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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

E5-12 (L03) (Preparation of a Balance Sheet) Presented below is the trial balance of Scott Butler Corporation at December 31, 2017.

Particular

Debit

Credit

Cash

\(197,000

Sales Revenue

\)8,100,000

Debt investment (trading) (at cost \(145,000)

153,000

Cost of goods sold

4,800,000

Debt investment (long-term)

299,000

Equity Investment (long-term)

277,000

Notes payable (Short-term)

90,000

Account payable

455,000

Selling expenses

2,000,000

Investment revenue

63,000

Land

260,000

Buildings

1,040,000

Dividend payable

136,000

Accrued Liabilities

96,000

Accounts Receivable

435,000

Accumulated depreciation – Building

152,000

Allowance for doubtful accounts

25,000

Administrative expenses

900,000

Interest expenses

211,000

Inventory

597,000

Gain

80,000

Notes payable

900,000

Equipment

600,000

Bonds payable

1,000,000

Accumulated depreciation – Equipment

60,000

Franchises

160,000

Common stock

1,000,000

Treasury stock

191,000

Patents

195,000

Retained Earnings

78,000

Paid-in-capital in excess of par

80,0000

Total

\)12,315,000

$12,315,000

Instructions Prepare a balance sheet at December 31, 2017, for Scott Butler Corporation. (Ignore income taxes.)

Hawthorn Corporation’s adjusted trial balance contained the following accounts at December 31, 2017: Retained Earnings \(120,000, Common Stock \)750,000, Bonds Payable \(100,000, Paid-in Capital in Excess of Par—Common Stock \)200,000, Goodwill \(55,000, Accumulated Other Comprehensive Loss \)150,000, and Noncontrolling Interest $35,000. Prepare the stockholders’ equity section of the balance sheet.

Lowell Company’s December 31, 2017, trial balance includes the following accounts: Inventory \(120,000, Buildings \)207,000, Accumulated Depreciation—Equipment \(19,000, Equipment \)190,000, Land (held for investment) \(46,000, Accumulated Depreciation—Buildings \)45,000, Land \(71,000, and Timberland \)70,000. Prepare the property, plant, and equipment section of the balance sheet

11. Should available-for-sale securities always be reported as a current asset? Explain.

Ames Company reported 2017 net income of \(151,000. During 2017, accounts receivable increased by \)13,000 and accounts payable increased by \(9,500. Depreciation expense was \)44,000. Prepare the cash flows from operating activities section of the statement of cash flows.
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