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Corrections needed to present the balance sheet in good form

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.

Khan 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

Solution Preview

Solution:

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 ...

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