Preparing A Balance Sheet And Analyzing Its Parts

Preparing A Balance Sheet And Analyzing Some Of Its Parts Lo5

Exquisite Jewelers is developing its annual financial statements for 2015. The following amounts were correct at December 31, 2015: cash, $58,000; accounts receivable, $71,000; merchandise inventory, $154,000; prepaid insurance, $1,500; investment in stock of Z corporation (long-term), $36,000; store equipment, $67,000; used store equipment held for disposal, $9,000; accumulated depreciation, store equipment, $19,000; accounts payable, $52,500; long-term note payable, $42,000; income taxes payable, $9,000; retained earnings, $164,000; and common stock, 100,000 shares outstanding, par value $1.00 per share (originally sold and issued at $1.10 per share).

Required: 1. Based on these data, prepare a December 31, 2015, balance sheet. (Amounts to be deducted should be indicated by a minus sign.) Possible input areas are shaded.

Exquisite Jewelers Balance Sheet December 31, 2015

  • Assets
  • Current assets: Total current assets $ -
  • Long-term investments: Investment in Z Corporation (long-term), $36,000
  • Fixed assets: Store equipment, $67,000; Less: accumulated depreciation, $19,000; Total fixed assets $ -
  • Other assets: Used store equipment held for disposal, $9,000
  • Total assets $ 377,500
  • Liabilities
  • Current liabilities: Accounts payable, $52,500; Income taxes payable, $9,000; Total current liabilities $ -
  • Long-term liabilities: Long-term note payable, $42,000; Total liabilities $ -
  • Stockholders' Equity
  • Contributed capital: Common stock, 100,000 shares, par value $1.00, Total contributed capital $ -
  • Retained earnings: $164,000
  • Total stockholders' equity $ -
  • Total liabilities and stockholders’ equity $ -

2. What is the net book value of the store equipment?

The net book value of the store equipment is calculated as the original cost minus accumulated depreciation. Therefore, net book value = $67,000 - $19,000 = $48,000.

Paper For Above instruction

Preparing a comprehensive balance sheet is essential for understanding a company's financial position at a specific point in time. Based on the data provided for Exquisite Jewelers at December 31, 2015, we will construct a classified balance sheet and analyze key components such as net book value and profitability indicators.

First, assembling the balance sheet involves categorizing assets, liabilities, and stockholders' equity appropriately. The current assets include cash ($58,000), accounts receivable ($71,000), merchandise inventory ($154,000), and prepaid insurance ($1,500). Summing these gives total current assets of $284,500. Long-term investments comprise shares in Z Corporation valued at $36,000.

Fixed assets primarily consist of store equipment, valued at $67,000. From this amount, we subtract accumulated depreciation of $19,000, resulting in a net book value of $48,000 for the store equipment. The used store equipment held for disposal, valued at $9,000, falls under other assets, reflecting assets designated for sale or disposal.

Liabilities are divided into current liabilities, including accounts payable ($52,500) and income taxes payable ($9,000), totaling $61,500. Long-term liabilities include the note payable valued at $42,000. Summing all liabilities yields total liabilities of $103,500.

Stockholders' equity comprises the common stock and retained earnings. With 100,000 shares issued at $1.00 par, total contributed capital is $100,000. Retained earnings are reported at $164,000, totaling stockholders' equity of $264,000. Validating the equation: Total assets ($377,500) equals total liabilities and stockholders' equity ($103,500 + $264,000).

Analyzing the net book value of store equipment reveals it to be $48,000, indicating the remaining worth after accounting for depreciation. This metric provides insight into the value of physical assets in the company's holdings and assists in assessing asset management efficiency.

Overall, the balance sheet offers a snapshot of Exquisite Jewelers' financial health at year-end. It demonstrates a stable asset base with controlled liabilities and healthy equity, reflecting effective management and financial stability for stakeholders.

In addition to the balance sheet, examining profitability ratios such as gross profit percentage provides insight into operational efficiency. Although the data does not specify sales figures, comparative gross profit analysis over multiple periods can reveal trends affecting profit margins and competitiveness.

Furthermore, reviewing the composition of assets, liabilities, and equity helps in strategic decision-making, including capital investments and debt management. Regular financial analysis using these reports supports sustainable growth and value creation for shareholders.

References

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