You are the independent accountant assigned to the audit of Neophyte Company. Th

Question

You are the independent accountant assigned to the audit of Neophyte Company. The company's accountant, a graduate of Rival State University, has prepared financial statements that contained the following questionable items:

a. The balance sheet reports land at $100,000. Included in this amount is a piece of property held for speculation at a cost of $30,000.

b. Current liabilities include $50,000 for long-term debt that comes due in 3 months. The company has received a suitable firm commitment to refinance the debt for 5 years and intends to do so.

c. Investments in marketable securities include $20,000 in short-term, high-grade commercial paper which is a cash equivalent.

Please discuss how the above items should be classified and accounted for.

Explanation / Answer

a) Land for a future warehouse site should be listed under investment or other assets.
b) Debt to be refinanced under these circumstances should be classified as long-term liabilities.
c) These items should be reported with cash under the category of cash and cash equivalents

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