Chapter 5, Problem 10P

Comprehensive: Balance Sheet from Statement of Cash Flows Mills Company prepared the following balance sheet at the beginning of 2019:

Additional information related to the statement of cash flows:

1. 1. The long-term bonds have a face value of $6,000 and were issued on December 31, 2019.
2. 2. The building was purchased on December 30, 2019.
3. 3. The land was sold at its original cost.
4. 4. The common stock which was sold totaled 300 shares and had a par value of $10 per share.

Required:

Next Level Prepare a classified balance sheet for Mills as of December 31, 2019. (Hint. Review the information on the statement of cash flows and the balances in the beginning balance sheet accounts to determine the impact on the ending balance sheet accounts.)

To determine

Prepare a classified balance sheet of Company M for the year ended December 31, 2019.

Explanation of Solution

Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections, and sub-sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.

Prepare a classified balance sheet of Company M for the year ended December 31, 2019 as follows:

Company M
Balance Sheet
For Year Ended December 31, 2018
Assets:	Amount ($)	Amount ($)
Current Assets:
Cash (1)	3,300
Accounts receivable (net)  (2)	5,000
Inventory (3)	4,200
Total current assets		12,500
Property, Plant, and Equipment:
Land  (4)	6,800
Buildings and equipment (5)	82,800
Less: Accumulated depreciation (6)	(16,000)
Total property, plant, and equipment		73,600
Total Assets		86,100
Liabilities:
Current Liabilities:
Accounts payable  (7)	3,000
Salaries payable (8)	1,500
Total current liabilities		4,500
Long-Term Liabilities:
Bonds payable	6,000
Less: Discount on bonds payable (9)	(300)
Total long-term liabilities		5,700
Total Liabilities (a)		10,200
Shareholders’ Equity:
Contributed Capital:
Common stock, $10 par (10)	16,500
Additional paid-in capital (11)	12,700
Total contributed capital		29,200
Retained earnings  (12)		46,700
Total Shareholders’ Equity (b)		75,900
Total Liabilities and Shareholders’ Equity $\left(\text{a}+\text{b}\right)$		86,100

Table (1)

Working note (1):

Compute the amount of cash:

$\begin{array}{c}\text{Ending Cash}=\text{Net increase in cash}+\text{Beginning cash}\\ =\text{\$2,300}+\$1,000\\ =\$3,300\end{array}$

Working note (2):

Compute the amount of accounts receivable:

$\begin{array}{c}\text{Accounts receivable}=\left[\begin{array}{l}\text{Accounts receivable in Balance}\\ \text{sheet}+\text{Increase in accounts }\\ \text{receivable in cash flow statement}\end{array}\right]\\ =\text{\$3,900}+\$1,100\\ =\$5,000\end{array}$

Working note (3):

Compute the amount of inventory:

$\begin{array}{c}\text{Inventory}=\left[\begin{array}{l}\text{Inventory in Balance sheet}-\text{Decrease}\\ \text{in inventory in cash flow statement}\end{array}\right]\\ =\text{\$4,700}-\$500\\ =\$4,200\end{array}$

Working note (4):

Compute the value of land:

$\begin{array}{c}\text{Land}=\left[\text{Cost of Land}-\text{Receipt from sale of land}\right]\\ =\text{\$9,800}-\$3,000\\ =\$6,800\end{array}$

Working note (5):

Compute the value of building and equipment:

$\begin{array}{c}\text{Buildings and equipment}=\left[\begin{array}{l}\text{Cost of Buildings and equipment}\\ +\text{Payment for of building}\end{array}\right]\\ =\text{\$68,900}+\$13,900\\ =\$82,800\end{array}$

Working note (6):

Compute the amount of accumulated depreciation:

$\begin{array}{c}\text{Accumulated depreciation}=\left[\begin{array}{l}\text{Accumulated depreciation in balance}\\ \text{sheet}+\text{Annual deprerciation}\end{array}\right]\\ =\text{\$14,100}+\$1,900\\ =\$16,000\end{array}$

Working note (7):

Compute the amount of accounts payable:

$\begin{array}{c}\text{Accounts payable}=\left[\begin{array}{l}\text{Accounts payable in balance sheet}\\ -\text{Decrease in accounts payable}\end{array}\right]\\ =\text{\$4,000}-\$1,000\\ =\$3,000\end{array}$

Working note (8):

Compute the amount of salaries payable:

$\begin{array}{c}\text{Salaries payable}=\left[\begin{array}{l}\text{Salaries payable in balance sheet}\\ +\text{Increase in accounts payable}\end{array}\right]\\ =\text{\$1,100}+\$400\\ =\$1,500\end{array}$

Working note (9):

Compute the amount of discount on bonds payable:

$\begin{array}{c}\text{Discount on bonds payable}=\left[\text{Face value}-\text{Issue price}\right]\\ =\text{\$6,000}-\$5,700\\ =\$300\end{array}$

Working note (10):

Compute the amount of common stock:

$\begin{array}{c}\text{Common stock}=\left[\begin{array}{l}\text{Value of common stock}+\\ \text{Sale value of common stock }\end{array}\right]\\ =\text{\$13,500}+\left(300\text{ shares}\times \text{\$10}\right)\\ =\$13,500+\text{\$3,000}\\ =\$16,500\end{array}$

Working note (11):

Compute the amount of additional paid-in capital:

$\begin{array}{c}\text{Additional paid-in capital}=\left[\begin{array}{l}\text{Value of additional paid-in capital}+\\ \text{Receipt of issuance of common stock}\\ -\text{Sale value of common stock }\end{array}\right]\\ =\text{\$11,200}+\left(\$4,500-\text{3,000}\right)\\ =\$11,200+\text{\$1,500}\\ =\$12,700\end{array}$

Working note (12):

Compute the amount of retained earnings:

$\begin{array}{c}\text{Retained earnings}=\left[\begin{array}{l}\text{Value of retained earnings}+\\ \text{Net income}-\text{Dividends }\end{array}\right]\\ =\text{\$44,400}+\$5,400-\text{3,100}\\ =\$46,700\end{array}$