Question

Question 10 Presented in alphabetical order below are current asset items for Seussie Company's balance sheet at December 31, 2020 Accounts receivable Cash $401,300 76,300 Finished goods, January 1, 2020 72,500 Finished goods, December 31, 2020 97,400 58,700 95,100 91,500 89,500 Work in process, December 31, 2020 99,100 Prepaid expenses Raw materials, January 1, 2020 Raw materials, December 31, 2020 Work in process, January 1, 2020 Prepare the current assets séction of the balance sheet. (List Current Assets in order of liquidity) Seussie Company Balance Sheet (partial) y Study

Answer 1

Answer to Question 10:

Seussie Company Balance sheet (partial) 31 December, 2020 Current Assets: Cash Accounts Receivable Inventories Finished Goods Work in Process Raw Materials $ 76,300 $ 4,01,300 97,400 $ 99,100 $ 91,500 Prepaid expenses Total current assets $2,88,000 (97,400+99,100+ 91,500) $58,700 $ 8,24,300 (76,300401,300+288,000+ 58,700)

Explanation of liquidity and the order of liquidity: (for student understanding)

We take amounts of finished goods, work-in-process and raw materials as on December 31, 2020 because our balance sheet reporting date is December 31, 2020.

Liquidity, in simple terms can be defined as the time taken to turn assets, in this case, current assets, to cash. The less the time taken to convert into cash, the more liquid the asset will be considered. Current assets are those that are expected to be realized into cash within 1 year, from the date they are reported on the balance sheet.

The most liquid asset is cash as no conversion to cash is required. Accounts receivable is the next liquid asset, as this asset will be converted into cash, when debtors will pay us, which will be according to the credit terms of the company. The next liquid asset is inventory, which will convert into cash depending on the inventory turnover of the company, and the last liquid asset of the current assets, as per the order of liquidity is prepaid expenses.