Question

The following is the balance sheet of Rubber Industries RUBBER INDUSTRIES Balance Sheet For the Year Ended December 31, 2012 Assets Current assets: Cash Marketable equity securities Accounts receivable, net Inventory Treasury stock $ 50,000 19,000 60,000 30,000 20,000 $179,000 Total current assets Land and buildings, net Short-term U.S. notes Plant assets 160,000 20,000 4,000 Investments Other assets: Supplies Total assets Liabilities and Stockholders' Equity Liabilities Bonds payable Accounts payable Wages payable $123,000 40,000 10,000 Total liabilities Stockholders' equity: Common stock ($20 par, 20,000 shares authorized, 6,000 shares outstanding) Retained earnings Redeemable preferred stock 120,000 50,000 20,000 $363,000 tal liabilities and stockholders' equity Required Indicate your criticisms of the balance sheet and briefly explain the proper treatment of any item criticized

Answer 1

Criticisms on the balance sheet along with proper treatment:

1) Treasury stock should not been shown under Current Assets as it should be shown as a deduction from Common Stock under Shareholders' Equity.

2) Supplies should not be shown under Plant assets without a note because supplies usually utilized less then 12 months, hence, it should be shown under Current Assets until they are completely utilized then it will treat as Supplies Expense which will be charged to Income Statement.

3) Short-term investments are usually for a period less then 12 months maturity and should be classified as Current Asset only but not under Plant Assets.

4) The Current and long-term liabilities should not been shown under same head as they should be classified separately.

Hence, Accounts Payable and Wages Payable should be shown under Current Liabilities and Bonds Payable should be separately shown under heading of Long-term liabilities.