The Operating Cycle and Current Assets and Liabilities of Dunn Sporting Goods

Dunn Sporting Goods

sells athletic clothing and footwear to retail customers. Dunn's accountant indicates that the firm's operating cycle averages 6 months. At December 31, 2019, Dunn has the following assets and liabilities:
  1. Prepaid rent in the amount of $8,500. Dunn's rent is $500 per month.
  2. A $9,700 account payable due in 45 days.
  3. Inventory in the amount of $46,230. Dunn expects to sell $38,000 of the inventory within 3 months. The remainder will be placed in storage until September 2020. The items placed in storage should be sold by November 2020.
  4. An investment in marketable securities in the amount of $1,900. Dunn expects to sell $700 of the marketable securities in 6 months. The remainder are not expected to be sold until 2022.
  5. Cash in the amount of $1,050.
  6. An equipment loan in the amount of $60,000 due in March 2024. Interest of $4,500 is due in March 2020 ($3,750 of the interest relates to 2019, with the remainder relating to the first 3 months of 2020).
  7. An account receivable from a local university in the amount of $2,850. The university has promised to pay the full amount in 3 months.
  8. Store equipment at a cost of $9,200. Accumulated depreciation has been recorded on the store equipment in the amount of $1,250.

Identify Current Assets and Liabilities.

Answer:

Identifying Current Assets and Current Liabilities

Current Assets:

  1. Prepaid Rent            $6,000
  2. Inventory              $46,230
  3. Marketable securities   $700
  4. Cash              $1,050
  5. Account receivable        $2,850

Current Liabilities:

  1. Accounts payable          $9,700
  2. Interest Payable          $4,500

Explanation:

a) Data and Analysis:

  1. Prepaid Rent (Current Assets)  $6,000 Prepaid Rent (Long-term Assets)  $2,500 in the amount of $8,500. Dunn's rent is $500 per month.
  2. Account payable       $9,700
  3. Inventory (Current assets)    $46,230.
  4. Short-term marketable securities   $700 Long-term Investments  $1,200
  5. Cash (current assets)        $1,050.
  6. Loan Payable (long-term)    $60,000 due in March 2024. Interest Payable (current liabilities)  $4,500
  7. Account receivable (Current assets)  $2,850
  8. Store equipment          $9,200. Accumulated depreciation  $1,250.

b) Current assets are short-term assets expected to be used up within 12 months while current liabilities are short-term assets expected to be settled within 12 months.

What are the current assets and liabilities of Dunn Sporting Goods based on the given data?

Based on the given data, the current assets of Dunn Sporting Goods include prepaid rent, inventory, marketable securities, cash, and account receivable. The current liabilities include accounts payable and interest payable.

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