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Balance Sheet - Error Corrections

ABC Corporation
Balance Sheet
For the year ended December 31, 2007

Assets

Current Assets:
Cash................................................ $ 18,000
Trading securities (fair value, $32,000)........... 27,000
Accounts receivable.................................75,000
Merchandise inventory............................. 60,000
Supplies inventory................................... 3,000
Stock investment in subsidiary company......... 60,000............ $243,000
Investments:
Treasury stock............................................................... 78,000
Tangible Fixed Assets:
Buildings and land................................... 213,000
Less: Reserve for depreciation..................... 60,000.............. 153,000
Deferred Charges:
Unamortized discount on bonds payable................................... 3,000
Other Assets:
Cash surrender value of life insurance.................................... 54,000
......................................................................................... $531,000

Liabilities and Capital

Current Liabilities:
Accounts payable.................................. $45,000
Reserve for income taxes.......................... 42,000
Customer's accounts with credit balances.......... 3..................... $87,003

Long-Term Liabilities:
Bonds payable................................................................. 120,000
Total Liabilities........................................................ 207,003

Capital Stock:
Capital stock.......................................... 225,000
Earned surplus.......................................... 74,997
Cash dividends declared.............................. 24,000................ 323,997
............................................................................................. $531,000

List the corrections needed to present in good form the balance sheet below. Errors include misclassifications, lack of adequate disclosure, and poor terminology. Do not concern yourself with the arithmetic. If an item can be classified in more than one category, select the category most favored by the authors of your textbook.

Attachments

Solution Preview

Please see the attached file

Corrections
1. "For the year ended" in the title should be deleted.
2. Trading securities should be reported at their fair value.
3. The amount of Allowance for Doubtful Accounts should be disclosed and deducted from Accounts Receivable.
4. The inventory costing method (cost, lower of cost or market) and the basis for pricing the inventory (LIFO, FIFO, etc.) should be disclosed.
5. Stock Investment in Subsidiary should be classified as an investment.
6. Treasury Stock is misclassified under Investments. It should appear as a deduction from the Stockholders' Equity section.
7. Buildings and Land should be separated.
8. "Reserve for" Depreciation should be "Accumulated" Depreciation.
9. Unamortized Discount on Bonds Payable should be classified with and deducted from Bonds Payable.
10. Cash Surrender Value of Life Insurance should be classified among Investments.
11. "Reserve" ...

Solution Summary

The solution explains the errors in the given balance sheet and prepares a corrected balance sheet

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