duction of its next play. As part of the loan application, Berkeley was asked to prepare a balance sheet for the business. She prepared the following balance sheet, which is arranged correctly but which contains several errors with respect to such concepts as the business entity and the valuation of assets, liabilities, and owner’s equity. PROBLEM 2.8A Preparing Financial Statements; Effects of Business Transactions P P LO4 through S B LO6 excel PROBLEM 2.9A Preparing a Balance Sheet; Discussion of Accounting Principles LO4 P excel S A P LO8 BERKELEY PLAYHOUSE BALANCE SHEET SEPTEMBER 30, 2011 Assets Liabilities & Owner’s Equity Cash . . . . . . . . . . . . . . . . . .
duction of its next play. As part of the loan application, Berkeley was asked to prepare a balance sheet for the business. She prepared the following balance sheet, which is arranged correctly but which contains several errors with respect to such concepts as the business entity and the valuation of assets, liabilities, and owner’s equity. PROBLEM 2.8A Preparing Financial Statements; Effects of Business Transactions P P LO4 through S B LO6 excel PROBLEM 2.9A Preparing a Balance Sheet; Discussion of Accounting Principles LO4 P excel S A P LO8 BERKELEY PLAYHOUSE BALANCE SHEET SEPTEMBER 30, 2011 Assets Liabilities & Owner’s Equity Cash . . . . . . . . . . . . . . . . . .
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Helen Berkeley is the founder and manager of Berkeley Playhouse. The business needs to obtain a
bank loan to finance the production of its next play. As part of the loan application, Berkeley was
asked to prepare a balance sheet for the business. She prepared the following balance sheet, which
is arranged correctly but which contains several errors with respect to such concepts as the business
entity and the valuation of assets, liabilities, and owner’s equity.
PROBLEM 2.8A
Preparing Financial
Statements; Effects of
Business Transactions
P
P
LO4
through
S
B
LO6
excel
PROBLEM 2.9A
Preparing a Balance
Sheet; Discussion of
Accounting Principles
LO4 P
excel
S
A
P
LO8
BERKELEY PLAYHOUSE
BALANCE SHEET
SEPTEMBER 30, 2011
Assets Liabilities & Owner’s Equity
Cash . . . . . . . . . . . . . . . . . . . . $ 21,900 Liabilities:
Accounts Receivable . . . . . . . 132,200 Accounts Payable . . . . . . . . . $ 6,000
Props and Costumes . . . . . . . 3,000 Salaries Payable . . . . . . . . . . 29,200
Theater Building . . . . . . . . . . . 27,000 Total liabilities . . . . . . . . . . $ 35,200
Lighting Equipment . . . . . . . . 9,400 Owner’s equity:
Automobile . . . . . . . . . . . . . . . 15,000 Helen Berkeley,
Capital . . . . . . . . . . . . . . . . 173,300
Total . . . . . . . . . . . . . . . . . . . . $208,500 Total . . . . . . . . . . . . . . . . . . . . . $208,500
Problem Set A 73
In discussions with Berkeley and by reviewing the accounting records of Berkeley Playhouse,
you discover the following facts:
1. The amount of cash, $21,900, includes $15,000 in the company’s bank account, $1,900 on
hand in the company’s safe, and $5,000 in Berkeley’s personal savings account.
2. The accounts receivable, listed as $132,200, include $7,200 owed to the business by Artistic
Tours. The remaining $125,000 is Berkeley’s estimate of future ticket sales from September
30 through the end of the year (December 31).
3. Berkeley explains to you that the props and costumes were purchased several days ago for
$18,000. The business paid $3,000 of this amount in cash and issued a note payable to Actors’
Supply Co. for the remainder of the purchase price ($15,000). As this note is not due until
January of next year, it was not included among the company’s liabilities.
4. Berkeley Playhouse rents the theater building from Kievits International at a rate of $3,000 a
month. The $27,000 shown in the balance sheet represents the rent paid through September
30 of the current year. Kievits International acquired the building seven years ago at a cost of
$135,000.
5. The lighting equipment was purchased on September 26 at a cost of $9,400, but the stage
manager says that it isn’t worth a dime.
6. The automobile is Berkeley’s classic 1978 Jaguar, which she purchased two years ago for
$9,000. She recently saw a similar car advertised for sale at $15,000. She does not use the car
in the business, but it has a personalized license plate that reads “PLAHOUS.”
7. The accounts payable include business debts of $3,900 and the $2,100 balance of Berkeley’s
personal Visa card.
8. Salaries payable include $25,000 offered to Mario Dane to play the lead role in a new
play opening next December and $4,200 still owed to stagehands for work done through
September 30.
9. When Berkeley founded Berkeley Playhouse several years ago, she invested $20,000 in the
business. However, Live Theatre, Inc., recently offered to buy her business for $173,300.
There fore, she listed this amount as her equity in the above balance sheet.
Instructions
a. Prepare a corrected balance sheet for Berkeley Playhouse at September 30, 2011.
b. For each of the nine numbered items above, explain your reasoning in deciding whether
or not to include the items in the balance sheet and in determining the proper dollar
valuation.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education