What is meant by solvency? What information in the balance sheet can be used to assess a company’s solvency?
Solvency reflects the ability to repay the borrowed money. It can be determined using the liabilities and the assets classified as current in nature.
Account payable can be defined as the account reporting the amount due to the creditors regarding the credit purchases made by the business entity.
Solvency is the measure of the ability of the company to repay the short-term debts as they become due. Short-term debts generally become due with the operating cycle or one year.
The solvency of the business entity is determined using the current assets and current liabilities reported on the balance sheet. Financial ratios such as current ratio and quick ratio are used.
Lowell Company’s December 31, 2017, trial balance includes the following accounts: Inventory $120,000, Buildings $207,000, Accumulated Depreciation—Equipment $19,000, Equipment $190,000, Land (held for investment) $46,000, Accumulated Depreciation—Buildings $45,000, Land $71,000, and Timberland $70,000. Prepare the property, plant, and equipment section of the balance sheet
In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?
(a) Treasury stock (recorded at cost).
(b) Checking account at bank.
(c) Land (held as an investment).
(d) Sinking fund.
(e) Unamortized premium on bonds payable.
(g) Pension fund assets.
(h) Premium on common stock.
(i) Long-term investments (pledged against bank loans payable).
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