Question

E5.3 (L01, 2) (Classification of Statement of Financial Position Accounts) Assume that Masters Enterprises uses the following headings on its statement of financial position. a. Investments b. Property, plant, and equipment. c. Intangible assets. d. Other assets. e. Current assets. f. Non-current liabilities. g. Current liabilities. h. Share capital i. Share premium j. Retained earnings. k. Accumulated other comprehensive income. Instructions Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter "N" to indicate this fact. If an item need not be reported at all on the statement of financial position, use the letter "X" 1. Prepaid insurance 2. Shares owned in associated companies 3. Unearned service revenue 4. Advances to suppliers 5. Unearned rent revenue 6. Share capital-preference. 7. Share premium-preference. 8. Copyrights 9. Petty cash fund. 10. Sales taxes payable. 11. Interest on notes receivable. 12. Twenty-year bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.) 13. Accounts receivable. 14. Unrealized gain on non-trading equity securities 15. Interest on bonds payable. 16. Salaries that company budget shows will be paid to employees within the next year. 17. Accumulated depreciation equipment

Answer 1

Particulars Balance Sheet Heading Reason 1. Prepaid insurance. Current Assets 2. Stock owned in associated companies. Investments 3. Unearned service revenue. Current Liabilities Prepaid insurance is usually a short term or current asset because the prepald amount will be used up or will expire within one year of the balance sheet date. in using the equity method there is no consolidation and elimination process. Instead, the Investor will report its proportionate share of the investee's equity as an investment (at cost) Untamed revenue is prepaid revenue. This is money paid to a business in advance before it actually provides goods or services to a client. Unearned revenue is a liability, or money a company owes the amount that a firm pays in advance to the supplier or seller of goods for the purchase of goods. It gives a right to claim to the firm. treated as a liability because the revenue has still not been eamed and represents products or services owed to a customer It is treated as Share Capital. It is the premium received on issue of capital. Intangible assets are typically nonphysical assets used over the long term. 4. Advances to suppliers, Current Assets 5. Uneamed rent revenue. 6. Share Capital - Preference 7. Share Premium - Preference 3. Copyrights. Current Liabilities Share Capital Share Premium Intangible Asset

9. Petty cash fund. Current Assets This is because line items in the balance sheet are sorted in their order of liquidity. Sincepetty cash is highly liquid, it appears near the top of the balance sheet. 10. Sales tax payable. Current Liabilities Sales a payable sa liability that arises when companies, firms and individuals sell goods and Services and collect sales tax from customers on behalf of the goverment The accu interest receivable is a current asset if the interest amount is expected be collected within one year of the balance sheet date. Current Assets 11. Interest on notes receivable. 12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.) Current Liabilities matured in next year Accounts v able, is money that is owed to a company by its customers. Hence, it 13. Accounts Receivables Current Assets 15 a Lurrent asset realized Gain and losses on securities held to maturity are not recognized in the ancial statements. Such securities do not impact the financial statements balance sheet, Income statement and cash flow statement but can be disclosed in the footnotes of the financial statements. Because it is payable within a year. 14. Unrealized gain on non-trading equity securities 15. Interest on bonds payable. 16. Salaries that company budget shows will paid to employees within the next year. 17. Accumulated depreciation equipment Related to next year, hence will not be recorded this year. It is related to equipment Activate Window operty Plant & Equipment.