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A Corrected Balance Sheet Using a Work Sheet Approach

Chapter 3. Illustrated Solution: Problem 3-32. A Corrected Balance Sheet Using a Work Sheet Approach. Problem Background. A balance sheet is submitted to you for inspection and review. In the course of the review, you find the following data (a-j).

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A Corrected Balance Sheet Using a Work Sheet Approach

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  1. Chapter 3 Illustrated Solution: Problem 3-32 A Corrected Balance Sheet Using a Work Sheet Approach

  2. Problem Background • A balance sheet is submitted to you for inspection and review. In the course of the review, you find the following data (a-j). • Prepare a corrected balance sheet with accounts properly classified. • Note: The accounts for the year have already been closed. Therefore any Revenue or Expense corrections will have to be made through the Retained Earnings Account.

  3. Part 1 (a) Situation The possibility of uncollectible accounts on accounts receivable has not been considered. It is estimated that uncollectible accounts will total $4,800.

  4. Part 1 (a) Situation The possibility of uncollectible accounts on accounts receivable has not been considered. It is estimated that uncollectible accounts will total $4,800. Solution Retained Earnings…….………………………… 4,800 Allowance for Doubtful Accounts.…………. 4,800

  5. Part 1 (b) Situation $45,000 representing the cost of a large-scale newspaper advertising campaign completed in 2002 has been added to the inventories, because it is believed that this campaign will benefit sales of 2003. It is also found that inventories include merchandise of $16,250 received on December 31 that has not yet been recorded as a purchase.

  6. Part 1 (b) Situation $45,000 representing the cost of a large-scale newspaper advertising campaign completed in 2002 has been added to the inventories, because it is believed that this campaign will benefit sales of 2003. It is also found that inventories include merchandise of $16,250 received on December 31 that has not yet been recorded as a purchase. Solution Retained Earnings…….………………………… 45,000 Inventories………………………..…………. 45,000

  7. Part 1 (b) Situation $45,000 representing the cost of a large-scale newspaper advertising campaign completed in 2002 has been added to the inventories, because it is believed that this campaign will benefit sales of 2003. It is also found that inventories include merchandise of $16,250 received on December 31 that has not yet been recorded as a purchase. Solution Retained Earnings…….………………………… 45,000 Inventories………………………..…………. 45,000 Retained Earnings………………………………. 16,250 Accounts Payable…………………………… 16,250

  8. Part 1 (c) Situation The books show that property, plant, and equipment have a cost of $556,800 with depreciation of $180,000 recognized in prior years. However, these balances include fully depreciated equipment of $85,000 that has been scrapped and is no longer on hand.

  9. Part 1 (c) Situation The books show that property, plant, and equipment have a cost of $556,800 with depreciation of $180,000 recognized in prior years. However, these balances include fully depreciated equipment of $85,000 that has been scrapped and is no longer on hand. Solution Property, Plant, and Equipment.....…………… 180,000 Accum. Deprec.—Bldgs. and Equip……... 180,000

  10. Part 1 (c) Situation The books show that property, plant, and equipment have a cost of $556,800 with depreciation of $180,000 recognized in prior years. However, these balances include fully depreciated equipment of $85,000 that has been scrapped and is no longer on hand. Solution Property, Plant, and Equipment.....…………… 180,000 Accum. Deprec.—Bldgs. and Equip……... 180,000 Accum. Deprec.—Bldgs. and Equip…….….… 85,000 Property, Plant, and Equipment..…………. 85,000

  11. Part 1 (d) Situation Miscellaneous liabilities of $3,600 represent salaries payable of $9,500, less noncurrent advances of $5,900 made to company officials.

  12. Part 1 (d) Situation Miscellaneous liabilities of $3,600 represent salaries payable of $9,500, less noncurrent advances of $5,900 made to company officials. Solution Miscellaneous Liabilities ……………………… 3,600 Advances to Officers …………………………… 5,900 Salaries Payable …………………………… 9,500

  13. Part 1 (e) Situation Loan payable represents a loan from the bank that is payable in regular quarterly installments of $6,250.

  14. Part 1 (e) Situation Loan payable represents a loan from the bank that is payable in regular quarterly installments of $6,250. Solution $25,000 will be paid in the current year (Current Liability). $51,200 will be paid in future years.

  15. Part 1 (f) Situation Tax liabilities not shown are estimated at $18,250.

  16. Part 1 (f) Situation Tax liabilities not shown are estimated at $18,250. Solution Retained Earnings……………………………… 18,250 Taxes Payable……………………………… 18,250

  17. Part 1 (g) Situation Deferred income tax liability arising from temporary differences totals $44,550. This liability was not included in the balance sheet.

  18. Part 1 (g) Situation Deferred income tax liability arising from temporary differences totals $44,550. This liability was not included in the balance sheet. Solution Retained Earnings……………………………… 44,550 Deferred Tax Liability.……………………… 44,550

  19. Part 1 (h) Situation Capital stock consists of 6,250 shares of preferred 6% stock, par $20, and 9,000 shares of common stock, stated value $1.

  20. Part 1 (h) Situation Capital stock consists of 6,250 shares of preferred 6% stock, par $20, and 9,000 shares of common stock, stated value $1. Solution Capital Stock……..……………………………… 134,000 Preferred Stock……...……………………… 125,000 Common Stock……………………………… 9,000

  21. Part 1 (i) Situation Capital stock has been issued for a total consideration of $283,600; the amount received in excess of the par and stated values of the stock has been reported as paid-in capital.

  22. Part 1 (i) Situation Capital stock has been issued for a total consideration of $283,600; the amount received in excess of the par and stated values of the stock has been reported as paid-in capital. Solution 283,600 Total Consideration 125,000 6% Preferred Stock, $20 Par 9,000 Common Stock, $1 Stated Value 149,600 Paid-In Capital in Excess of Par

  23. Part 1 (j) Situation Net income and dividends were recorded in Paid-In Capital.

  24. Part 1 (j) Situation Net income and dividends were recorded in Paid-In Capital. Solution Paid-In Capital ………………….….…………… 458,100 Paid-In Capital in Excess of Par…..……… 149,600 Retained Earnings..………………………… 308,500

  25. Worksheet Step 1

  26. Worksheet Step 2

  27. Worksheet Step 3

  28. Worksheet Step 4

  29. Part 2 – Corrected Balance Sheet

  30. End of Problem

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