Building a Balance Sheet

Solution Summary

Blake Matthews incorporated his paper manufacturing operations on January 1, 2011, by issuing 5,000 shares of $1 par common stock to himself. The following balance sheet for the new corporation was prepared.

Looseleaf Corporation
Balance Sheet
January 1, 2011
Cash $15,000.00
Accounts Receivable $55,000.00
Inventory $105,000.00
Equipment $110,000.00
Total $285,000.00
Accounts Payable $85,000.00
Capital Stock, $1 par $5,000.00
Additional paid-in capital $195,000.00
Total $285,000.00

During 2011, Looseleaf Corporation engaged in the following transactions.

a) Looseleaf Corporation produced paper costing $395,000. Paper costs consisted of the following: $307,000, raw materials purchased; $48,000, labor; and $40,000 overhead. Looseleaf Corporation paid the $85,000 owed to suppliers as of January 1 and $210,000 of the $307,000 of raw materials purchased during the year. All labor, except for $6,000, and recorded overhead were paid in cash during the year. Other operating expenses of $8,500 were incurred and paid in 2011.

b) Paper costing $320,000 was sold during 2011 for $390.00. All sales were made on credit, and collections on receivables were $350,000.

c) Looseleaf Corporation purchased machinery (fair market value =$245,000) by trading in old equipment cost $140,000 and paying $105,000
in cash. There is no accumulated depreciation on the old equipment as it was revalued when the new corporation was formed.

d) Looseleaf Corporation issued an additional 15,000 shares of common stock for $10 per share and declared a dividend of $1.75 per share to all stockholders of record as of December 31, 2011, payable on January 15, 2012.

e) Depreciation expense for 2011 was $45,000. The allowance for bad debts after year-end adjustments is $4,000.

Instructions: Prepare a properly classified balance sheet for Looseleaf Corporation as of December 31, 2011.