WRITING (Critique of Balance Sheet Format and Content) The following is the bala
ID: 2526995 • Letter: W
Question
WRITING (Critique of Balance Sheet Format and Content) The following is the balance sheet of Sameed Brothers Corporation (000s omitted).
SAMEED BROTHERS CORPORATION
Balance Sheet
December 31, 2017
Assets
Current assets
Cash
$26,000
Marketable securities
18,000
Accounts receivable
25,000
Inventory
20,000
Supplies
4,000
Stock investment in subsidiary company
?20,000
$113,000
Investments
Treasury stock
25,000
Property, plant, and equipment
Buildings and land
91,000
Less: Reserve for depreciation
?31,000
60,000
Other assets
Cash surrender value of life insurance
??19,000
Total assets
$217,000
?? ? ????
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$22,000
Reserve for income taxes
15,000
Customers’ accounts with credit balances
??????1
$ 37,001
Deferred credits
Unamortized premium on bonds payable
2,000
Long-term liabilities
Bonds payable
??60,000
Total liabilities
99,001
Common stock
Common stock, par $5
85,000
Earned surplus
24,999
Cash dividends declared
???8,000
?117,999
Total liabilities and stockholders’ equity
$217,000
?? ? ????
Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized.
SAMEED BROTHERS CORPORATION
Balance Sheet
December 31, 2017
Assets
Current assets
Cash
$26,000
Marketable securities
18,000
Accounts receivable
25,000
Inventory
20,000
Supplies
4,000
Stock investment in subsidiary company
?20,000
$113,000
Investments
Treasury stock
25,000
Property, plant, and equipment
Buildings and land
91,000
Less: Reserve for depreciation
?31,000
60,000
Other assets
Cash surrender value of life insurance
??19,000
Total assets
$217,000
?? ? ????
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$22,000
Reserve for income taxes
15,000
Customers’ accounts with credit balances
??????1
$ 37,001
Deferred credits
Unamortized premium on bonds payable
2,000
Long-term liabilities
Bonds payable
??60,000
Total liabilities
99,001
Common stock
Common stock, par $5
85,000
Earned surplus
24,999
Cash dividends declared
???8,000
?117,999
Total liabilities and stockholders’ equity
$217,000
?? ? ????
Explanation / Answer
1. Stock investment in subsidiary should be classified as investment and not as current asset 2. Treasury stock is not an investment. It should be grouped under stockholders' equity as an adjustment. 3. Cash surrender value of the insurance policy is an asset. We presume that the company has no intention of surrendering it during the normal operating cycle. 4. The credit balance is customers' account is $1. Being an insignificant amount, it should pass through the income statement. 5. Unamortized premium on bonds payable should be gouped along with the bonds payable under long term liabilities. 6. Cash dividend declared should be reduced from the earned surplus and should not be added to it.
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