Reference no: EM133561141
The long-time bookkeeper of Madrigal Industries recently retired. The company has not yet replaced them and the owner asked the receptionist to do a balance sheet for the company at year end. While the receptionist has no experience in accounting, they did find an old book about accounting to reference. The following balance sheet was prepared. Identify ten suggestions for improvements in the format of the balance sheet. Consider both terminology deficiencies as well as classification inaccuracies.
Madrigal Industries, Inc.
Balance Sheet
For the Year Ended 12/31/22
Assets
Fixed Assets-Tangible
Equipment $110,000
Less: reserve for depreciation (40,000) $ 70,000
Factory supplies 22,000
Land and buildings 400,000
Less: reserve for depreciation (150,000) 250,000
Plant site held for future use 90,000 $ 432,000
Current Assets
Accounts receivable 175,000
Cash 80,000
Inventory [See note 1] 240,000 495,000
Fixed Assets--Intangible
Goodwill 80,000
Notes receivable 40,000
Patents 26,000 146,000
Deferred Charges
Advances to salespersons 60,000
Prepaid rent 27,000
Returnable containers 75,000 162,000
Total Assets $1,235,000
Liabilities
Current Liabilities
Accounts payable $140,000
Allowance for doubtful accounts 8,000
Unearned revenue 35,000
Income taxes payable 42,000
Sales tax payable 17,000 $ 242,000
Long-term Liabilities, 5% debenture bonds, due 2028 500,000
Reserve for contingencies [See note 2] 150,000 650,000
Total Liabilities 892,000
Equity
Capital stock, $10 par value, issued 15,000 shares $150,000
Capital surplus 90,000
Dividends paid (20,000)
Earned surplus 123,000
Total Equity 343,000
Total Liabilities and Equity $1,235,000
Note 1. The inventory account includes only items physically present at the main plant and warehouse. Items located at the company's branch sales office amounting to $40,000 are excluded since the company has consistently followed this procedure for many years.
Note 2. The reserve for contingencies has been created by a debit to earned surplus and has been established to provide a cushion for future uncertainties