Question 2FSAC - Intermediate Accounting (Kieso)

Question

Case 2: Sherwin-Williams Company Sherwin-Williams, based in Cleveland, Ohio, manufactures a wide variety of paint and other coatings, which are marketed through its specialty stores and in other retail outlets. The company also manufactures paint for automobiles. The Automotive Division has had financial difficulty. During a recent year, five branch locations of the Automotive Division were closed, and new management was put in place for the remaining branches.

The following titles were shown on Sherwin-Williams’s balance sheet for that year.

Account payable	Machinery and Equipment
Accounts receivable, less allowance	Other accruals
Accrued taxes	Other capital
Building	Other current assets
Cash and Cash equivalents	Other long term liabilities
Common stock	Postretirement obligation other than pension
Employee compensation payable	Retained earnings
Finished good inventories	Short-term investment
Intangible and other assets	Taxes payable
Land	Work in process and raw material inventories.
Long-term debt

 

Instructions 

(a) Organize the accounts in the general order in which they would have been presented in a classified balance sheet. 

(b) When several of the branch locations of the Automotive Division were closed, what balance sheet accounts were most likely affected? Did the balance in those accounts decrease or increase?

Step-by-Step Solution

Answer

Classification of the assets and liabilities is made based on liquidity.

Definition of Departmental Accounting

The accounting process adopted by the business entity that operates with different departments is known as departmental accounting. Each department operating under business prepares different accounting books.

Classified balance sheet

Particular	Amount $	Amount $
Current assets:
Cash and Cash Equivalent
Short-term investments
Accounts receivables
Less: Allowance for doubtful accounts
Finished goods inventories
Work-in-process and raw material inventories
Other current assets
Long-Term assets
Land
Machinery and equipment
Building
Intangible and Other assets
Total assets
Current liabilities:
Accounts payable
Employee compensation payable
Other accruals
Taxes payable
Accrued taxes
Long-Term liabilities
Long-term debt
Other long term liabilities
Post-retirement obligations other than pensions
Stockholder’s equity
Common stock
Other capital
Retained earnings
Total liabilities and shareholder’s equity

 

Effect of winding up of branches on balance sheet accounts

Account	Effect
Cash and Cash equivalent	Increase due to sale of assets of departments.
Accounts receivables	Decrease due to the sale of receivables of other departments.
Finished goods inventories	Decrease
Work-in-process and raw material inventories	Decrease
Land	Decrease
Building	Decrease
Machinery and Equipment	Decrease
Long term debt	Decrease
Retained earnings	It will increase when the assets are sold for more than cost and decrease when sold for lower than cost.