Question

1. The following balance sheet has been submitted to you by an inexperienced bookkeeper. List your suggestions for improvements in the format of the balance sheet on the next page. Consider both terminology deficiencies as well as classification inaccuracies. You will need to have at least 16 correct (there are 24 items) to receive full points. Ignore Dollar amounts and 'total amounts' 2. Save this file as: yourlastname Activity and submit through moodle. Waffle Motoring, Inc. Balance Sheet For the Period Ended 12/31/18 Assets $ 110,000 (40,000) Fixed Assets-Tangible Equipment Less: reserve for depreciation Factory supplies Land and buildings Less: reserve for depreciation 70,000 22,000 400,000 (150,000) 250,000

Answer 1

1) The heading should be at a specific date rather than for a period of time.

2) Fixed Assets – Tangible” and “Reserve for Depreciation” is poor terminology; should be Property, Plant and Equipment and Accumulated Depreciation

3) Factory Supplies will be reported in a balance sheet current asset account such as Inventory of Factory Supplies

4) Land and buildings should be segregated into two accounts. The Accumulated Depreciation account should only be reported for the buildings. Land never depreciated.

5) Plant site held for future use should be shown in the Investments section

6) Current assets are shown as Item 1 on the asset side of the balance sheet  in order of liquidity.

7) Treasury stock is not an asset, but it will be deducted from shareholders’ equity

8) The deferred charge items should be reclassified as follows:

Advances to salespersons—current asset

Prepaid rent—current asset

Returnable containers—current asset

9) Notes receivable should be reported as a current asset or an investment.

10) Allowance for doubtful accounts should be shown as a contra account to accounts receivable.

11)   Common stock dividend distributable should be shown in shareholders’ equity

12) The debenture bonds should be shown on a separate line under long term liabilities heading  on Liabilities side.

13) Earned surplus is poor terminology. The term "retained earnings" is more appropriate.

14) Other Accumulated Past Earnings is poor terminology. Accumulated Other Comprehensive Income is the term required by IFRS

15) It should “dividends declared” item that should be close to retained earnings instead of dividend paid.

16) Note 2 indicates that the inventory account is understated by $40,000. Inventory and earned surplus amounts should both be adjusted by increasing it by 30,000