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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Balance sheet classification

At the balance sheet date, a business owes a mortgage note payable of $375,000, the terms of which provide for monthly payments of $1,250.

Explain how the liability should be classified on the balance sheet.

To determine

Classified balance sheet

Classified Balance Sheet: In order to improve the ease of understanding, a classified balance sheet is used. Classified balance sheet categorizes each item of assets, liabilities, and stockholders ‘equity into a specific category.

A classified balance sheet is prepared under the following heading:

Assets Liabilities
Current assets: Current liabilities:
Cash Accounts payable
Marketable securities Interest payable
Accounts receivable Unearned revenues
Inventories Notes payable
Prepaid expenses Current maturities of long-term debt
Office supplies Total current liabilities
Total current assets
Investments: Long-term liabilities:
Marketable securities Bonds payable
Land held for investment Notes payable
Total investments Mortgage payable
Total long-term liabilities
Property, plant and equipment:
Land Owners’ equity:
Building Capital
Equipment Total Liabilities and Shareholders’ Equity
Less: Accumulated depreciation
Net property, plant and equipment
Intangibles:
Copyrights
Total Assets

Table (1)

To Explain: How the mortgage notes payable should be classified on a balance sheet.

Explanation

Current liabilities Long-term liabilities

Current liability is a kind of liability or the obligation of the business towards the creditors, in which the business is required to pay the creditors, within a period of one year or one operating cycle of the business, whichever is longer.

Long-term liabilities are the obligations of the business that need not be paid within one year or within one operating cycle whichever is longer...

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