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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.
Financial disclosure:
Financial disclosure is an important tool which discloses the financial statements of an entity to its investors for investment decision making.
To determine: classified balance sheet and identifying items that would require additional disclosure.
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Explanation of Solution
Classified balance sheet:
“A balance sheet with classification of assets and liabilities based on their current and noncurrent status and grouped under separate headings and sub-headings for its enhanced usefulness is known as classified balance sheet”.
Requirement 1:
Following is the classified balance sheet of VE Corporation on December 31, 2018
Corporation VE | ||
Balance Sheet | ||
At December 31, 2018 | ||
Assets | Amount | Amount |
Current assets: | ||
Cash and cash equivalents (1) | $117,000 | |
Marketable securities (2) | $132,000 | |
(3) |
$115,000 |
|
Loans to employees | $40,000 | |
Interest receivable | $12,000 | |
Note receivable—current portion | $50,000 | |
Inventories | $215,000 | |
Prepaid expenses | $16,000 | |
Total current assets | $697,000 | |
Investments: | ||
Marketable securities | $35,000 | |
Note receivable | $200,000 | |
Total investments | $235,000 | |
Property, plant, and equipment: | ||
Land | $280,000 | |
Buildings | $1,550,000 | |
Machinery and equipment | $637,000 | |
$2,467,000 | ||
Less: |
-$620,000 | |
Less: Accumulated depreciation-equipment | -$210,000 | |
Net property, plant, and equipment | $1,637,000 | |
Intangible assets: | ||
Patent | $152,000 | |
Franchise | $40,000 | |
Total intangible assets | $192,000 | |
Total assets | $2,761,000 | |
Liabilities and Shareholders' Equity | Amount | Amount |
Current liabilities: | ||
Accounts payable | $189,000 | |
Dividends payable | $10,000 | |
Interest payable | $16,000 | |
Taxes payable | $40,000 | |
Deferred revenue (4) | $48,000 | |
Total current liabilities | $303,000 | |
Long-term liabilities: | ||
Notes payable | $300,000 | |
Deferred revenue (4) | $12,000 | |
Total long-term liabilities | $312,000 | |
Total liabilities | $615,000 | |
Shareholders’ equity: | ||
Common stock, no par value; 1,000,000 shares authorized; 500,000 shares issued and outstanding |
$2,000,000 |
|
$146,000 | ||
Total shareholders’ equity | $2,146,000 | |
Total liabilities and shareholder equity | $2,761,000 |
Working notes:
1. Calculate cash and cash equivalents.
2. Calculate the amount of short-term investment.
3. Calculate the amount of notes receivable, net of allowance for uncollectible accounts.
4. Calculate the amount of deferred revenue.
The following are the items that would require additional disclosure on the face of balance sheet:
Allowance for uncollectible accounts – It should be disclosed on the face of the balance sheet.
Property, plant, and equipment – The original cost of each category of property, plant, and equipment assets along with accumulated depreciation should be disclosed on the face of the balance sheet
The following are the items that would require the additional disclosure in a disclosure note:
Cash equivalents – The items consider being cash equivalent should be disclosed in a note.
Investments – The information about the types of investments and the accounting method used to value the investments should be disclosed in a note.
Inventories – The method used for inventories should be disclosed in accounting policies note. Also, the information about the breakout of inventory into raw materials, work-in process, and finished goods are disclosed in a note.
Depreciation – The method used to calculate depreciation should be disclosed in the accounting policies note.
Long-term liabilities – The information about various debt instruments, their payment terms, interest rates, and collateral pledged as security for the debt should be disclosed in a note.
Hence, the total assets and the total liabilities and share holders’ equity agrees to the amount of $2,761,000.
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