Q17Q. - Intermediate Accounting (Kieso)

Question

According to generally accepted accounting principles, what is the balance sheet valuation of each of the following assets? 

(a) Trade accounts receivable. 

(b) Land. 

(c) Inventories. 

(d) Trading securities (common stock of other companies). 

(e) Prepaid expenses.

Step-by-Step Solution

Answer

Item	Value
Trade accounts receivable	Net realizable value
Land	Cost
Inventories	Lower Cost or market value
Trading securities (common stock of other companies)	Fair value
Prepaid expenses	Cost

Definition of Trading Securities

The securities held by the investor, either debt or equity security, to generate a gain by selling them over a short period are known as trading securities.

Balance Sheet Valuations

1. Trade accounts receivables are reported at their net realizable value. These are reported as their actual value less the allowance for doubtful accounts.
2. Land is reported at its historical cost.
3. Inventories of the business entity are either reported on their cost or market value, whichever is lower.
4. Trading securities held are reported at fair value in the balance sheet.
5. Prepaid expenses are reported at cost less any amount expensed for the previous period.