Question

The following Statement of Financial Position for RBZ Corporation has a number of format, classification, and terminology deficiencies. Assume that all the figures are correct.

ASSETS

Current assets:                                                                     

Cash in banks $11,800

Due from customers & employees $9,700

Less reserve for uncollectibles    600

Bond sinking fund 15,000

Inventories    22,320

Total current assets 58,300

Property, plant & equipment:

Land & buildings 41,000

Furniture & fixtures 17,500

Used property held for sale 4,000

Total 62,500

Less accumulated depreciation   19,000

Total property and equipment 43,500

Deferred charges:

Unamortized bond discount 1,200

Supplies on hand 2,000

Goodwill 14,000

Total 17,200

RBZ Corporation Statement of Financial Position As At December 31, 2018

Other assets:                                                                                                          

Treasury stock (at cost)    5,500

Total assets 124,500

Equities

Liabilities:                                                                                                                 

Accrued bond interest expense 900

Accounts & notes payable 21,000

Bonds payable 30,000

Accumulated Other Comprehensive Income    10,000

Total liabilities 61,900

Net worth:

Common Shares 40,000

Retained earnings 7,600

Reserve for bond sinking fund 15,000

Total net worth 62,600

Total equities 124,500

Required

List 10 deficiences in the above statement.

Answer 1

1. Treasury Stock is not an asset rather it should be deducted in the stockholders equity section of the Balance Sheet to clearly distinguish between the number of shares issued and number of shares outstanding.

2. Supplies on hand is an asset and that to current asset so it should be shown as current assets instead of deferred charge.

3. Goodwill is an intangible asset and it should be reported as an intangible asset under the non current assets section of the Balance Sheet rather than showing as deferred charge.

4. Accrued Interest Expense and Accounts Payables are Current Liabilities so they should be shown properly as Current Liabilities in the Balance Sheet instead of joining them with other non current Liabilities.

5. Accumulated Comprehensive Income should be included in the stock holder section of the Balance Sheet as retained earnings instead of showing as a sole item in the Balance Sheet.

6. Bind Sinking Fund has been shown as a current asset instead it is a long term non current asset so it is wrong to classify it as current asset.

7. Dues from Employee and Customers should be shown after deduction of reserve for uncollectible instead mentioning it separately.

8. Accumulated Depreciation in Plant and Equipment should be reported with the assets class they are belonging to instead of showing them separately after total fixed assets section.

9. The heading Statement of Financial Statement should be at the top of the Statement of Financial Position or Balance Sheet rather than showing it as a line item in the assets section of the Balance Sheet.

10. Statement of Financial Position is an integral part of the companies reporting requirement so the reporting format should be improved with the proper heading as per the nature of the items and there should be proper notes showing the changes made and various other disclosures. Moreover there should definitely a proper display of headings either of primary nature or secondary nature.