Problem: The balance sheet for CAB Partnership as of December 31, 2008, is as follows:
| Assets |
|
|
|
| Cash |
$ 8,000.00 |
| Accounts Receivable |
$ 33,600.00 |
| Inventory (at cost) |
$ 35,750.00 |
| Land |
$ 27,000.00 |
| Building (net of depreciation) |
$ 41,600.00 |
| Equipment (net of depreciation) |
$ 27,250.00 |
| Total |
$173,200.00 |
|
|
| Liabilities and Capital |
|
|
|
| Accounts Payable |
$ 32,450.00 |
| Other Current Liabilities |
$ 6,750.00 |
| Long-Term Note (8% due 2008) |
$ 34,000.00 |
| Andrews, Capital |
$ 37,500.00 |
| Bennet, Capital |
$ 25,000.00 |
| Total |
$ 37,500.00 |
|
$173,200.00 |
The review of the accounts resulted in the accumulation of the following information:
1. Approximately 5% of the accounts receivable are uncollectible. The old partnership had been using the direct write-off method of accounting for bad debts.
2. Current replacement cost of the inventory is $41,250.
3. The market value of the land based on a current appraisal is $65,000.
4. The partners had been using an unreasonably long estimated life in establishing a depreciation policy for the building. On the basis of sound value (current replacement cost adjusted for use), the value of the building is $32,750.
5. There are unrecorded accrued liabilities of $3,275.