Chapter 4, Problem 7P

To determine

Prepare a corrected classified balance sheet as of December 31, 2016.

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.

Prepare a corrected classified balance sheet of Company Z:

Company Z
Balance Sheet
December 31,2016
Current Assets:	Amount ($)	Amount ($)	Amount ($)
Cash (1)		109,000
Accounts receivable (net) (2)		317,700
Inventories		560,000
Total current assets			986,700
Long-Term Investment, at fair value (3)			51,300
Property, Plant, and Equipment (at cost):
Land (4)		200,000
Building	1,750,000
Machinery and equipment	1,964,000
Total	3,714,000
Less: Accumulated depreciation	(420,000)	3,294,000
Total property, plant, and equipment			3,494,000
Intangible Asset:
Goodwill			37,000
Other Assets:
Cash restricted for building purposes [ Refer working note (1) ]		100,000
Officer’s note receivable [ Refer working note (2) ]		30,000
Land held for future building site [ Refer working note (4) ]		250,000	380,000
Total Assets			4,949,000
Liabilities
Current Liabilities:
Accounts payable (5)		119,800
Current instalments of long-term debt[ Refer working notes  (6) & (7) ]		200,000
Lawsuit liability		80,000
Income taxes payable (8)		21,200
Deferred tax liability		5,000
Total current liabilities			426,000
Long-Term Debt:
Mortgage payable (6)		800,000
Notes payable (7)		400,000
Deferred tax liability		23,000
Total long-term debt			1,223,000
Total Liabilities			1,649,000
Shareholders’ Equity:
Contributed Capital:
Common stock, authorized 100,000 shares of $50 par value; issued 40,000 shares; outstanding 39,800 shares (9)		2,000,000
Additional paid-in capital [ Refer working note (9) ]		231,000
Total paid-in capital		2,231,000
Retained earnings		1,075,400
Total		3,306,400
Less: Cost of treasury stock capital [ Refer working note (3) ]		(6,400)
Total Shareholders’ Equity			3,300,000
Total Liabilities and Shareholders’ Equity			4,949,000

Table (1)

Therefore, the total of assets and total liabilities and shareholders’ equity equals to $4,949,000.

Working notes:

(1) Calculate corrected amount of cash balance:

Cash, per unaudited balance sheet	$225,000
Less: Unrecorded checks in payment of accounts payable	($14,000)
NSF check not recorded	($2,000)
Cash restricted for building purposes (reported in other assets)	($100,000)
Corrected balance	109,000

Table (2)

(2) Calculate the corrected amount of accounts receivable:

Accounts receivable (net), per unaudited balance sheet	$345,700
Add charge-back for NSF check [refer working note (1)]	$2,000
Less: Officer’s note receivable (reported in other assets)	($30,000)
Corrected balance	$317,700

Table (3)

(3) Calculate the corrected amount of investments:

Investments, per unaudited balance sheet	$57,700
Less: Long-term investment [reported separately as an asset]	($51,300)
Treasury stock [reported in shareholders’ equity]	($6,400)
Corrected balance	$0

Table (4)

(4) Calculate the corrected amount of land:

Land, per unaudited balance sheet	$450,000
Less: Land acquired for future building site (reported in other assets)	($250,000)
Corrected balance	$200,000

Table (5)

(5) Calculate the corrected amount of accounts payable:

Accounts payable, per unaudited balance sheet	$133,800
Less: Unrecorded payments [refer working note (1)]	($14,000)
Corrected balance	$119,800

Table (6)

(6) Calculate the corrected amount of mortgage payable:

Mortgage payable, per unaudited balance sheet	$900,000
Less: Current portion $\left(\text{\$50,000 × 2}\right)$	(100,000)
Refinanced as long-term mortgage payable	$800,000

Table (7)

(7) Calculate the corrected amount of long-term note payable:

Notes payable, per unaudited balance sheet	$500,000
Less: Current portion	($100,000)
Long-term note payable	$400,000

Table (8)

(8) Calculate the corrected amount of income taxes payable:

Income taxes payable, per unaudited balance sheet	$61,200
Less: Prepaid income taxes	($40,000)
Corrected balance	$21,200

Table (9)

(9) Calculate the corrected amount of common stock:

Common stock, per unaudited balance sheet	$2,231,000
Less: Additional paid-in capital in excess of par value	($231,000)
Corrected balance	$2,000,000

Table (10)