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Q3CA.

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Intermediate Accounting (Kieso)
Found in: Page 252

Short Answer

(Critique of Balance Sheet Format and Content) The following is the balance sheet of Sameed Brothers Corporation (000s omitted).

SAMEED BROTHERS CORPORATION

BALANCE SHEET

DECEMBER 31, 2017

Assets

Current assets

Cash

$26,000

Marketable securities

18,000

Accounts receivables

25,000

Inventory

20,000

Supplies

4,000

Stock investment in subsidiary company

20,000

$113,000

Investment

Treasury stock

25,000

Property, Plant and Equipment

Building and land

91,000

Less: Reserve for depreciation

(31,000)

60,000

Other assets

Cash Surrender value of life insurance

19,000

Total assets

$217,000

Liabilities and Stockholder’s equity

Accounts payable

$22,000

Reserve for income taxes

15,000

Customer’s account with credit balance

1

$37,001

Deferred credit

Unamortized premium on bonds payable

2,000

Long term liabilities

Bonds payable

60,000

Total liabilities

99,001

Common stock

Common stock at par $5

85,000

Earned surplus

24,999

Cash Dividend declared

8,000

117,999

Total liabilities and Stockholder’s equity

$217,000

Instructions

Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized

Items not represented correctly:

1. Cash surrender value of life insurance.

2. Stock investment in a subsidiary company.

3. Treasury stock.

4. Unamortized premium on bonds payable.

5. Earned surplus.

6. Cash dividend declared.

See the step by step solution

Step by Step Solution

Definition of Unamortized Premium

Unamortized premium refers to the amount of difference between the book value of the bonds reported and the face value of the bonds. Such premium is amortized using the two methods; straight line and effective interest rate.

Correct Balance Sheet

SAMEED BROTHERS CORPORATION

BALANCE SHEET

DECEMBER 31, 2017

Assets

Current assets

Cash

$26,000

Marketable securities

18,000

Accounts receivables

25,000

Inventory

20,000

Cash Surrender value of life insurance

19,000

Supplies

4,000

Total current assets

112,000

Long term Investment

Investment in subsidiary company

20,000

Property, Plant, and Equipment

Building and land

$91,000

Less: Accumulated depreciation

(31,000)

60,000

Total assets

$192,000

Liabilities and Stockholder’s equity

Accounts payable

$22,000

Dividend payable

8,000

Unearned revenue

1

Long term liabilities

Reserve for income tax

15,000

Bonds payable

$60,000

Add: Unamortized premium on bonds payable

2,000

62,000

Total liabilities

107,001

Common stock

Common stock at par $5

85,000

Reserves and surplus

Retained earnings

24,999

Less: treasury stock

(25,000)

(1)

Total liabilities and Stockholder’s equity

$192,000

Most popular questions for Business-studies Textbooks

The current assets and current liabilities sections of the balance sheet of Allessandro Scarlatti Company appear as follows.

ALLESSANDRO SCARLATTI COMPANY

BALANCE SHEET PARTIAL

December 31, 2017

Cash

$40,000

Account payable

$61,000

Accounts receivables

$89,000

Note payable

67,000

Less: Allowance for doubtful accounts

(7,000)

82,000

$128,000

Inventory

171,000

Prepaid expenses

9,000

$302,000

The following errors in the corporation’s accounting have been discovered:

1. January 2018 cash disbursements entered as of December 2017 included payments of accounts payable in the amount of $39,000, on which a cash discount of 2% was taken.

2. The inventory included $27,000 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, $12,000 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.

3. Sales for the first four days in January 2018 in the amount of $30,000 were entered in the sales journal as of December 31, 2017. Of these, $21,500 were sales on account and the remainder were cash sales.

4. Cash, not including cash sales, collected in January 2018 and entered as of December 31, 2017, totaled $35,324. Of this amount, $23,324 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan.

Instructions

(a) Restate the current assets and current liabilities sections of the balance sheet in accordance with good accounting practice. (Assume that both accounts receivable and accounts payable are recorded gross.)

(b) State the net effect of your adjustments on Allessandro Scarlatti Company’s retained earnings balance.

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