Question

List the corrections needed to present in good form the balance sheet below. Errors include misclassifications, lack of adequate disclosure, and poor terminology. Do not concern yourself with the arithmetic. If an item can be classified in more than one category, select the category most favored by the authors of your textbook.

Tanner Corporation

Balance Sheet

For the year ended December 31, 2018

Assets

Current Assets:
Cash	$18,000
Equity investments-trading (fair value, $32,000)	$27,000
Accounts receivable	$75,000
Inventory	$60,000
Supplies inventory	$3,000
Investment in subsidiary company	$60,000	$243,000
Investments:
Treasury stock		$78,000
Tangible Fixed Assets:
Buildings and land	$213,000
Less: Reserve for depreciation	$60,000	$153,000
Deferred Charges:
Discount on bonds payable		$3,000
Other Assets:
Cash surrender value of life insurance		$54,000
		$531,000

Liabilities and Capital

Current Liabilities:
Accounts payable	$45,000
Reserve for income taxes	$42,000
Customer's accounts with credit balances	$3	$87,003
Long-Term Liabilities:
Bonds payable		$120,000
Total Liabilities		$207,003
Capital Stock:
Capital stock	$225,000
Earned surplus	$74,997
Cash dividends declared	$24,000	$323,997
		$531,000

Answer 1

Answer

Following is the list of corrections needed to present the balance sheet in good form:

1.     " For the year ended December 31, 2018" in the title should be deleted, instead it should be “As On December 31, 2018",as balance sheet is a statement not an account.

2.     Equity investments should be presented at fair value.

3.     Allowance for Doubtful Accounts should be disclosed and subtracted from amount of Accounts Receivable.

4.     The method or technique used for inventory pricing (LIFO, FIFO, HIFO, etc.) should be revealed.

5.     Investment in Subsidiary should be categorized as an investment.

6.     Treasury Stock is wrongly presented under Investments. It should be shown as deduction from the Stockholders' Equity segment.

7.     The amount for Buildings and Land should be presented separately.

8.     Instead of "Reserve for" Depreciation. It should be "Accumulated" Depreciation.

9.     Discount on Bonds Payable should be deducted from amount of Bonds Payable.

10.     Cash Surrender Value of Life Insurance should be categorized as Investments.

11.     "Reserve" for Income Taxes should be “Income Taxes Payable”.

12.     The amount of $3 for customer's accounts with credit balances are so small that it should not be shown separately. Rather it might be offset against Accounts Receivable account.

13.     For Bonds Payable, date of maturity, interest rate and time of interest payment (say annually, semi-annually, quarterly or monthly) should be revealed.

14.     "Capital Stock" title is inappropriate. It should be "Stockholders' Equity;” Also “Capital stock" shown as an account should be “Common stock.”

15.     Additional information with regard to capital stock, such as par value and the number of shares issued and outstanding should be presented.

16.     Instead of "Earned surplus", “Retained Earnings” is the appropriate title.

17.     Cash dividends declared is Dividends Payable and should be presented as a current liability.