Chapter 4, Problem 1SSQ

To determine

Identify the item that will not be reported on a classified balance sheet.

Answer to Problem 1SSQ

Option (b): Net income

Explanation of Solution

Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Net income: The bottom line of income statement which is the result of excess of earnings from operations (revenues) over the costs incurred for earning revenues (expenses) is referred to as net income.

Justification for the given options:

Option (a): current assets

Current assets are the component of the balance sheet and part of the total assets. Thus, it is reported on the classified balance sheet.

Option (b): Net income

Net income is a component of the income statement. Hence, it is reported on the income statement but not on the classified balance sheet.

Option (c): Total liabilities

Total liabilities are the component of the balance sheet and it is a sum of current and long term liabilities. Thus, it is reported on the classified balance sheet.

Option (d): Common stock

Common stock is a component of balance sheet and reported under the head of stockholders’ equity of the classified balance sheet.

Hence, Option (b) Net income is the correct answer.