## Accounting Cycle week 4

On January 2, 2016, Davis Company purchased land that cost \$540,000, a building on the land that cost \$1,170,000, and equipment that cost \$37,000. The building has an estimated useful life of 26 years. The equipment has an estimated useful life of 5 years.

Required:

Prepare the property, plant, and equipment section of the balance sheet as of December 31, 2016.

Note: Use straight-line depreciation with no salvage value.

The property, plant, and equipment section of the balance sheet contains information about tangible assets that have useful lives longer than one year and are used in the operation of the business. Examples of these assets include land, buildings, equipment, furniture and fixtures, and other assets of a similar nature. These assets are reported at their book value.

In the property, plant, and equipment section of the balance sheet, all the fixed assets (except land) are reported at their historical cost (acquisition cost), less the related accumulated depreciation. Historical cost less accumulated depreciation is called book value. The book value of an asset should not be confused with its market value or replacement value. The book value is the value that the asset has on the accounting records (books).

Land:

Since land does not have a finite life, it is not depreciated. The amount reported on the balance sheet represents the land’s historical cost. Thus, the land is listed at \$540,000.

Buildings:

Since buildings have a finite life, they must be depreciated. To be depreciated means that the acquisition cost of the asset is allocated to the various periods in the asset’s life in a systematic and meaningful manner.

To calculate the amount depreciation, using the straight-line depreciation method, we use the following equation:

 Annual depreciation amount = (Cost – Salvage value)Useful life

As stated in the question, Davis Company uses straight-line depreciation with no salvage value to determine the yearly depreciation. Since the salvage value is zero, to calculate the yearly depreciation, we take the cost of the building and divide it by the estimated number of years of useful life.

 Yearly depreciation = CostYears of life = \$1,170,00026 = \$45,000.

The balance in the contra-asset account, Accumulated Depreciation, Buildings, represents the first year’s depreciation. To calculate the book value of the building at the end of the first year, we take the cost of the building and subtract from it the balance in the Accumulated Depreciation, Buildings account.

 Book value of buildings = Buildings (cost) – Accumulated depreciation, buildings = \$1,170,000 – \$45,000 = \$1,125,000.

Equipment:

Since equipment has a finite life, it must be depreciated. To be depreciated means that the acquisition cost of the asset is allocated to the various periods in the asset’s life in a systematic and meaningful manner.

To calculate the amount of annual depreciation, using the straight-line depreciation method, we use the following equation:

 Annual depreciation amount = (Cost – Salvage value)Useful life

As stated in the question, Davis Company uses straight-line depreciation with no salvage value to determine the yearly depreciation. Since the salvage value is zero, to calculate the yearly depreciation, we divide the cost of the equipment by the estimated number of years of useful life.

 Yearly depreciation = CostYears of life = \$37,0005 = \$7,400.

The balance in the contra-asset account, Accumulated Depreciation, Equipment, represents the first year’s depreciation. To calculate the book value of the equipment at the end of the first year, we take the cost of the equipment and subtract the balance in the Accumulated Depreciation, Equipment account.

 Book value of equipment = Equipment (cost) – Accumulated depreciation, equipment = \$37,000 – \$7,400 = \$29,600.

Now that we know the cost of the land and the book value of the buildings and the equipment, we can present the information. The total property, plant, and equipment section is equal to the cost of the land plus the book value of the buildings and the equipment.

 Total property, plant, and equipment = Land + Book value of buildings + Book value of equipment = \$540,000 + \$1,125,000 + \$29,600 = \$1,694,600

On January 2, 2016, Wood Company purchased land that cost \$680,000, a building on the land that cost \$1,350,000, and equipment that cost \$27,000. The building has an estimated useful life of 27 years. The equipment has an estimated useful life of 10 years.

On January 2, 2016, Young Company purchased land that cost \$670,000, a building on the land that cost \$1,080,000, and equipment that cost \$67,000. The building has an estimated useful life of 25 years. The equipment has an estimated useful life of 8 years.

On January 2, 2016, Simmons Company purchased land that cost \$620,000, a building on the land that cost \$1,260,000, and equipment that cost \$63,000. The building has an estimated useful life of 28 years. The equipment has an estimated useful life of 6 years.

On January 2, 2016, Collins Company purchased land that cost \$870,000, a building on the land that cost \$1,200,000, and equipment that cost \$37,000. The building has an estimated useful life of 25 years. The equipment has an estimated useful life of 8 years.

Permanent account – Also called Real Accounts. Balance sheet accounts, such as assets, liabilities, and equity accounts that carry forward their balances into the next accounting period. Unlike the balances in temporary accounts, which are zeroed (closed) at the end of the accounting period, permanent account balances are not zeroed by closing entries. Only permanent accounts and their balances appear on the post-closing trial balance.

Temporary account – Also called Nominal Accounts. Accounts that are closed at the end of the accounting period by transferring their balances to permanent accounts. Closing entries are made at the end of a fiscal period to zero the temporary account balances in preparation for the next accounting period. For a sole proprietorship, temporary accounts include all revenue and expense accounts and the Drawing and the Income Summary accounts. For a corporation, temporary accounts include all revenue and expense accounts, the Income Summary account, and the Dividends account.

For each account listed below, determine whether it is a permanent account or a temporary account.  Prepare the second closing entry to close the expense accounts to Income Summary.

Closing entries are journal entries made at the end of an accounting period to transfer the balances of the temporary accounts to the permanent accounts in preparation for the following period.

In a sole proprietorship the balances of the revenue accounts, expense accounts, Income Summary, and Drawing are transferred to the owner’s Capital account. This accomplishes two goals:

Updates the owner’s Capital account to show all changes to the Capital account: Net Income or Net Loss and Drawings. After the closing entries are journalized and posted, the Capital account balance will reflect the ending balance.

All the temporary accounts (Revenue, Expense, Income Summary, and Drawing) will be closed (have a zero balance) in preparation for the next fiscal period.

There are four closing entries.

Debit each revenue account for the amount of its credit balance. Credit Income Summary for the total of the revenue accounts. This entry transfers the total of the revenue accounts to the credit side of the Income Summary account.

Credit each expense account for the amount of its debit balance. Debit Income Summary for the total of the expenses. This entry transfers the total of all expenses to the debit side of the Income Summary account.

Debit Income Summary for the amount of its credit balance (if there is net income), and credit Capital. If there is net loss, Income Summary has a debit balance. In this case, credit Income Summary for this balance, and debit Capital. This entry transfers the net income/loss from Income Summary to the Capital account.

Credit Drawing for the amount of its debit balance, and debit Capital. This entry transfers the amount in the Drawing account to the debit side of the Capital account.

In this problem, you are required to journalize the second closing entry.

The second closing entry closes all temporary accounts that have a debit balance (excluding the Drawing account) and transfers their balances to the Income Summary account. The accounts being closed in the second closing entry are all expense accounts.

Debit Income Summary:
The balances of all temporary accounts with debit balances (excluding the Drawing account) are transferred to the Income Summary account. The Income Summary account is used only in the closing process. It is used to summarize the components of net income (revenues exceed expenses) or net loss (expenses exceed revenues). Income Summary is debited (decreased) for \$18,800.

Credit all the expense accounts:
Expense accounts are temporary accounts used to record expenses used during the year. At the end of the year, the expense accounts are closed so that they can be used to start accumulating expenses used in the next year. All three of the expense accounts– Depreciation Expense, Supplies Expense, and Utilities Expense–are expenses that have a debit balance. The expense accounts are credited (decreased) for \$3,600, \$5,100, and \$10,100, respectively, as part of the closing process. Required:

Prepare the fourth closing entry to close the Drawing account to the Capital account.

The fourth closing entry transfers the Drawing account balance to the Capital account.

Debit Capital:
Drawing reduces Capital, so the Capital account must be reduced by the amount of the balance in the Drawing account. Capital is debited (decreased) for the amount of the draws taken for the year, \$15,600.

Credit Drawing:
Drawing is a temporary account with a debit balance. At the end of the year, we close the Drawing account so that we are able to begin accumulating draws taken during the next year. The Drawing account is credited (decreased) for \$15,600 as part of the closing process. Clark Company had the following adjusted trial balance:

Required:

Prepare the third closing entry to close the Income Summary account to the Capital account, given that net income for the period = \$35,600.

The third closing entry closes the balance in the Income Summary account to the Capital account. This transfers net income (or net loss) to the Capital account. The revenue accounts have already been closed to the Income Summary account. The Expense accounts have already been closed to the Income Summary account. Income Summary now contains the net of the revenues and the expenses, which is net income.

Debit Income Summary:
Since in this problem there is net income, the Income Summary account has a credit balance. To close the Income Summary account, we must debit it. Income Summary is debited (decreased) for the amount of net income, \$35,600.

Credit Capital:
Net income increases Capital, so by completing the third closing entry, we are increasing the Capital account by the amount of net income. Capital is credited (increased) for the amount of net income, \$35,600 (\$52,000 – \$16,400), which is equal to the difference between the first two closing entries.

Required:

Prepare the first closing entry to close the revenue accounts to Income Summary.

The first closing entry closes all temporary accounts that have a credit balance and transfers their balances to the Income Summary account. The accounts being closed in the first closing entry are all revenue accounts.

Debit all the revenue accounts:
Revenue accounts are temporary accounts used to record revenues earned during the year. At the end of the year, the revenue accounts are closed so that they can be used to start accumulating revenues earned in the next year. Both of the revenue accounts–Commissions Revenue and Rent Revenue–are revenue accounts that have a credit balance. The revenue accounts are debited (decreased) for \$54,600 and \$5,600, respectively, as part of the closing process.

Credit Income Summary:
The balances of all temporary accounts with a credit balance are transferred to the Income Summary account. The Income Summary account is used only in the closing process. It is used to summarize the components of net income (revenues exceed expenses) or net loss (expenses exceed revenues). Income Summary is credited (increased) for \$60,200. Gray Company had the following adjusted trial balance:

Required:

Prepare the second closing entry to close the expense accounts to Income Summary. Rivera Company had the following adjusted trial balance:

Required:

Prepare the fourth closing entry to close the Drawing account to the Capital account.

The president of Peterson Company has asked you to close the books (prepare and process the closing entries).

Required:

After the closing process has been completed, answer the following questions:

After the closing, all the temporary accounts (Revenues, Expenses, and Drawing) should have zero balances. They have been closed to permanent accounts that now incorporate both balances.(a) Capital has a balance before closing entries of \$48,200. In the third closing entry, Capital is credited for the amount of net income of \$46,300. In the fourth closing entry, Capital is debited for the amount of drawing, \$13,600. The ending balance in the capital account is calculated as follows: Ending balance in capital=Beginning balance + Net income – Drawing=\$48,200 + \$46,300 – \$13,600=\$80,900(b) In the first closing entry, revenue accounts were closed to the Income Summary account, with a credit to the Income Summary account of \$65,600. In the second closing entry, the expense accounts were closed to the Income Summary account, with a debit to the Income Summary account of \$19,300.Before closing the Income Summary account to Capital, the Income Summary account has a credit balance representing net income. Net income is calculated as follows: Net income=Revenue – Expenses=\$65,600 – \$19,300=\$46,300Therefore, the amount transferred from the Income Summary account to the Capital account in the third closing entry is \$46,300. After closing the Income Summary account to the Capital account, the Income Summary account will have a balance of \$0. (c) Rent Revenue is a revenue account. In the first closing entry, rent revenue is closed to the income summary account. Therefore, it has a balance of \$0 after closing. Murphy Company had the following adjusted trial balance:

The president of Murphy Company has asked you to close the books (prepare and process the closing entries).

Required:

After the closing process has been completed, answer the following questions:

(a) Supplies Expense is an expense account. In the second closing entry, supplies expense is closed to the income summary account. Therefore, it has a balance of \$0 after closing.

(b) In the first closing entry, revenue accounts were closed to the Income Summary account, with a credit to the Income Summary account of \$56,500. In the second closing entry, the expense accounts were closed to the Income Summary account, with a debit to the Income Summary account of \$19,700.

Before closing the Income Summary account to Capital, the Income Summary account has a credit balance representing net income. Net income is calculated as follows:

 Net income = Revenue – Expenses = \$56,500 – \$19,700 = \$36,800

Therefore, the amount transferred from the Income Summary account to the Capital account in the third closing entry is \$36,800. After closing the Income Summary account to the Capital account, the Income Summary account will have a balance of \$0.

(c) Capital has a balance before closing entries of \$55,440. In the third closing entry, Capital is credited for the amount of net income of \$36,800. In the fourth closing entry, Capital is debited for the amount of drawing, \$15,500.

The ending balance in the capital account is calculated as follows:

 Ending balance in capital = Beginning balance + Net income – Drawing = \$55,440 + \$36,800 – \$15,500 = \$76,740 Account closed so = 0 Account closed = \$0

48510+44800-16800 = 76510

60300+6700=67000

6600+9900+5700=22200

67000-22200=44800

Foster Company has employed a bookkeeper who is inexperienced. On December 30, after reviewing the records for the year, you discover the following error.

On August 1, Foster Company received \$200 on account (from a customer for services previously performed and billed on July 15). The bookkeeper recorded this by debiting Cash and crediting Service Revenue.

Required:

Prepare a correcting entry on December 30. Make sure to enter the day for each separate transaction.

On August 1, Foster Company received \$200 for services previously performed. The Cash account was debited correctly, but the Service Revenue account was credited incorrectly.

The words on account indicate that when the revenue was earned, it was recorded as revenue. In accrual accounting, revenue is recognized when earned, not necessarily when the cash is received.

Now, the cash is being received. However, since the revenue had been recognized in a previous entry, the revenue account, Service Revenue, should not be credited again. In fact, since we are receiving cash that is owed to us, it reduces Accounts Receivable. Therefore, the Accounts Receivable account should have been credited.

To correct this error, the Service Revenue account is debited, thereby correcting the erroneous credit of August 1. The proper account, Accounts Receivable, is credited.

On June 1, Phillips Company paid a supplier \$200 on account. The bookkeeper recorded this by debiting Cash for \$200 and crediting Accounts Payable for \$200.

To correct this error, we reverse the wrong entry, to negate its effect from the records. Then we record the entry correctly.

OR

An alternative way to answer this question is:

First, we should have debited Accounts Payable and credited Cash.

Second, because we have to undo the error, as well as record the correct entry, the amount of the correcting entry will have to be double what it was before, or \$400. This is not always intuitive.

Try thinking of it this way: If you walk two steps forward but should have walked two steps back, it will take four steps back to correct the error.

To correct this error, debit Accounts Payable, and credit Cash for \$400

On July 31, Edwards Company paid a supplier \$160 on account. The bookkeeper recorded this by debiting Supplies \$610 and crediting Accounts Payable for \$610.

First, in the amount of the entry, the first two digits are transposed.

Second, the Accounts Payable account should have been debited (instead of credited), and the Cash account should have been credited.

To correct this error, we reverse the wrong entry, to negate its effect from the records. Then we record the entry correctly.

An alternative way to answer this question is:

The most challenging part of the entry is to realize that instead of crediting Accounts Payable for \$610, Accounts Payable should have been debited for \$160. This constitutes a \$770 error.

Think of it this way: If you walk two steps forward but should have walked five steps back, it will take seven steps back to correct the error.

To correct this error, we must first fix Accounts Payable. To correct the Accounts Payable account, debit Accounts Payable for \$770.

Second, the Supplies account was originally debited for \$610, but it should not have been used in this entry at all. To correct this, credit Supplies for the \$610.

Finally, the Cash account should have been credited for \$160. To correct this, credit Cash for \$160.

On May 1, Evans Company purchased Supplies on account, \$610. The bookkeeper recorded this by debiting Supplies Expense for \$160 and crediting Cash for \$160.

First, in the amount of the entry, the first two digits are transposed.

Second, since the supplies have not been used up at the time of purchase, according to company policy, the asset account, Supplies, should have been debited and not Supplies Expense, an expense account. In accrual accounting, costs are expensed (in this case, Supplies) when they are used, not when they are purchased.

To correct this error, we reverse the wrong entry, to negate its effect from the records. Then we record the entry correctly.

Or

On September 1, Turner Company received \$390 for services to be performed in the future. The bookkeeper recorded this by debiting Cash for \$930 and crediting Service Revenue for \$930.

Note: Assume that it is the company’s policy to record the receipt of revenue in advance of earning it in the Unearned Revenue account.

First, in the amount of the entry, the first two digits are transposed.

Second, since the fees are received in advance of earning the revenue, the Service Revenue account should not have been credited. According to company policy, Unearned Revenue, a liability account, should have been credited.

To correct this error, we reverse the wrong entry, to negate its effect from the records. Then we record the entry correctly.

Or

To correct this error, first “negate” the credit to Service Revenue. To correct this, debit Service Revenue for \$930.

Cash was originally debited for \$930, but it should have been debited for \$390. To correct this, credit Cash for the difference, \$540.

Finally, the Unearned Revenue account should have been credited for \$390. To correct this, credit Unearned Revenue for \$390.

On August 1, Torres Company received \$100 on account (from a customer for services previously performed and billed on July 15). The bookkeeper recorded this by debiting Cash and crediting Service Revenue.

On August 1, Torres Company received \$100 for services previously performed. The Cash account was debited correctly, but the Service Revenue account was credited incorrectly.

The words on account indicate that when the revenue was earned, it was recorded as revenue. In accrual accounting, revenue is recognized when earned, not necessarily when the cash is received.

Now, the cash is being received. However, since the revenue had been recognized in a previous entry, the revenue account, Service Revenue, should not be credited again. In fact, since we are receiving cash that is owed to us, it reduces Accounts Receivable. Therefore, the Accounts Receivable account should have been credited.

To correct this error, the Service Revenue account is debited, thereby correcting the erroneous credit of August 1. The proper account, Accounts Receivable, is credited.

# Reversing entries: Preparing a reversing entry

The following adjusting entries were journalized on December 31, 2014. If a reversing entry is needed, journalize the reversing entry on January 1, 2015. Make sure to enter the day for each separate transaction.

Reversing entries are an optional bookkeeping technique. If reversing entries are used, they typically reverse accrual adjusting entries.

In accrual basis accounting, revenues are recognized when earned, and expenses are recognized when incurred. Therefore, an accrual is recorded when revenues are earned rather than when cash is received. Since the cash will be received at a later date, Accounts Receivable is increased. An accrual also is recorded when expenses are incurred rather than when cash is paid. Since the cash will be paid at a later date, Accounts Payable is increased.

Hence, an adjusting entry that contains a payable or a receivable is an accrual and, if reversing entries are used, should be reversed on the first day of the next accounting period. An adjusting entry that does not contain a payable or a receivable is not an accrual and, as a general rule, should not be reversed.

To summarize, reversing entries reverse an accrual adjusting entry from the previous accounting period and are recorded on the first day of the new period. In this problem, the adjusting entry was made on December 31, 2014, so the reversing entry will be made on January 1, 2015.

The following adjusting entries were journalized on December 31, 2014. If a reversing entry is needed, journalize the reversing entry on January 1, 2015. Make sure to enter the day for each separate transaction.

The following adjusting entries were journalized on December 31, 2014. If a reversing entry is needed, journalize the reversing entry on January 1, 2015. Make sure to enter the day for each separate transaction.

The following adjusting entries were journalized on December 31, 2014. If a reversing entry is needed, journalize the reversing entry on January 1, 2015. Make sure to enter the day for each separate transaction.

There are three main steps to completing a balance sheet.

Complete the assets section

Complete the liabilities section

Complete the owner’s equity section

Step 1: Complete the assets section of the balance sheet.

In this problem, assets are grouped into two sections: current assets and property, plant, and equipment. A current asset is an asset that will be used up or turned into cash within the operating cycle or one year, whichever is longer. For most companies, the operating cycle is one year.

In this problem, the current assets are Cash, Accounts Receivable, Supplies, and Prepaid Rent. Current assets are listed in their order of liquidity, and their balances are added to calculate total current assets.

 Total Current Assets = Cash + Accounts receivable + Supplies + Prepaid rent = \$58,800 + \$67,400 + \$12,800 + \$23,200 = \$162,200

Property, plant, and equipment are assets that were purchased to be used in the operation of the business. Most of these assets have finite lives that normally extend over several years. Land is included in this category, but it does not have a finite life.

Buildings and Equipment are listed on the balance sheet at their book values. Book values are equal to the asset account less accumulated depreciation. The book value is the value that the asset has on the accounting records.

The cost of the land and the book values of the remainder of the property, plant, and equipment assets are added to calculate the total property, plant, and equipment.

 Total Property, Plant, and Equipment = Book value of the buildings + Book value of the equipment = (\$106,000 – \$73,200) + (\$36,300 – \$10,100) = \$32,800 + \$26,200 = \$59,000

Finally, the total current assets are added to the total property, plant, and equipment to calculate the total assets.

 Total Assets = Total Current Assets + Total Property, Plant, and Equipment = \$162,200 + \$59,000 = \$221,200

Step 2: Complete the liabilities section of the balance sheet.

This company has only current liabilities. A current liability is one that will be satisfied within the operating cycle or one year, whichever is longer. For most companies, the operating cycle is one year. The balances of the liability accounts are added to calculate total liabilities.

In this problem, the current liabilities are Accounts Payable and Salaries Payable.

 Total current liabilities = Accounts payable + Salaries payable = \$37,000 + \$4,800 = \$41,800

Step 3: Complete the owner’s equity section of the balance sheet.

In order to complete the owner’s equity section of the balance sheet, we must first calculate the ending capital balance. There are two ways to compute ending capital:

(a) The basic accounting equation states that

Assets = Liabilities + Owner’s equity.

Capital is the owner’s equity account in question.
To calculate capital, we restate the equation as follows:

 Capital = Assets – Liabilities = \$221,200 – \$41,800 = \$179,400

(b) An alternating solution would be to calculate ending capital:

Ending capital = Beginning capital + Net income – Drawing.

To use this method, we must first calculate net income:

 Net income = Revenue – Expenses = \$110,200 – (\$8,900 + \$1,100 + \$9,300 + \$7,500 + \$5,900) = \$110,200 – \$32,700 = \$77,500

Now that we know net income, we can calculate ending capital:

 Ending capital = Beginning capital + Net income – Drawing = \$126,900 + \$77,500 – \$25,000 = \$179,400.

Compute the dollar amount of the total Owner’s Equity as it would appear on the December 31 balance sheet.

A – L = OE

The Owner’s Equity account for Carter Company is Carter Company, Capital. There are two methods of computing the ending Carter Company, Capital.

Method One: Calculate ending capital using the accounting equation. The basic accounting equation states that

 Assets = Liabilities + Owner’s Equity.

To determine owner’s equity (Ending Carter Company, Capital) we use the following equation:

 Owner’s Equity (Ending Company, Capital) = Total assets + Total liabilities.

Solve for the Total Assets:

 Total assets = Total current assets + Total property, plant, and equipment = \$139,100 + \$59,200 = \$198,300.

Solve for the Total Liabilities:

 Total liabilities = Accounts payable + Salaries payable + Note Payable = \$69,400 + \$11,400 + 16,000 = \$96,800.

Now, we can calculate total owner’s equity (Ending Carter Company, Capital):

 Owner’s equity (Ending Carter Company, Capital) = Total assets – Total liabilities = \$198,300 – \$96,800 = \$101,500.

Method Two: Calculate owner’s equity (Ending Carter Company, Capital) using income, expenses, and Drawing. First, calculate Net Income.

 Net income = Total revenues – Total expenses.

The revenue account for Carter Company is Service Revenue. Service Revenue = \$56,100. The expense accounts for Carter Company are Advertising Expense, Legal Expense, Rent Expense, Salaries Expense, and Supplies Expense.

 Total expenses = Advertising Expense + Legal Expense + Rent Expense + Salaries Expense + Supplies Expense = \$4,700 + \$5,600 + \$3,000 + \$9,500 + \$3,500 = \$26,300.
 Net income = Total revenues – Total expenses = \$56,100 – \$26,300 = \$29,800.

Second, calculate total owner’s equity (Ending Carter Company, Capital)

 Total Owner’s Equity = Beginning Capital + Net income – Drawing = \$94,000 + \$29,800 – \$22,300 = \$101,500.

Current liabilities include accounts payable, salaries payable, unearned revenue, and short-term notes payable. Current liabilities also include the portion of long-term debt that is due within one year.

Required:

Compute the dollar amount of the total Current Liabilities as it would appear on the December 31 balance sheet.

Current liabilities include accounts payable, salaries payable, unearned revenue, and short-term notes payable. Current liabilities also include the portion of long-term debt that is due within one year. 59600+7100=66700

Required:

Compute the dollar amount of the Total Assets as it would appear on the December 31 balance sheet.

Accounts Receivable, Cash, Notes Receivable, Inventories, Supplies, Prepaid Insurance, Investments, Land, Buildings, and Others. Equipment

First, compute the Total current assets amount. The current assets for Nelson Company include cash, Accounts Receivable, Prepaid Rent, and supplies. To compute the dollar amount of the Total current assets, the balances must be added.

 Total current assets = Cash + Accounts receivable + Prepaid rent + Supplies = \$27,700 + \$40,800 + \$22,500 + \$12,800 = \$103,800.

Second, compute the dollar amount of the total Property, Plant, and Equipment as it would appear on the December 31st balance sheet. To determine the dollar amount for Nelson Company’s property, plant, and equipment, both the asset account and the contra-asset accounts must be considered. The property, plant, and equipment assets for Nelson Company include Buildings and Equipment. The contra accounts include Accumulated Depreciation, Buildings and Equipment. There are two steps to complete in order to compute the dollar amount of the total property, plant, and equipment.

Step 1: Compute the book value of each property, plant, and equipment asset:

 Book value of buildings = Buildings – Accumulated depreciation, buildings = \$99,000 – \$70,000 = \$29,000.
 Book value of equipment = Equipment – Accumulated depreciation, equipment = \$54,300 – \$16,000 = \$38,300.

Step 2: Compute the total property, plant, and equipment.

 Total property, plant, and equipment = Book value of buildings + Book value of equipment = \$29,000 + \$38,300 = \$67,300.

Now that we know the Total Current Assets and the total property, plant, and equipment amounts, we can compute the Total Assets.

 Total assets = Total current assets + Total property, plant, and equipment = \$103,800 + \$67,300 = \$171,100

Required:

Compute the dollar amount of the total current assets as it would appear on the December 31 balance sheet.

Cash + Accounts Receivable + Prepaid Rent + Supplies = Total Current Assests

Required:

Compute the dollar amount of the book value of property, plant, and equipment as it would appear on the December 31 balance sheet.

Building – Accumulated Depreciation, Buildings = book value of building
Equipment – Accumulated Depreciation, Equipment = Book value of equipment
Book Value of building + Book value of equipment = Property, Plant, and Equipment

Required:

Compute the dollar amount of the total Non-current (Long-term) liabilities as it would appear on the December 31 balance sheet.

A non-current (long-term) liability is one that will be satisfied (paid) after one year or the end of the operating cycle, whichever is longer. Examples include long-term Notes Payable, Mortgage Notes Payable, and Bonds Payable. Since the Note Payable in this problem, \$12,000, will be due in two years, it is a non-current liability.

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