I4-1:
An inexperienced bookkeeper for the Soggy Ground Construction Company has prepared the following balance sheet.
Soggy Ground Construction CompanyBalance SheetFor the Year Ended December 31, xxxx
Current Assets
Cash $149,500
Accounts receivable (net) 220,000
Inventories at lower of average cost or market 260,000
Trading securities at cost 90,000
Property, plant, and equipment
Building (net) 375,000
Office equipment (net) 105,000
Land held for future use 110,000
Intangible assets
Goodwill 52,000
Cash surrender value of life insurance 60,000
Prepaid expenses 8,000
Current Liabilities
Accounts payable 87,500
Notes payable (due within 1 year) 80,000
Pension obligation 53,500
Rent payable 30,500
Discount on bonds payable 35,000
Long-term liabilities
Bonds payable 350,000
Stockholders’ equity
Common stock, $5.00 par, authorized 100,000 shares, issued 39,000 shares 195,000
Additional paid-in capital 105,000
Additional information:
The trading securities have a fair market value of $77,500 on December 31.
The company has no employee eligible to retire and receive pension benefits for at least the next 3 years.
Total life-to-date depreciation expense for the building is $105,000.
Total life-to-date depreciation expense for the office equipment is 65,500.
Allowance for doubtful accounts has a credit balance of $11,500.
The bookkeeper is unsure how to compute the proper balance in retained earnings
Instructions:
Prepare a correct classified balance sheet in good form.
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I do not understand where these items go on the balance sheet?
Additional information:
The trading securities have a fair market value of $77,500 on December 31.
The company has no employee eligible to retire and receive pension benefits for at least the next 3 years.
Allowance for doubtful accounts has a credit balance of $11,500.
To prepare a correct classified balance sheet in good form, follow these steps:
1. Start by organizing the given information into the appropriate sections of the balance sheet. The sections usually include Current Assets, Property, Plant, and Equipment, Intangible Assets, Current Liabilities, Long-term Liabilities, and Stockholders' Equity.
2. Compute any necessary adjustments or calculations to determine accurate balances for each item.
3. Classify the assets and liabilities as current or long-term based on their expected maturity or conversion dates. Current items are those expected to be converted to cash or settled within one year or the operating cycle (whichever is longer).
4. Arrange the balance sheet by listing the Current Assets first, followed by the Property, Plant, and Equipment, Intangible Assets, Current Liabilities, Long-term Liabilities, and finally, the Stockholders' Equity.
5. Calculate the balances for each category by summing up the individual items within that category.
6. Finally, format the balance sheet in good form, ensuring all items are properly labeled and aligned. Proper formatting includes presenting the amounts aligned along the respective columns, with the total of each category highlighted.
Now, using the given information and following the steps above, we can prepare the classified balance sheet:
Soggy Ground Construction Company
Balance Sheet
For the Year Ended December 31, xxxx
Current Assets:
Cash: $149,500
Accounts receivable (net): $220,000
Inventories at lower of average cost or market: $260,000
Trading securities at cost: $90,000
(Less: Unrealized loss on trading securities): ($12,500) [Fair market value ($77,500) - Cost ($90,000)]
Total Current Assets: $607,000
Property, Plant, and Equipment:
Building (net): $375,000 [Cost ($375,000) - Accumulated Depreciation ($105,000)]
Office equipment (net): $39,500 [Cost ($105,000) - Accumulated Depreciation ($65,500)]
Land held for future use: $110,000
Total Property, Plant, and Equipment: $524,500
Intangible Assets:
Goodwill: $52,000
Cash surrender value of life insurance: $60,000
Prepaid expenses: $8,000
Total Intangible Assets: $120,000
Total Assets: $1,251,500
Current Liabilities:
Accounts payable: $87,500
Notes payable (due within 1 year): $80,000
Pension obligation: $53,500
Rent payable: $30,500
Discount on bonds payable: $35,000
Total Current Liabilities: $286,500
Long-term Liabilities:
Bonds payable: $350,000
Total Long-term Liabilities: $350,000
Stockholders' Equity:
Common stock, $5.00 par, authorized 100,000 shares, issued 39,000 shares: $195,000
Additional paid-in capital: $105,000
Total Stockholders' Equity: $300,000
Total Liabilities and Stockholders' Equity: $1,251,500
This is a sample classified balance sheet based on the given information. Please note that the amounts may vary depending on any adjustments or calculations made.