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P5-3

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Intermediate Accounting (Kieso)
Found in: Page 248

Short Answer

(Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2017 are presented as follows.

EASTWOOD COMPANY

Adjusted Trial Balance

December 31, 2017

Debit

Credit

Cash

$41,000

Accounts receivables

163,500

Allowance for doubtful account

$8,700

Prepaid Insurance

5,900

Inventory

208,500

Equity Investment (long-term)

339,000

Land

85,000

Construction in the process (building)

124,000

Patent

36,000

Equipment

400,000

Accumulated depreciation – Equipment

240,000

Discount on bonds payable

20,000

Account payable

148,000

Accrued liabilities

49,200

Notes payable

94,000

Bond payable

200,000

Common stock

500,000

Paid-in-capital in Excess of par – Common stock

45,000

Retained earnings

138,000

Total

$1,422,900

$1,422,900

Additional information:

1. The LIFO method of inventory value is used.

2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same.

3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed costs $85,000, as shown in the trial balance.

4. The patents were purchased by the company at a cost of $40,000 and are being amortized on a straight-line basis.

5. Of the discount on bonds payable, $2,000 will be amortized in 2018.

6. The notes payable represent bank loans that are secured by long-term investments carried at $120,000. These bank loans are due in 2018.

7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2028.

8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.

Instructions

Prepare a balance sheet as of December 31, 2017, so that all-important information is fully disclosed.

The balance sheet of the business entity totals $1,154,200.

See the step by step solution

Step by Step Solution

Definition of Full Disclosure

The principle that states a business entity to provide every information that will affect the decisions of the investors and analysts is known as the full disclosure principle.

Classified Balance Sheet

Particular

Amount $

Amount $

Assets

Current Assets:

Cash

$41,000

Accounts Receivables

$163,500

Less: Allowance for doubtful accounts

(8,700)

154,800

Prepaid Insurance

5,900

Inventory

208,500

Long-term investment

Equity investment

339,000

Property, Plant and Equipment

Land

85,000

Construction in process

124,000

Equipment

400,000

Less: Accumulated depreciation

(240,000)

160,000

Intangible assets

Patent

40,000

Less: Accumulated amortization

(4,000)

36,000

Total Assets

1,154,200

Liabilities

Current liabilities

Account payable

148,000

Accrued liabilities

49,200

Note payable

94,000

Non-current liabilities

Bonds payable

200,000

Less: Discount on bond payable

(20,000)

180,000

Total liabilities

471,200

Stockholder’s equity

Common stock 500,000 shares par value @ $1

500,000

Additional paid-in-capital in excess of par common stock

45,000

Total paid-in capital

545,000

Retained earnings

138,000

Total liabilities and stockholder’s equity

1,154,200

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