Problem
#171979
Khan Corporation Balance Sheet

List the corrections needed to present in good form the balance sheet below. Errors include misclassifications, lack of adequate disclosure, and poor terminology. Do not concern yourself with the arithmetic. If an item can be classified in more than one category, select the category most favored by the authors of your textbook.

Khan Corporation
Balance Sheet
For the year ended December 31, 2007

Assets

Current Assets:

Cash $18,000
Trading securities (fair value, $32,000) 27,000
Accounts receivable 75,000
Merchandise inventory 60,000
Supplies inventory 3,000
Stock investment in subsidiary company 60,000 $243,000

Investments:

Treasury stock 78,000

Tangible Fixed Assets:

Buildings and land 213,000
Less: Reserve for depreciation 60,000 153,000

Deferred Charges:

Unamortized discount on bonds payable 3,000

Other Assets:

Cash surrender value of life insurance 54,000
---------
$531,000


Liabilities and Capital


Current Liabilities:

Accounts payable $45,000
Reserve for income taxes 42,000
Customer's accounts with credit balances 3 $87,003
----------

Long-Term Liabilities:

Bonds payable 120,000
---------
Total Liabilities 207,003

Capital Stock:

Capital stock 225,000
Earned surplus 74,997
Cash dividends declared 24,000 323,997
-------- ----------
$531,000
Not sure how to calculate retained earnings then deduct treasury stock can some one help me with that

I attach your answer herewith

Can you please stop just providing answers to people's homework. It is not ethical. It is against the rules:
https://www.askmehelpdesk.com/finance-accounting/announcement-font-color-ff0000-u-b-read-first-expectations-homework-help-board-b-u-font.html

And your answer is incorrect.

[QUOTE=benipald3;2074222]Problem
#171979
Khan Corporation Balance Sheet

List the corrections needed to present in good form the balance sheet below. Errors include misclassifications, lack of adequate disclosure, and poor terminology. Do not concern yourself with the arithmetic. If an item can be classified in more than one category, select the category most favored by the authors of your textbook.

Khan Corporation
Balance Sheet
For the year ended December 31, 2007

Assets

Current Assets:

Cash $18,000
Trading securities (fair value, $32,000) 27,000
Accounts receivable 75,000
Merchandise inventory 60,000
Supplies inventory 3,000
Stock investment in subsidiary company 60,000 $243,000

Investments:

Treasury stock 78,000

Tangible Fixed Assets:

Buildings and land 213,000
Less: Reserve for depreciation 60,000 153,000

Deferred Charges:

Unamortized discount on bonds payable 3,000

Other Assets:

Cash surrender value of life insurance 54,000
---------
$531,000


Liabilities and Capital


Current Liabilities:

Accounts payable $45,000
Reserve for income taxes 42,000
Customer's accounts with credit balances 3 $87,003
----------

Long-Term Liabilities:

Bonds payable 120,000
---------
Total Liabilities 207,003

Capital Stock:

Capital stock 225,000
Earned surplus 74,997
Cash dividends declared 24,000 323,997
-------- ----------
$531,000

I pepared this Balance sheet
Jag corporation
Balnce sheet
As at December 31,2008

Assets
Current Assets:
Cash 18000
Trading Secuties ( At fairvalue ) 32000
Account receivables 75000
Supplies Inventory 3000
Merchandise Inventory 60000
Total Current Assets
188000
Long -Term Investments:

Stock Investment in subsidiary company 60000
Cash surrender value of life insurance 54000
Total long term investment 114000

Property, Plant and Equipment:

Building and Land 213000
Less: Accumulated amortization (60000)
Net book Value 153000
Total property ,plant and Equipment 153000
Total Assets 455000

Liabbilties
Current Liabilties:
Accounts Payable 45000
Income tax payable 42000
Customer Account with credit balance 3
Dividend payable 24000
Total current liabiltiess 111003

Long term liabilties:
Bond Payable 120000
Less: Unamortized discount on bond payable (3000) 117000
Total liabilties 228003

Shareholder's Equity
Common stock 225000
Retained earnings 74997
Total 299997
Less: Treasury stock (78000)
Total Equity 221997
Total liabilties and Sahrehoder's equity 450000
Can somebody suggest me why its not balancing I am having a5000 difference

you have taken trading securities at fair value while it should be taken at cost, this is the mistake you have made.

you have taken trading securities at fair value while it should be taken at cost, this is the mistake you have made.

can you please tell me why I need to record it at cost value beacause usually we record at fair value

Trading securities are recorded at fair value.

Trading securities are recorded at fair value.

Can you suggest me where I'm wrong

If the fair value is less than cost then it should be recorded at fair value otherwise not.

If the fair value is less than cost then it should be recorded at fair value otherwise not.

Since when? Under U.S. GAAP this is not true, and I'm not aware that there are any international standards which differ in how the security is reported, assuming it's allowed to be listed as a trading security.

benipald3, here is what I'm seeing -- with a caveat that I think there's some assumptions that need to be made. The problem does say not to worry about the math, so perhaps it is not supposed to balance.

First, the "customers with credit balance" thing really should be like unearned revenue or deferred revenue or something. I don't know where you're at, but I don't think I've ever seen an account name like that as being appropriate.

If we pretend for a minute that you really are only 5000 off, that theoretically would have affected net income (and consequently retained earnings) if you adjust for fair value. That would balance it back out. Whether you're supposed to be messing with net income or not I don't know.

The original was actually out of balance, because dividends were added in instead of being subtracted. If they were subtracted correctly, that would actually throw you 48,000 off, not 24,000. So your little idea of putting it into dividends payable would not work. It is not incorrect to have the dividends there, because dividends declared come off retained earnings, but you've taken it away.

You also really can't make the assumption that it belongs in dividends payable. You're reaching there, trying to make it balance. You don't know if the dividends were paid or not. "Dividends declared" under equity is not going to state whether they were paid. And since they should have stayed under equity, you won't balance by adding that payable anyway.

One could argue that the dividends have already been subtracted from retained earnings, but do we know that? No. So that's just a lot of guessing. In the end, I think you're going to end up out of balance.

You are right but I have given answer under the present circumstances to tally the balance sheet as if the fair value of trading securities would have been taken then the balance sheet would have been tallied, under the law of conservatism it is possible that the balance sheet which has been given here would be showing the trading securities at cost, otherwise the balance sheet will not tally. The other option is to show the trading securities at fairvalue and show the more profit of $5000 under retained earnings to agree the balance sheet.

I did think of the fact that net income would have to change. And you never mentioned trying to find an "excuse" to make it balance. You just outright said they're not recorded at fair value when it's higher than cost, as though OP was following the rule incorrectly.