Problem

Personal Financial StatementsLeonard and Michelle have asked you to prepare their statemen...

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.)