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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Classified balance sheet

The following accounts appear in an adjusted trial balance of San Jose Consulting. Indicate whether each account would be reported in the (a) current asset; (b) property, plant, and equipment; (c) current liability; (d) long-term liability; or (e) owner’s equity section of the December 31, 2015, balance sheet of San Jose Consulting.

1. Building

2. Nata Foust, Capital

3. Notes Payable (due in five years)

4. Prepaid Rent

5. Salaries Payable

6. Supplies

7. Taxes Payable

8. Unearned Service Fees

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 Indicate: The category in which the account would appear on a classified balance sheet.

Explanation

Building – Property, plant, and equipment

Property, plant, and equipment, known as operating assets and it is used in the operational activities of the business. As the land is used for the operational activities of the business. Therefore, it comes under the category of property, plant, and equipment.

NF Capital –Owners’ equity section

Capital is a component of owners’ equity, as it is invested/contributed by the shareholders or stockholders for the future use of the company. Therefore, it comes under the category of owners’ equity.

Notes Payable (due in five years) – Long-term liabilities

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. As notes payable is due for five years. Therefore, it comes under the category of long-term liabilities.

Prepaid rent – Current assets

Current assets refer to the assets of a business, which are kept in reserve for converting them into cash, in a short time period, or within twelve months.

As the prepaid rent would be paid in advance, for which the benefit is to be received in the immediate future. Therefore, it comes under the category of current assets.

Salaries Payable – Current liabilities

Current liabilities refer to the liabilities of a business, which are supposed to be paid within a year or a period of twelve months...

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