Chapter 5, Problem 12P

To determine

Prepare a classified balance sheet of Company M for the year ended December 31, 2016.

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, 2016 as follows:

Company M
Balance Sheet
For Year Ended December 31, 2016
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:

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