Concept explainers
This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.
To determine: The find out the errors while reviewing the balance sheet.
Explanation of Solution
Classified balance sheet:
“A balance sheet with classification of assets and liabilities based on their current and noncurrent status and grouped under separate headings and sub-headings for its enhanced usefulness is known as classified balance sheet”.
Following is the balance sheet of incorporation LG:
Incorporation LG | ||
Balance Sheet | ||
At December 31, 2018 | ||
Assets | Amount in $ | Amount in $ |
Current assets: | ||
Cash (1) | 20,000 | |
uncollectible accounts of $5,000 (2) |
55,000 |
|
Inventories | 55,000 | |
Total current assets | 130,000 | |
Investments: | ||
Restricted cash | 20,000 | |
Note receivable | 20,000 | |
Total investments | 40,000 | |
Property, plant, and equipment: | ||
Machinery | 190,000 | |
Less: |
-70,000 | |
Net property, plant, and equipment | 120,000 | |
Intangible assets: | ||
Franchise | 30,000 | |
Total assets | $320,000 | |
Liabilities and Shareholders' Equity | Amount in $ | Amount in $ |
Current liabilities: | ||
Accounts payable | $50,000 | |
Interest payable | 5,000 | |
Note payable (4) | 50,000 | |
Total current liabilities | 105,000 | |
Long-term liabilities: | ||
Bonds payable | 110,000 | |
Total liabilities | 215,000 | |
Shareholders’ equity: | ||
Common stock, no par value; 100,000 shares authorized; 50,000 shares issued and outstanding (5) |
70,000 |
|
|
35,000 | |
Total shareholders’ equity | 105,000 | |
Total liabilities and shareholders’ equity | $320,000 |
Working notes:
1. Calculate the amount of cash:
2. Calculate the amount of accounts receivable:
3. Calculate the amount of accumulated depreciation:
4. Calculate the amount of note payable:
5. Calculate the amount of common stock:
Hence, the total assets and the total liabilities and share holders’ equity agrees to the amount of $320,000.
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Chapter 3 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
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