Q3CA.
Question
(Critique of Balance Sheet Format and Content) The following is the balance sheet of Sameed Brothers Corporation (000s omitted).
SAMEED BROTHERS CORPORATION | ||
BALANCE SHEET | ||
DECEMBER 31, 2017 | ||
Assets |
|
|
Current assets |
|
|
Cash | \(26,000 |
|
Marketable securities | 18,000 |
|
Accounts receivables | 25,000 |
|
Inventory | 20,000 |
|
Supplies | 4,000 |
|
Stock investment in subsidiary company | 20,000 | \)113,000 |
|
|
|
Investment |
|
|
Treasury stock |
| 25,000 |
|
|
|
Property, Plant and Equipment |
|
|
Building and land | 91,000 |
|
Less: Reserve for depreciation | (31,000) | 60,000 |
|
|
|
Other assets |
|
|
Cash Surrender value of life insurance |
| 19,000 |
Total assets |
| \(217,000 |
|
|
|
Liabilities and Stockholder’s equity |
|
|
Accounts payable | \)22,000 |
|
Reserve for income taxes | 15,000 |
|
Customer’s account with credit balance | 1 | \(37,001 |
|
|
|
Deferred credit |
|
|
Unamortized premium on bonds payable |
| 2,000 |
|
|
|
Long term liabilities |
|
|
Bonds payable |
| 60,000 |
Total liabilities |
| 99,001 |
|
|
|
Common stock |
|
|
Common stock at par \)5 | 85,000 |
|
Earned surplus | 24,999 |
|
Cash Dividend declared | 8,000 | 117,999 |
Total liabilities and Stockholder’s equity |
| $217,000 |
Instructions
Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized
Step-by-Step Solution
VerifiedItems not represented correctly:
1. Cash surrender value of life insurance.
2. Stock investment in a subsidiary company.
3. Treasury stock.
4. Unamortized premium on bonds payable.
5. Earned surplus.
6. Cash dividend declared.
Unamortized premium refers to the amount of difference between the book value of the bonds reported and the face value of the bonds. Such premium is amortized using the two methods; straight line and effective interest rate.
SAMEED BROTHERS CORPORATION | ||
BALANCE SHEET | ||
DECEMBER 31, 2017 | ||
Assets |
|
|
Current assets |
|
|
Cash |
| $26,000 |
Marketable securities |
| 18,000 |
Accounts receivables |
| 25,000 |
Inventory |
| 20,000 |
Cash Surrender value of life insurance |
| 19,000 |
Supplies |
| 4,000 |
Total current assets |
| 112,000 |
|
|
|
Long term Investment |
|
|
Investment in subsidiary company |
| 20,000 |
|
|
|
Property, Plant, and Equipment |
|
|
Building and land | $91,000 |
|
Less: Accumulated depreciation | (31,000) | 60,000 |
Total assets |
| $192,000 |
|
|
|
Liabilities and Stockholder’s equity |
|
|
Accounts payable |
| $22,000 |
Dividend payable |
| 8,000 |
Unearned revenue |
| 1 |
|
|
|
Long term liabilities |
|
|
Reserve for income tax |
| 15,000 |
Bonds payable | $60,000 |
|
Add: Unamortized premium on bonds payable | 2,000 | 62,000 |
Total liabilities |
| 107,001 |
|
|
|
Common stock |
|
|
Common stock at par $5 |
| 85,000 |
|
|
|
Reserves and surplus |
|
|
Retained earnings | 24,999 |
|
Less: treasury stock | (25,000) | (1) |
Total liabilities and Stockholder’s equity |
| $192,000 |