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Chapter 5: Q2E (page 240)

Question: E5-2 (L02,3) (Classification of Balance Sheet Accounts) Presented below are the captions of Faulk Company鈥檚 balance sheet.

(a) Current assets

(f) Current liabilities

(b) Investments

(g) Noncurrent liabilities

(c) Property, plant, and equipment

(h) Capital stock

(d) Intangible assets

(i) Additional paid-in capital

(e) Other assets

(j) Retained earnings

Instructions

Indicate by letter where each of the following items would be classified.

1. Preferred stock

11. Cash surrender value of life insurance

2. Goodwill

12. Note payable

3. Salaries and wages payable

13. Supplies

4. Account payable

14. Common stock

5. Building

15. Land

6. Equity investment (trading)

16. Bond sinking fund

7. Current maturity of long-term debt

17. Inventory

8. Premium on bond payable

18. Prepaid insurance

9. Allowance for doubtful accounts

19. Bond payable

10. Accounts receivable

20. Income tax payable

Short Answer

Expert verified

Answer

The classified balance sheet reports all the assets and liabilities based on their liquidity.

Step by step solution

01

Definition of intangible assets

The business entity鈥檚 resources that do not have a physical existence but benefit the business entity are known as intangible assets. They include goodwill and patent.

02

Classification of line items

Line item

Classification

1. Preferred stock

(h) Capital stock

2. Goodwill

(d) Intangible assets

3. Salaries and wages payable

(f) Current liabilities

4. Account payable

(f) Current liabilities

5. Building

(c) Property, plant, and equipment

6. Equity Investment (trading)

(a) Current assets

7. Current maturity of long-term debt

(f) Current liabilities

8. Premium on bond payable

(g) Noncurrent liabilities

9. Allowance for doubtful accounts

(a) Current assets

10. Accounts receivable

(a) Current assets

11. Cash surrender value of life insurance

(e) Other assets

12. Note payable (due next year)

(f) Current liabilities

13. Supplies

(a) Current assets

14. Common stock

(h) Capital stock

15. Land

(c) Property, plant, and equipment

16. Bond sinking fund

(e) Other assets

17. Inventory

(a) Current assets

18. Prepaid insurance

(a) Current assets

19. Bond payable

(g) Noncurrent liabilities

20. Income tax payable

(f) Current liabilities

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Most popular questions from this chapter

EXCEL (Current Assets Section of the Balance Sheet) Presented below are selected accounts of Yasunari Kawabata Company at December 31, 2017.

Inventory

\(52,000

Cost of goods sold

2,100,000

Unearned service revenue

90,000

Note receivable

40,000

Equipment

253,000

Account receivable

161,000

Inventory (Work-in-process)

34,000

Inventory (raw material)

207,000

Cash

37,000

Supplies Expenses

60,000

Debt investment (Short-term)

31,000

Allowance for doubtful accounts

12,000

Customer advances

36,000

License

18,000

Restricted cash for plant expansion

50,000

Additional paid-in-capital

88,000

Treasury stock

22,000

The following additional information is available.

1. Inventories are valued at lower-of-cost or market using LIFO.

2. Equipment is recorded at cost. Accumulated depreciation, computed on a straight-line basis, is \)50,600.

3. The short-term investments have a fair value of \(29,000. (Assume they are trading securities.)

4. The notes receivable are due April 30, 2019, with interest receivable every April 30. The notes bear interest at 6%. (Hint: Accrue interest due on December 31, 2017.)

5. The allowance for doubtful accounts applies to the accounts receivable. Accounts receivable of \)50,000 are pledged as collateral on a bank loan.

6. Licenses are recorded net of accumulated amortisation of $14,000.

7. Treasury stock is recorded at cost.

Instructions

Prepare the current assets section of Yasunari Kawabata Company鈥檚 December 31, 2017, balance sheet, with appropriate disclosures.

E5-6 (L02,3) (Corrections of a Balance Sheet) The bookkeeper for Geronimo Company has prepared the following balance sheet as of July 31, 2017.

GERONIMO COMPANY

Balance Sheet

As of July 31, 2017

Cash

\(69,000

Notes and accounts payable

\)44,000

Account receivable (net)

40,500

Long-term liabilities

75,000

Inventory

60,000

Stockholder鈥檚 equity

155,500

Equipment (net)

84,000

Patents

21,000

\(274,500

\)274,500

The following additional information is provided.

1. Cash includes \(1,200 in a petty cash fund and \)15,000 in a bond sinking fund.

2. The net accounts receivable balance is comprised of the following two items: (a) accounts receivable \(44,000 and (b) allowance for doubtful accounts \)3,500.

3. Inventory costing \(5,300 was shipped out on consignment on July 31, 2017. The ending inventory balance does not include the consigned goods. Receivables in the amount of \)5,300 were recognized on these consigned goods.

4. Equipment had a cost of \(112,000 and an accumulated depreciation balance of \)28,000.

5. Income taxes payable of $6,000 were accrued on July 31. Geronimo Company, however, had set up a cash fund to meet this obligation. This cash fund was not included in the cash balance but was offset against the income taxes payable amount.

Instructions

Prepare a corrected classified balance sheet as of July 31, 2017, from the available information, adjusting the account balances using the additional information.

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.

Presented below is the balance sheet for Tomkins plc, a British company.

Tomkins plc Consolidated Balance Sheet (amounts in 拢 million)

Particular

Amount 拢

Non-Current Assets

Goodwill

436

Other tangible assets

78

Property, plant, and equipment

1,122.80

Investment in associates

20.6

Trade and other receivables

81.1

Deferred tax assets

82.9

Post-employment benefits surpluses

1.3

1,822.7

Current assets

Inventories

590.8

Trade and other receivables

753

Income tax recoverable

49

Available for sale investment

1.2

Cash and Cash equivalents

445

1,839

Assets held for sale

11.9

Total assets

3,673.6

Current liabilities

Bank overdraft

4.8

Bank and other loans

11.2

Obligations under finance leases

1

Trade and other payables

677.6

Income tax liabilities

15.2

Provisions

100.3

810.1

Non-Current liabilities

Bank and other loans

687.3

Obligations under financial leases

3.6

Trade and other payables

27.1

Post-Employment benefits obligations

343.5

Deferred tax liabilities

25.3

Income tax liabilities

79.5

Provisions

19.2

1,185.5

Total liabilities

1,995.6

Net assets

1,678

Capital reserve

Ordinary share capital

79.6

Share premium account

799.2

Own shares

(8.2)

Capital redemption reserve

921.8

Currency translation reserve

(93)

Available for sale reserve

(0.9)

Accumulated deficit

(161.9)

Shareholder鈥檚 equity

1,536.6

Minority interest

141.4

Total equity

1,678

Instructions

(a) Identify at least three differences in balance sheet reporting between British and U.S. firms, as shown in Tomkins鈥� balance sheet.

(b) Review Tomkins鈥� balance sheet and identify how the format of this financial statement provides useful information, as illustrated in the chapter.

What is meant by liquidity? Rank the following assets from one to five in order of liquidity.

(a) Goodwill.

(b) Inventory.

(c) Buildings.

(d) Short-term investments.

(e) Accounts receivable.
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