A summary accounts receivable account is called a(n)
a. controlling account.
b. balance account.
c. master account.
d. lead account.
Question 2
Ken's Kandy prepared the following preliminary balance sheet a few days before its December 31 yearend:
Ken's Kandy
Preliminary Balance Sheet
December 27, 2011
Cash 1,000 Accounts payable 4,000
Accounts receivable 2,000
Inventory 500 Common stock 3,000
Equipment 5,500 Retained earnings 2,000
Total liabilities &
Total assets 9,000 shareholders' equity 9,000
Ken is concerned about the size of the accounts payable in relation to the company's cash and other current assets. He asks the accountant to reclassify 3,000 of the accounts payable as long-term notes payable before releasing the annual report on December 31.
a. What is the company's current ratio now, based on the preliminary balance sheet?
The formula for calculating the current ratio is current assets / current liabilities.
b. What will the company's current ratio be if 3,000 of the accounts payable are reclassified as long-term notes payable?
c. Will reclassifying the accounts payable have any effect on the debt-to-equity ratio? Explain.
d. Is it ethical to reclassify current liabilities as long-term liabilities, as long as total liabilities are correct?
What will be an ideal response?
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