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UNIT # 15 - CLASSIFIED BALANCE SHEET

INITIALCOMPLETED

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INSTRUCTIONS FOR UNIT #15

~ In Unit #14 you calculated the ending retained earnings and presented it on astatement. The ending retained earnings is critical. It is the number that appears on thebalance 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 atthat date are presented in categories to help users of the statements understand thefinancial condition of the company.

~ The two categories of a classified balance sheet are current and long term. A currentasset is expected to be used up or turned over within one year or one operating cycle ofthe company. A current liability is expected to be paid within one year from the date ofthe balance sheet. An asset whose life extends beyond one year is long term. A liabilitywhose due date is beyond one year is long term. These distinctions are important. Putyourself 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 payits debts when due). Therefore, you want this information presented. Once you have theinformation you can calculate key ratios, namely, working capital which is currentassets - current liabilities, current ratio of current assets divided by currentliabilities, and debt to equity, which is total liabilities divided by total equity.

~ Start with Tutorial #15 Initial. UnderData enter the following amounts for theaccounts listed:

Accumulated depreciation $ -210Retained earnings 75Notes payable( current portion) 20

Notes payable 125Cash 245Inventory 300Accounts receivable 200Wages payable 5Salaries payable 120Preferred stock 100Paid in capital - preferred 50Common stock 20Paid in capital - common 180Dividends payable 40

Supplies 25Prepaid insurance 20Land 120Buildings and equipment 250Accounts payable 25Income taxes payable 60Accrued expenses payable 130

7/29/2019 Inst 15

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INSTRUCTIONS FOR UNIT #15

~ As you enter them, they are referenced and displayed on the right hand side under theclassified 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 getnot correct and you are not sure, go to the formula bar for that cell and you will see theentry for that cell, i.e. how it was programmed.

~ The classified balance sheet has been set up to list assets, liabilities, and equity in theircorrect order. Current assets are listed in the order of liquidity, current liabilities are listedin the order of payment, land is separated from depreciable assets as land is not subject todepreciation. 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 indicatingIn balance for A = L + E. On the left three ratios are calculate, working capital, currentratio, and debt to equity. These are all measures of solvency.

~ Tutorial #15Completed has the correct responses.