Question

Answer Questions # 4 With explanation why is the true answer is true. and why the rest are wrong answers.

Task-Based Simulation 30 Financial Statement Analysis Authoritative Literature Help DietWeb Inc. (hereafter DietWeb) was incorporated and began business in March of 20X1, seven years ago. You are working on the 20x8 audit-your CPA firm's fifth audit of DietWeb. Analyze the following financial statements and reply to each of the questions that follow DietWeb, Inc. BALANCE SHEET December 31, 20X8 and 20X7 in thousands) 20x8 20X7 Assets Current assets Cash and cash equivalents $3,032 485 59 175 3,751 3,321 $7,072 $1,072 450 609 230 2,361 3,926 $6,287 Trade receivables Prepaid advertising expenses Prepaid expenses and other current assets Total current assets Fixed assets, net Total assets Liabilities and shareholders'equity Current liabilities $1,070 42 1,973 $909 316 1,396 12 2,633 176 690 145 3,644 (Continued) Accounts payable Current maturities of notes payable Deferred revenue Other current liabilities Total current liabilities Long-term debt, less current maturity Accrued liabilities Deferred tax liability Total liabilities 3,256 34 792 15 4,097 631

Answer 1

solution 4:

The incorrect classification is "Classification of accrued liabilities as a non current liability". It should be classified under section of "Current liabilities"

Further prepaid expenses are always classified under currrent assets section and same is correct. Deferred tax liability is correctly classified and retained earning with negative balance always shown as reduction in stockholder's equity.

Therefore option B is correct.