UNIT # 15 - CLASSIFIED BALANCE SHEET INITIAL COMPLETED

INSTRUCTIONS FOR UNIT #15

~ In Unit #14 you calculated the ending retained earnings and presented it on a statement. The ending retained earnings is critical. It is the number that appears on the balance sheet. The balance sheet we are referring to is the classified balance sheet. The assets, liabilities, and equities that represent the financial position of the company at that date are presented in categories to help users of the statements understand the financial condition of the company. ~ The two categories of a classified balance sheet are current and long term. A current asset is expected to be used up or turned over within one year or one operating cycle of the company. A current liability is expected to be paid within one year from the date of the balance sheet. An asset whose life extends beyond one year is long term. A liability whose due date is beyond one year is long term. These distinctions are important. Put yourself in the position of a banker. The amount of cash, the collectibility of receivables, the amount of inventory, the size and due date of payables (current vs. long term) are critical to the solvency of the corporation (solvency is the ability of the company to pay its debts when due). Therefore, you want this information presented. Once you have the information you can calculate key ratios, namely, working capital which is current assets - current liabilities, current ratio of current assets divided by current liabilities, and debt to equity, which is total liabilities divided by total equity. ~ Start with Tutorial #15 Initial. Under Data enter the following amounts for the accounts listed: Accumulated depreciation $ -210 Retained earnings 75 Notes payable( current portion) 20 Notes payable 125 Cash 245 Inventory 300 Accounts receivable 200 Wages payable 5 Salaries payable 120 Preferred stock 100 Paid in capital - preferred 50 Common stock 20 Paid in capital - common 180 Dividends payable 40 Supplies 25 Prepaid insurance 20 Land 120 Buildings and equipment 250 Accounts payable 25 Income taxes payable 60 Accrued expenses payable 130

INSTRUCTIONS FOR UNIT #15

~ As you enter them, they are referenced and displayed on the right hand side under the classified balance sheet. You must enter the correct account to the left of the amounts. As you do this, a response will appear indicting "Correct" or "Not correct". If you get not correct and you are not sure, go to the formula bar for that cell and you will see the entry for that cell, i.e. how it was programmed. ~ The classified balance sheet has been set up to list assets, liabilities, and equity in their correct order. Current assets are listed in the order of liquidity, current liabilities are listed in the order of payment, land is separated from depreciable assets as land is not subject to depreciation. Equity is listed in the order of financial and legal priority. ~ Two other things will occur as you enter the data. Notice on the right a cell indicating In balance for A = L + E. On the left three ratios are calculate, working capital, current ratio, and debt to equity. These are all measures of solvency. ~ Tutorial #15 Completed has the correct responses.