Deck 3: The Balance Sheet and Financial Disclosures

Question 1

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.

Answer 1

D

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

All current assets are either cash or assets that will be converted into cash or consumed within 12 months or the operating cycle, whichever is longer.

Question 7

Prepaid expenses are classified as current assets if the services purchased are expected to expire within 12 months or the operating cycle, whichever is longer.

Question 8

Property, plant, and equipment includes machinery, equipment, and inventories.

Question 9

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

Question 10

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

Question 11

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

Question 12

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 13

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

Question 14

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

Question 15

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 16

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.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

What would Symphony report as total assets?

A)$2,338.
B)$2,323.
C)$2,318.
D)$2,303.

Question 23

Assets do not include:

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

Question 24

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 25

What would Symphony report as total shareholders' equity?

A)$323.
B)$808.
C)$838.
D)$928.

Question 26

The usual difference between accounts payable and notes payable is:

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

Question 27

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 28

What would Symphony report as total current assets?

A)$823.
B)$838.
C)$843.
D)$1,696.

Question 29

What is the amount of working capital for Symphony?

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

Question 30

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 31

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

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

Question 32

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 33

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 34

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

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

Question 35

Janson Corporation Co.'s trial balance included the following account balances at December 31, 2013: What amount should be included in the current liability section of Janson's December 31, 2013, balance sheet?

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

Question 36

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 37

Noncurrent assets include:

A)Inventory held for sale.
B)Prepaid rent.
C)Accounts receivable.
D)Land held for a possible future plant site.

Question 38

Notes payable:

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

Question 39

Janson Corporation Co.'s trial balance included the following account balances at December 31, 2013: 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, 2013, balance sheet?

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

Question 40

Cash equivalents would not include:

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

Question 41

How are management's responsibility and the auditors' opinion on internal controls represented in the standard auditor's report?

A)Option a
B)Option b
C)Option c
D)Option d

Question 42

Which of the following would be disclosed in the summary of significant accounting policies disclosure note?

A)Option a
B)Option b
C)Option c
D)Option d

Question 43

The current ratio is given by:

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

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

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 46

An exception that is so serious that even a qualified opinion is not justified would result in:

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

Question 47

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 the above are correct.

Question 48

Which of the following is not a financing ratio?

A)Times interest earned ratio.
B)Debt to equity ratio.
C)Current ratio.
D)All of the above are financing ratios.

Question 49

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 50

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 noncurrent receivable as a current receivable.
D)Forgetting to accrue salaries and wages payable.

Question 51

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 52

The acid-test ratio is also known as the:

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

Question 53

Working capital is equal to:

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

Question 54

A subsequent event for an entity with a December 31, 2013, year-end would not include:

A)A change in the estimated useful lives of equipment in January 2014.
B)An issuance of bonds in January 2014.
C)An acquisition of another company in January 2014.
D)A major uncertainty at December 31, resolved in January 2014.

Question 55

Lack of long-term solvency refers to:

A)Risk of nonpayment 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 56

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 57

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 until cash is used and refinancing becomes necessary.
D)Financial leverage.

Question 58

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 59

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 60

The final 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 61

The acid-test ratio is (rounded):

A)0.25.
B)0.88.
C)1.17.
D)1.58.

Question 62

Compute the return on shareholders' equity ratio for Marjoram Company. Round your answer to two decimal places.

Question 63

As controller for Henderson, 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 2013 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. These are considered cash equivalents.
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 18 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 64

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

A)133.3%.
B)75%.
C)180%.
D)0%.

Question 65

The December 31, 2013, post-closing trial balance ($ in thousands) for Libby Corporation is presented below: Required:
Prepare a classified balance sheet for Libby Corporation at December 31, 2013.

Question 66

HHF's debt to equity ratio is (rounded):

A)0.75.
B)1.13.
C)0.53.
D)1.80.

Question 67

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 68

Compute the debt to equity ratio for Marjoram Company. Round your answer to two decimal places.

Question 69

Quick assets total:

A)$60.
B)$230.
C)$280.
D)$305.

Question 70

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

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

Question 71

Working capital is:

A)$505.
B)$265.
C)$185.
D)$75.

Question 72

The current ratio is (rounded):

A)1.98.
B)1.58.
C)1.17.
D)0.66.

Question 73

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 74

Presented below is a partial trial balance for the Messenger Corporation at December 31, 2013. Additional information:
1. The note receivable, along with any accrued interest, is due on November 1, 2014.
2. The note payable is due in 2018. 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 18 months.
Required:
Determine the company's working capital (current assets minus current liabilities) at December 31, 2013.

Question 75

HHF's times interest earned ratio is (rounded):

A)3.47.
B)1.73.
C)2.47.
D)10.0.

Question 76

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 77

Compute the current ratio for Marjoram Company. Round your answer to two decimal places.

Question 78

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 79

Compute the times interest earned ratio for Marjoram Company. Round your answer to two decimal places.

Question 80

Compute the acid-test ratio for Marjoram Company. Round your answer to two decimal places.