P1-5A Micado Corporation was formed on January 1, 2017. At December 31, 2017, Mi
ID: 2330961 • Letter: P
Question
P1-5A Micado Corporation was formed on January 1, 2017. At December 31, 2017, Miko Liu, the president and sole stockholder, decided to prepare a balance sheet, which appeared as follows. MICADO CORPORATION Balance Sheet December 31,2017 Assets Cash Accounts receivable 50,000 Notes payable Inventory Boat S20,000 Accounts payable $30,000 15,000 22,000 63,000 36,000 Boat loan 24,000 Stockholders' equity Miko willingly admits that she is not an accountant by training. She is concerned that her balance sheet might not be correct. She has provided you with the following additional information. 1. The boat actually belongs to Miko, not to Micado Corporation. However, because she thinks she might take customers out on the boat occasionally, she decided to list it as an asset of the company. To be consistent, she also listed as a liability of the corporation her personal loan that she took out at the bank to buy the boat. thinks she could sell it for $36,000. She thought it would be best to record it at $36,000 ago. Miko included this in the receivables of Micado Corporation so she wouldn't forget that her 2. The inventory was originally purchased for $25,000, but due to a surge in demand Miko now 3. Included in the accounts receivable balance is $10,000 that Miko loaned to her brother 5 years brother owes her money Instructions (a) Comment on the proper accounting treatment of the three items above. (b) Provide a corrected balance sheet for Micado Corporation. (Hint: To get the balance sheet to balance, adjust stockholders' equity.) Cookie Creations Tot. assets $85,000Explanation / Answer
1. The Boat which is included in the Balance sheet for $24,000 belongs to Miko, Miko's personal asset cannot be shown in the Balance sheet of Micado Corporation even though the Boat might be used for business purpose. Likewise, we need to remove the Boat's loan liability from the liability side of the Balance Sheet.
2. Even though Miko thinks that she can sell the inventory for a higher price, still as per accounting policies we need to report them at " Market price or Cost price whichever is lower". Hence , here the cost price of the inventory is lower than market price, sso it needs to be reported in the cost price i.e. $25,000.
3. Business though sole proprietorship is different from its owner, any personal Loans offered to anybody cannot be clubbed with Account receiveable. Account receiveable should only consist of the amount receiveable because of the Goods/services provided to the customers/clients. So, Account receiveable needs to be shown as $40,000($50,000-$10,000).
4. Micado Corporation
Balance Sheet for the year ended 31st December 2017
Assets Amount($) Liabilities Amount($) Cash 20,000 Accounts payable 30,000 Account Receivable 40,000 Notes payable 15,000 Inventory 25,000 Shareholder's equity(bal. fig) 40,000 85,000 85,000Related Questions
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