The Complete CPA Reference

CHAPTER 2

Financial Statement Reporting: The Balance Sheet

On the balance sheet, the CPA is concerned with the accounting for and reporting of assets, liabilities, and stockholders’ equity.

Assets

What valuation is used for assets?

Assets are recorded at the price paid plus related incidental costs (e.g., insurance, freight). If an asset is acquired for the incurrence of a liability, the asset is recorded at the present value (discounted value) of the payments.

Example 2.1

If a machine was acquired in exchange for making 10, $10,000 payments at an interest rate of 10 percent, the asset would be recorded at:

*Factor using the present value of ordinary annuity table for n = 10, i = 10%.

Note

The asset is recorded at the principal amount excluding the interest payments. If an asset is acquired for stock, the asset is recorded at the fair value of the stock issued. If it is impossible to determine the fair market value of the stock (e.g., closely held corporation), the asset will be recorded at its appraised value.

Unearned discounts (except for cost or quantity), finance charges, and interest included in the face of receivables should be deducted from receivables to derive the net receivable.

Some of the major current and noncurrent assets include:

• Accounts receivable
• Inventory
• Fixed assets
• Intangibles

Accounts Receivable

What is the difference between an assignment and ...