You have been asked to review the December 31, 2021, balance sheet for Champion Cleaning. After completing your review, you list the following three items for discussion with your superior:

1. An investment of $30,000 is included in current assets. Management has indicated that it has no intention of liquidating the investment in 2022.

2. A $100,000 note payable is listed as a long-term liability, but you have determined that the note is due in 10 equal annual installments with the first installment due on March 31, 2022.

3. Deferred revenue of $60,000 is included as a current liability even though only two-thirds will be recognized as revenue in 2022, and the other one-third in 2023. Determine the appropriate classification of each of these items.

Expert Solution

1. The $30,000 should be classified as a long-term asset, under the investments classification.

2. $10,000, next year’s installment, should be classified as a current liability, current maturities of long-term debt. The remaining $90,000 is included in long-term liabilities.

3. Two-thirds of the deferred revenue, $40,000, should be classified as a current liability, the remaining $20,000 as a long-term liability.

1. The $30,000 should be classified as a long-term asset.

2. The $10,000 should be classified as a current liability.

3. The $40,000 should be classified as a current liability.

Renze Joy Candido answered 2 years ago

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