Question

Purpose For this assignment, students will be responsible for explaining the purpose of a balance sheet and preparing a corrected balance sheet. Instructions (Problem TIF 4-3 Warren, Reeve & Duchac 14E) Your friend Daniel Nat recently began work as the lead accountant for the Asheville Company. Dan prepared the following balance sheet for December 31, 2018: Asheville Company Balance Sheet For the Year Ended December 31, 2018 Assets: Land $100,000 10,000 Accounts payable Accounts receivable Cash 12,500 10,000 Common stock 115,000 Total Assets $247,500 Liabilities: $125,000 120,000 Equipment Retained earnings Wages payable Total Liabilities 2,500 $247,500 Directions 1. Write a one paragraph letter to Daniel explaining the errors in the Balance Sheet. A paragraph is at least four sentences. Please use correct grammar and full sentences. Please do not copy and paste sentences directly from the textbook (use your own words). 2. Prepare a corrected Balance Sheet.

Answer 1

Dear Student,

Please read the solution and like the same. Thanks.

Pupose of Balance Sheet: The main purpose is to provide financial information to stakeholders including investors.. Balance Sheet is the snapshot of assets, liabilities and equity at the end of accounting period,

Letter to Danial

Dear Danial,

Accounts Payable is a liability. It is an amount payable to supplies or vendors from whom we have purchased the goods in which company deals. So I have taken this in Liabilities. Equipments are assets. These are fixed / tangible assets. These are used for earning profits in the long term period, should be taken in assets. Common stock is the difference between assets and liabilities. It should come into liability side. Actually from business point of view, common stock is also a liability which is payable by business to businessman. Common stock is internal liability and all other liabilities are external liabilities.  Please find below correct balance sheet:

CORRECTED BALANCE SHEET

Assets	Amount in $
Land	1,00,000
Equipment	1,25,000
Accounts Receivable	12,500
Cash	10,000
Total Assets	2,47,500
Common Stock	1,15,000
Retained Earnings	1,20,000
Accounts Payable	10,000
Wages Payable	2,500
Total Laibilities	2,47,500

Dear Student, I tried to explain the difference between share capital and liability for your further understanding. Actual one is internal and another external liability as business and businessman are two separate persons for accounting purpose. Please like the solution.