Question

The balance sheet of Pharoah Book Shop at April 30, 2021. is as follows: Assets Building Accounts receivable C. Dryfuss, capital Cash Land Notes payable PHAROAH BOOK SHOP Balance Sheet April 30, 2021 Liabilities and Owner's Equity $111.390 Accounts payable $ 16,590 37.480 Equipment 56,270 84,670 Supplies 1.410 10.710 "Plug' 348.260 51,320 126,960 $422.530 $422.530 Charles Dryfuss, the owner of the book shop, admits that he is not an accountant. In fact, he couldn't get the balance sheet to balance without "plugging the numbers (making up numbers to give the desired result). He gives you the following additional information: 1 2. A professional real estate appraiser estimated the value of the land at $51.320. The actual cost of the land was $37,490. Accounts receivable includes amounts due from customers in China for 31.990 yuan, which is about $4,570 Canadian. Dryfuss didn't know how to convert the currency for reporting purposes so he added the 31.990 yuan to the $5.490 due from Canadian customers. He thought it more important to know how much he was owed by each customer in the currency they would likely pay him with anyway. Dryfuss reasons that equipment is a liability because it will cost him money in the future to maintain these items. Dryfuss reasons that the note payable must be an asset because getting the loan was good for the business. If he had not obtained the loan, he would not have been able to purchase the land and buildings. Dryfuss believes that his capital account is also an asset. He has invested in the business, and investments are assets: therefore his capital account is an asset. 3. 4. 5.

Answer 1

	Pharoah Book Shop
	Balance sheet
	30-Apr-21
Assets			Liabilities and Owner's Equity
Cash	$   10,710.00		Liabilities
Accounts receivable ($4570 + $5490)	$   10,060.00		Notes payable	$ 126,960.00
Supplies	$     1,410.00		Accounts payable	$   16,590.00
Land	$   37,490.00		Total liabilities	$ 143,550.00
Equipment	$   56,270.00		Owner's equity:
Building	$ 111,390.00		C. Dryfuss, capital (balancing)	$   83,780.00
Total assets	$ 227,330.00		Total liabilities and owner's equity	$ 227,330.00
The land should be recorded at cost of $37490 until it is sold. The increase in value is not recognized until the land is sold. (historical cost concept)
The accounts receivable should be recorded in Canadian dollars not in Chinese yuan . Accounts receivable should have the corrected balance of $10060 Canadian.
Equipment is an asset and not a liability. The entry in the liabilities for equipment of $56,270 must be corrected and appear instead under assets. Supplies are also assets, not liabilities. This item will also have to be removed from the liabilities and added to assets.
Notes payable are liabilities, not assets. The company has an obligation to pay the note in the future. The entry in the assets for notes payable must be removed from assets and instead should appear under liabilities.
C. Dryfuss, capital is an equity account, not an asset. . The entry in the assets for C. Dryfuss, capital should be removed and instead appear under owner’s equity section of the balance sheet.
The ‘plug’ figure needs to be removed. The accounting equation states that Assets = Liabilities + Owner’s Equity. Dryfuss needs to make the corrections above in order to determine the Owner’s Equity balance.