Question

Wright Corporation had the following permanent accounts and ending balances on December 31, 2020 (before adjusting entries):

	Dr. ($)	Cr. ($)
Cash	350,000
Equipment	1,600,000
Bonds payable		900,000
Retained earnings		330,000
Allowance for Doubtful Accounts		9,000
FV-OCI investments	600,000
Inventory	720,000
Accumulated Depreciation-Equipment		120,000
Accounts payable		560,000
Accounts receivable	320,000
Common shares		1,700,000
Prepaid insurance	20,000
FV-NI investments	180,000

There have been no transactions recorded in Allowance for Doubtful Accounts over the year. The company should recognize bad debt expenses for $5,000 at the end of 2020. The company prepaid $20,000 for one-year insurance becoming effective on October 1, 2020. The company purchased the equipment on July 1, 2018, and estimated that the useful life of the equipment is 20 years and there is no residual value of the equipment. The company adopted straight-line method to account for depreciation. On December 31, 2020, the fair values of FV-NI investment and FV-OCI investments were $200,000 and $520,000, respectively. The company used the perpetual inventory system. There were no accrued interest and discount/premium on bonds, and other accrual items. Please do not consider the income tax effect.

Required:

Prepare a statement of financial position as at December 31, 2020, presenting assets and liabilities in order of liquidity.

Answer 1

I have prepared Statement of Financial Position and also prepare necessary adjustment entries in excel . Hope it will help to make you understand.

Statement of Financial Position for Wright Corporation as at Dec 31,2020
Particlulars		Amount ($)
Current Assets
Cash	350,000
Prepaid Insurance	15,000
Accounts receivable	320,000
Inventry	720,000	1,405,000
Prepaid Insurance
FV OCI Investments	520,000
FV - NI Investments	200,000
Unrealised Loss on invetsments	60,000	780,000
Equipments	1,600,000
Less Accumulated Depreciation	200,000	1,400,000
Total Assets (A)		3,585,000
Less : Liabilities
Current Liabilities
Accounts Payable	560,000	560,000
Non Current Liabilities
Bonds Payable	900,000	900,000
Total Liabilities ( B)		1,460,000
Net Assets                                                               (A) -( B)		2,125,000

Adjustment Entries
Date	General Journal	Debit ($)	Credit ($)
31 Dec	Bed debt expenses	5,000
	Allowance for Doubtful Accounts		5,000
31 Dec	Insurace Expense	5,000
	Prepaid Insurance		5,000
31 Dec	Depreciation Exp	80,000
	Accumulated Dep		80,000
31 Dec	Unrealized Gain/Loss on Investmenst	80,000
	FV - OCI Investmenst		80,000
31 Dec	FV - NI Investmenst	20,000
	Unrealized Gain/Loss on Investmenst		20,000

Working Notes -
1	Insurance Expenses
	Amount paid		20,000
	Insurance Period	1 year
	Effective date of Insurance	October 1,2020
	Unexpired Insurance	3 months
	Unexpired Insurance	9 months
	Amount to be treated as insurance Expense	20000*3/12	5,000
2	Computation of Depreciation
	Purchase Cost of Equipment		1,600,000
	Useful Life		20
	Depreciation to be Charged yearly	1600000/20	80,000

Note : 1. As Investments are long term and assumed as held not for sale , so unrealized loss has not been treated as current year loss.