Question

Sheridan Corporation has the following accounts included in its December 31, 2017, trial balance: Accounts Receivable $119,800, Inventory $299,300, Allowance for Doubtful Accounts $8,680, Patents $81,900, Prepaid Insurance $9,680, Accounts Payable $82,700, and Cash $32,000.

Answer 1

Answer:

Based on the attached,there is a strong indication that the question requires the student to prepare the current assets section of the balance sheet in the order of liquidity.

Current Assets                        $                                  $

Cash                                                                     32000

Accounts receivable           299300

Allowance for receivables   (8680)  

                                                                            290620

Prepaid insurance                                               9680

Inventory                                                             299300

Total current assets                                           631600

             

Explanation:

The order of liquidity is that cash comes first,as it is readily available for use in discharging obligations and need not be converted to any other form.

Accounts receivable takes the second position as it is just a step away to becoming cash

Lastly, inventory is the most difficult to convert to cash as it envisaged that it would first of all turn to accounts receivable and thereafter to cash