Personal Financial Statements
Leonard and Michelle have asked you to prepare their statement of changes in net worth for the year ended August 31, 20X3. They have prepared the following comparative statement of financial condition based on estimated current values as required by SOP 82-1 (ASC 274):
LEONARD AND MICHELLE Statement of Financial Condition August 31, 20×3 and 20×2 | ||||
|
| 20×3 |
| 20×2 |
Assets |
|
|
|
|
Cash |
| $ 3,600 |
| $ 6,700 |
Marketable securities |
| 4,900 |
| 16,300 |
Residence |
| 94,800 |
| 87,500 |
Personal effects |
| 10,000 |
| 10,000 |
Cash surrender value of life insurance |
| 3,200 |
| 5,600 |
Investment in farm business: |
|
|
|
|
Farmland | $42,000 |
| $32,100 |
|
Farm equipment | 22,400 |
| 9,000 |
|
Note payable on farm equipment | (10,000) |
| -0- |
|
Net investment in farm |
| 54,400 |
| 41,100 |
Total assets |
| $170,900 |
| $167,200 |
Liabilities and Net Worth |
|
|
|
|
Credit card |
| $ 2,400 |
| $ 1,500 |
Income taxes payable |
| 11,400 |
| 12,400 |
Mortgage payable on residence |
| 71,000 |
| 76,000 |
Estimated income taxes on the difference between the estimated current values of assets and liabilities and their tax bases |
| 19,700 |
| 16,500 |
Net worth |
| 66,400 |
| 60,800 |
Total liabilities and net worth |
| $170,900 |
| $167,200 |
Additional Information
1. Leonard and Michelle’s total salaries during the fiscal year ended August 31, 20X3, were $44,300; farm income was $6,700; personal expenditures were $43,500; and interest and dividends received were $1,400.
2. Marketable securities purchased in 20X1 at a cost of $11,000 and with a current market value of $11,000 on August 31, 20X2, were sold on March 1, 20X3, for $10,700. No additional marketable securities were purchased or sold during the fiscal year.
3. The values of the residence and farmland are based on year-end appraisals.
4. On August 31, 20X3, Leonard purchased a used combine at a cost of $14,000. He made a $4,000 down payment and signed a five-year, 10 percent note payable for the $10,000 balance owed. No other farm equipment was purchased or sold during the fiscal year.
5. The cash surrender value of the life insurance policy increased during the fiscal year by $1,600. However, Leonard borrowed $4,000 against the policy on September 1, 20X2. Interest at 15 percent for the first year of this loan was paid when due on August 31, 20X3.
6. Federal income taxes of $12,400 were paid during the 20X3 fiscal year.
7. Mortgage payments made during the year totaled $9,000, which included payments of principal and interest.
Required
Using the comparative statement of financial condition and additional information provided, prepare the statement of changes in net worth for the year ended August 31, 20X3. (Hint: It will be helpful to use T-accounts to determine several realized and unrealized amounts. An analysis of the cash, personal effects, and credit card accounts should not be required to properly complete the statement.)
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