Chapter 3, Problem 3.5P

Balance sheet preparation

• LO3–2, LO3–3

The following is the ending balances of accounts at June 30, 2018 for Excell Company.

Account Title	Debits	Credits
Cash	$ 83,000
Short-term investments	65,000
Accounts receivable	280,000
Prepaid expenses (for the next 12 months)	32,000
Land	75,000
Buildings	320,000
Accumulated depreciation—buildings		$ 160,000
Equipment	265,000
Accumulated depreciation—equipment		120,000
Accounts payable		173,000
Accrued expenses		45,000
Notes payable		100,000
Mortgage payable		250,000
Common stock		100,000
Retained earnings		172,000
Totals	$1,120,000	$1,120,000

Additional Information:

1. The short-term investments account includes $18,000 in U.S. treasury bills purchased in May. The bills mature in July.

2. The accounts receivable account consists of the following:

a. Amounts owed by customers	$225,000
b. Allowance for uncollectible accounts—trade customers	(15,000)
c. Nontrade note receivable (due in three years)	65,000
d. Interest receivable on note (due in four months)	5,000
Total	$280,000

3. The notes payable account consists of two notes of $50,000 each. One note is due on September 30, 2018, and the other is due on November 30, 2019.

4. The mortgage payable is payable in semiannual installments of $5,000 each plus interest. The next payment is due on October 31, 2018. Interest has been properly accrued and is included in accrued expenses.

5. Five hundred thousand shares of no par common stock are authorized, of which 200,000 shares have been issued and are outstanding.

6. The land account includes $50,000 representing the cost of the land on which the company’s office building resides. The remaining $25,000 is the cost of land that the company is holding for investment purposes.

Required:

Prepare a classified balance sheet for the Excell Company at June 30, 2018.

To determine

Balance sheet:

Balance sheet is the statement which is prepared to report the financial position of the business. The balance sheet contains the various assets, liabilities and shareholders' equities of the business as on a given date.

To Prepare: A classified balance sheet for the company E at June 30, 2018.

Explanation of Solution

Classified balance sheet:

Classified balance sheet is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

Prepare a classified balance sheet for the company E at June 30, 2018 is as follows:

COMPANY E
Balance Sheet
At June 30, 2018
Particulars	Amount($)	Amount($)
Assets
Current assets:
Cash and cash equivalents(1)	101,000
Short-term investments (2)	47,000
Accounts receivable (3)	210,000
Interest receivable	5,000
Prepaid expenses	32,000
Total current assets		395,000
Investments:
Note receivable	65,000
Land held for sale(6)	25,000	90,000
Property, plant, and equipment:
Land(5)	50,000
Buildings	320,000
Equipment	265,000
	635,000
Less: Accumulated depreciation-buildings	(160,000
Less: Accumulated depreciation-equipment	(120,000)
Net property, plant, and equipment		355,000
Total assets		840,000
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable		173,000
Accrued expenses		45,000
Note payable		50,000
Current maturities of long-term debt		10,000
Total current liabilities		278,000
Long-term liabilities:
Note payable	50,000
Mortgage payable(4)	240,000
Total long-term liabilities		290,000
Total liabilities		568,000
Shareholders’ equity:
Common stock	100,000
Retained earnings	172,000
Total shareholders’ equity		272,000
Total liabilities and shareholders’ equity		840,000

Table (1)

Explanation:

Cash and cash equivalents:

Cash and cash equivalents are the highly liquid investments with the maturity period of less than three months from the date of purchase. It includes money market funds, treasury bills and commercial papers.

Working note:

Calculate cash and cash equivalents:

$\begin{array}{c}\text{Cash and cash equivalents}=\left(\begin{array}{l}\text{cash as per trial balance}+\\ \text{amount of U}\text{.S Treasury bill}\end{array}\right)\\ =\$83,000+\$18000\\ =\$101,000(1)\end{array}$

Calculate the amount of short-term investment:

$\begin{array}{c}\text{short-term investment}=\left(\begin{array}{l}\text{short-term investment as per trial balance}\\ -\text{amount of U}\text{.S treasury bill}\end{array}\right)\\ =\$65,0000-\$18,000\\ =\$47,000(2)\end{array}$

Calculate the amount of notes receivable, net of allowance for uncollectible accounts.

$\begin{array}{c}\begin{array}{l}\text{Notes receivable, net of allowance}\\ \text{ for uncollectible accounts}\end{array})=\left(\begin{array}{l}\text{Amount owned by customers}\\ \text{– Allowance for uncollectible accounts}\end{array}\right)\\ =\$225,000-\$15,000\\ =\$210,000(3)\end{array}$

Calculate the amount of mortgage payable.

$\begin{array}{c}\text{Mortgage payable}=\left(\begin{array}{l}\text{Mortgage payable as per trial balance}\\ \text{– Semiannual installment plus interest}\end{array}\right)\\ =\$250,000-\$10,000\\ =\$240,000(4)\end{array}$

Calculate the land value:

Total cost of land is given as $75000 in the trial balance. In total cost, $50,000(5) is considered as the property because where office buildings are resided. Remaining $25,000(6) of land is being held by the company for sale so it is considered as the investment.