Chapter Two - Wiley

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62 CHAPTER 2 A Further Look at Financial Statements
Alternative Terminology
Common stock is sometimes
called capital stock.
STOCKHOLDERS’ EQUITY
Stockholders’ equity is divided into two parts: common stock and retained
earnings. Investments of assets into the business by the stockholders are recorded
as common stock. Income retained for use in the business is recorded as retained
earnings. These two parts are combined and reported as stockholders’ equity
on the balance sheet. In Illustration 2-4 Franklin reported common stock of
$14,000 and retained earnings of $20,050.
BEFORE YOU GO ON . . .
Review It
1. What are the major sections in a classified balance sheet?
2. What is the primary determining factor to distinguish current assets from
long-term assets?
3. What was Tootsie Roll’s largest current asset at December 31, 2002? The
answer to this question is provided on page 100.
4. Where is accumulated depreciation reported on the balance sheet?
Do It
Baxter Hoffman recently received the following information related to Hoffman
Corporation’s December 31, 2005, balance sheet.
Prepaid expenses $ 2,300 Inventory $3,400
Cash 800 Accumulated depreciation 2,700
Property, plant, and equipment 10,700 Accounts receivable 1,100
Prepare the assets section of Hoffman Corporation’s balance sheet.
Action Plan
• Present current assets first. Current assets are cash and other resources that
are reasonably expected to be consumed in one year.
• Subtract accumulated depreciation from property, plant, and equipment to determine
net property, plant, and equipment.
Solution
HOFFMAN CORPORATION
Balance Sheet (partial)
December 31, 2005
■✓
THE
NAVIGATOR
Assets
Current assets
Cash $ 800
Accounts receivable 1,100
Inventory 3,400
Prepaid expenses 2,300
Total current assets $ 7,600
Property, plant, and equipment 10,700
Less: Accumulated depreciation 2,700 8,000
Total assets $15,600