WILLIS TRANSPORTATION SERVICE Balance Sheet February 28, Current Year AssetsLiabilities & Owners' Equity Liabilities: Cash............................$94,800Notes payable .........................$345,60 0 Accounts receivable.......... 84,000Accounts payable .....................43,200 Supplies........................16,800Total liabilities....................$388,80 0 Automobiles................... 198,000Owners' equity: Building .......................96,000Capital stock..........................110,400 Land .......................84,000Retained earnings....................74,400 Total............................$573,600Total................................................$573,60 0
E2-4 a.In the balance sheet of World-Wide, the supplies must be listed at $1,400. The concept that World-Wide is a going concern and will utilize these supplies in regular business operations rather than releasing them on the open market is violated if the supplies were offered at their estimated liquidation value. The $500 figure also goes against the realism principle because it is primarily subjective. b.The two land parcels are presented in the current year balance sheet with a combined value of $340,000 that complies with generally accepted accounting rules. Both the cost principle and the stable-dollar premise are illustrated by this approach. c.Because the computer system cost $14,000 and constituted a company asset as of the balance sheet date, the presentation of the computer system in the December 31, Year-1 balance sheet at that amount complies with generally accepted accounting rules. The retail value of $20,000 is not shown in the balance sheet because it is neither an objective assessment nor a cost incurred by the organization. A breach of the principle of appropriate disclosure could occur if the corporation fails to disclose the loss of the equipment after the date of the balance sheet. Users might need to be made aware of the fact that this asset no longer exists in order to properly read the company's balance sheet. Several factors must be taken into account when determining whether or not disclosure of the burglary loss is required. As an illustration, was the asset insured? And how important (material) is a $14,000 asset compared to the other things this company has to offer? Is this sum sizable enough to potentially influence creditors' and investors' judgments regarding the business? E2-5 a.$293,000: Assets $635,000liabilities $342,000 = owners' equity $293,000 b. $1,172,500: Liabilities $562,500 + owners' equity $610,000 = assets $1,172,500 c.$120,300: Assets $307,500owners' equity $187,200 = liabilities $120,300
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