[Oimie]

NINJA Question –

The following is Gold Corp.’s June 30, 1992, trial balance:

Cash overdraft $ 10,000

Accounts receivable, net $ 35,000

Inventory 58,000

Prepaid expenses 12,000

Land held for resale 100,000

Property, plant, and equipment, net 95,000

Accounts payable and accrued expenses 32,000

Common stock 25,000

Additional paid-in capital 150,000

Retained earnings 83,000

Additional Information:

• Checks amounting to $30,000 were written to vendors and recorded on June 29, 1992, resulting in a

cash overdraft of $10,000. The checks were mailed on July 9, 1992.

• Land held for resale was sold for cash on July 15, 1992.

• Gold issued its financial statements on July 31, 1992.

In its June 30, 1992, balance sheet, what amount should Gold report as current assets?

a. $225,000

b. $205,000

c. $195,000

d. $125,000

Answer is $225,000.

Cash: 20,000

+ Accounts receivable (net): 35,000

+ Inventory: 58,000

+ Prepaid expenses:12,000

+ Land held for resale 100,000

My question is: If the June 30, 20X1’s balance sheet was issued on July 31, 20X1, why did they include in CURRENT assets:

– Land that was SOLD FOR CASH on July 15th?

– Cash of 20,000 that was MAILED OUT on July 9th?

Their explanation was “Since the land was held for resale and was indeed sold before issuance of the financial statements, the land should be classified as a current asset.”

If the land is classified as current because it was sold prior to issuance of financial statements, why is cash still included when it was already mailed out prior to issuance date?

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Skynet]

The answercis correct.

1) Land is included because since the balance sheet date is June 30 and since Land is held for resale it would be considered inventory which is why it is included as current asset. Plus land was not sold until July so it had to be included in current assets.

2) The cash of $20000 was included in current asset because even though the company wrote checks for $30000, they did not relinquish control of them since they only mailed them out on July 9th which is after the June 30 balance sheet date. The key here is “Control” which is why they had to include it in current assets.

[Oimie]

@Skynet: Thank you! 😀

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[CPA]

if the land held for sale was not sold by the issuance of financials it would it be considered current or not?

[Author]

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