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Chapter 5: Q17Q. (page 238)

According to generally accepted accounting principles, what is the balance sheet valuation of each of the following assets?

(a) Trade accounts receivable.

(b) Land.

(c) Inventories.

(d) Trading securities (common stock of other companies).

(e) Prepaid expenses.

Short Answer

Expert verified

Item

Value

Trade accounts receivable

Net realizable value

Land

Cost

Inventories

Lower Cost or market value

Trading securities (common stock of other companies)

Fair value

Prepaid expenses

Cost

Step by step solution

01

Definition of Trading Securities

The securities held by the investor, either debt or equity security,to generate a gain by selling them over a short period are known as trading securities.

02

Balance Sheet Valuations

  1. Trade accounts receivables are reported at their net realizable value. These are reported as their actual value less the allowance for doubtful accounts.
  2. Land is reported at its historical cost.
  3. Inventories of the business entity are either reported on their cost or market value, whichever is lower.
  4. Trading securities held are reported at fair value in the balance sheet.
  5. Prepaid expenses are reported at cost less any amount expensed for the previous period.

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Most popular questions from this chapter

What is a 鈥淪ummary of Significant Accounting Policies鈥�?

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.

4. Franco Company uses IFRS and owns property, plant, and equipment with a historical cost of \(5,000,000. At December 31, 2016, the company reported a valuation reserve of \)690,000. At December 31, 2017, the property, plant, and equipment was appraised at \(5,325,000. The valuation reserve will show what balance at December 31, 2017?

(a) \)365,000.

(b) \(325,000.

(c) \)690,000.

(d) $0.

Case 3: Deere & Company Presented below is the SEC-mandated disclosure of contractual obligations provided by Deere & Company in a recent annual report. Deere & Company reported current assets of \(50,060 and total current liabilities of \)21,394 at year-end. (All dollars are in millions.)

Aggregate Contractual Obligations

The payment schedule for the company鈥檚 contractual obligations at year-end in millions of dollars is as follows:

Total

Less than 1 year

1-3 Years

4 and 5 Years

More than 5 Years

Debt

Equipment Operations

\( 5,091

\) 434

\( 270

\)775

\( 3,612

Financial services

31,692

9,962

11,477

6,578

3,675

Total

36,783

10,396

11,747

7,353

7,287

Interest on debt

4,777

609

1,069

745

2,354

Account payable

2,743

2,611

90

39

3

Capital lease

87

39

42

4

2

Purchase obligations

3,007

2,970

37

0

0

Operating leases

371

121

134

70

46

Total

\) 47,768

\( 16,746

\)13,119

8,211

9,692

Instructions

(a) Compute Deere & Company鈥檚 working capital and current ratio (current assets 梅 current liabilities) with and without the off-balance-sheet contractual obligations reported in the schedule.

(b) Briefly discuss how the information provided in the contractual obligation disclosure would be useful in evaluating Deere & Company for loans (1) due in one year and (2) due in five years.

The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as:

1. Operating activity鈥攁dd to net income.

2. Operating activity鈥攄educt from net income.

3. Investing activity.

4. Financing activity.

5. Reported as significant noncash activity.

The transactions are as follows.

(a) Issuance of common stock.

(h) Payment of cash dividends.

(b) Purchase of land and building.

(i) Exchange of furniture for office equipment.

(c) Redemption of bonds

(j) Purchase of treasury stock.

(d) Sale of equipment.

(k) Loss on sale of equipment.

(e) Depreciation of machinery.

(l) Increase in accounts receivable during the year.

(f) Amortization of patent.

(m) Decrease in accounts payable during the year.

(g) Issuance of bonds for plant assets.
See all solutions

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