Question

The following is the balance sheet of Korver Supply Company at December 31, 2020 (prior year).

KORVER SUPPLY COMPANY
Balance Sheet
At December 31, 2020
Assets
Cash	$	175,000
Accounts receivable		300,000
Inventory		250,000
Furniture and fixtures (net)		195,000
Total assets	$	920,000
Liabilities and Shareholders’ Equity
Accounts payable (for merchandise)	$	300,000
Notes payable		310,000
Interest payable		12,400
Common stock		140,000
Retained earnings		157,600
Total liabilities and shareholders’ equity	$	920,000

Transactions during 2021 (current year) were as follows:

1.	Sales to customers on account	$	960,000
2.	Cash collected from customers		940,000
3.	Purchase of merchandise on account		650,000
4.	Cash payment to suppliers		660,000
5.	Cost of merchandise sold		600,000
6.	Cash paid for operating expenses		320,000
7.	Cash paid for interest on notes		24,800

Additional Information:

The notes payable are dated June 30, 2020, and are due on June 30, 2022. Interest at 8% is payable annually on June 30. Depreciation on the furniture and fixtures for 2021 is $36,000. The furniture and fixtures originally cost $460,000.

Required:
Prepare a classified balance sheet at December 31, 2021, by updating ending balances from 2020 for transactions during 2021 and the additional information. The cost of furniture and fixtures and their accumulated depreciation are shown separately. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

A classified balance sheet shows the classification of assets and liabilities into different categories like, current assets, current liabilities, long term investments, property, plant and equipment, etc.

Notes:
Calculation of ending balances -

● Cash:

Ending balance = Opening cash + Cash received from customers - Cash paid to suppliers - Cash paid for operating expenses - Cash paid for Interest on notes
= $175,000 + $940,000 - $660,000 - $320,000 - $24,800 = $110,200

● Accounts receivable:

Ending balance = Opening balance + Credit sales - Cash collected from customers = $300,000 + $960,000 - $940,000 = $320,000

● Furniture and fixtures:

Ending balance = Opening balance - Depreciation expense = $195,000 - $36,000 = $159,000

● Accumulated depreciation-Furniture and fixtures:
Ending balance = Original cost of Furniture and fixtures - Ending balance of Furniture and fixtures = $460,000 - $159,000 = $301,000

● Inventory:

Ending balance = Opening balance + Purchase of merchandise - Cost of merchandise sold = $250,000 + $650,000 - $600,000 = $300,000

● Accounts payable:

Ending balance = Opening balance + Credit purchases - Cash paid to suppliers
= $300,000 + $650,000 - $660,000 = $290,000

● Retained earnings:

Ending balance = Opening balance + Sales revenue - (Cost of merchandise sold + Operating expenses + Depreciation expense + Interest expense)
= $157,600 + $960,000 - ($600,000 + $320,000 + $36,000 + $24,800) = $136,800

● Note payable, interest payable and common stock will remain unchanged.