Question

Please answer immediately. And please show how you got the paid in capital excess of par. I am stuck on that.

Problem 24-1

	Your answer is partially correct. Try again.

Your firm has been engaged to examine the financial statements of Stellar Corporation for the year 2017. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2012. The client provides you with the information below.

STELLAR CORPORATION BALANCE SHEET DECEMBER 31, 2017
Assets				Liabilities
Current assets		$1,872,000		Current liabilities		$964,000
Other assets		5,156,840		Long-term liabilities		1,400,000
				Capital		4,664,840
		$7,028,840				$7,028,840

An analysis of current assets discloses the following.
Cash (restricted in the amount of $302,000 for plant expansion)		$559,000
Investments in land		184,000
Accounts receivable less allowance of $30,000		476,000
Inventories (LIFO flow assumption)		653,000
		$1,872,000
Other assets include:
Prepaid expenses		$64,000
Plant and equipment less accumulated depreciation of $1,433,000		4,098,000
Cash surrender value of life insurance policy		83,000
Unamortized bond discount		51,840
Notes receivable (short-term)		165,000
Goodwill		253,000
Land		442,000
		$5,156,840
Current liabilities include:
Accounts payable		$512,000
Notes payable (due 2020)		157,000
Estimated income taxes payable		142,000
Premium on common stock		153,000
		$964,000
Long-term liabilities include:
Unearned revenue		$484,000
Dividends payable (cash)		196,000
8% bonds payable (due May 1, 2022)		720,000
		$1,400,000
Capital includes:
Retained earnings		$2,814,840
Common stock, par value $10; authorized 200,000 shares, 185,000 shares issued		1,850,000
		$4,664,840

The supplementary information below is also provided.

1.		On May 1, 2017, the corporation issued at 92.80, $720,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.
2.		The bookkeeper made the following mistakes.
		(a)	In 2015, the ending inventory was overstated by $182,000. The ending inventories for 2016 and 2017 were correctly computed.
		(b)	In 2017, accrued wages in the amount of $221,000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
		(c)	In 2017, a gain of $174,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.
3.		A major competitor has introduced a line of products that will compete directly with Stellar’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor’s line will be of comparable quality but priced 50% below Stellar’s line. The competitor announced its new line on January 14, 2018. Stellar indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs.
4.		You learned on January 28, 2018, prior to completion of the audit, of heavy damage because of a recent fire to one of Stellar’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail.

Analyze the above information to prepare a corrected balance sheet for Stellar in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.

Answer 1

STELLAR CORPORATION
Balance Sheet
31-Dec-17
Assets
Current assets
Cash ($559,000 – $302,000)		$                       257,000.00
Accounts receivable    ($476000 + $30,000)	$                    506,000.00
Less: allowance for doubtful accounts	$                      30,000.00	$                       476,000.00
Notes receivable		$                       165,000.00
Inventories (LIFO)		$                       653,000.00
Prepaid expenses		$                         64,000.00
Cash surrender value of life insurance policy		$                         83,000.00
Total current assets			$   1,698,000.00
Long-term investments
Investments in land		$                       184,000.00
Cash restricted for plant expansion		$                       302,000.00	$      486,000.00
Property, plant, and equipment
Plant and equipment (pledged as collateral for bonds) (4069000+1411000)	$                 5,531,000.00
Less:  accumulated depreciation	$                 1,433,000.00	$                    4,098,000.00
Land (balancing figure)		$                       493,840.00	$   4,591,840.00
Intangible assets
Goodwill			$      253,000.00
Total Assets			$   7,028,840.00
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$                       512,000.00
Unearned revenue		$                       484,000.00
Dividends payable		$                       196,000.00
Accrued wages payable		$                       221,000.00
Estimated income taxes payable		$                       142,000.00
Accrued interest payable     ($720,000 X 8% X 8/12)		$                         38,400.00
Total current liabilities			$   1,593,400.00
Long-term liabilities
Notes payable (due 2020)		$                       157,000.00
8% bonds payable (due May 1, 2022)	$                    720,000.00
Less: unamortized bond  discount**	$                      44,928.00	$                       675,072.00	$      832,072.00
Total liabilities			$   2,425,472.00
Stockholders’ equity
Capital stock, par value $10 per share; authorized 200,000 shares; 186,000 shares issued and outstanding		$                    1,850,000.00
Premium on common stock		$                       153,000.00
Paid-in capital in excess of par (balancing)		$                         51,840.00
Retained earnings *		$2,548,528
Total stockholders’ equity			$   4,603,368.00
Total liabilities and  stockholders’ equity			$   7,028,840.00
*Retained earnings	$2,814,840
Accrued wages omitted	$                  (221,000.00)
Accrued interest	$                    (38,400.00)
Bond amortization   ((51,480/5 years) x 8/12 )	$                      (6,912.00)
	$2,548,528
** Bond amortization   51840 - ((51,840/5 years) x 8/12 )	$                      44,928.00