Complex Balance Sheet Presented below is the unaudited balance sheet as of December 31, 2016, prepared by Zeus Manufacturing Corporation’s bookkeeper. Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016 Assets Liabilities and Shareholders' Equity Cash $225,000 Accounts payable $133,800 Accounts receivable (net) 345,700 Mortgage payable 900,000 Inventories 560,000 Notes payable 500,000 Prepaid income taxes 40,000 Lawsuit liability 80,000 Investments 57,700 Income taxes payable 61,200 Land 450,000 Deferred tax liability 28,000 Building 1,750,000 Accumulated depreciation 420,000 Machinery and equipment 1,964,000 Total Liabilities $2,123,000 Goodwill 37,000 Common stock, $50 par; 40,000 shares issued $2,231,000 Total Assets $5,429,400 Retained earnings 1,075,400 Total Shareholders' Equity $3,306,400 Total Liabilities and Shareholders' Equity $5,429,400 Your company has been engaged to perform an audit, during which you discover the following information: 1. Checks totaling $14,000 in payment of accounts payable were mailed on December 31, 2019, but were not recorded until 2020. Late in December 2019, the bank returned a customer’s $2,000 check marked "NSF," but no entry was made. Cash includes $100,000 restricted for building purposes. 2. Included in accounts receivable is a $30,000 note due on December 31, 2019, from Zeus’s president. 3. During 2019, Zeus purchased 500 shares of common stock of a major corporation that supplies Zeus with raw materials. Total cost of this stock was $51,300, and fair value on December 31, 2019, was $51,300. Zeus plans to hold these shares indefinitely. 4. Treasury stock was recorded at cost when Zeus purchased 200 of its own shares for $32 per share in May 2019. This amount is included in investments. 5. On December 31, 2019, Zeus borrowed $500,000 from a bank in exchange for a 10% note payable, maturing December 31, 2024. Equal principal payments are due December 31 of each year beginning in 2020. This note is collateralized by a $250,000 tract of land acquired as a potential future building site, which is included in land. 6. The mortgage payable requires $50,000 principal payments, plus interest, at the end of each month. Payments were made on January 31 and February 28, 2020. The balance of this mortgage was due June 30, 2020. On March 1, 2020, prior to issuance of the audited financial statements, Zeus consummated a noncancelable agreement with the lender to refinance this mortgage. The new terms require $100,000 annual principal payments, plus interest, on February 28 of each year, beginning in 2021. The final payment is due February 28, 2028. 7. The lawsuit liability will be paid in 2020. 8. Of the total deferred tax liability, $5,000 is considered a current liability. 9. The current income tax expense reported in Zeus’s 2019 income statement was $61,200. 10. The company was authorized to issue 100,000 shares of $50 par value common stock. Required: Prepare a corrected classified balance sheet as of December 31, 2016. this financial statements and related notes.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Complex Balance Sheet
Presented below is the unaudited balance sheet as of December 31, 2016, prepared by Zeus Manufacturing Corporation’s bookkeeper.
| Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016 |
||||
| Assets | Liabilities and Shareholders' Equity | |||
| Cash | $225,000 | Accounts payable | $133,800 | |
| Accounts receivable (net) | 345,700 | Mortgage payable | 900,000 | |
| Inventories | 560,000 | Notes payable | 500,000 | |
| Prepaid income taxes | 40,000 | Lawsuit liability | 80,000 | |
| Investments | 57,700 | Income taxes payable | 61,200 | |
| Land | 450,000 | 28,000 | ||
| Building | 1,750,000 | 420,000 | ||
| Machinery and equipment | 1,964,000 | Total Liabilities | $2,123,000 | |
| 37,000 | Common stock, $50 par; 40,000 shares issued | $2,231,000 | ||
| Total Assets | $5,429,400 | 1,075,400 | ||
| Total Shareholders' Equity | $3,306,400 | |||
| Total Liabilities and Shareholders' Equity | $5,429,400 |
Your company has been engaged to perform an audit, during which you discover the following information:
1. Checks totaling $14,000 in payment of accounts payable were mailed on December 31, 2019, but were not recorded until 2020. Late in December 2019, the bank returned a customer’s $2,000 check marked "NSF," but no entry was made. Cash includes $100,000 restricted for building purposes.
2. Included in accounts receivable is a $30,000 note due on December 31, 2019, from Zeus’s president.
3. During 2019, Zeus purchased 500 shares of common stock of a major corporation that supplies Zeus with raw materials. Total cost of this stock was $51,300, and fair value on December 31, 2019, was $51,300. Zeus plans to hold these shares indefinitely.
4.
5. On December 31, 2019, Zeus borrowed $500,000 from a bank in exchange for a 10% note payable, maturing December 31, 2024. Equal principal payments are due December 31 of each year beginning in 2020. This note is collateralized by a $250,000 tract of land acquired as a potential future building site, which is included in land.
6. The mortgage payable requires $50,000 principal payments, plus interest, at the end of each month. Payments were made on January 31 and February 28, 2020. The balance of this mortgage was due June 30, 2020. On March 1, 2020, prior to issuance of the audited financial statements, Zeus consummated a noncancelable agreement with the lender to refinance this mortgage. The new terms require $100,000 annual principal payments, plus interest, on February 28 of each year, beginning in 2021. The final payment is due February 28, 2028.
7. The lawsuit liability will be paid in 2020.
8. Of the total deferred tax liability, $5,000 is considered a current liability.
9. The current income tax expense reported in Zeus’s 2019 income statement was $61,200.
10. The company was authorized to issue 100,000 shares of $50 par value common stock.
Required:
Prepare a corrected classified balance sheet as of December 31, 2016. this financial statements and related notes.
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