Financial Accounting in Module 2, the $35,000 Essay

Financial Accounting

In Module 2, the $35,000 worth of goods was never purchased, so that figure is irrelevant. Now with Module 3, we begin with a balance sheet that does not balance. To this, several changes are to be made. The company raised an additional $225,000, which balances because Common Stock increases by that amount, and the company receives that much Cash. The dividends represent a decline in cash of that amount, and a decline in Retained Earnings. The asset is covered by $400,000 in the land less $50,000 in cash, and the other $350,000 goes to Notes Payable. The result is as follows:

The first major adjustment that needs to be made, based on Module 2, is that the company needs to add back the $35,500 worth of inventory.This should never have been removed. The second adjustment is that the profit would have been higher, by $35,500 because the cost of goods sold included this sale that never happened. That will increase equity by $35,500. This still leaves the balance sheet unbalanced.

31-Dec-12

Balance Sheet

Assets

Current Assets

Cash

16700

Accounts Receivable

24500

Inventory

60500

Total Current Assets

101700

Fixed Assets

Equipment, net

425,000

425,000

Total Assets

526700

Liabilities

Short-Term Liabilities

Accounts Payable

67,000

Total Current Liabilities

67,000

Long-term Liabilities

Long-Term Debt

145,000

145,000

Total Liabilities

212000

Equity

Common Stock

10,000

Paid-in capital

125,500

Total Equity

135,500

Total Liabilities and Equity

347,500

When the items for Module 3.....