Exercise-1 (Current assets section of the balance sheet)

The trial balance of Hussnain manufacturing company shows the following assets at the end of December 2013:

• Cash: $380,000
• Prepaid insurance: $82,000
• Raw materials: $670,000
• Equipment: $2,200,000
• Accounts receivable: $800,000
• Work-in-process (WIP): $400,000
• Finished goods: $150,000
• Patents: $220,000

Required:

Prepare current assets section of the balance sheet of Husnain company.

Solution:

Notice that Hussnain manufacturing company reports three inventories (finished goods inventory, work-in-process inventory and raw materials inventory) in the current assets section of the balance sheet.

Merchandising companies report only one inventory that is ‘merchandising inventory’.