Question

The following items were drawn from a company's accounting records:

Accounts receivable
Accounts payable
Cash paid to purchase land
Supplies
Supplies expense
Cash collected for service to be provided in the future
Unearned revenue
Prepaid rent
Earned Revenue
Accrued salaries expense
Common stock
Dividends
Cash paid for prepaid rent
Retained earnings
Which accounts would appear on the balance sheet?

A. 1, 2, 4, 7, 8, 11, and 14

B. 1, 2, 4, 7, 8, 10, and 11

C. 1, 2, 3, 7, 8, 9, and 11

D. 1, 2, 4, 7, 9, 11, and 12

Answer 1

The accounts that would appear on the balance sheet are accounts receivable, accounts payable, supplies, unearned revenue, prepaid rent, common stock, and retained earnings. Money listed under assets on a bank's balance sheet may not be present as cash due to loans and investments. The value of loans in the secondary market depends on the borrower's payment history, changes in economy-wide interest rates, and borrower's profitability.

Step-by-step explanation:

Balance Sheet Accounts

The accounts that would appear on the balance sheet of a company are typically assets, liabilities, and shareholders' equity. The following items from the list provided by the student are the accounts that belong on a balance sheet:

• Accounts receivable (1) - an asset
• Accounts payable (2) - a liability
• Supplies (4) - an asset
• Unearned revenue (7) - a liability
• Prepaid rent (8) - an asset
• Common stock (11) - part of shareholders' equity
• Retained earnings (14) - part of shareholders' equity

Therefore, the correct answer is A. Accounts that reflect income, expenses, dividends, or cash flows related to operating activities are not included on a balance sheet, as they generally appear on the income statement or statement of cash flows.

Understanding Bank Balance Sheets

The money listed under assets on a bank's balance sheet might not actually be in the bank because these figures also include loans made to customers and investments in various securities. Banks operate under a fractional reserve system, keeping only a fraction of deposits as cash in vaults or at the central bank, lending out the rest to generate interest income.

Value of Loans in the Secondary Market

The value of loans in the secondary market may fluctuate based on several factors:

1. If a borrower has been late on a number of loan payments, the loan is riskier, and its value would typically decrease.
2. Should interest rates in the economy rise after the loan was issued, the existing loan's lower interest rate makes it less attractive, reducing its value.
3. If the borrower is a firm that has recently declared high profits, the loan is seen as safer, potentially increasing its value.
4. When interest rates fall economy-wide, an older loan with a higher rate becomes more valuable as it captures a higher return than new loans.