Part 4: Solution
Let's see how well you answered the questions.
|
|
1. |
The following are CanGo account balances as of December 31, 2001, relating to subscriptions, rent, and insurance. Please use these accounts to prepare partial Current Assets and Current Liabilities sections of CanGo's Balance Sheet (also called the Statement of Financial Position).
| Accounts Receivable |
$27,000,000 |
| Cash |
15,000,000 |
| Insurance Expense |
60,000 |
| Prepaid Insurance |
72,000 |
| Prepaid Rent |
24,000 |
| Rent Expense |
48,000 |
| Rent Payable |
4,000 |
| Subscription Revenue |
250,000 |
| Unearned Subscription Revenue |
2,750,000 |
|
| |
|
a.
| Current Assets |
Current Liabilities |
| Cash |
$15,000,000 |
Rent Payable |
$4,000 |
| Accounts Receivable |
27,000,000 |
Unearned Subscription Revenue |
2,750,000 |
| Subscription Revenue |
250,000 |
|
|
| Prepaid Insurance |
72,000 |
|
|
| Total Current Assets |
$42,322,000 |
Total Current Liabilities |
$2,754,000 |
|
| |
|
b.
| Current Assets |
Current Liabilities |
| Cash |
$15,000,000 |
Rent Expense |
$48,000 |
| Accounts Receivable |
27,000,000 |
Unearned Subscription Revenue |
2,750,000 |
| Prepaid Rent |
24,000 |
|
|
| Prepaid Insurance |
72,000 |
|
|
| Total Current Assets |
$42,096,000 |
Total Current Liabilities |
$2,798,000 |
|
| |
|
c.
| Current Assets |
Current Liabilities |
| Cash |
$15,000,000 |
Rent Payable |
$4,000 |
| Accounts Receivable |
27,000,000 |
Unearned Subscription Revenue |
2,750,000 |
| Prepaid Rent |
24,000 |
|
|
| Prepaid Insurance |
72,000 |
|
|
| Total Current Assets |
$42,096,000 |
Total Current Liabilities |
$2,754,000 |
|
| |
|
Your Answer:
|
| |
|
Correct Answer: c |
| |
|
Compare your answer with the answer given above. There are several items you should note in particular. First, the accounts Subscription Revenue, Rent Expense, and Insurance Expense should not be on the Balance Sheet. They are revenue and expense accounts, which belong on the income statement, never on the balance sheet. (Unearned Subscription Revenue, although frequently encountered in practice, is an unfortunate choice of terms, as it is a balance sheet account, although it does contain the word "revenue.'' Perhaps a better account title would be Subscriptions Received in Advance.)
Second, the order of accounts in the Current Assets section has some flexibility. Cash should be first, followed by Accounts Receivable. However, there is no required order for Prepaid Rent and Prepaid Insurance. In fact, many companies would simply use a single line for these items, such as Prepaid Expenses. In general, liabilities are listed in the order they will be settled, so Rent Payable would most likely be listed before Unearned Subscription Revenue.
Finally, check to see if you included totals for current assets and current liabilities. These totals would almost always be included on a classified balance sheet. |
| |
|
|
  page 10 of 13 | go to page: 1 2 3 4 5 6 7 8 9 10 11 12 13
© 2002 by Prentice-Hall, Inc.
|
