91Ó°ÊÓ

(Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2017 are presented as follows.

EASTWOOD COMPANY
Adjusted Trial Balance
December 31, 2017
	Debit	Credit
Cash	\(41,000
Accounts receivables	163,500
Allowance for doubtful account		\)8,700
Prepaid Insurance	5,900
Inventory	208,500
Equity Investment (long-term)	339,000
Land	85,000
Construction in the process (building)	124,000
Patent	36,000
Equipment	400,000
Accumulated depreciation – Equipment		240,000
Discount on bonds payable	20,000
Account payable		148,000
Accrued liabilities		49,200
Notes payable		94,000
Bond payable		200,000
Common stock		500,000
Paid-in-capital in Excess of par – Common stock		45,000
Retained earnings		138,000
Total	\(1,422,900	\)1,422,900

Additional information:

1. The LIFO method of inventory value is used.

2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same.

3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed costs \(85,000, as shown in the trial balance.

4. The patents were purchased by the company at a cost of \)40,000 and are being amortized on a straight-line basis.

5. Of the discount on bonds payable, \(2,000 will be amortized in 2018.

6. The notes payable represent bank loans that are secured by long-term investments carried at \)120,000. These bank loans are due in 2018.

7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2028.

8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.

Instructions

Prepare a balance sheet as of December 31, 2017, so that all-important information is fully disclosed.

Step by step solution

01

Definition of Full Disclosure

The principle that states a business entity to provide every information that will affect the decisions of the investors and analysts is known as the full disclosure principle.

02

Classified Balance Sheet

Particular	Amount $	Amount $
Assets
Current Assets:
Cash		$41,000
Accounts Receivables	$163,500
Less: Allowance for doubtful accounts	(8,700)	154,800
Prepaid Insurance		5,900
Inventory		208,500
Long-term investment
Equity investment		339,000
Property, Plant and Equipment
Land		85,000
Construction in process		124,000
Equipment	400,000
Less: Accumulated depreciation	(240,000)	160,000
Intangible assets
Patent	40,000
Less: Accumulated amortization	(4,000)	36,000
Total Assets		1,154,200
Liabilities
Current liabilities
Account payable		148,000
Accrued liabilities		49,200
Note payable		94,000
Non-current liabilities
Bonds payable	200,000
Less: Discount on bond payable	(20,000)	180,000
Total liabilities		471,200
Stockholder’s equity
Common stock 500,000 shares par value @ $1	500,000
Additional paid-in-capital in excess of par common stock	45,000
Total paid-in capital		545,000
Retained earnings		138,000
Total liabilities and stockholder’s equity		1,154,200

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