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Chapter 5: Question 2ISTQ (page 262)
2. Current assets under IFRS are listed generally:
(a) by importance.
(b) in the reverse order of their expected conversion to cash.
(c) by longevity.
(d) alphabetically.
The correct option is (b) in the reverse order of their expected conversion to cash.
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What is the relationship between current assets and current liabilities?
What is the purpose of a free cash flow analysis?
Kathleen Battle says, 鈥淩etained earnings should be reported as an asset, since it is earnings which are reinvested in the business.鈥� How would you respond to Battle?
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.
How does information from the balance sheet help users of the financial statements?
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