a corrected balance sheet using a work sheet approach

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A Corrected Balance Sheet Using a

Work Sheet Approach

Chapter 3Illustrated Solution: Problem 3-32Illustrated Solution: Problem 3-32

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Problem BackgroundProblem Background

A balance sheet is submitted to you for inspection and review. In the course of the review, you find the following data (a-j).

Prepare a corrected balance sheet with accounts properly classified.

Note: The accounts for the year have already been closed. Therefore any Revenue or Expense corrections will have to be made through the Retained Earnings Account.

3-3

SituationThe possibility of uncollectible accounts on accounts receivable has not been considered. It is estimated that uncollectible accounts will total $4,800.

Part 1 (a)Part 1 (a)

3-4

SituationThe possibility of uncollectible accounts on accounts receivable has not been considered. It is estimated that uncollectible accounts will total $4,800.

Solution

Retained Earnings…….………………………… 4,800

Allowance for Doubtful Accounts.…………. 4,800

Part 1 (a)Part 1 (a)

3-5

Situation$45,000 representing the cost of a large-scale newspaper advertising campaign completed in 2002 has been added to the inventories, because it is believed that this campaign will benefit sales of 2003. It is also found that inventories include merchandise of $16,250 received on December 31 that has not yet been recorded as a purchase.

Part 1 (b)Part 1 (b)

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Solution

Retained Earnings…….………………………… 45,000Inventories………………………..…………. 45,000


3-7


Solution

Retained Earnings…….………………………… 45,000Inventories………………………..…………. 45,000

Retained Earnings………………………………. 16,250Accounts Payable…………………………… 16,250


3-8

SituationThe books show that property, plant, and equipment have a cost of $556,800 with depreciation of $180,000 recognized in prior years. However, these balances include fully depreciated equipment of $85,000 that has been scrapped and is no longer on hand.

Part 1 (c)Part 1 (c)

3-9


Solution

Property, Plant, and Equipment.....…………… 180,000Accum. Deprec.—Bldgs. and Equip……... 180,000


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Solution

Property, Plant, and Equipment.....…………… 180,000Accum. Deprec.—Bldgs. and Equip……... 180,000

Accum. Deprec.—Bldgs. and Equip…….….… 85,000Property, Plant, and Equipment..…………. 85,000


3-11

SituationMiscellaneous liabilities of $3,600 represent salaries payable of $9,500, less noncurrent advances of $5,900 made to company officials.

Part 1 (d)Part 1 (d)

3-12

SituationMiscellaneous liabilities of $3,600 represent salaries payable of $9,500, less noncurrent advances of $5,900 made to company officials.

Solution

Miscellaneous Liabilities ……………………… 3,600

Advances to Officers…………………………… 5,900

Salaries Payable…………………………… 9,500

Part 1 (d)Part 1 (d)

3-13

SituationLoan payable represents a loan from the bank that is payable in regular quarterly installments of $6,250.

Part 1 (e)Part 1 (e)

3-14

SituationLoan payable represents a loan from the bank that is payable in regular quarterly installments of $6,250.

Solution

$25,000 will be paid in the current year (Current Liability).

$51,200 will be paid in future years.

Part 1 (e)Part 1 (e)

3-15

SituationTax liabilities not shown are estimated at $18,250.

Part 1 (f)Part 1 (f)

3-16

SituationTax liabilities not shown are estimated at $18,250.

Solution

Retained Earnings………………………………18,250

Taxes Payable……………………………… 18,250

Part 1 (f)Part 1 (f)

3-17

SituationDeferred income tax liability arising from temporary differences totals $44,550. This liability was not included in the balance sheet.

Part 1 (g)Part 1 (g)

3-18

SituationDeferred income tax liability arising from temporary differences totals $44,550. This liability was not included in the balance sheet.

Solution

Retained Earnings………………………………44,550

Deferred Tax Liability.……………………… 44,550

Part 1 (g)Part 1 (g)

3-19

SituationCapital stock consists of 6,250 shares of preferred 6% stock, par $20, and 9,000 shares of common stock, stated value $1.

Part 1 (h)Part 1 (h)

3-20

SituationCapital stock consists of 6,250 shares of preferred 6% stock, par $20, and 9,000 shares of common stock, stated value $1.

Solution

Capital Stock……..………………………………134,000

Preferred Stock……...……………………… 125,000

Common Stock……………………………… 9,000

Part 1 (h)Part 1 (h)

3-21

SituationCapital stock has been issued for a total consideration of $283,600; the amount received in excess of the par and stated values of the stock has been reported as paid-in capital.

Part 1 (i)Part 1 (i)

3-22

SituationCapital stock has been issued for a total consideration of $283,600; the amount received in excess of the par and stated values of the stock has been reported as paid-in capital.

Solution

283,600 Total Consideration125,000 6% Preferred Stock, $20 Par 9,000 Common Stock, $1 Stated Value

149,600 Paid-In Capital in Excess of Par

Part 1 (i)Part 1 (i)

3-23

SituationNet income and dividends were recorded in Paid-In Capital.

Part 1 (j)Part 1 (j)

3-24

SituationNet income and dividends were recorded in Paid-In Capital.

Solution

Paid-In Capital ………………….….……………458,100

Paid-In Capital in Excess of Par…..……… 149,600

Retained Earnings..………………………… 308,500

Part 1 (j)Part 1 (j)

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Worksheet Step 1Worksheet Step 1

Account Title Debit Credit Debit Credit Debit CreditCash 45,050 .........Accounts Receivable 112,500 .........Inventories 204,000 .........Prepaid Insurance 8,800 .........Property, Plant, and Equipment 376,800 .........Miscellaneous Liabilities ......... 3,600Loan Payable ......... 76,200Accounts Payable ......... 75,250Capital Stock ......... 134,000Paid-In Capital ......... 458,100

747,150 747,150

Balance Sheet CorrectionsCorrected

Balance Sheet

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Account Title Debit Credit Debit Credit Debit CreditCash 45,050 .........Accounts Receivable 112,500 .........Inventories 204,000 .........Prepaid Insurance 8,800 .........Property, Plant, and Equipment 376,800 .........Miscellaneous Liabilities ......... 3,600Loan Payable ......... 76,200Accounts Payable ......... 75,250Capital Stock ......... 134,000Paid-In Capital ......... 458,100

747,150 747,150

Retained Earnings ......... ......... (a) 4,800

Allowance for Doubtful Accounts ......... ......... ......... (a) 4,800


Balance Sheet

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Account Title Debit Credit Debit Credit Debit CreditCash 45,050 ......... ......... .........Accounts Receivable 112,500 ......... ......... .........Inventories 204,000 ......... ......... (b) 45,000Prepaid Insurance 8,800 ......... ......... .........Property, Plant, and Equipment 376,800 ......... (c) 180,000 (c) 85,000Miscellaneous Liabilities ......... 3,600 (d) 3,600 .........Loan Payable ......... 76,200 ......... .........Accounts Payable ......... 75,250 ......... (b) 16,250Capital Stock ......... 134,000 (h) 134,000 .........Paid-In Capital ......... 458,100 (I) 458,100 .........

747,150 747,150

Retained Earnings ......... ......... (a) 4,800 (i) 308,500......... ......... (b) 61,250 .................. ......... (f) 18,250 .................. ......... (g) 44,550 .........

Allowance for Doubtful Accounts ......... ......... ......... (a) 4,800Accum. Depreciation--Bldgs and Equip. ......... ......... (c) 85,000 (c) 180,000Salaries Payable ......... ......... ......... (d) 9,500Advances to Officers ......... ......... (d) 5,900 .........Deferred Income Tax Liability ......... ......... ......... (g) 44,550Taxes Payable ......... ......... ......... (f) 18,2506% Preferred Stock, $20 Par ......... ......... ......... (h) 125,000Common Stock, $1 Stated Value ......... ......... ......... (h) 9,000Paid-In Capital in Excess of Par and Stated Values on Preferred and Common Stock ......... ......... ......... (i) 149,600

995,450 995,450


Balance Sheet

3-28Account Title Debit Credit Debit Credit Debit CreditCash 45,050 ......... ......... ......... 45,050 .........Accounts Receivable 112,500 ......... ......... ......... 112,500 .........Inventories 204,000 ......... ......... (b) 45,000 159,000 .........Prepaid Insurance 8,800 ......... ......... ......... 8,800 .........Property, Plant, and Equipment 376,800 ......... (c) 180,000 (c) 85,000 471,800 .........Miscellaneous Liabilities ......... 3,600 (d) 3,600 ......... ......... .........Loan Payable ......... 76,200 ......... ......... ......... 76,200Accounts Payable ......... 75,250 ......... (b) 16,250 ......... 91,500Capital Stock ......... 134,000 (h) 134,000 ......... ......... .........Paid-In Capital ......... 458,100 (I) 458,100 ......... ......... .........

747,150 747,150

Retained Earnings ......... ......... (a) 4,800 (i) 308,500 ......... .................. ......... (b) 61,250 ......... ......... 179,650......... ......... (f) 18,250 ......... ......... .................. ......... (g) 44,550 ......... ......... .........

Allowance for Doubtful Accounts ......... ......... ......... (a) 4,800 ......... 4,800Accum. Depreciation--Bldgs and Equip. ......... ......... (c) 85,000 (c) 180,000 ......... 95,000Salaries Payable ......... ......... ......... (d) 9,500 ......... 9,500Advances to Officers ......... ......... (d) 5,900 ......... 5,900 .........Deferred Income Tax Liability ......... ......... ......... (g) 44,550 ......... 44,550Taxes Payable ......... ......... ......... (f) 18,250 ......... 18,2506% Preferred Stock, $20 Par ......... ......... ......... (h) 125,000 ......... 125,000Common Stock, $1 Stated Value ......... ......... ......... (h) 9,000 ......... 9,000Paid-In Capital in Excess of Par and Stated Values on Preferred and Common Stock ......... ......... ......... (i) 149,600 ......... 149,600

995,450 995,450 803,050 803,050

Corrections Balance SheetCorrected

Balance Sheet


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Part 2 – Corrected Balance SheetPart 2 – Corrected Balance Sheet

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End of ProblemEnd of Problem

a corrected balance sheet using a work sheet approach

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