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Chapter 5: Q3E (page 240)

Question: E5-3 (L02,3) (Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses the following headings on its balance sheet.

(a) Current assets

(g) Long-term liabilities

(b) Investments

(h) Capital stock

(c) Property, plant, and equipment

(i) Equity attribute to non-controlling interest

(d) Intangible assets

(i) paid-in-capital in excess of par

(e) Other assets

(k) Retained earnings

(f) Current liabilities

Instructions

Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter “N” to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter “X.”

1. Prepaid insurance.

2. Stock owned in affiliated companies.

3. Unearned service revenue.

4. Advances to suppliers.

5. Unearned rent revenue.

6. Preferred stock.

7. Additional paid-in capital on preferred stock.

8. Copyrights.

9. Petty cash fund.

10. Sales taxes payable.

11. Accrued interest on notes receivable.

12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.)

13. Machinery retired from use and held for sale.

14. Fully depreciated machine still in use.

15. Accrued interest on bonds payable.

16. Salaries that company budget shows will be paid to employees within the next year.

17. Discount on bonds payable. (Assume related to bonds payable in item 12.)

18. Accumulated depreciation—buildings.

19. Shares held by non-controlling stockholders.

Short Answer

Expert verified

Answer

The investment will include the resources or assets acquired by the business entity or individual to gain financial advantages due to a change in their fair value

Step by step solution

01

Definition of Retained earnings

Business entities keep some earnings for future prospectuses, such as paying dividends to the investors and re-investment. Such portion of earnings is known as retained earnings.

02

Classification of Line Items

1. Prepaid insurance:(a) Current assets.

2. Stock owned in affiliated companies:(b) Investments.

3. Unearned service revenue:(f) Current liabilities

4. Advances to suppliers:(a) Current assets.

5. Unearned rent revenue:(f) Current liabilities

6. Preferred stock: (h) Capital stock

7. Additional paid-in capital on preferred stock:(i) Additional paid-in capital.

8. Copyrights:(d) Intangible assets.

9. Petty cash fund:(a) Current assets.

10. Sales taxes payable:(f) Current liabilities

11. Accrued interest on notes receivable:(a) Current assets.

12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.):(f) Current liabilities

13. Machinery retired from use and held for sale:(e) Other assets.

14. Fully depreciated machine still in use:(c) Property, plant, and equipment.

15. Accrued interest on bonds payable:(f) Current liabilities

16. Salaries that the company budget shows will be paid to employees within the next year:(f) Current liabilities

17. Discount on bonds payable. (Assume related to bonds payable in item 12.):(f) Current liabilities

18. Accumulated depreciation—buildings:(c) Property, plant, and equipment.

19. Shares held by non-controlling stockholders: (i) Equity attributed to non-controlling interest

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Most popular questions from this chapter

E5-9 (L02,3) (Current Assets and Current Liabilities) 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.

(L02,3) (Balance Sheet Classifications) Presented below are a number of balance sheet accounts of Deep Blue Something, Inc.

(a) Debt Investments.

(h)Interest Payable.

(b) Treasury Stock.

(i) Deficit.

(c) Common Stock.

(j) Equity Investments(ownership stake of less than 20%).

(d) Dividends Payable.

(k) Income Taxes Payable.

(e) Accumulated Depreciation—Equipment.

(l) Unearned Subscriptionsrevenue.

(f) Construction in Process.

(m) Work in Process.

(g) Petty Cash.

(n) Salaries and WagesPayable.

Instructions For each of the accounts above, indicate the proper balance sheet classification. In the case of borderline items, indicate the additional information that would be required to determine the proper classification.

(Identifying Balance Sheet Deficiencies) The assets of Fonzarelli Corporation are presented below (000s omitted).

FONZARELLI CORPORATION

BALANCE SHEET (PARTIAL)

DECEMBER 31, 2018

Assets

Cash

\(100,000

Unclaimed payroll check

27,500

Debt investment (trading) (fair value \)30,000) at cost

37,000

Accounts receivables (less bad debt reserves)

75,000

Inventory—at lower-of-cost (determined by the next-in, first-out method) or net realizable value

240,000

Total current assets

479,500

Tangible assets

Land (less accumulated depreciation)

80,000

Building and equipment

\(800,000

Less: Accumulated depreciation

(250,000)

550,000

Net tangible assets

630,000

Long-term investment

Stock and bonds

100,000

Treasury stock

70,000

Total long-term investment

170,000

Other assets

Discount on bonds payable

19,400

Sinking funds

975,000

Total other assets

994,400

Total assets

\)2,273,900

Instructions

Indicate the deficiencies, if any, in the foregoing presentation of Fonzarelli Corporation’s assets.

(Reporting the Financial Effects of Varied Transactions) In an examination of Arenes Corporation as of 31 Dec, 2017, you have learned that the following situations exist. No entries have been made in the accounting records for these items.

1. The corporation erected its present factory building in 2001. Depreciation was calculated by the straight-line method, using an estimated life of 35 years. Early in 2017, the board of directors conducted a careful survey and estimated that the factory building had a remaining useful life of 25 years as of 1 Jan, 2017.

2. An additional assessment of 2016 income taxes was levied and paid in 2017.

3. When calculating the accrual for officers’ salaries at 31 Dec, 2017, it was discovered that the accrual for officers’ salaries for 31 Dec, 2016, had been overstated.

4. On 15 Dec, 2017, Arenes Corporation declared a cash dividend on its common stock outstanding, payable 1 Feb, 2018, to the common stockholders of record 31 Dec, 2017.

Instructions

Describe fully how each of the items above should be reported in the financial statements of Arenes Corporation for the year 2017.

Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as \(90,000.

(a) Accounts receivable increased from \)34,000 to \(39,000 from the beginning to the end of the year.

(b) During the year, 10,000 shares of preferred stock with a par value of \)100 per share were issued at \(115 per share.

(c) Depreciation expense amounted to \)14,000, and bond premium amortization amounted to \(5,000.

(d) Land increased from \)10,000 to $30,000.
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