P5-5 (L03) GROUPWORK (Balance Sheet Adjustment and Preparation) Presented below is the balance sheet of Sargent Corporation for the current year, 2017.

SARGENT CORPORATION
Balance Sheet
December 31, 2017
Current assets	\(485,000	Current liabilities	\)380,000
Investment	640,000	Long-term liabilities	1,000,000
Property, Plant, and Equipment	1,720,000	Stockholder’s equity	1,770,000
Intangible assets	305,000
	\(3,150,000		\)3,150,000

The following information is presented.

1. The current assets section includes cash \(150,000, accounts receivable \)170,000 less \(10,000 for allowance for doubtful accounts, inventories \)180,000, and unearned rent revenue \(5,000. Inventory is stated on the lower-of-FIFO-cost-or-net realizable value.

2. The investments section includes the cash surrender value of a life insurance contract \)40,000; investments in common stock, short-term \(80,000 and long-term \)270,000; and bond sinking fund \(250,000. The cost and fair value of investments in common stock are the same.

3. Property, plant, and equipment includes buildings \)1,040,000 less accumulated depreciation \(360,000, equipment \)450,000 less accumulated depreciation \(180,000, land \)500,000, and land held for future use \(270,000.

4. Intangible assets include a franchise \)165,000, goodwill \(100,000, and discount on bonds payable \)40,000.

5. Current liabilities include accounts payable \(140,000, notes payable—short-term \)80,000 and long-term \(120,000, and income taxes payable \)40,000.

6. Long-term liabilities are composed solely of 7% bonds payable due 2025.

7. Stockholders’ equity has preferred stock, no par value, authorized 200,000 shares, issued 70,000 shares for \(450,000; and common stock, \)1.00 par value, authorized 400,000 shares, issued 100,000 shares at an average price of \(10. In addition, the corporation has retained earnings of \)320,000.

Instructions

Prepare a balance sheet in good form, adjusting the amounts in each balance sheet classification as affected by the information given above.

Step by step solution

01

Definition of Authorized Shares

The maximum number of shares by which a company can issue shares and raise finance for the business is known as authorized shares.

02

Classified Balance Sheet

SARGENT CORPORATION
Balance Sheet
December 31, 2017
Assets
Current Assets
Cash		$150,000
Accounts receivables	$170,000
Less: Allowance for doubtful accounts	(10,000)	160,000
Inventories		180,000
Short-term investment in common stock		80,000
Long-term investment
Cash surrender value of life insurance		40,000
Land held for future use		270,000
Long-term investment in common stock		270,000
Bond sinking funds		250,000
Property, Plant, and equipment
Building	1,040,000
Less: Accumulated depreciation	(360,000)	680,000
Equipment	450,000
Less: Accumulated depreciation	(180,000)	270,000
Land		500,000
Intangible assets
Franchise		165,000
Goodwill		100,000
Total assets		3,115,000
Liabilities
Current liabilities
Account payable		140,000
Note payable (short term)		80,000
Income tax payable		40,000
Unearned rent revenue		5,000
Non-current liabilities
Note payable (long term)		120,000
Bond payable	1,000,000
Less: Discount on bond payable	(40,000)	960,000
Total liabilities		1,345,000
Equity
Preferred stock		450,000
Common stock	100,000
Add: Paid-in-capital in excess of par	900,000	1,000,000
Reserves and surplus
Retained earnings		320,000
Total liabilities and equity		$3,115,000

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