(Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2017 are presented as follows.
Adjusted Trial Balance
December 31, 2017
Allowance for doubtful account
Equity Investment (long-term)
Construction in the process (building)
Accumulated depreciation – Equipment
Discount on bonds payable
Paid-in-capital in Excess of par – Common stock
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.
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.
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.
Less: Allowance for doubtful accounts
Property, Plant and Equipment
Construction in process
Less: Accumulated depreciation
Less: Accumulated amortization
Less: Discount on bond payable
Common stock 500,000 shares par value @ $1
Additional paid-in-capital in excess of par common stock
Total paid-in capital
Total liabilities and stockholder’s equity
E5-10 (L02,3) (Current Liabilities) Norma Smith is the controller of Baylor Corporation and is responsible for the preparation of the year-end financial statements. The following transactions occurred during the year.
(a) On December 20, 2017, a former employee filed a legal action against Baylor for $100,000 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the employee is remote.
(b) Bonuses to key employees based on net income for 2017 are estimated to be $150,000.
(c) On December 1, 2017, the company borrowed $600,000 at 8% per year. Interest is paid quarterly.
(d) Accounts receivable at December 31, 2017, is $10,000,000. An aging analysis indicates that Baylor’s expense provision for doubtful accounts is estimated to be 3% of the receivables balance.
(e) On December 15, 2017, the company declared a $2.00 per share dividend on the 40,000 shares of common stock outstanding, to be paid on January 5, 2018.
(f) During the year, customer advances of $160,000 were received; $50,000 of this amount was earned by December 31, 2017.
Instructions For each item above, indicate the dollar amount to be reported as a current liability. If a liability is not reported, explain why.
BE5-9 (L03) Use the information presented in BE5-8 for Adams Company to prepare the long-term liabilities section of the balance sheet.
BE 8: Included in Adams Company’s December 31, 2017, trial balance are the following accounts: Accounts Payable $220,000, Pension Liability $375,000, Discount on Bonds Payable $29,000, Unearned Rent Revenue $41,000, Bonds Payable $400,000, Salaries and Wages Payable $27,000, Interest Payable $12,000, and Income Taxes Payable $29,000. Prepare the current liabilities section of the balance sheet.
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