The following balance sheet is submitted to you for inspection and rev

QUESTION

The following balance sheet is submitted to you for inspection and review.Appalachian Freight CompanyBalance SheetDecember 31, 2011AssetsCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,050Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,500Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,000Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,800Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376,800Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $747,150 Liabilities and Owners EquityMiscellaneous liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,600Loan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,200Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,250Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,000Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .458,100Total liabilities and owners equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $747,150In the course of the review, you find the following data:(a) The possibility of uncollectible accounts on accounts receivable has not been considered. It is estimated that uncollectible accounts will total $4,800.(b) The amount of $45,000 representing the cost of a large-scale newspaper advertising campaign completed in 2011 has been added to the inventories because it is believed that this campaign will benefit sales of 2012. It is also found that inventories include merchandise of $16,250 received on December 31 that has not yet been recorded as a purchase.(c) The books show that property, plant, and equipment have a cost of $556,800 with depreciation of $180,000 recognized in prior years. However, these balances include fully depreciated equipment of $85,000 that has been scrapped and is no longer on hand.(d) Miscellaneous liabilities of $3,600 represent salaries payable of $9,500, less noncurrent advances of $5,900 made to company officials.(e) Loan payable represents a loan from the bank that is payable in regular quarterly installments of $6,250.(f) Tax liabilities not shown are estimated at $18,250.(g) Deferred income tax liability arising from temporary differences totals $44,550. This liability was not included in the balance sheet.(h) Capital stock consists of 6,250 shares of preferred 6% stock, par $20, and 9,000 shares of common stock, stated value $1.(i) Capital stock had been issued for a total consideration of $283,600; the amount received in excess of the par and stated values of the stock has been reported as paid-in capital. Net income and dividends were recorded in Paid-In Capital.Instructions:Prepare a corrected balance sheet with accounts properly classified.
Balance Sheet Assets Current Assets Cash $ 45,050 Accounts Receivable $ 112,500 less: allowance for doubtful accounts $ 4,800 $ 107,700 Inventories $ 159,000 Prepaid Insurance $ 8,800 $ 320,550 Property, Plant, and Equipment $ 471,800 less: accumulated depreciation $ 95,000 $ 376,800 Other non current assets Advances to officers $ 5,900 Total Assets $ 703,250 Liabilities Current Liabilities Loan Payable to bank, portion due this year $ 25,000 Accounts Payable $ 91,500 Salaries payable $ 9,500 Taxes payable $ 18,250 $ 144,250 Loan Payable to bank, portion due following years $ 51,200 Deferred income tax liability $ 44,550 Total Liabilities $ 240,000 Owners Equity Contributed Capital 6% Preferred Stock, $20 Par, 6,250 shares $ 125,000 Common Stock, $1 Stated Value, 9,000 shares $ 9,000 Paid-In Capital in Excess of Par and Stated Values on Preferred and Common Stock $ 149,600 $ 283,600 Retained Earnings $ 179,650 Total Owners Equity $ 463,250 Total Liabilities and Owners Equity $ 703,250 Balance Sheet Corrections Corrected Balance Sheet Account Title Debit Credit Debit Credit Debit Credit Cash 45,050 ¦¦¦ ¦¦¦ ¦¦¦ 45,050 ¦¦¦ Accounts Receivable 112,500 ¦¦¦ ¦¦¦ ¦¦¦ 112,500 ¦¦¦ Inventories 204,000 ¦¦¦ ¦¦¦ (b) 45,000 159,000 ¦¦¦ Prepaid Insurance 8,800 ¦¦¦ ¦¦¦ ¦¦¦ 8,800 ¦¦¦ Property, Plant, and Equipment 376,800 ¦¦¦ (c) 180,000 (c) 85,000 471,800 ¦¦¦ Miscellaneous¦

ilities ¦¦¦ 3,600 (d) 3,600 ¦¦¦ ¦¦¦ ¦¦¦ Loan Payable ¦¦¦ 76,200 ¦¦¦ ¦¦¦ ¦¦¦ 76,200 Accounts Payable ¦¦¦ 75,250 ¦¦¦ (b) 16,250 ¦¦¦ 91,500 Capital Stock ¦¦¦ 134,000 (h) 134,000 ¦¦¦ ¦¦¦ ¦¦¦ Paid-In Capital ¦¦¦ 458,100 (I) 458,100 ¦¦¦ ¦¦¦ ¦¦¦ 747,150 747,150 Retained Earnings ¦¦¦ ¦¦¦ (a) 4,800 (i) 308,500 ¦¦¦ ¦¦¦ ¦¦¦ ¦¦¦ (b) 61,250 ¦¦¦ ¦¦¦ 179,650 ¦¦¦ ¦¦¦ (f) 18,250 ¦¦¦ ¦¦¦ ¦¦¦ ¦¦¦ ¦¦¦ (g) 44,550 ¦¦¦ ¦¦¦ ¦¦¦ Allowance for Doubtful Accounts ¦¦¦ ¦¦¦ ¦¦¦ (a) 4,800 ¦¦¦ 4,800 Accum. Depreciation“Bldgs and Equip. ¦¦¦ ¦¦¦ (c) 85,000 (c) 180,000 ¦¦¦ 95,000 Salaries Payable ¦¦¦ ¦¦¦ ¦¦¦ (d) 9,500 ¦¦¦ 9,500 Advances to Officers ¦¦¦ ¦¦¦ (d) 5,900 ¦¦¦ 5,900 ¦¦¦ Deferred Income Tax Liability ¦¦¦ ¦¦¦ ¦¦¦ (g) 44,550 ¦¦¦ 44,550 Taxes Payable ¦¦¦ ¦¦¦ ¦¦¦ (f) 18,250 ¦¦¦ 18,250 6% Preferred Stock, $20 Par ¦¦¦ ¦¦¦ ¦¦¦ (h) 125,000 ¦¦¦ 125,000 Common Stock, $1 Stated Value ¦¦¦ ¦¦¦ ¦¦¦ (h) 9,000 ¦¦¦ 9,000 Paid-In Capital in Excess of Par and Stated Values on Preferred and Common Stock ¦¦¦ ¦¦¦ ¦¦¦ (i) 149,600 ¦¦¦ 149,600 995,450 995,450 803,050 803,050 (a) The possibility of uncollectible accounts on accounts receivable has not been considered. It is estimated that uncollectible accounts will total $4,800. Allowance for doubtful accounts will be created for $ 4,800 and the same amount will be reduced from Retained Earnings. (b) The amount of $45,000 representing the cost of a large-scale newspaper advertising campaign completed in 2011 has been added to the inventories because it is believed that this campaign will benefit sales of 2012. It is also found that inventories include merchandise of $16,250 received on December 31 that has not yet been recorded as a purchase. $ 45,000 for newspaper advertising campaign will be reduced from Inventories and being an expense, will be deducted from Retained Earnings. The purchase of Inventories, not yet recorded, will be recorded by adding $ 16,250 to the accounts payable and deducting it from Retained Earnings. (c) The books show that property, plant, and equipment have a cost of $556,800 with depreciation of $180,000 recognized in prior years. However, these balances include fully depreciated equipment of $85,000 that has been scrapped and is no longer on hand. Property, Plant and Equipment will be recorded at Gross (including Depreciation) amount. So, Property, Plant and Equipment account will be increased by the Depreciation amount of $ 180,000 and Accumulated Depreciation account will be created with $ 180,000. The equipment sold will be reduced out of Property, Plant and Equipment and same treatment will be done for Accumulated Depreciation account. (d) Miscellaneous liabilities of $3,600 represent salaries payable of $9,500, less noncurrent advances of $5,900 made to company officials. Miscellaneous liabilities account will be reduced by $ 3,600 and $ 5,900 will be transferred to Advances to officers and $ 9,500 will be increased to Salaries Payable account. (e) Loan payable represents a loan from the bank that is payable in regular quarterly installments of $6,250. Current liability portion of Loan of $ 25,000 will be shown as Current Liabilities and $ 51,200 will be Non Current liabilities. (f) Tax liabilities not shown are estimated at $18,250. Retained Earnings will reduce by $ 18,250 and taxes payable liability will be created for the same amount. (g) Deferred income tax liability arising from temporary differences totals $44,550. This liability was not included in the balance sheet. Retained Earnings will reduce by $ 44,550 and deferred tax liability will be created for the same amount. (h) Capital stock consists of 6,250 shares of preferred 6% stock, par $20, and 9,000 shares of common stock, stated value $1. Capital stock will be reduced by $ 134,000 and preferred stock of $ 125,000 and common stock of $ 9,000 will be created. (i) Capital stock had been issued for a total consideration of $283,600; the amount received in excess of the par and stated values of the stock has been reported as paid-in capital. Net income and dividends were recorded in Paid-In Capital. Bifurcations as stated will be done.

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