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. $54,000 in cash restricted in a savings account to pay bonds payable. The bonds mature in 2025.
b. Prepaid rent of $28,000, covering the period January 1, 2022, through December 31, 2023.
c. Notes payable of $208,000. The notes are payable in annual installments of $24,000 each, with the first installment payable on
March 1, 2022.
d. Accrued interest payable of $16,000 related to the notes payable.
e. Investment in equity securities of other corporations, $88,000. Cone intends to sell one-half of the securities in 2022.

Answer 1

a. The $54,000 in cash restricted in a savings account to pay bonds payable should be classified as a non-current asset, since the bonds do not mature until 2025.

b. The prepaid rent of $28,000 should be classified as a current asset for the year 2022, and as a non-current asset for the year 2023, since it covers both years.

c. The notes payable of $208,000 should be classified as a non-current liability, since the first installment is not due until March 1, 2022, after the balance sheet date.

d. The accrued interest payable of $16,000 related to the notes payable should be classified as a current liability, since it is due within one year of the balance sheet date.

e. The investment in equity securities of other corporations, $88,000 should be classified as a current asset, since Cone intends to sell one-half of the securities in 2022. The remaining half should be classified as a non-current asset.

Step-by-step explanation: