You are reviewing the December 31, 2011 financial statements of Ellie\'s Antique

Question

You are reviewing the December 31, 2011 financial statements of Ellie's Antiques that is considering an initial public offering of their shares. The following items come to your attention:a. Included in long-term investments are ten-year U.S. Treasury bonds that mature March 31, 2012. The bonds were purchased November 20, 2011.b. The property, plant, and equipment account is stated at cost, except that it includes a parcel of land purchased for investment purposes at a cost of $40,000. Because of rising land prices, the value of the land has been written up to $60,000. The company has an independent appraisal that attests to this amount.c. The accounts receivable account includes $20,000 due in three years from officers and employees and a two-year, 8% note for $25,000 due from a customer. The loan enabled the customer to buy equipment needed to process materials purchased from Ellie's Antiques.Please discuss how the above items should be classifed and accounted for.

Explanation / Answer

a. These treasury bonds would typically be classified in current assets as short-term investments. If purchased within three months of their maturity, they could be classified as cash equivalents. b. The land should be reported in the non-current Investments category at the original cost of $40,000. c. These receivables should be classified as non-trade receivables in the non-current Investments category. Receivables from officers and employees require separate disclosure, if material.

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