | 175,900 |
Assets allocated to trustee for plant expansion | |
Cash in bank | 70,000 |
Debt investment (held to maturity) | 138,000 |
\)3,663,000 | |
Equities | |
Note payable (Note 3) | \(600,000 |
Common stock authorized and issue, 1,000,000 shares no par | 1,150,000 |
Retained earnings | 103,000 |
Non-controlling Interest | 55,000 |
Appreciation capital (Note 1) | 570,000 |
Income tax payable | 75,000 |
Reserve for depreciation recorded to the date of building | 410,000 |
\)3,663,000 |
Note 1: Buildings are stated at cost, except for one building that was recorded at appraised value. The excess of appraisal value over cost was \(570,000. Depreciation has been recorded based on cost.
Note 2: Goodwill in the amount of \)120,000 was recognized because the company believed that book value was not an accurate representation of the fair value of the company. The gain of \(120,000 was credited to Retained Earnings.
Note 3: Notes payable are long-term except for the current installment due of \)100,000.
Instructions
Prepare a corrected classified balance sheet in good form. The notes above are for information only
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