Deck 5: Balance Sheet

Question 1

A characteristic essential to all assets is:

A) a result of a past event.
B) a resource controlled by the entity.
C) a present economic resource.
D) all of the above.

Answer 1

D

Question 2

Liabilities are claims owing to an entity's:

A) shareholders.
B) debtors.
C) owners.
D) creditors.

Answer 2

D

Question 3

Which of the following does not affect equity?

A) Cash at bank.
B) Sales.
C) Expenses.
D) Revaluation reserve.

Answer 3

A

Question 4

An Australian company is required to lodge their financial statements with which regulatory body?

A) IFRS.
B) ASIC.
C) ACNC.
D) GAAP.

Question 5

An accountant is required to make choices in measuring the value of:

A) property, plant and equipment.
B) development expenditure.
C) inventory.
D) all of the above.

Question 6

The balance sheet usually reports the entity's financial position for both the current period and the previous period.This information is known as:

A) comparative information.
B) comprehensive information.
C) financial reporting.
D) narrative information.

Question 7

Gentle Ltd leases manufacturing equipment from Soft Ltd.The lease is non-cancellable,and Gentle Ltd has the right to purchase the equipment at the end of the lease term for $50,000.Which of the following statements is true?

A) Gentle Ltd has legal ownership of the equipment.
B) Gentle Ltd controls the equipment but does not have legal ownership of the equipment.
C) Gentle Ltd does not have control over the equipment.
D) Gentle Ltd is the lessor of the equipment.

Question 8

A balance sheet prepared in a narrative format presents:

A) assets on the left and liabilities and equity on the right.
B) assets followed by equity then liabilities down the page.
C) assets followed by liabilities then equity down the page.
D) assets on the right and liabilities and equity on the left.

Question 9

The entity that is under no legal requirement to prepare a balance sheet is a:

A) company.
B) not-for-profit business.
C) sole trader.
D) partnership.

Question 10

The balance sheet is also known as:

A) the statement of cash flows.
B) the statement of comprehensive income.
C) the statement of financial position.
D) the income statement.

Question 11

An entity is currently under investigation for providing defective products to their customers.If found guilty,the entity may be required to compensate their customers for approximately $500 000.The court case is still pending and the outcome will not be known until later in the next financial year.For the current financial year,the amount of $500,000 will be:

A) recognised in the balance sheet as an asset.
B) recognised in the balance sheet as a liability.
C) recognised in the balance sheet as a contingent liability.
D) disclosed in the notes to the financial statements as a contingent liability.

Question 12

Which of the following factors must be considered when making a recognition decision?

A) uncertainty as to whether a liability exists.
B) probability of an inflow or outflow of economic benefits.
C) uncertainty as to the reliable measurement of a monetary value.
D) all of the above.

Question 13

Which of the following statements regarding equity is not true?

A) It is increased by profit.
B) It can be increased by additional contributions by the owners.
C) It is defined independently of assets and liabilities.
D) It includes the retained earnings of the entity.

Question 14

A resource is considered to produce economic benefits:

A) only if the benefits are certain.
B) only if the benefits are probable.
C) if the resource is in the form of being able to satisfy human wants.
D) only if the resource is used to provide goods or services.

Question 15

M.Strong purchases 500 shares of Maxwell Ltd that were listed on the stock exchange.As a result of this transaction,the total equity of Maxwell Ltd will:

A) increase.
B) decrease.
C) remain unchanged.
D) be greater than total assets.

Question 16

Which of the following statements about the balance sheet is not true:

A) assets are listed in order of liquidity.
B) it is reported at a particular point in time.
C) the total of the assets must equal the total of the liabilities plus equity.
D) it represents the cash received and paid during the period.

Question 17

If total assets equal $295 000,total liabilities are $165 000 and total equity equals $130 000 then net assets equals:

A) $295 00
B) $130 000
C) $165 000
D) $30 000

Question 18

Which of these is not a current liability?

A) Dividend payable.
B) Accounts payable.
C) General reserve.
D) Accrued expenses.

Question 19

Which of the following is not an essential characteristic of a liability?

A) It has arisen as a result of a past transaction or event.
B) It represents an internal claim on the entity's assets.
C) It represents a present obligation to another entity.
D) It requires the transfer of an economic resource to another entity.

Question 20

Which of the following is not part of shareholders' equity in the balance sheet?

A) Dividends payable.
B) Share capital.
C) Retained earnings.
D) General reserve.

Question 21

Which of the following would not be classified as 'cash and cash equivalents'?

A) Accounts receivable.
B) Short-term deposits.
C) Cash at bank.
D) Petty cash.

Question 22

Which of the following statements is correct regarding the use of the first-in first-out (FIFO)method of valuing inventory?

A) Cost of sales for the period is calculated using weighted average cost of the goods acquired.
B) Closing inventory consists of goods purchased earlier in the period.
C) Closing inventory consists of the most recently purchased goods.
D) Cost of sales for the period is calculated using the most recent inventory cost per item.

Question 23

Which of the following statements concerning goodwill is true?

A) Internally generated goodwill cannot be recognised.
B) Goodwill must be tested for impairment at least annually.
C) Goodwill is an unidentifiable intangible asset.
D) All of the above.

Question 24

Select the asset that is not an identifiable intangible asset:

A) brand name.
B) trademark.
C) development expenditure.
D) goodwill.

Question 25

A company transfers $10 000 from the retained earnings account to a general reserve account.The effect of this transfer on the company's balance sheet is:

A) total shareholders' equity will decrease.
B) total shareholders' equity remains unchanged.
C) total shareholders' equity will increase.
D) total shareholders' equity will decrease and assets will decrease.

Question 26

Living animals or plants,such as trees in a plantation,dairy cattle or sheep,are known under the accounting standards as:

A) current assets.
B) intangible assets.
C) agricultural assets.
D) natural assets.

Question 27

The amount paid to acquire an asset is known as its:

A) market cost.
B) current cost.
C) present value.
D) historical cost.

Question 28

Assets and liabilities are listed in the balance sheet in order of:

A) marketability.
B) liquidity.
C) tangibility.
D) profitability.

Question 29

Motor Cross Ltd's inventory purchases for the month of January are summarised below.Using the weighted-average method of valuing inventory,the weighted unit cost is:
$\begin{array}{lcc}\text{Purchase date}&\text{ Number of units}&\text{ Cost per unit}\\\\\text { 2. January } & 8 & \$ 5000 \\ \text { 13 January } & 12 & \$ 8500 \\ \text { 17 January } & 35 & \$ 7000 \\ \text { 27 January } & 20 & \$ 10500\end{array}$

A) $10 500
B) $ 7 960
C) $ 7 750
D) $ 8 500

Question 30

Which of the following statements concerning asset valuation is incorrect?

A) Subject to a few exceptions, non-current assets, after acquisition, can be measured at either cost or fair value.
B) If non-current assets are measured using the cost basis, they cannot be valued at less than their recoverable amount.
C) If non-current assets are measured using the fair value basis, fair value must be regularly reassessed.
D) Assets and liabilities are recorded initially at their historical cost.

Question 31

Blue Sea Resort Ltd acquired all the shares in Scuba Ltd for $750 000.The fair value of the assets acquired was $1 000 000 and the fair value of the liabilities assumed was $300 000.The amount of goodwill acquired by Blue Sea Resort Ltd is:

A) $750 000
B) $700 000
C) $ 50 000
D) $300 000

Question 32

The amount recognised in the asset class 'investments accounted for using the equity method' represents:

A) cost of shares acquired less share of other entity's profits.
B) share of other entity's profits only.
C) cost of shares acquired less share of other entity's profits plus dividends received from other entity.
D) cost of shares acquired plus share of other entity's profits less dividends received from other entity.

Question 33

Which of the following assets is not required to be depreciated/amortised?

A) Machinery.
B) Motor vehicles.
C) Land.
D) Trademarks.

Question 34

Inventory is categorised in the balance sheet as a:

A) current asset.
B) current liability.
C) non-current asset.
D) non-current liability.

Question 35

A revaluation surplus is a reserve account that arises when:

A) an entity uses fair value rather than cost to measure its long-term assets.
B) an entity uses cost rather than fair value to measure its long-term assets.
C) management transfer funds out of retained earnings to put aside for future use.
D) an entity has an overseas subsidiary.

Question 36

Chrystal Gems Ltd was set up with share capital of $500 000.In year 1 a loss of $50 000 was recorded,in year 2 a profit of $175 000 and in year 3 a profit of $350 000.Also in year 3 a dividend of 5% of paid up capital was paid to shareholders and $20 000 was transferred from retained earnings to a general reserve.The retained earnings balance of Chrystal Gems Ltd at the end of year 3 was:

A) $430 000
B) $475 000
C) $930 000
D) $530 000

Question 37

The Accumulated Depreciation account is reported as:

A) an expense on the income statement.
B) as a contra asset account on the balance sheet.
C) as a liability on the balance sheet.
D) as an expense on the balance sheet.

Question 38

Office furniture was purchased for $15 000.The residual value of the furniture is $1000 and its useful life is estimated to be 7 years.The annual depreciation amount will be:

A) $14 000
B) $2 000
C) $1 400
D) $1 000

Question 39

At the end of the financial period the cost of an entity's inventory on hand is $25 500.The net realisable value of the inventory is deemed to be $28 000.What value for inventory must be shown on the entity's balance sheet for the reporting period?

A) $28 000
B) $25 500
B) $2 500
C) None of the above.

Question 40

Current and non-current liabilities are categorised based on:

A) to whom the liability is owed.
B) when the liability is due for payment.
C) whether the liability is secured or unsecured.
D) the size of the liability.

Question 41

The balance sheet format that lists assets on the left and liabilities and equity on the right is the ______________ format.

Question 42

At acquisition date,the cost price and fair value of an asset will be fairly equivalent.However,over the life of the asset,the:

A) fair value will always be greater than the cost price.
B) cost price will always be greater than the fair value.
C) fair value and cost price will most likely diverge.
D) fair value and cost price will remain fairly equivalent.

Question 43

Liabilities are known as ______________ claims on the assets of an entity.

Question 44

The balance sheet of a manufacturing company would include which of the following as part of the asset inventories?

A) Finished goods available for sale.
B) Work-in-progress.
C) Raw materials.
D) All of the above.

Question 45

An essential characteristic of an asset is that the resource must be _________________ by the entity.

Question 46

Which of the following statements regarding the value of assets in the balance sheet is correct?

A) The value of assets will most likely be a mixture of values of historical cost and fair values.
B) All assets will be valued at historical cost.
C) All assets will be valued at fair value.
D) All assets will

Question 47

Financial information that is complete,neutral,and free from error is providing a __________ representation for its users in their decision making.

Question 48

The following items are all important for decision making but which one can be reliably measured and included on the balance sheet?

A) The value of employee's skills and abilities.
B) Internally generated goodwill.
C) The cost of bad publicity.
D) Identifiable intangible assets.

Question 49

The accrual of annual leave and long-service leave for employees is classed as a ______________ in the liabilities section of the balance sheet.

Question 50

_______________ decisions are decisions relating to an entity's mix of debt and equity.

Question 51

Goodwill is regarded as an ______________ intangible asset.

Question 52

Which of the following is a limitation of an entity's balance sheet?

A) If the business is cyclical, the balance sheet prepared at the end of the financial period may not be representative of the financial position at other times during the financial period.
B) The balance sheet may not include all items that create value for the entity.
C) The balance sheet is a historical representation of an entity's financial position and does not consider future growth potential.
D) All of the above are considered limitations of an entity's balance sheet.

Question 53

____________ (general/special)-purpose financial statements are prepared by a reporting entity to meet the decision-making needs of its managers.

Question 54

Which of the following statements about the measurement of 'fair value' is incorrect?

A) It is an exit value.
B) A liability's fair value takes into consideration the time value of money.
C) In an active market, as asset's fair value is observable and verifiable.
D) It is an entry value.

Question 55

Accounts payable,GST payable,and accrued expenses are classified as _____________ and _____________ _____________ on the balance sheet.

Question 56

________________ assets are non-monetary assets without physical form.

Question 57

Hume Lodgings purchased a motor vehicle at a cost of $40 000.Its carrying amount is $12 000 and its fair value is assessed to be $10 000.Sinclair Ltd purchased the motor vehicle from Hume Lodgings for $14 000.What value is recorded for this motor vehicle in the balance sheet of Sinclair Ltd?

A) $14 000
B) $12 000
C) $10 000
D) $40 000

Question 58

A factor to be considered before recognising an asset in the balance sheet is the ______________ of an inflow of an economic benefit.

Question 59

Retained earnings are ______________ ______________ made by a company that have not been distributed as dividends or transferred to a reserve account.

Question 60

The existence of a _____________ event is one of the essential elements of a liability.

Question 61

If an asset's carrying amount is greater than its recoverable amount an __________ loss will need to be recognised immediately in the statement of profit or loss.

Question 62

When preparing a balance sheet various choices,__________,and estimations are made on behalf of the users of the financial information.

Question 63

An entity must identify its measurement choices in the accounting policy__________ to the financial statements.

Question 64

The balance sheet does not

Question 65

A limitation of the balance is that the historical cost measurement of an asset does not consider the __________ __________ of money.