Question

When preparing a draft of its 2005 balance sheet, Mont, Inc. reported net assets totaling $875,000. Included in the asset section of the balance sheet were the following: Treasury stock of Mont, Inc. at cost, which approximates market value on December 31 $24,000 Idle machinery, 11,200 Cash surrender value of life insurance on corporate executives, 13,700 Allowance for decline in market value of noncurrent equity investments 8,400 At what amount should Mont's net assets be reported in the December 31, 2005 balance sheet?
A. $851,000.
B. $850,100.
C. $842,600.
D. $834,500.

Answer 1

Answer:

A)$851,000

Explanation:

Question: At what amount should Mont's net assets be reported

First, what is the total of the reported net assets (preadjusted)= $875,000

Therefore, Mont's stock will be deducted form the reported net assets to arrive at the correct net assets

= $875,000- $24,000= $851,000

This was done because $24,000 represents the market value of the treasury stock of Mont Inc as at Dec 31. The treasury stock of a firm cannot be considered as an asset because a firm is not expected to own its own stock and reflect it in the books. Hence this was deducted to arrive at the correct net assets.