Chapter 3, Problem 3.1P

Balance sheet preparation

• LO3–2, LO3–3

Presented below is a list of balance sheet accounts.

Accounts payable	Cash
Accounts receivable	Common stock
Accumulated depreciation—buildings	Copyright
Accumulated depreciation—equipment	Equipment
Allowance for uncollectible accounts	Interest receivable (due in three months)
Restricted cash (to be used in 10 years)	Inventories
Bonds payable (due in 10 years)	Land (in use)
Buildings	Long-term investments
Notes payable (due in 6 months)	Rent payable (current)
Notes receivable (due in 2 years)	Retained earnings
Patent	Short-term investments
Preferred stock	Taxes payable
Prepaid expenses	Wages payable

Required:

Prepare a classified balance sheet ignoring monetary amounts.

To determine

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.

To prepare: A classified balance sheet ignoring monetary amounts.

Answer to Problem 3.1P

Name of Company
Balance Sheet
For the year ended
Assets	Amount ($)	Amount ($)
Current assets:
Cash
Short-term investments
Accounts receivable, net of allowance for uncollectible accounts
Interest receivables
Inventories
Prepaid expenses
Total current assets (1)
Investments:
Restricted cash (to be used in 10 years)
Long-term investments
Notes receivable (due in 2 years)
Total investments (2)
Property, plant, and equipment:
Land
Buildings
Less: Accumulated depreciation-buildings
Equipment
Less: Accumulated depreciation-equipment
Net property, plant, and equipment (3)
Intangible assets:
Patent
Copyright
Total intangible assets (4)
Total assets (1)+ (2) + (3) + (4)		XXXX
Liabilities and Shareholders' Equity	Amount ($)	Amount ($)
Current liabilities:
Accounts payable
Rent payable
Taxes payable
Wages payable
Notes payable (due in 6 months)
Total current liabilities (1)
Long-term liabilities:
Bonds payable
Total long term liabilities (2)
Shareholders’ equity:
Common stock
Preferred stock
Retained earnings
Total shareholders’ equity (3)
Total liabilities and shareholders’ equity (1) + (2)+ (3)		XXXX

Table (1)

Explanation of Solution

Current Assets: Current assets are the assets which can be easily converted into cash or consumed within one year. These assets are used in carrying out daily operations of a business.  Current assets include:

1. 1. Cash
2. 2. Short term investments
3. 3. Accounts receivable, net of allowance for uncollectible accounts.
4. 4. Interest receivables
5. 5. Inventories
6. 6. Prepaid expenses

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy. Investments include:

1. 1. Restricted cash is a non-current asset in this case as cash must be used in 10 years.
2. 2. Long term investments.
3. 3. Notes receivable in this case is an investment as it is due in 2 years.

Property, Plant and Equipment: Property, plant and equipment are the fixed tangible assets which are used for more than one year and are used for production purposes. This category includes:

1. 1. Land
2. 2. Buildings

Intangible Assets: Intangible assets are fixed assets which do not have physical existence and generates a worth for the organization which is determined during acquisition or merger. This category consists of the following items:

1. 1. Patents
2. 2. Copyrights

Current liability: Current liability is an obligation that the companies need to pay from the remaining current assets or creation of other current liabilities within a fiscal year or the operating cycle whichever is higher. Current liability includes:

1. 1. Accounts payable
2. 2. Rent payable
3. 3. Taxes payable
4. 4. Wages payable
5. 5. Notes payable (due in 6 months)

Long-term liabilities: Long-term liabilities are obligations that the company needs to pay after at least one year or more. Long term liabilities are otherwise called as long-term debt.

Paid-in-capital: Paid in capital is the amount received from investors during the issue or sale of shares. It comprises of fund received from the sale of stock and not through the proceeds from ongoing operations. Paid in capital consists of common stock and preferred stock.

Retained earnings: Retained earnings are the amount kept aside from the profits after tax by the management for the purpose of expansion, investing or for paying dividends to shareholders.