List the corrections needed to present in good form the balance sheet below. Err
ID: 2539172 • Letter: L
Question
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.
Tanner Corporation
Balance Sheet
For the year ended December 31, 2018
Assets
Liabilities and Capital
Current Assets: Cash $18,000 Equity investments-trading (fair value, $32,000) $27,000 Accounts receivable $75,000 Inventory $60,000 Supplies inventory $3,000 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: Discount on bonds payable $3,000 Other Assets: Cash surrender value of life insurance $54,000 $531,000Explanation / Answer
Answer
Following is the list of corrections needed to present the balance sheet in good form:
1. " For the year ended December 31, 2018" in the title should be deleted, instead it should be “As On December 31, 2018",as balance sheet is a statement not an account.
2. Equity investments should be presented at fair value.
3. Allowance for Doubtful Accounts should be disclosed and subtracted from amount of Accounts Receivable.
4. The method or technique used for inventory pricing (LIFO, FIFO, HIFO, etc.) should be revealed.
5. Investment in Subsidiary should be categorized as an investment.
6. Treasury Stock is wrongly presented under Investments. It should be shown as deduction from the Stockholders' Equity segment.
7. The amount for Buildings and Land should be presented separately.
8. Instead of "Reserve for" Depreciation. It should be "Accumulated" Depreciation.
9. Discount on Bonds Payable should be deducted from amount of Bonds Payable.
10. Cash Surrender Value of Life Insurance should be categorized as Investments.
11. "Reserve" for Income Taxes should be “Income Taxes Payable”.
12. The amount of $3 for customer's accounts with credit balances are so small that it should not be shown separately. Rather it might be offset against Accounts Receivable account.
13. For Bonds Payable, date of maturity, interest rate and time of interest payment (say annually, semi-annually, quarterly or monthly) should be revealed.
14. "Capital Stock" title is inappropriate. It should be "Stockholders' Equity;” Also “Capital stock" shown as an account should be “Common stock.”
15. Additional information with regard to capital stock, such as par value and the number of shares issued and outstanding should be presented.
16. Instead of "Earned surplus", “Retained Earnings” is the appropriate title.
17. Cash dividends declared is Dividends Payable and should be presented as a current liability.
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