The following Classified Balance Sheet has numerous errors. Indicate the errors
ID: 2648647 • Letter: T
Question
The following Classified Balance Sheet has numerous errors. Indicate the errors in this Balance Sheet by preparing a corrected Classified Balance Sheet with all required information.
Thompson Company, Inc Trial Balance For the year ended Dec. 31, 2012 Assets, Liabilities and Net Worth $4,500 $5,000 $2,100 $12,000 $3,500 $27,100 $11,000 $38,100 Building, at cost Land, appraised value Inventory,retail price $18,000 S9,000 10,000 Accumulated Depreciation Note Payable (due 2015) Wages payable Capital Stock Retained Earnings Accounts receivable Accounts payable Cash Total Assets $2,500 S3,600 Total Liabilities Amount needed to balance Total Liab S2,200 38 100 $38,100 . & Net worth Additional Information Land has an original cost of $3,000 and inventory cost the company $5,000Explanation / Answer
Recognition of Fixed Assets as per US GAAP
As per US GAAP all fixed assets are accounted at historical cost. It does not allow upward revaluation of fixed asset however it is mandatory to account for all impairment cost in a fixed asset. So initially assets recognised at cost and in future periods assets are carried at cost less accumulated depreciation.
Therefore any upward revaluation is prohibited. Fixed asset accounting follows conservative accounting approach.
So in the current case land will be recognised at $3000.
Recognition of Inventory as per US GAAP
Inventory would be recorded at lower of cost or market (LCM basis) approach.
As per this approach inventory is valued at lower of the cost or market value.
Market value limited to an amount that is not more than net realisable value or, less than net realisable value less a normal profit margin.
So in the present case inventory would be recorded at $ 5000.
Assets
Amount ($)
Liabilities
Amount ($)
Current Assets
Current Liabilities
Cash
2200
Accounts Payable
3600
Accounts Receivable
2500
Wages Payable
2100
Inventory
5000
Long Term Liabilities
Fixed Assets
Notes Payable
5000
Stock Holder Equity
Land
3000
Retained Earning
3500
Building $18000
Less- Accumulated $4500 Depreciation
13500
Capital Stock
12000
Total
26200
Total
26200
Assets
Amount ($)
Liabilities
Amount ($)
Current Assets
Current Liabilities
Cash
2200
Accounts Payable
3600
Accounts Receivable
2500
Wages Payable
2100
Inventory
5000
Long Term Liabilities
Fixed Assets
Notes Payable
5000
Stock Holder Equity
Land
3000
Retained Earning
3500
Building $18000
Less- Accumulated $4500 Depreciation
13500
Capital Stock
12000
Total
26200
Total
26200