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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Exercise 1-37 Balance Sheet Structure

The following accounts exist in the ledger of Higgins Company: accounts payable, accounts receivable, accumulated depreciation, bonds payable, building, common stock, cash, equipment, income taxes payable, inventory, notes payable (due in 5 years), prepaid insurance, retained earnings, trademarks, and wages payable.

Required:

  1. Organize the above items into a properly prepared classified balance sheet.
  2. CONCEPTUAL CONNECTION Which information might be helpful to assess liquidity?

To determine

Concept Introduction:

Financial statements: Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements.

Balance Sheet: The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.

Requirement-1:

To Indicate:

The classification of items on the classified balance sheet.

Explanation

The classification of items on the classified balance sheet is as follows:

    Item Classification
    Accounts Payable Accounts Payable is a current liability to be paid within next year Current Liabilities
    Accounts receivableAccounts receivable is a current assets which is salable in next year Current Assets
    Accumulated depreciationAccumulated depreciation is part of Property plant and equipment Property plant and equipment
    Bonds payableBonds payable is a long term liability Long term liabilities
    Building Building is a property Property plant and equipment
    Common Stock Common Stock is part of the business capitalContributed Capital
    CashCash is a current assetsCurrent...
To determine

Concept Introduction:

Financial statements: Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements.

Balance Sheet: The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.

Requirement-2:

To Indicate:

The information useful to assess the liquidity.

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