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Chapter 18: Problem 10

Partial balance sheet data for Lawson Company at December 31, 2010, are as follows: \(\begin{array}{lrlr}\text { Finished goods inventory } & \$ 10,000 & \text { Supplies } & \$ 18,000 \\ \text { Prepaid insurance } & 10,000 & \text { Materials inventory } & 22,000 \\ \text { Accounts receivable } & 26,000 & \text { Cash } & 28,000 \\ \text { Work in process inventory } & 40,000 & & \end{array}\) Prepare the Current Assets section of Lawson Company's balance sheet at December 31, \(2010 .\)

Short Answer

Expert verified
The total current assets for Lawson Company are $154,000.

Step by step solution

01

Identify Current Assets

Current assets are assets that are expected to be converted to cash, sold, or consumed within one year. In this problem, identify which items are considered current assets: Finished Goods Inventory, Supplies, Prepaid Insurance, Materials Inventory, Accounts Receivable, Cash, and Work in Process Inventory. All these items are current assets since they are expected to be used or converted to cash within a year.
02

List Current Assets

List all the identified current assets with their respective amounts: - Finished Goods Inventory: $10,000 - Supplies: $18,000 - Prepaid Insurance: $10,000 - Materials Inventory: $22,000 - Accounts Receivable: $26,000 - Cash: $28,000 - Work in Process Inventory: $40,000.
03

Calculate Total Current Assets

Add up all the amounts of the current assets to find the total current assets:\[10,000 + 18,000 + 10,000 + 22,000 + 26,000 + 28,000 + 40,000 = 154,000\]
04

Prepare the Current Assets Section

Prepare the Current Assets section of the balance sheet by listing all the current assets and their total: **Current Assets** - Cash: $28,000 - Accounts Receivable: $26,000 - Finished Goods Inventory: $10,000 - Supplies: $18,000 - Prepaid Insurance: $10,000 - Materials Inventory: $22,000 - Work in Process Inventory: $40,000 **Total Current Assets: $154,000**

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Balance Sheet
The balance sheet is like a financial snapshot of a company at a specific point in time. It shows what the company owns and what it owes. This financial statement is divided into three main parts: assets, liabilities, and equity.
Assets are what the company owns and are further divided into current and non-current assets. Liabilities are what the company owes to others, like loans or bills. Equity represents the owner's stake in the company after all liabilities have been considered.
The primary aim of the balance sheet is to give a clear picture of an organization's financial position. It helps stakeholders understand what the company owns, what it owes, and what net resources are available.
Current Assets Section
Current assets are a vital part of the balance sheet, indicating the resources that can be easily converted into cash within a year. They play a key role in managing the company's day-to-day operations and liquidity.
  • Cash: The most liquid asset, vital for day-to-day transactions.
  • Accounts Receivable: Money owed to the company by its customers.
  • Inventories: Goods available for sale, both finished and unfinished.
  • Prepaid Expenses: Payments made in advance for services to be received.
Understanding current assets helps in assessing the company's ability to cover its short-term obligations and operating costs efficiently.
Financial Accounting
Financial accounting is a specialized branch of accounting that records, summarizes, and reports a company's financial transactions. Its primary goal is to provide reliable financial information that stakeholders can use to make informed decisions.
  • Objectivity: Financial reports are based on verifiable evidence.
  • Historical Record: Keeps track of all past financial transactions.
  • Standardized: Adheres to accepted accounting principles and standards.
Through accurate financial accounting, companies can show transparency and consistency, building trust with investors, creditors, and regulatory bodies.
Inventory Valuation
Inventory valuation is crucial as it directly affects the cost of goods sold and the resulting net income. It involves determining the cost associated with an inventory at the end of an accounting period, which can significantly impact the financial statements.
  • LIFO (Last In, First Out): Assumes the last items added to inventory are sold first.
  • FIFO (First In, First Out): Assumes the earliest items purchased are sold first.
  • Average Cost: Uses a weighted average to value inventory.
Choosing an appropriate inventory valuation method can impact both tax calculations and profit reporting, making it a critical managerial decision.

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Most popular questions from this chapter

Indicate whether the following costs of Colgate-Palmolive Company would be classified as direct materials cost, direct labor cost, or factory overhead cost: a. Wages paid to Packaging Department employees b. Maintenance supplies c. Plant manager salary for the Morristown, Tennessee, toothpaste plant d. Packaging materials e. Depreciation on production machinery f. Salary of process engineers g. Depreciation on the Clarksville, Indiana, soap plant h. Resins for soap and shampoo products i. Scents and fragrances j. Wages of production line employees

From the choices presented in parentheses, choose the appropriate term for completing each of the following sentences: a. Payments of cash or the commitment to pay cash in the future for the purpose of generating revenues are (costs, expenses). b. The implementation of automatic, robotic factory equipment normally (increases, decreases) the direct labor component of product costs. c. Feedback is often used to (improve, direct) operations. d. A product, sales territory, department, or activity to which costs are traced is called a (direct cost, cost object). e. The balance sheet of a manufacturer would include an account for (cost of goods sold, work in process inventory). f. Factory overhead costs combined with direct labor costs are called (prime, conversion) costs. g. Advertising costs are usually viewed as (period, product) costs.

Which of the following items are properly classified as part of factory overhead for Caterpillar? a. Factory supplies used in the Morganton, North Carolina, engine parts plant b. Amortization of patents on new assembly process c. Steel plate d. Vice president of finance's salary e. Sales incentive fees to dealers f. Depreciation on Peoria, Illinois, headquarters building g. Interest expense on debt h. Plant manager's salary at Aurora, Illinois, manufacturing plant i. Consultant fees for a study of production line employee productivity j. Property taxes on the Danville, Kentucky, tractor tread plant

The following information is available for the first month of operations of Zahorik Company, a manufacturer of mechanical pencils: \(\begin{array}{lr}\text { Sales } & \$ 360,000 \\ \text { Gross profit } & 210,000 \\ \text { Cost of goods manufactured } & 180,000 \\ \text { Indirect labor } & 78,000 \\ \text { Factory depreciation } & 12,000 \\\ \text { Materials purchased } & 111,000 \\ \text { Total manufacturing costs for the period } & 207,000 \\ \text { Materials inventory } & 15,000\end{array}\) Using the above information, determine the following missing amounts: a. Cost of goods sold b. Finished goods inventory c. Direct materials cost d. Direct labor cost e. Work in process inventory

A partial list of the costs for Mountain Lakes Railroad, a short hauler of freight, is provided below. Classify each cost as either indirect or direct. For purposes of classifying each cost as direct or indirect, use the train as the cost object. a. Wages of switch and classification yard personnel b. Cost to lease (rent) railroad cars c. Depreciation of terminal facilities d. Payroll clerk salaries e. Salaries of dispatching and communications personnel f. Safety training costs g. Cost to lease (rent) train locomotives. h. Wages of train engineers i. Cost of track and bed (ballast) replacement j. Costs of accident cleanup k. Fuel costs l. Maintenance costs of right of way, bridges, and buildings
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