Question

Question: E5-2 (L02,3) (Classification of Balance Sheet Accounts) Presented below are the captions of Faulk Company’s balance sheet.

(a) Current assets	(f) Current liabilities
(b) Investments	(g) Noncurrent liabilities
(c) Property, plant, and equipment	(h) Capital stock
(d) Intangible assets	(i) Additional paid-in capital
(e) Other assets	(j) Retained earnings

Instructions

Indicate by letter where each of the following items would be classified.

1. Preferred stock	11. Cash surrender value of life insurance
2. Goodwill	12. Note payable
3. Salaries and wages payable	13. Supplies
4. Account payable	14. Common stock
5. Building	15. Land
6. Equity investment (trading)	16. Bond sinking fund
7. Current maturity of long-term debt	17. Inventory
8. Premium on bond payable	18. Prepaid insurance
9. Allowance for doubtful accounts	19. Bond payable
10. Accounts receivable	20. Income tax payable

Short answer

Answer

The classified balance sheet reports all the assets and liabilities based on their liquidity.

Step-by-step solution

Definition of intangible assets

The business entity’s resources that do not have a physical existence but benefit the business entity are known as intangible assets. They include goodwill and patent.

Classification of line items

Line item	Classification
1. Preferred stock	(h) Capital stock
2. Goodwill	(d) Intangible assets
3. Salaries and wages payable	(f) Current liabilities
4. Account payable	(f) Current liabilities
5. Building	(c) Property, plant, and equipment
6. Equity Investment (trading)	(a) Current assets
7. Current maturity of long-term debt	(f) Current liabilities
8. Premium on bond payable	(g) Noncurrent liabilities
9. Allowance for doubtful accounts	(a) Current assets
10. Accounts receivable	(a) Current assets
11. Cash surrender value of life insurance	(e) Other assets
12. Note payable (due next year)	(f) Current liabilities
13. Supplies	(a) Current assets
14. Common stock	(h) Capital stock
15. Land	(c) Property, plant, and equipment
16. Bond sinking fund	(e) Other assets
17. Inventory	(a) Current assets
18. Prepaid insurance	(a) Current assets
19. Bond payable	(g) Noncurrent liabilities
20. Income tax payable	(f) Current liabilities