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Chapter 5: Q16Q (page 238)

Where should the following items be shown on the balance sheet, if shown at all?

(a) Allowance for doubtful accounts.

(b) Merchandise held on consignment.

(c) Advances received on sales contract.

(d) Cash surrender value of life insurance.

(e) Land.

(f) Merchandise out on consignment.

(g) Franchises.

(h) Accumulated depreciation of equipment.

(i) Materials in transit鈥攑urchased f.o.b. destination.

Short Answer

Expert verified

Item

Balance Sheet Section

Allowance for doubtful accounts

Asset section

Merchandise held on consignment.

Not reported on the balance sheet

Advance received on sales contract.

Liability section

Cash surrender value of life insurance

Asset section

Land

Asset Section

Merchandise out on consignment

Asset Section

Franchise

Asset section

Accumulated depreciation of equipment

Asset section

Material in transit 鈥� purchased f.o.b destination.

Not reported on the balance sheet

Step by step solution

01

Definition of Consignment

Consignment can be defined as an arrangement under which the business entitygives possession of goods to any other authorized third party for sale. The third party is provided with the commission based on sales made.

02

Representation in the balance sheet

  1. Allowance for doubtful accounts is reported on the asset side of the balance sheet and deducted from the accounts receivables.
  2. Merchandise held on consignment is not reported on the balance sheet by the consignee. It might be written in the notes to the financial statement.
  3. Advance received on the sales contract is reported on the liabilities side of the balance sheet as a current liability.
  4. The land is reported as a fixed asset of the company on the asset side of the balance sheet.
  5. Merchandise out on consignment is reported as inventory on the asset side until the consignee sells it.
  6. A franchise is reported as an intangible asset on the asset side of the balance sheet.
  7. Accumulated depreciation of equipment is reported on the asset side of the balance sheet and must be deducted from the equipment cost. It is a contra asset account.
  8. The material in transit purchased on FOB destination is not reported in the buyer鈥檚 balance sheet until they arrive at the buyer鈥檚 place.

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Most popular questions from this chapter

Lansbury Inc. had the following balance sheet on December 31, 2016.

LANSBURY INC.

BALANCE SHEET

DECEMBER 31, 2016

Cash

\(20,000

Account payable

\)30,000

Accounts receivables

21,200

Note payable

41,000

Investment

32,000

Common stock

100,000

Plant assets (net)

81,000

Retained earnings

23,200

Land

40,000

\(194,200

\)194,200

During 2017, the following occurred.

1. Lansbury Inc. sold part of its debt investment portfolio for \(15,000. This transaction resulted in a gain of \)3,400 for the firm. The company classifies these investments as available for sale.

2. A tract of land was purchased for \(13,000 cash.

3. Long-term notes payable in the amount of \)16,000 were retired before maturity by paying \(16,000 cash.

4. An additional \)20,000 in common stock was issued at par.

5. Dividends of \(8,200 were declared and paid to stockholders.

6. Net income for 2017 was \)32,000 after allowing for depreciation of \(11,000.

7. Land was purchased through the issuance of \)35,000 in bonds.

8. At December 31, 2017, Cash was \(37,000, Accounts Receivable was \)41,600, and Accounts Payable remained at $30,000.

Instructions

(a) Prepare a statement of cash flows for 2017.

(b) Prepare an unclassified balance sheet as it would appear at December 31, 2017.

(c) How might the statement of cash flows help the user of the financial statements? Compute two cash flow ratios.

(Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses the following headings on its balance sheet.

(a) Current assets

(g) Long-term liabilities

(b) Investments

(h) Capital stock

(c) Property, plant, and equipment

(i) Equity attribute to non-controlling interest

(d) Intangible assets

(i) paid-in-capital in excess of par

(e) Other assets

(k) Retained earnings

(f) Current liabilities

Instructions

Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter 鈥淣鈥� to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter 鈥淴.鈥�

1. Prepaid insurance.

2. Stock owned in affiliated companies.

3. Unearned service revenue.

4. Advances to suppliers.

5. Unearned rent revenue.

6. Preferred stock.

7. Additional paid-in capital on preferred stock.

8. Copyrights.

9. Petty cash fund.

10. Sales taxes payable.

11. Accrued interest on notes receivable.

12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.)

13. Machinery retired from use and held for sale.

14. Fully depreciated machine still in use.

15. Accrued interest on bonds payable.

16. Salaries that company budget shows will be paid to employees within the next year.

17. Discount on bonds payable. (Assume related to bonds payable in item 12.)

18. Accumulated depreciation鈥攂uildings.

19. Shares held by non-controlling stockholders.

Stowe Company鈥檚 December 31, 2017, trial balance includes the following accounts: Investment in Common Stock \(70,000, Retained Earnings \)114,000, Trademarks \(31,000, Preferred Stock \)152,000, Common Stock \(55,000, Deferred Income Taxes \)88,000, Paid-in Capital in Excess of Par鈥擟ommon Stock \(174,000, and Noncontrolling Interest \)63,000. Prepare the stockholders鈥� equity section of the balance sheet.

What are some of the techniques of disclosure for the balance sheet?

The net income for the year for Genesis, Inc. is \(750,000, but the statement of cash flows reports that the net cash provided by operating activities is \)640,000. What might account for the difference?
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