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Chapter 5: Q30Q. (page 238)
What is a “Summary of Significant Accounting Policies”?
The rules and regulations used for reporting accounting information are reflected in the summary of significant accounting policies.
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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.
P5-4 (L03) GROUPWORK (Preparation of a Corrected Balance Sheet) The balance sheet of Kishwaukee Corporation as of December 31, 2017, is as follows.
KISHWAUKEE CORPORATION | |
Balance Sheet | |
December 31, 2017 | |
Assets | |
Goodwill (Note 2) | \(120,000 |
Building (Note 1) | 1,640,000 |
Inventory | 312,100 |
Land | 950,000 |
Accounts receivable | 170,000 |
Treasury Stock (50,000 shares) | 87,000 |
Cash on hand | 175,900 |
Assets allocated to trustee for plant expansion | |
Cash in bank | 70,000 |
Debt investment (held to maturity) | 138,000 |
\)3,663,000 | |
Equities | |
Note payable (Note 3) | \(600,000 |
Common stock authorized and issue, 1,000,000 shares no par | 1,150,000 |
Retained earnings | 103,000 |
Non-controlling Interest | 55,000 |
Appreciation capital (Note 1) | 570,000 |
Income tax payable | 75,000 |
Reserve for depreciation recorded to the date of building | 410,000 |
\)3,663,000 |
Note 1: Buildings are stated at cost, except for one building that was recorded at appraised value. The excess of appraisal value over cost was \(570,000. Depreciation has been recorded based on cost.
Note 2: Goodwill in the amount of \)120,000 was recognized because the company believed that book value was not an accurate representation of the fair value of the company. The gain of \(120,000 was credited to Retained Earnings.
Note 3: Notes payable are long-term except for the current installment due of \)100,000.
Instructions
Prepare a corrected classified balance sheet in good form. The notes above are for information only
In its December 31, 2017, balance sheet Oakley Corporation reported as an asset, “Net notes and accounts receivable, $7,100,000.” What other disclosures are necessary?
Question: P5-1 (L03) (Preparation of a Classified Balance Sheet, Periodic Inventory) Presented below is a list of accounts in alphabetical order.
Accounts Receivable Inventory—Ending
Accumulated Depreciation—Buildings Land
Accumulated Depreciation—Equipment Land for Future Plant Site
Accumulated Other Comprehensive Income Loss from Flood
Advances to Employees Noncontrolling Interest
Advertising Expense Notes Payable (due next year)
Allowance for Doubtful Accounts Paid-in Capital in Excess of Par— preferred stock
Bond Sinking Fund Patents
Bonds Payable Payroll Taxes Payable
Buildings Pension Liability
Cash (in bank) Petty Cash
Cash (on hand) Preferred Stock
Cash Surrender Value of Life Insurance Premium on Bonds Payable
Commission Expense Prepaid Rent
Common Stock Purchase Returns and Allowances
Copyrights Purchases
Debt Investments (trading) Retained Earnings
Dividends Payable Salaries and Wages Expense (sales)
Equipment Salaries and Wages Payable
Freight-In Sales Discounts
Gain on Disposal of Equipment Sales Revenue
Interest Receivable Treasury Stock (at cost)
Inventory—Beginning Unearned Subscriptions Revenue
Instructions Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.)
Differentiate between operating activities, investing activities, and financing activities.
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