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venchlu
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Posted: 02 Mar 2010 at 13:53 | IP Logged  

The following is Gold Corp.'s June 30, 1992, trial balance:

 

Cash overdraft $ 10,000

Accounts receivable, net $ 35,000

Inventory 58,000

Prepaid expenses 12,000

Land held for resale 100,000

Property, plant, and equipment, net 95,000

Accounts payable and accrued expenses 32,000

Common stock 25,000

Additional paid-in capital 150,000

Retained earnings 83,000

 

 

Additional Information:

Checks amounting to $30,000 were written to vendors and recorded on June 29, 1992, resulting in a

cash overdraft of $10,000. The checks were mailed on July 9, 1992.

Land held for resale was sold for cash on July 15, 1992.

Gold issued its financial statements on July 31, 1992.

 

In its June 30, 1992, balance sheet, what amount should Gold report as current assets?

a. $225,000

b. $205,000

c. $195,000

d. $125,000

 

The correct answer is A.

My question is why we include land for sale $100,000 as current asset??



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TrustUrMind
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Posted: 02 Mar 2010 at 15:09 | IP Logged  

My guess is because it will be sold for cash within the year after the BS date. Since it was held for resale, the company had the intention to turn it into cash in a short-term time period (one year). So as long as it was held for resale and sold within a year of the BS date, we can count it as a current asset.

Anyone else with any other ideas?

 



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SoonerCPA
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Posted: 02 Mar 2010 at 15:12 | IP Logged  

I believe it is due to the fact that is up for sale.  If it is expected to be sold within the calendar year it is to be listed as a current asset.  However, if the land was not up for sale and was just owned for the purpose of placing a plant on it in later years it would fall under long-term assets.
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venchlu
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Posted: 02 Mar 2010 at 15:29 | IP Logged  

THanks you guys. It is the only reason i can think of also. But the question is so tricky. And have you guys come aross somewhere talking about the rule for land held for sale in any cpa review or textbook..let me know. !! ( I haven't found yet)

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Gary W.
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(1) Land held for resale was sold for cash on July 15, 1992

(2) The balance sheet date is June 30, 1992

(3) The FS's were issued July 31, 1992.

The land "held for resale" was sold triggering a subsequent event to the closing of the balance sheet date but before issue of the financials.  Therefore, the land is picked up as a current asst due to the requirements being met for the classification.

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