acct 201 chapter two

In 2016, Ames Industries purchased a parcel of land adjacent to its factory; at that time, Ames had no intention of using the property and purchased it to prevent development. In 2022, Ames decided to construct additional office space on the parcel. How is the classification of the parcel on Ames' 2016 balance sheet different than that of 2022?

In 2016 the parcel was listed under long-term investments, whereas in 2022 it was listed under property, plant, and equipment.

Westin Industries holds a patent on its quick-dry paint products. The patent is due to expire in July of this year. How is the classification of the patent on Westin's June 30 balance sheet different than its July 31 balance sheet?

In June the patent is listed as an intangible asset and in July it is no longer listed on the balance sheet.

Each year, Bravo Corporation retains one-half of its earnings. If Bravo's earnings are constant from year to year, what will happen to stockholders' equity if the company elects to retain only one-quarter of its earnings this year?

It will increase.

Alpha Corporation currently has Inventory of $6,100, Equipment of $9,800, Supplies of $4,500, and Land of $11,000. Assuming Alpha has no other assets, what is the company's total current assets?

$10,600 Inventory and Supplies are classified as current assets, while Equipment and Land are classified as property, plant, and equipment. $6,100 in Inventory + $4,500 in Supplies = $10,600 in current assets.

Several years ago, Viking Industries purchased a new machine with a 7-year expected life for $49,700. On its current balance sheet, Viking listed accumulated depreciation on the machine at $35,500. Based on this, how much has the company expensed over the life of the asset?

$35,500 * Amounts expensed as depreciation are credited to accumulated depreciation. Therefore, the expensed amount will be the same as the accumulated depreciation, or $35,500.

Four years ago, Chaplin Inc. purchased a new machine with a 5-year expected life for $35,500. On its current balance sheet, Chaplin lists accumulated depreciation on the machine at $28,400. What is the total remaining asset value of this machine that should be reported on the balance sheet?

$7,100 The total remaining asset value is the purchase price minus accumulated depreciation. Therefore, $35,500 - $28,400 = $7,100.

On their balance sheet, Gwinn Manufacturing listed their cost of property, plant, and equipment at $126,600. Gwinn also listed their total property, plant, and equipment, less accumulated depreciation, at $56,300. How much depreciation has Gwinn accumulated on their property, plant, and equipment?

$70,300 The depreciation accumulated is the cost less the book value. Therefore, the accumulated depreciation is $126,600 - $56,300 = $70,300.

Pippin Enterprises currently has Accounts Payable of $9,600, Bonds Payable of $8,400, Lease Liabilities of $6,200, and Income Taxes Payable of $7,500. The bonds are payable in 3 years, and no lease liabilities are due in the coming year. Assuming Pippin has no other liabilities, what is the company's total current liabilities?

Accounts Payable and Income Taxes Payable are classified as current liabilities, while Bonds Payable and Lease Liabilities are classified as long-term liabilities. $9,600 in Accounts Payable + $7,500 in Income Taxes Payable = $17,100 in current liabilities.

Wilson Industries holds a number of government securities. $10,000 of these securities have a one-year maturity date, while $4,000 have an 18-month maturity date. Wilson prepares a classified balance sheet using a 2-year operating cycle. How should these securities be classified?

All $14,000 in government securities should be classified as current assets.

JTM Ltd is preparing its January 31 balance sheet. JTM has $5,000 in Cash currently available, $2,500 in Debt Investments to be sold in June, $9,800 in Accounts Receivable to be collected in September, and $4,200 in Inventory to be sold in May. In what order should JTM list these assets?

Cash, Inventory, Debt Investments, Accounts Receivable

Fran is preparing the balance sheet for her company. Common stock and retained earnings are both classified as stockholder's equity, and each has a value of $44,000. How should Fran list this information on the balance sheet?

Common stock and retained earnings should be listed individually at $44,000 each and summed on a separate line.

Aaron is preparing the balance sheet for his company. Copyrights and goodwill are the only two assets classified as intangible assets, and each has a cost of $24,000. Copyrights also has accumulated amortization of $7,000. How should Aaron list this information on the balance sheet?

Copyrights and goodwill should be listed individually at $24,000 each, and accumulated amortization should be listed with a negative total of $7,000.

Identify the sections of a classified balance sheet.

Current assets Long‐term investments Property, plant, and equipment Intangible assets Current liabilities Long‐term liabilities Stockholders' equity In a classified balance sheet, companies classify assets as current assets; long‐term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long‐term. A stockholders' equity section shows common stock and retained earnings.

In which of the following scenarios is the listing of long-term liabilities on a classified balance sheet done incorrectly?

Delta Industries' balance sheet lists a single value of $19,400 for long-term liabilities, and no explanatory notes are included.

Dividends are classified as intangible assets.

False

Marcus is preparing his company's classified balance sheet. He is trying to calculate stockholder's equity. Which of the following values will he need to do so? Select all that apply.

Retained Earnings of $18,400 Common Stock of $12,600

Ahrens Inc is preparing its January 31 balance sheet. Ahrens has $3,100 in Supplies to be used in March, $4,700 Notes Receivable to be collected in August, $800 in Prepaid Insurance to be used in April, and $6,200 in Accounts Receivable to be collected in June. In what order should Ahrens list these assets?

Supplies, Prepaid Insurance, Accounts Receivable, Notes Receivable

JT Engineering currently has two debts: a $9,000 debt due in 9 months and a $7,000 debt due in 14 months. JT prepares a classified balance sheet and has an operating cycle of less than one year. How should these debts be classified?

The $9,000 should be classified as a current liability, and the $7,000 should be classified as a long-term liability.

Last year, Gable Corporation took out a 5-year mortgage to purchase a building. Per the loan agreement, Gable must make one payment of principal plus interest to the lender each year for the duration of the loan. Should Gable list any portion of this mortgage under current liabilities on its classified balance sheet?

Yes, it should list the amount it will pay to the lender this year.

Ardis Enterprises is concerned that its standard balance sheet is not giving stockholders a clear picture of its financial position. Which of the following documents could Ardis issue to improve stockholder understanding of this position?

a classified balance sheet

Which of the following would be listed as an intangible asset on a classified balance sheet?

a trademark that grants exclusive rights to an image and name for the next 15 years

Where are intangible assets listed on the balance sheet?

after property, plant, and equipment

What is an intangible asset?

an asset that derives its value from the rights and privileges it provides the owner

Which of the following would result in an increase in stockholders' equity on a classified balance sheet? Select all that apply.

an increase in retained earnings an increase in stockholder investment

Ripa Industries has an operating cycle of less than one year. If Ripa pays its insurance premiums for 12 months at a time, how should it list prepaid insurance on a classified balance sheet?

as a current asset

In a classified balance sheet, how are assets usually classified?

as current assets; long-term investments; property, plant, and equipment; and intangible assets

All of the following are current liabilities EXCEPT ________ payable.

bonds

Into which two parts is stockholders' equity divided?

common stock and retained earnings

A current asset is to be sold, realized in cash, or ___________ within one year.

consumed

A current asset is expected to be ________ or used in the business within a relatively short period of time.

converted into cash

A company expects to pay a ________ within the next year or the operating cycle, whichever is longer.

current liability

The main difference between intangible assets and property, plant, and equipment is that

intangible assets lack physical substance.

Johnson Brothers signed a three-year lease for office space. Part of this lease is considered a(n)

long-term liability. * longer than a year

Which of the following is NOT a current asset?

notes payable

What is the operating cycle of a company?

the average time it takes to go from cash to cash in producing revenues

In what order do companies usually list current assets on a classified balance sheet?

when they are expected to be converted into cash