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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Erroneous Balance Sheet Cutler Corporation prepared the following balance sheet:

Chapter 4, Problem 6P, Erroneous Balance Sheet Cutler Corporation prepared the following balance sheet: Required: 1. Next , example  1

Chapter 4, Problem 6P, Erroneous Balance Sheet Cutler Corporation prepared the following balance sheet: Required: 1. Next , example  2

Required:

  1. 1. Next Level Identify the errors made in the Cutler balance sheet.
  2. 2. Prepare a corrected, properly classified balance sheet.

1.

To determine

Ascertain the errors made in the balance sheet of Corporation C.

Explanation

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Ascertain the errors made in the balance sheet of Corporation C:

  1. In the title of the balance sheet report, it is written as “balance report”, but it must be written as “balance Sheet”.
  2. The reported date of balance sheet must be “December 31, 2019” not as “For the Year Ended December 31, 2019”
  3. Balance sheet major headings of assets, liabilities, and shareholders’ equity are missing.
  4. Inventory value is reported at its market price ($28,000), but it should be reported at its cost price of ($27,200), as cost price is lower than the market price.
  5. Treasury stock is not a long-term investment, but it has been wrongly classified. Treasury stock should be deducted from the retained earnings and total of contributed capital.
  6. Marketable securities (Short-term) is a current assets, but it has wrongly reported under the long-term investments.
  7. Patents is an intangible assets, hence it should be reported under intangible assets rather than property, plant, and equipment.
  8. Usually, patterns are reported at a book value
  9. Cash surrender value of life insurance should be classified under the long-term investments.
  10. Discount on bonds payable is a contra-liability account; hence it should be reported under long-term liabilities.
  11. Accumulated depreciation on buildings is a contra-asset account and should be deducted from buildings to report the buildings at its book value...

2.

To determine

Prepare a corrected, properly classified balance sheet for Corporation C as of December 31, 2019.

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