Janson Corporation Company's trial balance included the following account balances on December 31, 2027:

Accounts receivable $ 12,000
Inventory 40,000
Patent 12,000
Investments 30,000
Prepaid insurance 6,000
Notes receivable, due 2030 50,000

Investments consist of treasury bills that were purchased in November, 2027, and mature in January, 2028. Prepaid insurance is for the next 24 months. What amount should be included in the current assets section of Janson's December 31, 2027, balance sheet?

Question

Janson Corporation Company's trial balance included the following account balances on December 31, 2027:

Accounts receivable	$ 12,000
Inventory	40,000
Patent	12,000
Investments	30,000
Prepaid insurance	6,000
Notes receivable, due 2030	50,000

Investments consist of treasury bills that were purchased in November, 2027, and mature in January, 2028. Prepaid insurance is for the next 24 months. What amount should be included in the current assets section of Janson's December 31, 2027, balance sheet?

BlackTom AI · Accepted Answer

To determine the current assets on the balance sheet, we must classify each balance as either current or noncurrent based on usual accounting definitions.
Option 1: $55,000. This would require only 55,000 as current assets, which would be too low given the large current components such as accounts receivable and inventory. The accounts receivable alone are 12,000 and inventory 40,000, already totaling 52,000 before considering other current items.
Option 2: $135,000. This overstates current assets by counting items that are not current, such as long-term investments (30,000) unless they are cash equivalents, and the notes receivable due 2030 (50,000) which is not due within one year. Also the patent (12,000) would not be current.
Option 3: $85,000. This amount matches the sum of all items currently classified as current assets: accounts receivable (12,000), inventory (40,000), the current portion of prepaid insurance (6,000 for 24 months is split into 3,000 current and 3,000 noncurrent, so 3,000 is the current portion), and treasury bills (30,000) treated as cash equivalents since they mature in January 2028, well within a short time frame. The long-term items (notes receivable due 2030, 50,000; patent, 12,000; investments, 30,000 if not treated as cash equivalents) are not included in current assets. When you isolate the items that will be converted to cash or consumed within one year, the total is 12,000 + 40,000 + 3,000 + 30,000 = 85,000.
Option 4: $88,000. This would require including an extra 3,000 in current assets, possibly by misclassifying part of the prepaid insurance or miscounting another item as current. The current portion of prepaid insurance is indeed 3,000, but the 30,000 for treasury bills is already included as cash equivalents, and there are no other current items to reach 88,000 unless a misclassification occurs.
In summary, the correct composition of current assets here includes accounts receivable, inventory, the current portion of prepaid insurance, and the treasury bills as cash equivalents, totaling 85,000. The other options arise from misclassifying long-term items as current or miscounting current portions.

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