Question

Diane Corporation is preparing its year-end balance sheet. The company records show the following selected amounts at the end of the year:
Total assets $530,000
Total noncurrent assets 306,000
Liabilities:
Notes payable (8%, due in 5 years) 21,000
Accounts payable 54,000
Income taxes payable 15,000
Liability for withholding taxes 1,000
Rent revenue collected in advance 11,000
Bonds payable (due in 15 years) 112,000
Wages payable 11,000
Property taxes payable 7,000
Note payable (10%, due in 6 months) 13,000
Interest payable 700
Common stock 120,000
1-a. What is the amount of current liabilities?1-b. Compute working capital.2. Would your computation be different if the company reported $250,000 worth of contingent liabilities in the notes to its financial statements?

Answer 1

Answer and Explanation:

The computation is shown below;

1-a

Current liabilities:      

Acccounts payable  $54,000    

Income tax payable $15,000    

Liability for withholding taxes $1,000    

Rent revenue collected in advance $11,000    

Wages payable $11,000    

Property tax payable $7,000  

Note payable $13,000  

Interest payable $700  

Current liabilities $112,700  

1-b      

Total assets $530,000    

Less: Non Current assets $306,000  

Current assets $224,000  

Less: Current liabilities - $112,700  

Working capital $111,300

2.  

In the case when the company reported $250,000 as the contingent liability so it should not be impacted as they are not yet recorded