Question

The balance sheet items Ult order. You are to prepare a balance sheet for the compu illustrated in Exhibit 2-9. You must compute the amount for Retained Earnings. LO24 EXERCISE 2.3 Preparing a Balance Sheet 210,000 Land ... Accounts Payable. Accounts Receivable .. Cash .. $90,000 43,800 56,700 36,300 Office Equipment .............$ 12,400 Building ... Capital Stock ... 88,000 Notes Payable .. 207.000 Retained Earnings LO2-2 EXERCISE 2.4 Accounting Principles and Asset Valuation The following cases relate to the valuation of assets. Consider each case independently World-Wide Travel Agency has office supplies costing $1,400 on hand at the balance sheel date. These supplies were purchased from a supplier that does not give cash refunds. World Wide's management believes that the company could sell these supplies for no more than $500 if it were to advertise them for sale. However, the company expects to use these supplies and to purchase more when they are gone. In its balance sheet, the supplies were presented at $500. b. Perez Corporation purchased land in 1957 for $40,000. In the current year, it purchased a simi- lar parcel of land for $300,000. In its current year balance sheet, the company presented these two parcels of land at a combined amount of $340,000. At December 30, year 1, Felix, Inc., purchased a computer system from a mail-order sup- plier for $14,000. The retail value of the system-according to the mail-order supplier--was $20,000. On January 7, however, the system was stolen during a burglary. In its December 31. year 1, balance sheet, Felix showed this computer system at $14,000 and made no reference to its retail value or to the burglary. The December balance sheet was issued in February year 2. In each case, indicate the appropriate balance sheet amount of the asset under generally accepted accounting principles. If the amount assigned by the company is incorrect, briefly explain the accounting principles that have been violated. If the amount is correct, identify the accounting principles that justify this amount. Compute the missing amounts in the following table. -02-3 EXERCISE 2.5 Using the Accounting quation Assets = Liabilities + Owners' Equity
need exercise 2.4 answered a,b,c please thank you

Answer 1

Case a: In this scenario there is a violated of going-concem assumption because those supplies are expected to be used and not to be sold. So, in the balance sheet, those supplies should be presented at $1,400. If they did end up selling them, then the amount of $500 would only be correct through an unbiased evidence of today's market value of those supplies being sold and would be justified by the exceptions to the cost principle, since those assets are expected to soon become cash. Case b: The amount of $340,000 in the balance sheet would be correct and justified through the cost principle policy because even though the market price or economic value of the land from 1957 might had risen greatly, according to the policy, the amount shown in the company's accounting records and in its balance sheet should be unchanged from what it may have cost now, referencing and retaining it's historical cost. With again, having the only exception of assets that are soon to become cash. Case c: Again, based from the knowledge and understanding I have acquired from the book, since the retail value (historical value) of the computer system purchased was $20.000, then that should be the amount that has to reflect and be adjusted in the balance sheet even though they were able to acquire it at a lower price. And this is justified through the objectivity principle because of the factual information of the computer system's retail price coming from the mail-order supplier itself, the going-concem assumption because they are to use the computer system and not sell them on what it would cost on that day's market value of their now asset, and the cost principle policy because it has to reflect its historical value. But since it was stolen, the amount ($14,000) that was put in the balance sheet would be incorrect, and the only way for Felix, Inc to balance its equation is for them to report a theft expense equal to the carrying value of the stolen asset, to take the loss of the value of that asset stolen.