Problem 1 – Current Assets Presentation

Data given & task:

Franklin Corporation has the following accounts included in its December 31, 2023, trial balance:

Accounts Receivable: $120,000
Inventory: $310,000
Allowance for Doubtful Accounts: $10,000
Prepaid Expenses: $12,000
Patents: $80,000
Accounts Payable: $85,000
Cash: $40,000

Prepare the current assets section of the balance sheet, listing the accounts in proper sequence.

Solution & Explanation

The current assets section of a balance sheet includes assets that are expected to be converted to cash, sold, or consumed within one year. These typically include cash, accounts receivable (net of allowance for doubtful accounts), inventory, and prepaid expenses.

Here is the prepared current assets section:

Current Assets

Cash ………………………………………………………………………. 40,000
- Accounts Receivable ………………………. 120,000
- Less: Allowance for Doubtful Accounts …. (10,000)
Net Accounts Receivable …………………………………………… 110,000
Inventory ……………………………………………………………….. 310,000
Prepaid Expenses …………………………………………………….. 12,000

Total Current Assets: ……………………………………………………… 472,000

current assets presentation

Explanation:

Cash is listed first, as it is the most liquid asset, with its value taken directly from the trial balance.
Accounts Receivable is next. The net realizable value is calculated by subtracting the Allowance for Doubtful Accounts ($10,000) from the gross amount of Accounts Receivable ($120,000).
- Net Accounts Receivable = $120,000 – $10,000 = $110,000.
Inventory is included as it is a current asset, expected to be sold within the year.
Prepaid Expenses (e.g., insurance, rent) are listed because they are consumed within one year.
Patents and Accounts Payable are excluded:
- Patents are not a current asset; they are intangible and long-term.
- Accounts Payable is a liability, not an asset.