Question

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: a. $51,000 in cash restricted in a savings account to pay bonds payable. The bonds mature in 2025. b. Prepaid rent of $25,000, covering the period January 1, 2022, through December 31, 2023. c. Notes payable of $202,000. The notes are payable in annual installments of $21,000 each with the first installment payable on March 1, 2022 d. Accrued interest payable of $13,000 related to the notes payable. e Investment in equity securities of other corporations, S82.000. 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

CONE CORPORATION
Balance Sheet (Partial)
At December 31, 2021
Assets
Current assets:
Prepaid insurance [$25,000 x 12/24]	$12,500
Investment in equity	$41,000
Investments:
Cash	$51,000
Investment in equity	$41,000
Other assets:
Prepaid insurance [$25,000 x 12/24]	$12,500
Liabilities and shareholders' Equity
Current liabilities:
Notes payable	$21,000
Interest payable	$13,000
Long-term liabilities:
Notes payable [$202,000 - $21,000]	$181,000

Explanation:

Cash is restricted to pay bonds that are matured after 12 months [in 2025]. So, it should be treated as 'Investment'

Prepaid insurance:

Current asset for 12 months [Jan 2022 to Dec 2022]

Other asset for 12 months [Jan 2023 to Dec 2023]

Investment in Equity:

Current asset to the extent of one half because it intends to sell within 12 months

Another half is should be classified as 'Investment' because it is long-term.

Notes payable:

Current liability to the extent of instalment amount because it is due within 12 months

Remaining amount is Long-term liability