[Anonymous]

The following trial balance of JB Company at December 31, Year five, has been adjusted except for income taxes. The income tax rate is 30%.

DR CR

Accounts receivable, net $725,000

Accounts payable 250,000

Accumulated depreciation 125,000

Cash 185,000

Contributed capital 650,000

Expenses 3,750,000

Goodwill 140,000

Prepaid taxes 225,000

Property, plant, and equipment 850,000

Retained earnings, 1/1/year five 350,000

Revenues __________ 4,500,000

5,875,000 5,875,000

During year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five.

Included in accounts receivable is $400,000 due from a loyal customer. Special terms were granted to this customer to make payments of $100,000 semi-annually every March 1 and September 1.

In JB Company’s December 31, year five Balance Sheet, what amount should be reported as current assets?

A. 710,000

B. 910,000

C. 935,000

D. 1,135,000

A. Current assets are calculated as follows:

Cash 185,000

Accounts receivable, net 725,000

Reclassification of o/s receivable (200,000)

Total current assets 710,000

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Why subtract 200,000? If the customer pays the company, then yes A/R would go down by 200,000 but then cash would go up by 200,000 which means there would be no net effect on current assets. Am I missing something?

[M.O.D.]

Current assets means collectible in one year

Non-current means over one year

The 400 in AR is payable in 4 payments over 2 years. So 200 would be due this year, but 200 would be due the next year. Thus, 200 due next year would not be a current asset per the question, but a noncurrent asset.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[pia ach]

Out of the $400,000 A/R due only $200,000 will be received by end of next year, so the balance 200,000 will not be included in current assets.

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[Anonymous]

Doh! Thanks guys. Though this is not a good sign as I am having doh moments already.

[pia ach]

Why is prepaid taxes not included in the current assets?

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[M.O.D.]

Re prepaid taxes

Because at the end of the year, as a closing entry, the recording of the income tax expense would have zeroed out the prepayment.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Author]

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