A is corrent. Idle machinery ($11,200) and cash surrender value of life insurance ($13,700) are both assets. The only item listed which should not be included in the asset section of the balance sheet is the treasury stock ($24,000). Although the treasury stock account has a debit balance, it is not an asset; instead, it is reported as a contra equity account. Therefore, the $24,000 must be excluded from the asset section, reducing the net asset amount to $851,000 ($875,000 – $24,000).
B is incorrect. Idle machinery ($11,200) and cash surrender value of life insurance ($13,700) are both assets. The only item listed which should not be included in the asset section of the balance sheet is the treasury stock ($24,000). Although the treasury stock account has a debit balance, it is not an asset; instead, it is reported as a contra equity account. Therefore, the $24,000 must be excluded from the asset section, reducing the net asset amount to $851,000 ($875,000 – $24,000).
B is incorrect. Idle machinery ($11,200) and cash surrender value of life insurance ($13,700) are both assets. The only item listed which should not be included in the asset section of the balance sheet is the treasury stock ($24,000). Although the treasury stock account has a debit balance, it is not an asset; instead, it is reported as a contra equity account. Therefore, the $24,000 must be excluded from the asset section, reducing the net asset amount to $851,000 ($875,000 – $24,000).
D is incorrect. Idle machinery ($11,200) and cash surrender value of life insurance ($13,700) are both assets. The only item listed which should not be included in the asset section of the balance sheet is the treasury stock ($24,000). Although the treasury stock account has a debit balance, it is not an asset; instead, it is reported as a contra equity account. Therefore, the $24,000 must be excluded from the asset section, reducing the net asset amount to $851,000 ($875,000 – $24,000).
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