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FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Balance Sheet Correction Problem the balance sheet (B), income statem Below is the December 31, 2020 preliminary balance sheet of Muskrat Toupees Inc.: Muskrat Toupees, Inc. Balance Sheet December 31, 2020 Current assets Investments Property, plant, and equipment Intangible assets Current liabilities Long-term liabilities Stockholders' equity $ 229,500 324,500 823,000 152,500 Total assets $1,529,500 $ 414,500 450,000 665.000 Total Liabilities and S/E $ 1,529,500 This balance sheet was prepared by Muskrat's bookkeeper and obviously needs some work. As the new CPA working with this client, you dig a little deeper and come up with the following: 1. The current assets is made up of cash $41,000 (including $19,000 cash restricted for advertising expenditures to be made two years from now), accounts receivable of $105,000, inventories $90,000, and less unearned rent revenue of $6,500. 2. The investments section includes the company's pension fund of $145,000 for its employees, and equity and debt investments totalling $179,500, net of the related fair value adjustment accounts. In this amount is an investment of $10,500 in Treasury bills purchased on 12/1/20. These bills will mature on February 1, 2021. Also in the $179,500, there are $35,500 in investments management intends to sell in late spring, 2021. Management intends to hold the rest of the investments for at least the next 2 years. 3. Property, plant, and equipment includes a building $520,000 less accumulated depreciation $180,000; equipment $225,000 less accumulated depreciation of $90,000; land $148,000 (including $98,000 spent to buy land to be used in an expansion in 2028); and $200,000 for right of use assets (leased equipment, shown net of amortization). 4. Intangible assets include goodwill $57,500; patents $82,500; and discount on bonds payable $12,500. 5. Current liabilities include accounts payable $75,000; salaries and wages payable $25,000; interest payable $10,000; notes payable due in 90 days $37,000; notes payable due over the next 5 years $60,000; allowance for doubtful accounts $7,500; lease payable $180,000 (due evenly over the next 6 years); and income taxes payable $20,000. Of the $60,000 note payable, $12,000 is due in 2021. 6. The $450,000 in long-term liabilities consists of $130,000 pension liability and the remainder in bonds payable. Both obligations are due in 5 years or more. 7. Stockholders' equity has common stock, $1.00 par value, authorized 200,000 shares, 50,000 shares issued and outstanding, all issued at an average price of $10. In addition, stockholders' equity also includes dividends payable of $5,000 and retained earnings of $160,000. Instructions: Prepare a classified balance in good form and with proper classification, based on the additional information given. Not all numbers are in the proper classification, so you may have to move items around to present the accounts correctly. Please use 3 column paper and refer to SciProd for formatting. This problem is based on a problem in Intermediate Accounting, 15th ed., by Kieso, Weygandt, and Warfield, Wiley, 2013
Transcribed Image Text:Balance Sheet Correction Problem the balance sheet (B), income statem Below is the December 31, 2020 preliminary balance sheet of Muskrat Toupees Inc.: Muskrat Toupees, Inc. Balance Sheet December 31, 2020 Current assets Investments Property, plant, and equipment Intangible assets Current liabilities Long-term liabilities Stockholders' equity $ 229,500 324,500 823,000 152,500 Total assets $1,529,500 $ 414,500 450,000 665.000 Total Liabilities and S/E $ 1,529,500 This balance sheet was prepared by Muskrat's bookkeeper and obviously needs some work. As the new CPA working with this client, you dig a little deeper and come up with the following: 1. The current assets is made up of cash $41,000 (including $19,000 cash restricted for advertising expenditures to be made two years from now), accounts receivable of $105,000, inventories $90,000, and less unearned rent revenue of $6,500. 2. The investments section includes the company's pension fund of $145,000 for its employees, and equity and debt investments totalling $179,500, net of the related fair value adjustment accounts. In this amount is an investment of $10,500 in Treasury bills purchased on 12/1/20. These bills will mature on February 1, 2021. Also in the $179,500, there are $35,500 in investments management intends to sell in late spring, 2021. Management intends to hold the rest of the investments for at least the next 2 years. 3. Property, plant, and equipment includes a building $520,000 less accumulated depreciation $180,000; equipment $225,000 less accumulated depreciation of $90,000; land $148,000 (including $98,000 spent to buy land to be used in an expansion in 2028); and $200,000 for right of use assets (leased equipment, shown net of amortization). 4. Intangible assets include goodwill $57,500; patents $82,500; and discount on bonds payable $12,500. 5. Current liabilities include accounts payable $75,000; salaries and wages payable $25,000; interest payable $10,000; notes payable due in 90 days $37,000; notes payable due over the next 5 years $60,000; allowance for doubtful accounts $7,500; lease payable $180,000 (due evenly over the next 6 years); and income taxes payable $20,000. Of the $60,000 note payable, $12,000 is due in 2021. 6. The $450,000 in long-term liabilities consists of $130,000 pension liability and the remainder in bonds payable. Both obligations are due in 5 years or more. 7. Stockholders' equity has common stock, $1.00 par value, authorized 200,000 shares, 50,000 shares issued and outstanding, all issued at an average price of $10. In addition, stockholders' equity also includes dividends payable of $5,000 and retained earnings of $160,000. Instructions: Prepare a classified balance in good form and with proper classification, based on the additional information given. Not all numbers are in the proper classification, so you may have to move items around to present the accounts correctly. Please use 3 column paper and refer to SciProd for formatting. This problem is based on a problem in Intermediate Accounting, 15th ed., by Kieso, Weygandt, and Warfield, Wiley, 2013
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