CHAPTER FOUR
Financial Statement Reporting: The Balance Sheet
ON THE BALANCE sheet, the CFO is concerned with the accounting for and reporting of assets, liabilities, and stockholders’ equity.
ASSETS
How are assets recorded?
An asset is recorded at the price paid plus the cost of putting the asset in service (e.g., freight, insurance, installation). If an asset is acquired in exchange for a liability, the asset is recorded at the discounted values of the future payments.
Example 4.1
A machine was bought by taking out a loan requiring ten $10,000 payments. Each payment includes principal and interest. The interest rate is 10 percent. Although the total payments (principal and interest) are $100,000, the present value will be less since the machine is recorded at the present value of the payments. The asset would be recorded at $61,450 ($10,000 × 6.145). The factor is obtained from the present value of an annuity of $1.00 table (Table A.4 in the Appendix) for n = 10, i = 10%.
Note
The asset is recorded at the principal amount excluding the interest payments. If an asset is acquired for stock, the asset is recorded at the fair value of the stock issued. If it is impossible to ascertain the fair market value of the stock (e.g., closely held company), the asset will be recorded at its appraised value.
Unearned discounts (except for quantity or cost), finance charges, and interest included in the face of receivables should be deducted to arrive at the net receivable.
Some of the ...
