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Chapter 5: Q1E (page 240)

Question: E5-1 (L02,3) (Balance Sheet Classifications) Presented below are a number of balance sheet accounts of Deep Blue Something, Inc.

(a) Debt Investments.

(h)Interest Payable.

(b) Treasury Stock.

(i) Deficit.

(c) Common Stock.

(j) Equity Investments(ownership stake of less than 20%).

(d) Dividends Payable.

(k) Income Taxes Payable.

(e) Accumulated Depreciation—Equipment.

(l) Unearned Subscriptionsrevenue.

(f) Construction in Process.

(m) Work in Process.

(g) Petty Cash.

(n) Salaries and WagesPayable.

Instructions For each of the accounts above, indicate the proper balance sheet classification. In the case of borderline items, indicate the additional information that would be required to determine the proper classification

Short Answer

Expert verified

Answer

The asset classification is based on the time period they are held.

Step by step solution

01

Definition of Petty Cash

The business entity keeping some cash in hand for paying small daily expenses is known as petty cash. It includes employee reimbursement and refreshment expenses

02

Classified balance sheet

Particular

Amount $

Assets

Current Assets:

Petty cash

Work in Process

Debt Investments

Total current assets

Non-current assets:

Construction in process

Total non-current assets

Total assets

Liabilities:

Current liabilities

Interest Payable

Dividends Payable

Income Taxes Payable

Unearned Subscriptions revenue

Salaries and Wages Payable

Deficit

Total current liabilities

Non-current liabilities

Total liabilities

Equity

Common Stock

Total equity

Total liabilities and equity

03

 Step 3: Contra Items

Accumulated depreciation – equipment and treasury stock are contra account. Accumulated depreciation –equipment will be deducted from the value of the equipment.

Treasury stock: Treasury stock will be deducted from the shareholder’s equity.

04

Borderline items

Equity investment is a borderline item because its classification depends upon the period the equities are held.

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Most popular questions from this chapter

IFRS5-4 Rainmaker Company prepares its financial statements in accordance with IFRS. In 2017, Rainmaker recorded the following revaluation adjustments related to its buildings and land: The company’s building increased in value by \(200,000; its land declined by \)35,000. How will these revaluation adjustments affect Rainmaker’s statement of financial position? Will the reporting differ under GAAP? Explain.

(Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2017 are presented as follows.

EASTWOOD COMPANY

Adjusted Trial Balance

December 31, 2017

Debit

Credit

Cash

\(41,000

Accounts receivables

163,500

Allowance for doubtful account

\)8,700

Prepaid Insurance

5,900

Inventory

208,500

Equity Investment (long-term)

339,000

Land

85,000

Construction in the process (building)

124,000

Patent

36,000

Equipment

400,000

Accumulated depreciation – Equipment

240,000

Discount on bonds payable

20,000

Account payable

148,000

Accrued liabilities

49,200

Notes payable

94,000

Bond payable

200,000

Common stock

500,000

Paid-in-capital in Excess of par – Common stock

45,000

Retained earnings

138,000

Total

\(1,422,900

\)1,422,900

Additional information:

1. The LIFO method of inventory value is used.

2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same.

3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed costs \(85,000, as shown in the trial balance.

4. The patents were purchased by the company at a cost of \)40,000 and are being amortized on a straight-line basis.

5. Of the discount on bonds payable, \(2,000 will be amortized in 2018.

6. The notes payable represent bank loans that are secured by long-term investments carried at \)120,000. These bank loans are due in 2018.

7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2028.

8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.

Instructions

Prepare a balance sheet as of December 31, 2017, so that all-important information is fully disclosed.

What are some of the techniques of disclosure for the balance sheet?

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’s December 31, 2017, balance sheet, with appropriate disclosures.

In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?

(a) Treasury stock (recorded at cost).

(b) Checking account at bank.

(c) Land (held as an investment).

(d) Sinking fund.

(e) Unamortized premium on bonds payable.

(f) Copyrights.

(g) Pension fund assets.

(h) Premium on common stock.

(i) Long-term investments (pledged against bank loans payable).
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