You recently joined the internal auditing department of Kaitlyn Sportswear Corpo

Question

You recently joined the internal auditing department of Kaitlyn Sportswear Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.   Prepare a classified balance sheet in good form to better represent Kaitlyn Sportswear Corporation.  

Kaitlyn Sportswear Corporation

At December 31, 2018

                                                             Assets

Cash                                                                                                              $ 220
Accounts receivable, net 340
Note receivable 8
Inventories                                                                                                        600
Prepaid expenses 40
Land 500
Buildings, net 2,200
Equipment, net 400
Investments 50
Patent 60
Total assets $4,490

Liabilities and Shareholders' Equity

Accounts payable                                                                                            $ 165
Salaries payable                                                                                                   75
Interest payable 45
Note payable 300
Bonds payable 500
Deferred revenue 80
Total liabilities 1,165
Common stock 2,000
Retained earnings                                                                                           1,325
Total shareholders' equity                                                                               3,181
Total liabilities and shareholders' equity $4,490

In the course of your examination of the company files, you uncover the following information pertaining to the balance sheet:

1. The land and buildings represent the corporate headquarters and manufacturing facilities.
2. The note receivable is due in 2020. The balance of $80 includes $5 of accrued interest. The next interest payment is due in July 2019.
3. The note payable is due in installments of $50 per year. Interest on both the notes and bonds is payable annually.
4. The company's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.
5. Deferred revenue will be recognized ratably (equally) over the next two years.
6. Accumulated Depreciation for the building is $1,200.
7. Accumulated Depreciation for equipment is $170.
8. Allowance for Bad Debt is $65,000

Explanation / Answer

Kaitlyn Sportswear Corporation Balance sheet At December 31, 2018 Assets Current Assets Cash          220 Accounts receivable          405 Allowance for Bad Debts            65          340 Accrued Interest 5 Inventories          600 Prepaid expenses            40 Short term Investments            50 Total Current Assets          1,255 Long term Assets Note receivable 75 Property , Plant & Equipment Land          500 Buildings      3,400 Less: Accumulated Depreciation for building      1,200      2,200 Equipment          570 Less: Accumulated Depreciation for Equipment          170          400          3,100 Intangible Assets Patent 60 Total Assets          4,490 Liabilities and Shareholders' Equity Current Liabilities Accounts payable          165 Salaries payable            75 Interest payable            45 Note payable            50 Deferred revenue            40 Total Current Liabilities             375 Long Term Liabilities Note payable          250 Bonds payable          500 Deferred revenue            40 Total Long Term Liabilities             790 Total liabilities          1,165 Common stock      2,000 Retained earnings      1,325 Total shareholders' equity          3,325 Total liabilities and shareholders' equity          4,490

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