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. $50,000 in cash restricted in a savings account to pay bonds payable. The bonds mature in 2025.

b. Prepaid rent of $24,000, covering the period January 1, 2022, through December 31, 2023.

c. Notes payable of $200,000. The notes are payable in annual installments of $20,000 each, with the first installment payable on March 1, 2022.

d. Accrued interest payable of $12,000 related to the notes payable.

e. Investment in equity securities of other corporations, $80,000. 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:

Investment in equity securities ......................$ 40,000

Prepaid rent ..............................................................12,000

 

Investments:

Restricted cash .........................................................50,000

Investment in equity securities ..........................40,000

 

Other assets:

Prepaid rent (1) ......................................................12,000

 

 

Liabilities and Shareholders' Equity

 

Current liabilities:

Interest payable ............................................. $ 12,000

Current maturities of long-term debt .............20,000

 

Long-term liabilities:

Notes payable ...............................................180,000

 

 

 

(1) Note: In practice, companies often report all prepaid expenses as current assets.