The following balance sheet has been submitted to you by an inexperienced bookkeeper. List your suggestions for improvements in the format of the balance sheet. Consider both terminology deficiencies as well as classification inaccuracies.
Please list all deficiencies and why they should be adjusted. Note: The balance sheet, even with all the corrections, will not balance when completed.
Jasper Industries, Inc.
For the Period Ended 12/31/10
Less: reserve for depreciation (40,000) $ 70,000
Factory supplies 22,000
Land and buildings 400,000
Less: reserve for depreciation (150,000) 250,000
Plant site held for future use 90,000 $ 432,000
Accounts receivable 175,000
Treasury stock (at cost) 20,000 495,000
Notes receivable 40,000
Patents 26,000 146,000
Advances to salespersons 60,000
Prepaid rent 27,000
Returnable containers 75,000 162,000
TOTAL ASSETS $1,235,000
Accounts payable $140,000
Allowance for doubtful accounts 8,000
Common stock dividend distributable 35,000
Income taxes payable 42,000
Sales taxes payable 17,000 $ 242,000
Long-Term Liabilities, 5% debenture bonds, due 2013 500,000
Reserve for contingencies 150,000 650,000
TOTAL LIABILITIES 892,000
Capital stock, $10.00 par value, issued 12,000 shares with
60 shares held as treasury stock $150,000
Capital surplus 90,000
Dividends paid (20,000)
Earned surplus 123,000
TOTAL EQUITY 343,000
TOTAL LIABILITIES AND EQUITY $1,235,000
1. Balance sheets are as of a particular date. Thus, this balance sheet should be listed "As of December 31, 2010".
2. In American balance sheets, the most liquid assets are listed first. Thus, the first section of the balance sheet should be "Current Assets."
3. Current assets (i.e., assets which will be consumed or converted to cash in one year or less) should be listed in the order of their liquidity. Thus, you should list Cash first, followed by Accounts Receivable, and then Inventory.
4. Treasury Stock is a Stockholders' Equity account. In fact, it is the last account listed under Stockholders' Equity and is a reduction of Stockholders' Equity.
5. Fixed Assets should be listed next. By definition, fixed assets are plant, machinery, equipment, and other tangible assets. Thus, ...
Given a balance sheet in poor form, this solution discusses how to prepare the same document in proper form. It lists deficiencies in the statement presented and discusses the actions needed to correct each one.