Deck 3: The Balance Sheet and Financial Disclosures

Question 1

The balance sheet reports:

A)Net income at a point in time.
B)Cash flows for a period of time.
C)Assets and equities at a point in time.
D)Assets and liabilities for a period of time.

Answer 1

C

Question 2

Segment reporting requires disclosure of each customer that accounts for more than 5% of total enterprise revenue.

Answer 2

False

Question 3

Operational assets include property, plant, equipment and inventories.

Answer 3

False

Question 4

The compensation of top executives is disclosed in the proxy statement.

Question 5

Intangible assets usually are reported in the balance sheet as current assets.

Question 6

The balance of net receivables represents the amount expected to be collected.

Question 7

A company's market value is generally less than its book value.

Question 8

Accrued salaries and wages in a balance sheet represent salary and wages that have been earned by employees but not yet paid.

Question 9

Current assets include cash and all other assets expected to become cash or be consumed:

A)Within one year.
B)Within one operating cycle.
C)Within one year or one operating cycle, whichever is shorter.
D)Within one year or one operating cycle, whichever is longer.

Question 10

Horizontal analysis involves expressing each item in the financial statements as a percentage of an appropriate total, or base amount, within the same year.

Question 11

Payment terms, interest rates, and other details of long-term liabilities usually are reported in disclosure notes.

Question 12

Subsequent events are significant developments that take place after a firm's year-end, and after the financial statements are issued.

Question 13

The balance sheet reports a company's financial position at a point in time.

Question 14

Prepaid expenses are classified as current assets if the services purchased are expected to expire within twelve months or the operating cycle, if that is longer.

Question 15

The ultimate responsibility for the financial statements lies with the auditors.

Question 16

Liquidity refers to the riskiness of a company with regard to the amount of liabilities in its capital structure.

Question 17

A payment on account has no effect on working capital but will increase the current ratio if it is already greater than 1.0.

Question 18

The criteria for determining which items comprise cash equivalents often is disclosed in the summary of significant accounting policies.

Question 19

Illegal acts will only need to be disclosed if the impact of the act is material.

Question 20

All current assets are either cash or assets that will be converted into cash or consumed within twelve months or the operating cycle, if that is longer than one year.

Question 21

What is the amount of working capital for Symphony?

A)$ 98.
B)$143.
C)$128.
D)$113.

Question 22

Cash equivalents would not include:

A)Cash not available for current operations.
B)Money market funds.
C)United States treasury bills.
D)Bank drafts.

Question 23

An asset that is not expected to be converted to cash or consumed within one year or the operating cycle is:

A)Goodwill.
B)Accounts receivable.
C)Inventory.
D)Supplies.

Question 24

Which of the following accounts are closed at the end of the accounting period?

A)Allowance for uncollectibles.
B)Unearned revenue.
C)Retained earnings.
D)Income tax expense.

Question 25

Red Onion Restaurant classifies a six-month prepaid insurance policy as a current asset. Its rationale is based on:

A)Materiality.
B)Operating cycle.
C)Definition.
D)Liquidity.

Question 26

Rent collected in advance is:

A)An asset account in the balance sheet.
B)A liability account in the balance sheet.
C)A shareholders' equity account in the balance sheet.
D)A temporary account, not in the balance sheet at all.

Question 27

Assets do not include:

A)Property, plant, and equipment.
B)Investments.
C)Paid-in capital.
D)Unexpired insurance.

Question 28

New Oaks Winery requires two months to make wine, two years to age it, one month to bottle it, two months to sell it, and one month to collect the receivable. Its operating cycle is:

A)Twelve months.
B)Thirty months.
C)Six months.
D)Three months.

Question 29

What would Symphony report as total shareholders' equity?

A)$548.
B)$808.
C)$838.
D)$778.Total shareholders' equity: $485 + 15 + 48 120 + 380 = $808

Question 30

Non-operating assets include:

A)Inventory held for sale.
B)Construction in progress.
C)Accounts receivable.
D)Land held for a possible future plant site.

Question 31

Which of the following is never a current liability account?

A)Accrued payroll
B)Dividends payable
C)Prepaid rent
D)Subscriptions collected in advance

Question 32

What would Symphony report as total current assets?

A)$823.
B)$838.
C)$843.
D)$1,696.Total current assets: ($680 20) + 34 + 50 + 30 + 16 + 5 + 20 + 8 = $823

Question 33

What would Symphony report as total assets?

A)$2,338.
B)$2,323.
C)$2,318.
D)$2,303.Total assets: ($680 20) + ($920 80) + 34 + 50 + 30 + 16 + 150 + 450 + 5 + 20 + 8 + 40 = $2,303

Question 34

Cash equivalents would include:

A)Highly liquid equity securities.
B)Accounts receivable from a financial institution.
C)A sinking fund for bonds that mature in three years.
D)Debt instruments with maturity dates of less than three months from the date of the purchase.

Question 35

Notes payable:

A)Is a current liability account.
B)Usually has a debit balance.
C)Is a non-current liability account.
D)Cannot determine its classification without additional information.

Question 36

Accrued expenses:

A)Are generally paid in services rather than cash.
B)Result from payment before services are received.
C)Result from services received before payment.
D)Are deferred charges to expense.

Question 37

The usual difference between accounts payable and notes payable is:

A)Legally enforceable debt.
B)Current-non-current classification.
C)Known payment terms.
D)Explicitly stated interest.

Question 38

Janson Corporation Co.'s trial balance included the following account balances at December 31, 2009: What amount should be included in the current liability section of Janson's December 31, 2009, balance sheet?

A)$ 63,000.
B)$ 41,000.
C)$ 61,000.
D)$101,000.

Question 39

Janson Corporation Co.'s trial balance included the following account balances at December 31, 2009: Investments consist of treasury bills that were purchased in November and mature in January. Prepaid insurance is for the next two years. What amount should be included in the current asset section of Janson's December 31, 2009, balance sheet?

A)$ 88.000.
B)$ 85,000.
C)$ 55,000.
D)$135,000.

Question 40

Which is a shareholders' equity account on the balance sheet?

A)Accumulated depreciation.
B)Paid-in capital.
C)Dividends payable.
D)Marketable securities.

Question 41

A subsequent event for an entity with a December 31, 2009, year-end would not include:

A)A change in the estimated useful lives of equipment in January 2010.
B)An issuance of bonds in January 2010.
C)An acquisition of another company in January 2010.
D)A major uncertainty at December 31, resolved in January 2010.

Question 42

The quick ratio is:

A)The liquidity ratio divided by the equity ratio.
B)Current assets minus inventory divided by current liabilities minus accounts payable.
C)Current assets minus inventory and prepaid items divided by current liabilities.
D)Cash divided by accounts payable.

Question 43

The Management Discussion and Analysis section of the annual report can best be described as:

A)Frank but objective.
B)Independent but precise.
C)Legalistic and lengthy.
D)Biased but informative.

Question 44

Which of the following is not a required disclosure for related party transactions?

A)The nature of the relationship.
B)A description of the transactions.
C)The amounts due from or to related parties.
D)The impact of the transactions on current year's income.

Question 45

Liquidity refers to:

A)The amount of cash on hand at a given time.
B)The readiness of an asset to be converted to cash.
C)The period of time until cash is used and refinancing becomes necessary.
D)Financial leverage.

Question 46

Working capital is equal to:

A)Current assets.
B)Current liabilities.
C)Current assets plus current liabilities.
D)Current assets minus current liabilities.

Question 47

An exception that is so serious that an unqualified opinion is not justified would result in:

A)A disclaimer.
B)An unqualified opinion.
C)An adverse opinion.
D)A consistency exception.

Question 48

Lack of long-term solvency refers to:

A)Risk of non-payment relative to liabilities in the capital structure.
B)The length of time before long-term debt becomes due.
C)The ability to refinance long-term debt when it becomes due.
D)Long-term assets.

Question 49

When a company sells land for cash and recognizes a $25,000 gain:

A)Its acid-test ratio decreases.
B)Its current ratio decreases.
C)Its debt to equity ratio decreases.
D)Cannot determine from the given information.

Question 50

Disclosure notes would not include:

A)Depreciation methods used and estimated useful life.
B)Definition of cash equivalents.
C)Details of pension plans.
D)Data to adjust the financial statements so that they are not misleading.

Question 51

When a company accrues federal income taxes at the end of the accounting period:

A)Its acid-test ratio increases.
B)Its current ratio increases.
C)Its debt to equity ratio decreases.
D)Its debt to equity ratio increases.

Question 52

The principal concern with accounting for related party transactions is:

A)The size of the transactions.
B)Differences between economic substance and legal form.
C)The absence of legally binding contracts.
D)The lack of accurate data to record transactions.

Question 53

Which of the following is not a financing ratio?

A)Time interest earned ratio.
B)The debt to equity ratio.
C)The current ratio.
D)All of these are financing ratios.

Question 54

An example of fraud would be:

A)Issuing a purchase order without first securing bids.
B)Buying raw materials from an affiliated company.
C)Knowingly classifying a material non-current receivable as a current receivable.
D)Forgetting to accrue salaries and wages payable.

Question 55

Assume a company's liquidity and financing ratios all are less than 1.0 before it purchases inventory on credit. When it makes the purchase:

A)Its current ratio decreases.
B)Its quick ratio decreases.
C)Its current ratio remains unchanged.
D)Its quick ratio remains unchanged.

Question 56

When a company pays its bill from a plumber for previous services on account:

A)Its debt to equity ratio always decreases.
B)Its acid-test ratio always remains unchanged.
C)Its current ratio always remains unchanged.
D)All of these are correct.

Question 57

The fourth paragraph of the audit report:

A)Provides the auditors' opinion on the fairness of the financial statements.
B)Provides the auditor's opinion on the effectiveness of internal control.
C)Describes the scope of the audit.
D)States management's responsibility for the financial statements.

Question 58

An example of an error would be:

A)Purchasing inventory from a related party.
B)Counting an inventory item twice when taking a physical inventory.
C)Holding back invoices so that accounts payable are understated.
D)Receiving kickbacks in exchange for issuing a purchase order to a vender.

Question 59

The current ratio is given by:

A)Current assets divided by non-current assets.
B)Current assets divided by total assets.
C)Current assets divided by current liabilities.
D)Current assets divided by total liabilities.

Question 60

The acid-test ratio is also known as the:

A)Current ratio.
B)Debt equity ratio.
C)Times interest earned ratio.
D)Quick ratio.

Question 61

Which of the following is not a required segment reporting disclosure according to International Accounting Standards?

A)Segment profit or loss.
B)Segment assets.
C)Segment liabilities.
D)All are required disclosures.

Question 62

The acid-test ratio is:

A)0.25.
B)0.88.
C)1.17.
D)1.58.Acid test ratio: ($505 200 25)/$320 = .88

Question 63

Compute the debt-to-equity ratio for Marjoram Company.

Question 64

Which of the following is not a required segment reporting disclosure according to U.S. GAAP?

A)Segment profit or loss.
B)Segment assets.
C)Segment liabilities.
D)General information about the operating segment.

Question 65

HHF's long term debt-to-equity ratio equity is:

A)133.3%.
B)75%.
C)180%.
D)0%.Long Term Debt-to-equity ratio: $360/$480 = 75%

Question 66

Compute the acid-test ratio for Marjoram Company.

Question 67

Compute the times interest earned ratio for Marjoram Company.

Question 68

HHF's debt-to-equity ratio is:

A)0.75.
B)1.13.
C)0.53.
D)1.80.Debt-to-equity ratio: $540/$480 = 1.13

Question 69

The current ratio is:

A)1.98.
B)1.58.
C)1.17.
D)0.66.Current ratio: $505/$320 = 1.58

Question 70

Working capital is:

A)$505.
B)$265.
C)$185.
D)$75.Working capital: $505 320 = 185

Question 71

Compute the current ratio for Marjoram Company.

Question 72

Which of the following is not a characteristic that defines a reportable operating segment according to U.S. GAAP?

A)Operating results are regularly reviewed by the enterprise's chief operating officer.
B)Discrete financial information is available.
C)Engages in business activities from which it may earn revenues and incur expenses.
D)Represents more than 20% of total company revenues, assets, or net income.

Question 73

Compute the return on shareholders' equity ratio for Marjoram Company.

Question 74

HHF's times interest earned ratio is:

A)3.47.
B)1.73.
C)2.47.
D)10.0.Times interest earned ratio:125/$36 = 3.47

Question 75

Presented below is a partial trial balance for the Messenger Corporation at December 31, 2009.
Additional information:
1. The note receivable, along with any accrued interest, is due on November 1, 2010.
2. The note payable is due in 2014. Interest is payable annually.
3. The marketable securities consist of equity securities of other corporations. Management does not intend to sell any of the securities in the next year.
4. Unearned revenue will be earned equally over the next eighteen months.
Required:
Determine the company's working capital (current assets minus current liabilities) at December 31, 2009.

Question 76

-Altoid Co.'s acid-test ratio.

Question 77

As controller for Sanderson, you are attempting to reconstruct and revise the following balance sheet prepared by a staff accountant.
Additional information ($ in 000s):
1. Certain records that included the account balances for the franchise and shareholders' equity items were lost. However, a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.5. That is, total liabilities are 150% of total shareholders' equity. Retained earnings at the beginning of the year was $4,300. Net income for 2009 was $2,500 and $800 in cash dividends were declared and paid to shareholders.
2. The investments represent treasury bills purchased in December that mature in January.
3. Interest on both the note and the bonds is payable annually.
4. The note payable is due in annual installments of $800 each.
5. Unearned revenue will be earned equally over the next eighteen months.
6. The common stock represents 500,000 shares of no par stock authorized, 300,000 shares issued and outstanding.
Required:
Prepare a complete, corrected, classified balance sheet.

Question 78

The December 31, 2009, post-closing trial balance ($ in thousands) for Libby Corporation is presented below:
Required: Prepare a classified balance sheet for Libby Corporation at December 31, 2009.

Question 79

-Altoid Co.'s current ratio.

Question 80

Quick assets total:

A)$60.
B)$230.
C)$280.
D)$305.Quick assets: $505 200 25 = 280