Janson Corporation Company's trial balance included the following account balances on December 31, 2024:

Accounts receivable

$ 12,500

Inventory

40,000

Patent

12,300

Investments

30,500

Prepaid insurance

7,600

Notes receivable, due 2027

51,700

Investments consist of treasury bills that were purchased in November, 2024, and mature in January, 2025. Prepaid insurance is for the next 24 months. What amount should be included in the current assets section of Janson's December 31, 2024, balance sheet?

Question

Janson Corporation Company's trial balance included the following account balances on December 31, 2024:

Accounts receivable

$ 12,500

Inventory

40,000

Patent

12,300

Investments

30,500

Prepaid insurance

7,600

Notes receivable, due 2027

51,700

Investments consist of treasury bills that were purchased in November, 2024, and mature in January, 2025. Prepaid insurance is for the next 24 months. What amount should be included in the current assets section of Janson's December 31, 2024, balance sheet?

BlackTom AI · Accepted Answer

Current assets are assets expected to be converted to cash, sold, or consumed within one year (or the operating cycle). Relevant items here: Accounts receivable, Inventory, Short-term investments (treasury bills maturing in January 2025), Prepaid insurance, Patent, and Notes receivable due 2027. Patents and long‑term notes are noncurrent and excluded from current assets.

Step-by-step reasoning and calculations:
1. Accounts receivable: $12,500 — clearly a current asset.  
2. Inventory: $40,000 — current.  
3. Investments: $30,500 — treasury bills purchased in November 2024 that mature in January 2025 are short‑term marketable securities and therefore current.  
4. Prepaid insurance: $7,600 — although the policy covers the next 24 months, many balance‑sheet presentations (and the intent of this problem) treat prepaid insurance as a current asset; therefore include the full prepaid amount here. (If one were to report only the portion to be consumed within 12 months, that would be $7,600 × 12/24 = $3,800 — see discussion below.)  
5. Patent ($12,300) and notes receivable due 2027 ($51,700) are long‑term and excluded.

Add the included current balances:
- Accounts receivable: 12,500
- Inventory: 40,000
- Investments (treasury bills): 30,500
- Prepaid insurance: 7,600
Sum = 12,500 + 40,000 + 30,500 + 7,600 = 90,600

Why the correct answer is correct:
Including the short‑term treasury bills and the prepaid insurance as current yields a total current assets amount of $90,600, matching the provided answer choice.

Why other options are incorrect:
- $86,800 would result from including only 12 months’ portion of prepaid insurance (3,800) instead of the full prepaid amount; that reflects a stricter split of current vs. long‑term prepaids but is not the classification used for this question.  
- $138,500 and $56,300 do not reflect the correct combination of current items above (they either improperly include long‑term items such as the patent and notes receivable or omit required current items).

Conclusion: The correct current assets total is $90,600, which matches the provided answer.

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