Chapter 3, Problem 3.6P

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.

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.

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
Accounts receivable (net of allowance for   (uncollectible  accounts of $8,000)                                                                              (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: Accumulated depreciation-buildings	-$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
Retained earnings	$146,000
Total shareholders’ equity		$2,146,000
Total liabilities and shareholder equity		$2,761,000

Working notes:

1. Calculate cash and cash equivalents.                                                                                                     

$\begin{array}{l}\text{Cash}\text{and}\text{cash}\text{equivalents=}\left(\text{cash}\text{as}\text{per}\text{trial}\text{balance+Amount}\text{of}\text{U}\text{.S}\text{.}\text{treasury}\text{bill}\right)\\ \text{=\$67,000+\$50,000}\\ \text{=\$117,000}\text{.}\end{array}$ (1)

2. Calculate the amount of short-term investment.

$\begin{array}{c}\text{Short}\text{term}\text{investments=}\left(\text{short}\text{term}\text{investments}\text{as}\text{per}\text{trial}\text{balance-amount}\text{of}\text{U}\text{.S}\text{.}\text{treasurybill}\right)\\ \text{=\$67,000+\$50,000}\text{.}\\ \text{=\$117,000}\text{.}\end{array}$ (2)

3. Calculate the amount of notes receivable, net of allowance for uncollectible accounts. 

$\begin{array}{c}\text{Notes}\text{receivables,net}\text{of}\text{allowances}\text{for}\text{uncollectible}\text{accounts=}\left(\begin{array}{l}\text{Accounts}\text{receivables}\text{as}\text{per}\text{trial}\text{balances}\\ \text{-Allowance}\text{for}\text{uncollectible}\text{accounts}\end{array}\right)\\ \text{=\$123,000-\$8,000}\\ \text{=\$115,000}\text{.}\end{array}$ (3)

4. Calculate the amount of deferred revenue.

$\begin{array}{c}\text{Deferred revenue- current portion}=\text{Total deferred revenue}\times \text{80\% }\\ =\text{\$60,000}\times \text{80\%}\\ =\text{\$48,000}\end{array}$

$\begin{array}{c}\text{Deferred revenue- long-term portion}=\text{Total deferred revenue}\times 2\text{0\% }\\ =\text{\$60,000}\times 2\text{0\%}\\ =\text{\$12,000}\end{array}$ (4)

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.

Conclusion

Hence, the total assets and the total liabilities and share holders’ equity agrees to the amount of $2,761,000.