Question

Exercise 3-8 (Algo) Balance sheet; current versus long-term classification [LO3-2, 3-3] Cone Corporation is in the process of preparing its December 31, 2021, balance sheet. There are some questions as to the proper classification of the following items: $55,000 in cash restricted in a savings account to pay bonds payable. The bonds mature in 2025. Prepaid rent of $29,000, covering the period January 1, 2022, through December 31, 2023. Notes payable of $210,000. The notes are payable in annual installments of $25,000 each, with the first installment payable on March 1, 2022. Accrued interest payable of $17,000 related to the notes payable. Investment in equity securities of other corporations, $90,000. Cone intends to sell one-half of the securities in 2022. Required: Prepare the asset and liability sections of a classified balance sheet to show how each of the above items should be reported.

Answer 1

Answer:

Account of Current Assets , the criteria is to have a liquidity speed less of one year

Cash

Prepaid Rent - Half of the prepaid rent it's on Non-Current Assets because it cover part of year 2023.

Investment in Equity Sec - Half of the Investment it's on Current Assets because part will be sell on 2022.  

Account of Non Current Assets , the criteria is to have a liquidity speed more than one year and are known as fixed assets

Investment in Equity Sec

Prepaid Rent

Account of Current Liabilities , the criteria is to have a liquidity speed less of one year

Interest Payable - Accrued interest to be paid corresponds to the note payable.  

Note Payable - Correspond to the installments to be paid on March 2022.  

Account of Non-Current Liabilities , the criteria is to have a liquidity speed more than of one year

Note Payable - The note payable with mature more than one year.  

Bond Payable - Bonds to mature in 2025 with the reserve on cash.  

Explanation:

2021 Balance Sheet

$55,000  Cash

$14,500   Prepaid Rent

$45,000  Investment in Equity Sec

$114,500  TOTAL CURRENT ASSETS  

$45,000  Investment in Equity Sec

$14,500   Prepaid Rent

$59,500   TOTAL NONCURRENT ASSETS  

$174,000  TOTAL ASSETS  

$17,000            Interest Payable  

$25,000   Note Payable  

$42,000   TOTAL CURRENT LIABILITIES  

$185,000  Note Payable  

$55,000   Bond Payable  

$240,000  TOTAL NONCURRENT LIABILITIES  

$282,000  TOTAL LIABILITIES