Chapter Two - Wiley

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8956d_ch02.qxd 7/17/03 2:40 PM Page 60 mac34 Mac34: kec_420: 60 CHAPTER 2 A Further Look at Financial Statements Illustration 2-6 Long-term investments section YAHOO! INC. Balance Sheet (partial) (in thousands) Long-term investments Long-term investments in marketable securities $580,418 Alternative Terminology Property, plant, and equipment is sometimes called fixed assets. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are assets with relatively long useful lives that are currently being used in operating the business. This category includes land, buildings, machinery and equipment, delivery equipment, and furniture. In Illustration 2-4 Franklin Corporation reported office equipment of $24,000. Depreciation is the practice of allocating the cost of assets to a number of years, rather than simply expensing the full purchase price of the asset in the year of purchase. Assets that the company depreciates should be reported on the balance sheet at cost less accumulated depreciation. The accumulated depreciation account shows the total amount of depreciation that has been expensed thus far in the asset’s life. In Illustration 2-4 Franklin Corporation reported accumulated depreciation of $5,000. Illustration 2-7 presents the property, plant, and equipment of ski and sporting goods manufacturer K2, Inc. Illustration 2-7 Property, plant, and equipment section K2, INC. Balance Sheet (partial) (in thousands) Property, plant, and equipment Land and land improvements $ 1,641 Buildings and leasehold improvements 30,241 Machinery and equipment 134,831 Construction in process 3,462 $170,175 Less: Accumulated depreciation 101,771 $ 68,404 Helpful Hint Sometimes intangible assets are reported under a broader heading called Other assets. INTANGIBLE ASSETS Many companies have assets that do not have physical substance yet often are very valuable. These assets are referred to as intangible assets. They include patents, copyrights, and trademarks or trade names that give the company exclusive right of use for a specified period of time. Franklin Corporation reported intangible assets of $3,100. Illustration 2-8 shows how media giant AOL Time Warner, Inc. reported its intangible assets. Illustration 2-8 Intangible assets section AOL TIME WARNER, INC. Balance Sheet (partial) (in millions) Intangible assets Music catalogues and copyrights $ 2,935 Cable television and sports franchises 27,371 Brands and trademarks 10,650 Goodwill and other intangible assets 126,942
8956d_ch02.qxd 7/17/03 2:40 PM Page 61 mac34 Mac34: kec_420: CURRENT LIABILITIES In the liabilities and stockholders’ equity section of the balance sheet, the first grouping is current liabilities. Current liabilities are obligations that are to be paid within the coming year. Common examples are accounts payable, wages payable, bank loans payable, interest payable, taxes payable, and current maturities of long-term obligations (payments to be made within the next year on long-term obligations). In Illustration 2-4 Franklin Corporation reported five different types of current liabilities, for a total of $16,050. Within the current liabilities section, notes payable is usually listed first, followed by accounts payable. Other items are then listed in any order. The current liabilities section adapted from the balance sheet of Gap Inc. is shown in Illustration 2-9. The Classified Balance Sheet 61 GAP INC. Balance Sheet (partial) (in thousands) Illustration 2-9 Current liabilities section Current liabilities Notes payable $ 41,889 Accounts payable 1,105,117 Accrued expenses and other current liabilities 909,227 Total current liabilities $2,056,233 LONG-TERM LIABILITIES Obligations expected to be paid after one year are classified as long-term liabilities. Liabilities in this category include bonds payable, mortgages payable, long-term notes payable, lease liabilities, and pension liabilities. Many companies report long-term debt maturing after one year as a single amount in the balance sheet and show the details of the debt in notes that accompany the financial statements. Others list the various types of long-term liabilities. In Illustration 2-4 Franklin Corporation reported long-term liabilities of $11,300. In its balance sheet, Northwest Airlines Corporation reported long-term liabilities as shown in Illustration 2-10. NORTHWEST AIRLINES CORPORATION Balance Sheet (partial) (in millions) Illustration 2-10 Long-term liabilities section Long-term liabilities Long-term debt $4,828 Long-term obligations under capital leases 393 Deferred credits and other liabilities 3,300 Total long-term liabilities $8,521
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Chapter Two - Wiley

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