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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Classifications on Balance Sheet A balance sheet may contain the following major sections:

  1. A. Current assets
  2. B. Long-term investments
  3. C. Property, plant, and equipment
  4. D. Intangible assets
  5. E. Other assets
  6. F. Current liabilities
  7. G. Long-term liabilities
  8. H. Contributed capital
  9. I. Retained earnings
  10. J. Accumulated other comprehensive income

Required:

The following is a list of accounts. Using the letters A through J, indicate in which section of the balance sheet each account would most likely be classified. Also indicate with a check mark (✓) any item that is a contra account. If an account cannot be classified in any of the preceding sections, indicate with an X and explain.

  1. _____1. Investments in Marketable Securities
  2. _____2. Discount on Bonds Payable (bonds due in 5 years)
  3. _____3. Additional Paid-in Capital on Common Stock
  4. _____4. Accounts Receivable
  5. _____5. Notes Payable (due in 5 years)
  6. _____6. Parents (net)
  7. _____7. Unrealized Decease in Fair Value of Available-for-Sale Securities
  8. _____8. Preferred Stock
  9. _____9. Unearned Rent (to be eared within next 6 months)
  10. _____10. Accrued Pension Cost
  11. _____11. Trademarks
  12. _____12. Deficit
  13. _____13. Salaries Payable
  14. _____14. Land
  15. _____15. Investment in Ace Company Preferred Stock (to be hold for 3 years)

To determine

Indicate in which section of the balance sheet each account is classified, also indicate with a check mark (✓) for the contra account and indicate with an (X) and explain if an account cannot be classified in any of the preceding sections.

Explanation

Current Assets: Current assets are the assets that are easily convertible to cash within a year of business operations. For example, cash and cash equals, Account receivables, Inventories, Prepaid Expenses.

Current Liabilities: The short-term legal agreements which are required to be paid within one year are referred as current liabilities.

Long-term Liabilities: The liabilities which have a longer maturity period (more than one year) are referred as long-term liabilities.

Property, plant, and equipment: These assets are long lived economic resources which are owned by the company, these asset accounts are increased by the debits and decreased by the credits.  Thus, these asset accounts normally show debit balances (balance sheet).

Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited life is not amortized.

Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Indicate in which section of the balance sheet each account is classified, also indicate with a check mark (✓) for the contra account and indicate with an (X) and explain if an account cannot be classified in any of the preceding sections:

Account NumberClassification of balance sheet
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