Question

Directions: You were handed this Balance Sheet by an inexperieced bookkeeper. Look at the following balance sheet and come up with 10 improvements/suggestions. Please just write and list them out in text.

Fixed Assets—Tangible
Equipment		$110,000
Less: reserve for depreciation		(40,000)		$70,000
Factory supplies				22,000
Land and buildings		400,000
Less: reserve for depreciation		(150,000)		250,000
Plant site held for future use				90,000		$432,000
Current Assets
Accounts receivable				175,000
Cash				80,000
Inventory				220,000
Treasury stock (at cost)				20,000		495,000
Fixed Assets—Intangible
Goodwill				80,000
Notes receivable				40,000
Patents				26,000		146,000
Deferred Charges
Advances to salespersons				60,000
Prepaid rent				27,000
Returnable containers				75,000		162,000
TOTAL ASSETS						$1,235,000
Liabilities
Current Liabilities
Accounts payable				$140,000
Allowance for doubtful accounts				8,000
Common stock dividend distributable				35,000
Income tax payable				42,000
Sales tax payable				17,000		$242,000
Long-term Liabilities, 5% debenture bonds, due 2023				500,000
Reserve for contingencies				150,000		650,000
TOTAL LIABILITIES						892,000
Equity
Capital stock, $10 par value, issued 12,000 shares with
60 shares held as treasury stock				$150,000
Capital surplus				90,000
Dividends paid				(20,000)
Earned surplus				123,000
TOTAL EQUITY						343,000
TOTAL LIABILITIES AND EQUITY						$1,235,000

Note	1.	The reserve for contingencies has been created by charges to earned surplus and has been established to provide a cushion for future uncertainties.
Note	2.	The inventory account includes only items physically present at the main plant and warehouse. Items located at the company's branch sales office amounting to $40,000 are excluded since the company has consistently followed this procedure for many years.

Answer 1

Solution-

1) The heading should be at a specific date rather than for a period of time.

2)Fixed Assets – Tangible” and “Reserve for Depreciation” is poor terminology; should be Property, Plant and Equipment and Accumulated Depreciation.

3)The Accumulated Depreciation account should only be reported for the buildings. Land never depreciated.

4) Plant site held for future use should be shown in the

Investments section

5)Treasury stock is not an asset, but it will be deducted from

shareholders’ equity

6) The deferred charge items should be reclassified as

follows-

Advances to salespersons—current asset

Prepaid Rent—current asset

Returnable containers—current asset

7) Notes receivable should be reported as a current asset or an investment

8) Allowance for doubtful accounts should be shown as a contra account to accounts receivable.

9) Common stock dividend distributable should

be shown in shareholders’ equity.

10) Earned surplus is poor terminology. The term "retained

earnings" is more appropriate.