Question

(Critique of Balance Sheet Format and Content) The following is the balance sheet of Sameed Brothers Corporation (000s omitted).

SAMEED BROTHERS CORPORATION
BALANCE SHEET
DECEMBER 31, 2017
Assets
Current assets
Cash	\(26,000
Marketable securities	18,000
Accounts receivables	25,000
Inventory	20,000
Supplies	4,000
Stock investment in subsidiary company	20,000	\)113,000
Investment
Treasury stock		25,000
Property, Plant and Equipment
Building and land	91,000
Less: Reserve for depreciation	(31,000)	60,000
Other assets
Cash Surrender value of life insurance		19,000
Total assets		\(217,000
Liabilities and Stockholder’s equity
Accounts payable	\)22,000
Reserve for income taxes	15,000
Customer’s account with credit balance	1	\(37,001
Deferred credit
Unamortized premium on bonds payable		2,000
Long term liabilities
Bonds payable		60,000
Total liabilities		99,001
Common stock
Common stock at par \)5	85,000
Earned surplus	24,999
Cash Dividend declared	8,000	117,999
Total liabilities and Stockholder’s equity		$217,000

Instructions

Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized

Short answer

Items not represented correctly:

1. Cash surrender value of life insurance.

2. Stock investment in a subsidiary company.

3. Treasury stock.

4. Unamortized premium on bonds payable.

5. Earned surplus.

6. Cash dividend declared.

Step-by-step solution

Definition of Unamortized Premium

Unamortized premium refers to the amount ofdifference between the book value of the bonds reported and the face value of the bonds. Such premium is amortized using the two methods; straight line and effective interest rate.

Correct Balance Sheet

SAMEED BROTHERS CORPORATION
BALANCE SHEET
DECEMBER 31, 2017
Assets
Current assets
Cash		$26,000
Marketable securities		18,000
Accounts receivables		25,000
Inventory		20,000
Cash Surrender value of life insurance		19,000
Supplies		4,000
Total current assets		112,000
Long term Investment
Investment in subsidiary company		20,000
Property, Plant, and Equipment
Building and land	$91,000
Less: Accumulated depreciation	(31,000)	60,000
Total assets		$192,000
Liabilities and Stockholder’s equity
Accounts payable		$22,000
Dividend payable		8,000
Unearned revenue		1
Long term liabilities
Reserve for income tax		15,000
Bonds payable	$60,000
Add: Unamortized premium on bonds payable	2,000	62,000
Total liabilities		107,001
Common stock
Common stock at par $5		85,000
Reserves and surplus
Retained earnings	24,999
Less: treasury stock	(25,000)	(1)
Total liabilities and Stockholder’s equity		$192,000