List the errors you find in the following balance sheet. Prepare a corrected balance sheet.
Labyrinth Services Co.
Balance Sheet
For the Year Ended August 31, 2014
Assets Liabilities
Current assets: Current liabilities:
Cash. . . . . . . . . . . . . . . . . . . . . $ 18,500 Accounts receivable. . . . . . . . $ 41,400
Accounts payable. . . . . . . . 31,300 Accum. depr.—building . . . 155,000
Supplies. . . . . . . . . . . . . . . . . 6,500 Accum. depr.—equipment 25,000
Prepaid insurance. . . . . . . . 16,600 Net income. . . . . . . . . . . . . . . . 118,200
Land. . . . . . . . . . . . . . . . . . . . . 225,000 Total liabilities. . . . . . . . . . . . . . . $339,600
Total current assets. . . . . $297,900
Property, plant,
and equipment:
Owner’s Equity
Building. . . . . . . . . . . . . . . . . . $400,000 Wages payable . . . . . . . . . . . . . $ 6,500
Equipment. . . . . . . . . . . . . . . 97,000 Ruben Daniel, capital. . . . . . . . 587,200
Total property, plant,
and equipment. . . . . . 635,400
Total owner’s equity. . . . . . . . .
Total liabilities and
593,700
Total assets. . . . . . . . . . . . . . . . $933,300 owner’s equity. . . . . . . . . . . . $933,300
Answer:
1. The date of the statement should be "August 31, 2014" and not "For the Year Ended August 31, 2014."
2. Accounts payable should be a current liability.
3. Land should be classified as property, plant, and equipment.
4. "Accumulated depreciation" should be deducted from the related fixed asset.
5. An adding error was made in determining the amount of the total property, plant, and equipment.
6. Accounts receivable should be a current asset.
7. Net income should be reported on the income statement and statement of owner's equity.
8. Wages payable should be a current liability.
A corrected balance sheet would be as follows:
LABYRINTH SERVICES CO.
Balance Sheet
August 31, 2014
Assets Liabilities
Current assets: Current liabilities:
Cash $ 18,500 Accounts payable $31,300
Accounts receivable 41,400 Wages payable 6,500
Supplies 6,500 Total liabilities $ 37,800
Prepaid insurance 16,600
Total current assets $ 83,000
Property, plant, and equipment:
Land $225,000 Owner’s Equity
Building $400,000 Ruben Daniel, capital 587,200
Less accumulated depreciation 155,000 245,000
Equipment $ 97,000
Less accumulated depreciation 25,000 72,000
Total property, plant, and
equipment 542,000 Total liabilities and owner’s
Total assets $625,000 equity $625,000