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Chapter 5: 12Q (page 237)
What is the relationship between current assets and current liabilities?
Current liabilities are liquidated using thecurrent assets as they both get due or provide benefit within one year.
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(L03) (Preparation of a Classified Balance Sheet, Periodic Inventory) Presented below is a list of accounts in alphabetical order.
Accounts Receivable-Inventory-Ending
Accumulated Depreciation—Buildings-Land
Accumulated Depreciation—Equipment Land for Future Plant Site
Accumulated Other Comprehensive Income - Loss from Flood
Advances to Employees- Noncontrolling Interest
Advertising Expense - Notes Payable (due next year)
Allowance for Doubtful Accounts - Paid-in Capital in Excess of Par— preferred stock
Bond Sinking Fund -Patents
Bonds Payable - Payroll Taxes Payable
Buildings - Pension Liability
Cash (in bank) - Petty Cash
Cash (on hand) - Preferred Stock
Cash Surrender Value of Life Insurance -Premium on Bonds Payable
Commission Expense- Prepaid Rent
Common Stock- Purchase Returns and Allowances
Copyrights - Purchases
Debt Investments (trading)- Retained Earnings
Dividends Payable- Salaries and Wages Expense (sales)
Equipment - Salaries and Wages Payable
Freight-In Sales- Discounts
Gain on Disposal of Equipment- Sales Revenue
Interest Receivable - Treasury Stock (at cost)
Inventory—Beginning Unearned Subscriptions Revenue
Instructions Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.)
(Classification of Balance Sheet Accounts) Presented below are the captions of Faulk Company’s 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 |
What are the major limitations of the balance sheet as a source of information?
Patrick Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2017: Prepaid Rent \(12,000, Goodwill \)50,000, Franchise Fees Receivable \(2,000, Franchises \)47,000, Patents \(33,000, and Trademarks \)10,000. Prepare the intangible assets section of the balance sheet.
E5-9 (L02,3) (Current Assets and Current Liabilities) The current assets and current liabilities sections of the balance sheet of Allessandro Scarlatti Company appear as follows.
ALLESSANDRO SCARLATTI COMPANY | ||||
BALANCE SHEET PARTIAL | ||||
December 31, 2017 | ||||
Cash | \(40,000 | Account payable | \)61,000 | |
Accounts receivables | \(89,000 | Note payable | 67,000 | |
Less: Allowance for doubtful accounts | (7,000) | 82,000 | \)128,000 | |
Inventory | 171,000 | |||
Prepaid expenses | 9,000 | |||
\(302,000 |
The following errors in the corporation’s accounting have been discovered:
1. January 2018 cash disbursements entered as of December 2017 included payments of accounts payable in the amount of \)39,000, on which a cash discount of 2% was taken.
2. The inventory included \(27,000 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, \)12,000 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.
3. Sales for the first four days in January 2018 in the amount of \(30,000 were entered in the sales journal as of December 31, 2017. Of these, \)21,500 were sales on account and the remainder were cash sales.
4. Cash, not including cash sales, collected in January 2018 and entered as of December 31, 2017, totaled \(35,324. Of this amount, \)23,324 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan.
Instructions
(a) Restate the current assets and current liabilities sections of the balance sheet in accordance with good accounting practice. (Assume that both accounts receivable and accounts payable are recorded gross.)
(b) State the net effect of your adjustments on Allessandro Scarlatti Company’s retained earnings balance.
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