Chapter 21, Problem 9P

To determine

Prepare a balance sheet of R Company for the year ended December 31, 2016.

Answer to Problem 9P

Prepare a balance sheet of R Company as on December 31, 2016

R Company
Balance sheet
December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)	Amount ($)
Asset
Current assets:
Cash				$1,200
Accounts receivable(working note 1)				4,000
Inventories (working note 2)				10,890
Prepaid items (working note 3)				1,420
Total current assets				$17,510
Property, plant and equipment:
Land (working note 4)			$13,600
Building (working note 5)	$103,000
Equipment (working note 6)	18,100	$121,100
Less: Accumulated depreciation (working note 7)		(32,520)	88,580
Total property, plant, and equipment				102,180
Patents (net) (working note 8)				5,500
Total assets				$125,190
Liabilities
Current liabilities:
Accounts payable (working note 9)				$5,100
Income tax payable (working note 10)				4,290
Miscellaneous payables (working note 11)				1,400
Total current liabilities				$10,790
Long term liabilities:
10% Bonds payable		$15,000
Less: Discount on bonds payable (working note 12)		(900)	$14,100
Mortgage payable			20,000	34,100
Total long term liabilities				$44,890
Shareholder’s equity:
Preferred stock, $100 par (working note 13)		$21,000
Additional paid in capital on preferred stock (working note 14)		2,300	$23,300
Common stock, $10 par (working note 15)		$17,500
Additional paid in capital on common stock (working note 16)		14,300	31,800
Retained earnings (working note 17)			25,200
Total shareholder’s equity				80,300
Total liabilities and shareholder’s equity				$125,190

Table (1)

Explanation of Solution

Balance sheet: 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.

Working note 1:

Calculate the closing balance of accounts receivable.

$\begin{array}{c}\text{Accounts receivable=}\left(\text{Opening balance}-\text{Decrease in accounts receivable}\right)\\ =\$5,100-\$1,100\\ =\$4,000\end{array}$

Working note 2:

Calculate the closing balance of inventories.

$\begin{array}{c}\text{Inventories=}\left(\text{Opening balance }-\text{Decrease in inventory}\right)\\ =\$13,900-\$3,010\\ =\$10,890\end{array}$

Working note 3:

Calculate the closing balance prepaid items.

$\begin{array}{c}\text{Prepaid items=}\left(\text{Opening balance + invrease in prepaid items}\right)\\ =\$1,300+\$120\\ =\$1,420\end{array}$

Working note 4:

Calculate the net value of land.

$\begin{array}{c}\text{Cost of land sold = }\left(\text{Proceeds from sale of land + Loss on slae of land}\right)\\ =\$2,800+\$400\\ =\$3,200\end{array}$

$\begin{array}{c}\text{Net change in land =}\left(\text{Land purchased by stock}-\text{Cost of land sold}\right)\\ =\$4,800-\$3,200\\ =\$1,600\end{array}$

$\begin{array}{c}\text{Net vale of land =Opening balance + Increase in land}\\ \text{=\$12,000+\$1,600}\\ \text{=\$13,600}\end{array}$

Working note 5:

Calculate the net value of buildings.

$\begin{array}{c}\text{Net value of buildings= Opening balance + Purchase of building}\\ \text{=\$60,000+\$43,000}\\ =\$103,000\end{array}$

Working note 6:

Calculate the closing balance of equipment.

$\begin{array}{c}\text{Equipment = Opening balance }-\text{Cost of equipment sold}\\ \text{=\$20,000}-\$1,900\\ =\$18,100\end{array}$

Working note 7:

Calculate the value of accumulated depreciation.

$\begin{array}{c}\begin{array}{l}\text{Change in accumulate }\\ \text{depreciation}\end{array})=\left(\begin{array}{l}\text{Cost of equipment sold}\\ \text{+ gain on sale of equipment}\\ -\text{Proceeds from sale }\end{array}\right)\\ =\$1,900+\$180-\$500\\ =\$2080-\$500\\ \begin{array}{l}\text{Reduction in accumulate}\\ \text{depreciation}\end{array})=\$1,580\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Increase in accumulated }\\ \text{depreciation}\end{array})=\left(\begin{array}{l}\text{Current depreciation}-\\ \text{Reduction in accumulated depreciation}\end{array}\right)\\ =\$5,100-\$1,580\\ =\$3,520\end{array}$

$\begin{array}{c}\text{Accumulated depreciation = }\left(\begin{array}{l}\text{Opening balance}\\ \text{+ Increase in accumulated depreciation}\end{array}\right)\\ =\$29,000+\$3,520\\ =\$32,520\end{array}$

Working note 8:

Calculate the net value of patent.

$\begin{array}{c}\text{Cost of patent sold=}\left(\text{Proceeds from patent}-\text{Gain on sale of patent}\right)\\ =\$2,100-\$1,100\\ =\$1000\end{array}$

$\begin{array}{c}\text{changes in patent=}\left(\text{Cost of patent sold + patents amortized}\right)\\ =\$1,000+\$600\\ \text{Decrease in patent=\$1,600}\end{array}$

$\begin{array}{c}\text{Patent=Opening balance}-\text{Decrease in patent}\\ \text{=\$7,100}-\$1,600\\ =\$5,500\end{array}$

Working note 9:

Calculate the closing balance of accounts payable.

$\begin{array}{c}\text{Accounts payable= Opening balance}-\text{Decrease in accounts payable}\\ \text{=\$5,500}-\$400\\ =\$5,100\end{array}$

Working note 10:

Calculate the income taxes payable.

$\begin{array}{c}\text{Income taxes payable=Opening balance+Increase in income tax payable}\\ \text{=\$4,100+\$190}\\ =\$4,290\end{array}$

Working note 11:

Calculate the Miscellaneous payable.

$\begin{array}{c}\text{Miscellaneous payables = }\left(\begin{array}{l}\text{Opening balance + }\\ \text{Increase in miscellaneous }\\ \text{payable}\end{array}\right)\\ =\$1,200+\$200\\ =\$1,400\end{array}$

Working note 12:

Calculate the discount on bonds payable.

$\begin{array}{c}\text{Discount on bonds payable = Opening balance}-\text{Amortization}\\ \text{=\$1,000}-\$100\\ =\$900\end{array}$

Working note 13:

Calculate the preferred stock.

$\begin{array}{c}\text{Issue of share for land = Number of share }\times \text{Amount of per share}\\ \text{= 40}\times \text{\$100}\\ \text{=\$4,000}\end{array}$

Calculate the closing balance of preferred stock.

$\begin{array}{c}\begin{array}{l}\text{Closing balance of}\\ \text{preferred stock}\end{array})\text{ = Opening balance + Issue of share for land}\\ \text{=\$17,000+\$4,000}\\ \text{=\$21,000 }\end{array}$

Working note 14:

Calculate Additional paid in capital on preferred stock

$\begin{array}{c}\begin{array}{l}\text{Change in additional paid }\\ \text{in capital on preferred stock}\end{array})=\left(\begin{array}{l}\text{Value from issuance for land}\\ -\text{Par value of issue }\end{array}\right)\\ =\$4,800-\$4,000\\ \begin{array}{l}\text{Increase in additional paid in}\\ \text{capital on preferred stock}\end{array})=\$800\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Additional paid in capital}\\ \text{on preferred stock}\end{array})=\text{Opening balance+Increase}\\ \text{=\$1,500+\$800}\\ \text{=\$2,300}\end{array}$

Working note 15:

Calculate the Common stock.

$\begin{array}{c}\text{Issue of shares = Number of share}\times \text{Amount of per share}\\ \text{=150}\times \text{\$10}\\ \text{=\$1,500}\\ \text{Stock dividend = Number of share }\times \text{ Amount of per share}\\ \text{=200}\times \text{\$10}\\ \text{=\$2,000}\\ \begin{array}{l}\text{Change in }\\ \text{common stock}\end{array})\text{= Issue of shares+Stock dividend}\\ =\$1,500+\$2,000\\ =\$3,500\end{array}$

$\begin{array}{c}\text{Common stock = }\left(\begin{array}{l}\text{Opening balance }\\ \text{+ Increase in common stock}\end{array}\right)\\ \text{=\$14,000+\$3,500}\\ \text{=\$17,500}\end{array}$

Working note 16:

Calculate Additional paid in capital on common stock.

$\begin{array}{c}\begin{array}{l}\text{Change in value of }\\ \text{share issued by cash}\end{array})=\left(\begin{array}{l}\text{Value of share issued by cash}\\ -\text{Par value of share issued}\end{array}\right)\\ =\$3,000-\$1,500\\ \begin{array}{l}\text{Increase in value of}\\ \text{share issued by cash}\end{array})=\$1,500\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Change in value of }\\ \text{stock dividend}\end{array})\text{= }\left(\begin{array}{l}\text{Value of stock dividend}\\ -\text{Par value of stock issued}\end{array}\right)\\ =\left[\left(200\times \$18\right)-\$2,000\right]\\ =\left[\$3,600-\$2,000\right]\\ \begin{array}{l}\text{Increase in value of }\\ \text{stock dividend}\end{array})=\$1,600\end{array}$

$\begin{array}{c}\text{Total increase= \$1,500+\$1,600}\\ =\$3,100\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Additional paid in }\\ \text{capital on common stock}\end{array})=\text{Opening balance +Total increase}\\ \text{=\$11,200+\$3,100}\\ \text{=\$14,300}\end{array}$

Working notes 17:

Calculate retained earnings.

$\begin{array}{c}\text{Change in retained earnings=}\left(\begin{array}{l}\text{Net income}-\text{Cash dividend}\\ -\text{ Stock dividend}\end{array}\right)\\ =\$10,000-\$5,000-\$3,600\\ \text{Increase in retained earnings}=\$1,400\end{array}$

$\begin{array}{c}\text{Retained earnings = }\left(\begin{array}{l}\text{Opening balance}\\ \text{+ Increase in reatined earnings}\end{array}\right)\\ \text{=\$23,800+\$1,400}\\ \text{=\$25,200}\end{array}$

Conclusion

Therefore, total assets and liabilities of R Company is $125,190.