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

Required:
Determine the appropriate classification of each of these items.

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anthougo anthougo · Answer 1 · 2021-05-24T21:09:45+02:00

Answer:

Champion Cleaning

Appropriate Classifications:

Long-term assets:

Investment of $30,000

Current liabilities:

Short-term note payable $10,000

Short-term deferred revenue $40,000

Long-term liabilities:

Long-term note payable $90,000

Long-term deferred revenue $20,000

Explanation:

a) Data and Analysis:

Investment of $30,000 = long-term asset

Note payable:

Short-term note payable = $10,000 ($100,000/10)

Long-term note payable = $90,000 ($100,000/10 * 9)

Deferred Revenue:

Short-term deferred revenue = $40,000 ($60,000 * 2/3)

Long-term deferred revenue = $20,000 ($60,000 * 1/3)