Ch.3 Exam Prep The Balance Sheet And Financial Disclosures - Answer Key + Test Bank | Intermediate Accounting 10e by J. David Spiceland, Mark W. Nelson, Wayne Thomas. DOCX document preview.
Intermediate Accounting, 10e (Spiceland)
Chapter 3 The Balance Sheet and Financial Disclosures
1) The balance sheet reports a company's financial position at a point in time.
Difficulty: 1 Easy
Topic: Balance sheet―Usefulness - Limits - Elements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
2) A company's market value is generally less than its book value.
Difficulty: 1 Easy
Topic: Balance sheet―Usefulness - Limits - Elements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
3) 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.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
4) The balance of net receivables represents the amount expected to be collected.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
5) 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.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
6) Assets classified as property, plant, and equipment include machinery, equipment, and inventory.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
7) Intangible assets usually are reported in the balance sheet as current assets.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
8) Accrued salaries and wages in a balance sheet represent salaries that have been earned by employees but not yet paid.
Difficulty: 1 Easy
Topic: Classify liabilities―Current liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
9) The criteria for determining which items comprise cash equivalents often is disclosed in the summary of significant accounting policies.
Difficulty: 1 Easy
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
10) Payment terms, interest rates, and other details of long-term liabilities usually are reported in disclosure notes.
Difficulty: 1 Easy
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
11) Subsequent events are significant developments that take place after a company's year-end, and after the financial statements are issued or available to be issued.
Difficulty: 1 Easy
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
12) The details of transactions between the company and its owners' family members do not need to be disclosed separately in the notes to the financial statements.
Difficulty: 1 Easy
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
13) The ultimate responsibility for the financial statements lies with the auditors.
Difficulty: 1 Easy
Topic: Audit and Auditor's report; Disclosure--Management - Directors - Executives
Learning Objective: 03-06 Explain the purpose of an audit and describe the content of the audit report.; 03-05 Describe disclosures related to management's discussion and analysis, responsibilities, and compensation.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Legal; FN Reporting / Keyboard Navigation
14) The compensation of top executives is disclosed in the proxy statement.
Difficulty: 1 Easy
Topic: Disclosure―Management - Directors - Executives
Learning Objective: 03-05 Describe disclosures related to management's discussion and analysis, responsibilities, and compensation.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Legal / Keyboard Navigation
15) Horizontal analysis involves expressing each item in the financial statements as a percentage of an appropriate total, or base amount, within the same year.
Difficulty: 1 Easy
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
16) Vertical analysis involves expressing each item in the financial statements as a percentage of an appropriate total, or base amount, within the same year.
Difficulty: 1 Easy
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
17) An example of vertical analysis would be comparing inventory this year to inventory last year to calculate the percentage change in inventory.
Difficulty: 2 Medium
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
18) An example of vertical analysis would be stating each individual asset as a percentage of total assets.
Difficulty: 1 Easy
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
19) Liquidity refers to the riskiness of a company with regard to the amount of total assets in its capital structure.
Difficulty: 2 Medium
Topic: Balance sheet―Usefulness - Limits - Elements; Using information―Liquidity ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
20) A payment on account has no effect on working capital but will increase the current ratio if it is already greater than 1.0.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
21) Balance sheets prepared under IFRS often report long-term items before current items.
Difficulty: 1 Easy
Topic: IFRS―Balance sheet presentation
Learning Objective: 03-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the balance sheet, financial disclosures, and segment reporting.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
22) Balance sheets prepared under IFRS often exclude a shareholders' equity section.
Difficulty: 1 Easy
Topic: IFRS―Balance sheet presentation
Learning Objective: 03-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the balance sheet, financial disclosures, and segment reporting.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
23) Segment reporting requires disclosure of each customer that accounts for more than 5% of total enterprise revenue.
Difficulty: 1 Easy
Topic: Segment reporting - Appendix
Learning Objective: 03-Appendix 3: Reporting Segment Information.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
24) 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.
Difficulty: 2 Medium
Topic: Balance sheet―Usefulness - Limits - Elements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
25) Which financial statement provides information for a point in time only?
A) Statement of cash flows.
B) Income statement.
C) Statement of shareholders' equity.
D) Balance sheet.
Difficulty: 1 Easy
Topic: Balance sheet―Usefulness - Limits - Elements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
26) A classified balance sheet:
A) Shows only current assets and current liabilities.
B) Shows changes in assets, liabilities, revenues and expenses.
C) Contains confidential information.
D) Shows subtotals for current assets and current liabilities.
Difficulty: 1 Easy
Topic: Balance sheet―Usefulness - Limits - Elements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
27) Which of the following is a primary reason a company's book value is less than its market value?
A) Management recording errors.
B) Many valuable resources of the company are not recorded as assets.
C) Land and buildings are valued at their fair value.
D) Investors tend to be too optimistic about a company's growth opportunities.
Difficulty: 2 Medium
Topic: Balance sheet―Usefulness - Limits - Elements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
28) Which of the following potentially limit the usefulness of the balance sheet?
A) Many valuable resources of the company are not recorded as assets.
B) Many items in the balance sheet reflect estimates and judgments of management.
C) Property, plant, and equipment are recorded at their book values rather than fair values.
D) All of the other answers represent potential limitations.
Difficulty: 2 Medium
Topic: Balance sheet―Usefulness - Limits - Elements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
29) 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.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
30) A company would classify a six-month prepaid insurance policy as:
A) Property, plant, and equipment.
B) Investment.
C) Current asset.
D) Goodwill.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
31) An asset that is generally not expected to be converted to cash or consumed within one year or the operating cycle, whichever is longer, is:
A) Building.
B) Accounts receivable.
C) Inventory.
D) Supplies.
Difficulty: 1 Easy
Topic: Classify assets―Long-term assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
32) Long-term solvency refers to:
A) The efficiency with which a company manages its resources.
B) The profitability of a company over a long-term period of time.
C) The amount of current assets relative to long-term assets.
D) The risk that a company will not be able to pay its long-term debt.
Difficulty: 1 Easy
Topic: Balance sheet―Usefulness - Limits - Elements; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
33) Which is a shareholders' equity account in the balance sheet?
A) Accumulated depreciation.
B) Paid-in capital.
C) Salaries payable.
D) Accounts receivable.
Difficulty: 1 Easy
Topic: Classify shareholders' equity
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
34) 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.
Difficulty: 1 Easy
Topic: Classify liabilities―Current liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
35) Notes payable that are due in two years are:
A) Current liabilities.
B) Long-term intangible assets.
C) Long-term liabilities.
D) Long-term investments.
Difficulty: 1 Easy
Topic: Classify liabilities―Long-term liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
36) Which of the following is not a current liability account?
A) Accrued payroll.
B) Dividends payable.
C) Prepaid rent.
D) Subscriptions collected in advance from customers.
Difficulty: 1 Easy
Topic: Classify liabilities―Current liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
37) 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.
Difficulty: 2 Medium
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
38) Long-term assets generally include:
A) Inventory held for sale.
B) Prepaid rent.
C) Accounts receivable.
D) Land held for a possible future plant site.
Difficulty: 2 Medium
Topic: Classify assets―Long-term assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
39) Long-term productive assets used in the normal course of business are typically classified as:
A) Current assets.
B) Investments.
C) Intangible assets.
D) Property, plant and equipment.
Difficulty: 1 Easy
Topic: Classify assets―Long-term assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
40) Patents, copyrights, franchises, and trademarks are examples of:
A) Current assets.
B) Investments.
C) Intangible assets.
D) Property, plant and equipment.
Difficulty: 1 Easy
Topic: Classify assets―Long-term assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
41) The following information is provided for a company.
| ||||
Accounts payable | $ | 15,000 |
| |
Buildings |
| 80,000 |
| |
Cash |
| 10,500 |
| |
Accounts receivable |
| 9,500 |
| |
Salaries payable |
| 4,500 |
| |
Retained earnings |
| 47,500 |
| |
Supplies |
| 40,000 |
| |
Notes payable (due in 18 months) |
| 35,000 |
| |
Interest payable |
| 3,000 |
| |
Common stock |
| 35,000 |
| |
What is the amount of current assets, assuming the accounts above reflect normal activity?
A) $20,000.
B) $60,000.
C) $140,000.
D) $175,000.
Difficulty: 3 Hard
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
42) The following information is provided for a company. All liabilities are due to be satisfied within one year unless stated otherwise.
| ||||
Retained earnings | $ | 52,000 |
| |
Supplies |
| 37,000 |
| |
Equipment |
| 72,000 |
| |
Accounts receivable |
| 9,000 |
| |
Deferred revenue |
| 6,000 |
| |
Accounts payable |
| 15,000 |
| |
Common stock |
| 25,000 |
| |
Notes payable (due in 18 months) |
| 35,000 |
| |
Interest payable |
| 7,000 |
| |
Cash |
| 22,000 |
| |
What is the amount of current liabilities?
A) $63,000.
B) $28,000.
C) $46,000.
D) $22,000.
Difficulty: 3 Hard
Topic: Classify liabilities―Current liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
43) The following information is provided for Sacks Company.
| ||||
Cash | $ | 12,000 |
| |
Supplies |
| 4,500 |
| |
Prepaid rent |
| 2,000 |
| |
Salaries expense |
| 4,500 |
| |
Equipment |
| 65,000 |
| |
Service revenue |
| 30,000 |
| |
Miscellaneous expenses |
| 20,000 |
| |
Dividends |
| 3,000 |
| |
Accounts payable |
| 5,000 |
| |
Common stock |
| 68,000 |
| |
Retained earnings |
| 8,000 |
| |
What is the amount of total assets?
A) $81,500.
B) $82,500.
C) $68,500.
D) $83,500.
Difficulty: 2 Medium
Topic: Total assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
44) The following information is provided for Sacks Company.
| ||||
Cash | $ | 12,000 |
| |
Supplies |
| 4,500 |
| |
Prepaid rent |
| 2,000 |
| |
Salaries expense |
| 4,500 |
| |
Equipment |
| 65,000 |
| |
Service revenue |
| 30,000 |
| |
Miscellaneous expenses |
| 20,000 |
| |
Dividends |
| 3,000 |
| |
Accounts payable |
| 5,000 |
| |
Common stock |
| 68,000 |
| |
Retained earnings |
| 8,000 |
| |
What is the amount of total liabilities?
A) $5,000.
B) $78,500.
C) $68,500.
D) $83,500.
Difficulty: 2 Medium
Topic: Total liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
45) The following information is provided for Sacks Company before closing entries.
| ||||
Cash | $ | 12,000 |
| |
Supplies |
| 4,500 |
| |
Prepaid rent |
| 2,000 |
| |
Salaries expense |
| 4,500 |
| |
Equipment |
| 65,000 |
| |
Service revenue |
| 30,000 |
| |
Miscellaneous expenses |
| 20,000 |
| |
Dividends |
| 3,000 |
| |
Accounts payable |
| 5,000 |
| |
Common stock |
| 68,000 |
| |
Retained earnings |
| 8,000 |
| |
What is the amount of total shareholders' equity?
A) $5,000.
B) $78,500.
C) $68,500.
D) $83,500.
Difficulty: 3 Hard
Topic: Classify shareholders' equity
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
46) Consider the following items:
• Land
• Accounts Receivable
• Notes Payable (due in three years)
• Accounts Payable
• Retained Earnings
• Prepaid Rent
• Deferred Revenue
• Buildings
• Notes Payable (due in six months)
• Equipment
How many of the items listed above are generally long-term assets?
A) Two.
B) Three.
C) Four.
D) Five.
Difficulty: 2 Medium
Topic: Classify assets―Long-term assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
47) Listed below are year-end account balances ($ in millions) taken from the records of Symphony Stores.
| Debit |
| Credit |
Accounts receivable | 710 |
|
|
Building and equipment | 920 |
|
|
Cash | 39 |
|
|
Interest receivable | 30 |
|
|
Inventory | 16 |
|
|
Land | 150 |
|
|
Notes receivable (long-term) | 450 |
|
|
Prepaid rent | 20 |
|
|
Supplies | 8 |
|
|
Trademark | 40 |
|
|
Accounts payable |
|
| 560 |
Accumulated depreciation |
|
| 80 |
Additional paid-in capital |
|
| 485 |
Dividends payable |
|
| 30 |
Common stock (at par) |
|
| 15 |
Income tax payable |
|
| 65 |
Notes payable (long-term) |
|
| 800 |
Retained earnings |
|
| 308 |
Deferred revenue |
|
| 40 |
TOTALS | 2,383 |
| 2,383 |
What would Symphony report as total current assets?
A) $823 million.
B) $838 million.
C) $863 million.
D) $1,696 million.
Difficulty: 3 Hard
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
48) Listed below are year-end account balances ($ in millions) taken from the records of Symphony Stores.
| Debit |
| Credit |
Accounts receivable | 710 |
|
|
Building and equipment | 920 |
|
|
Cash | 39 |
|
|
Interest receivable | 30 |
|
|
Inventory | 16 |
|
|
Land | 150 |
|
|
Notes receivable (long-term) | 450 |
|
|
Prepaid rent | 20 |
|
|
Supplies | 8 |
|
|
Trademark | 40 |
|
|
Accounts payable |
|
| 560 |
Accumulated depreciation |
|
| 80 |
Additional paid-in capital |
|
| 485 |
Dividends payable |
|
| 30 |
Common stock (at par) |
|
| 15 |
Income tax payable |
|
| 65 |
Notes payable (long-term) |
|
| 800 |
Retained earnings |
|
| 308 |
Deferred revenue |
|
| 40 |
TOTALS | 2,383 |
| 2,383 |
What would Symphony report as total assets?
A) $2,463 million.
B) $2,383 million.
C) $2,318 million.
D) $2,303 million.
Difficulty: 3 Hard
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
49) Listed below are year-end account balances ($ in millions) taken from the records of Symphony Stores.
| Debit |
| Credit |
Accounts receivable | 710 |
|
|
Building and equipment | 920 |
|
|
Cash | 39 |
|
|
Interest receivable | 30 |
|
|
Inventory | 16 |
|
|
Land | 150 |
|
|
Notes receivable (long-term) | 450 |
|
|
Prepaid rent | 20 |
|
|
Supplies | 8 |
|
|
Trademark | 40 |
|
|
Accounts payable |
|
| 560 |
Accumulated depreciation |
|
| 80 |
Additional paid-in capital |
|
| 485 |
Dividends payable |
|
| 30 |
Common stock (at par) |
|
| 15 |
Income tax payable |
|
| 65 |
Notes payable (long-term) |
|
| 800 |
Retained earnings |
|
| 308 |
Deferred revenue |
|
| 40 |
TOTALS | 2,383 |
| 2,383 |
What would Symphony report as total shareholders' equity?
A) $323 million.
B) $808 million.
C) $838 million.
D) $928 million.
Difficulty: 2 Medium
Topic: Classify shareholders' equity
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
50) Listed below are year-end account balances ($ in millions) taken from the records of Symphony Stores.
| Debit |
| Credit |
Accounts receivable | 710 |
|
|
Building and equipment | 920 |
|
|
Cash | 39 |
|
|
Interest receivable | 30 |
|
|
Inventory | 16 |
|
|
Land | 150 |
|
|
Notes receivable (long-term) | 450 |
|
|
Prepaid rent | 20 |
|
|
Supplies | 8 |
|
|
Trademark | 40 |
|
|
Accounts payable |
|
| 560 |
Accumulated depreciation |
|
| 80 |
Additional paid-in capital |
|
| 485 |
Dividends payable |
|
| 30 |
Common stock (at par) |
|
| 15 |
Income tax payable |
|
| 65 |
Notes payable (long-term) |
|
| 800 |
Retained earnings |
|
| 308 |
Deferred revenue |
|
| 40 |
TOTALS | 2,383 |
| 2,383 |
What is the amount of working capital for Symphony?
A) $148 million.
B) $158 million.
C) $128 million.
D) $113 million.
Current assets: $710 + $39 + $30 + $16 + $20 + $8 = | $ | 823 |
|
Current liabilities: $560 + $30 + $65 + $40 = |
| 695 |
|
Working capital | $ | 128 |
|
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
51) Assets do not include:
A) Property, plant, and equipment.
B) Investments.
C) Paid-in capital.
D) Nontrade receivables.
Difficulty: 1 Easy
Topic: Total assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
52) Cash equivalents would not include:
A) Cash not available for current operations.
B) Money market funds.
C) U.S. treasury bills.
D) Bank drafts.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
53) Cash equivalents would include:
A) Highly liquid investments that can be quickly converted to cash.
B) Accounts receivable from customers.
C) Cash restricted for special purposes such as to repay debt in the future.
D) Prepaid expenses that were purchased with cash.
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
54) Accrued liabilities:
A) Are generally paid in services rather than cash.
B) Result from payment before services are received.
C) Result from services received before payment is made.
D) Are deferred charges to expense.
Difficulty: 2 Medium
Topic: Classify liabilities―Current liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
55) If a company records cash received for services to be provided in the future with a debit to Cash and a credit to Service Revenue, how will this error affect net income for the current period?
A) Net income will be too low.
B) Net income will be correct.
C) Net income will be too high.
D) Not possible to determine.
Difficulty: 2 Medium
Topic: Classify liabilities―Current liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
56) Janson Corporation Co.'s trial balance included the following account balances at December 31, 2021:
Accounts receivable | $ | 12,000 |
|
Inventory |
| 40,000 |
|
Patent |
| 12,000 |
|
Investments |
| 30,000 |
|
Prepaid insurance |
| 6,000 |
|
Notes receivable, due 2024 |
| 50,000 |
|
Investments consist of treasury bills that were purchased in November, 2021, and mature in January, 2022. Prepaid insurance is for two years. What amount should be included in the current assets section of Janson's December 31, 2021, balance sheet?
A) $88,000.
B) $85,000.
C) $55,000.
D) $135,000.
Difficulty: 2 Medium
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
57) Lanson Corporation Co.'s trial balance included the following account balances at December 31, 2021:
Accounts payable | $ | 25,000 |
|
Bonds payable, due 2030 |
| 22,000 |
|
Salaries payable |
| 16,000 |
|
Notes payable, due 2022 |
| 20,000 |
|
Notes payable, due 2026 |
| 40,000 |
|
What amount should be included in the current liabilities section of Lanson's December 31, 2021, balance sheet?
A) $63,000.
B) $41,000.
C) $61,000.
D) $101,000.
Difficulty: 2 Medium
Topic: Classify liabilities―Current liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
58) The usual difference between accounts payable and notes payable is:
A) Legally enforceable debt.
B) Current–Long-term classification.
C) Known payment terms.
D) Explicitly stated interest.
Difficulty: 2 Medium
Topic: Classify liabilities―Long-term liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
59) Which of the following would be disclosed in the summary of significant accounting policies disclosure note?
| Composition of Long-term debt | Depreciation Method |
a. | No | Yes |
b. | Yes | No |
c. | Yes | Yes |
d. | No | No |
A) Option a
B) Option b
C) Option c
D) Option d
Difficulty: 1 Easy
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
60) 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.
Difficulty: 1 Easy
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
61) 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.
Difficulty: 1 Easy
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
62) 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.
Difficulty: 2 Medium
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
63) A subsequent event for an entity with a December 31, 2021, year-end would not include:
A) A change in the estimated useful lives of equipment in January 2022.
B) An issuance of bonds in January 2022.
C) An acquisition of another company in January 2022.
D) A major uncertainty at December 31, resolved in January 2022.
Difficulty: 2 Medium
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
64) How are management's responsibility and the auditor's opinion on internal controls represented in the unqualified auditor's report?
| Management's Responsibility | Auditors' Responsibility |
a. | Not stated | Stated |
b. | Stated | Stated |
c. | Not stated | Not stated |
d. | Stated | Not stated |
A) Option a
B) Option b
C) Option c
D) Option d
Difficulty: 1 Easy
Topic: Audit and Auditor's report
Learning Objective: 03-06 Explain the purpose of an audit and describe the content of the audit report.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Reporting / Keyboard Navigation
65) Management's Report on Internal Control Over Financial Reporting:
A) Provides the auditor's opinion on the fairness of the financial statements.
B) Contains personal certification of the financial statements by the company's executives.
C) Contains a detailed description of compensation of the company's executives for the year.
D) Provides a summary of significant accounting policies used to prepare financial statements.
Difficulty: 1 Easy
Topic: Disclosure―Management - Directors - Executives
Learning Objective: 03-06 Explain the purpose of an audit and describe the content of the audit report.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Legal; FN Reporting / Keyboard Navigation
66) The Management's 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.
Difficulty: 2 Medium
Topic: Disclosure―Management - Directors - Executives
Learning Objective: 03-05 Describe disclosures related to management's discussion and analysis, responsibilities, and compensation.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking / Keyboard Navigation
67) 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 long-term receivable as a current receivable.
D) Forgetting to accrue salaries payable.
Difficulty: 2 Medium
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Analyze
AACSB: Analytical Thinking; Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
68) 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 vendor.
Difficulty: 2 Medium
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
69) An omission in the notes to the financial statements 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.
Difficulty: 2 Medium
Topic: Audit and Auditor's report
Learning Objective: 03-06 Explain the purpose of an audit and describe the content of the audit report.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Reporting / Keyboard Navigation
70) A company may compare the amount of receivables in the current year to the amount of receivables in the previous year to estimate a trend in the company's ability to collect cash from customers. This type of analysis is known as:
A) Horizontal analysis.
B) Time analysis.
C) Vertical analysis.
D) Turnover analysis.
Difficulty: 1 Easy
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
71) To understand the components of a company's profitability, an analyst may compute the ratio of each major expense classification to total sales. This type of analysis is known as:
A) Cost analysis.
B) Horizontal analysis.
C) Comparative analysis.
D) Vertical analysis.
Difficulty: 1 Easy
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
72) Which of the following would be an amount computed using horizontal analysis?
A) The ratio of cost of goods sold to total sales for the current year.
B) The percentage change in the cash balance from last year to this year.
C) The difference between current assets and current liabilities at the end of the year.
D) The ratio of inventory to total assets at the end of the year.
Difficulty: 2 Medium
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
73) 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.
Difficulty: 1 Easy
Topic: Balance sheet―Usefulness - Limits - Elements; Using information―Liquidity ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
74) Lack of long-term solvency refers to:
A) Risk of nonpayment of both current and long-term liabilities.
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.
Difficulty: 2 Medium
Topic: Balance sheet―Usefulness - Limits - Elements; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
75) The current ratio is calculated as:
A) Current assets divided by long-term assets.
B) Current assets divided by total assets.
C) Current assets divided by current liabilities.
D) Current assets divided by total liabilities.
Difficulty: 1 Easy
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
76) 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.
Difficulty: 1 Easy
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
77) The quick ratio is typically computed as:
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.
Difficulty: 1 Easy
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
78) Working capital is equal to:
A) Current assets.
B) Current liabilities.
C) Current assets plus current liabilities.
D) Current assets minus current liabilities.
Difficulty: 1 Easy
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
79) Which of the following is not used when analyzing long-term solvency?
A) Times interest earned ratio.
B) Debt to equity ratio.
C) Acid-test ratio.
D) Total liabilities.
Difficulty: 2 Medium
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
80) When a company pays its bill from a lawyer 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) Its working capital decreases.
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; BB Resource Management; FN Risk Analysis / Keyboard Navigation
81) When a company accrues salaries 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.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
82) Assume a company's liquidity 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.
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
83) When a company sells land for cash and recognizes a $25,000 gain:
A) Its acid-test ratio decreases.
B) Its current ratio decreases.
C) Its debt to equity ratio decreases.
D) Cannot determine from the given information.
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
84) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below.
Assets |
|
|
| Liabilities and Equity |
|
|
|
Current assets: |
|
|
| Current liabilities: |
|
|
|
Cash | $ | 60 |
| Accounts payable | $ | 240 |
|
Accounts receivable (net) |
| 170 |
| Other current liabilities |
| 80 |
|
Notes receivable |
| 50 |
| Total current liabilities |
| 320 |
|
Inventory |
| 200 |
| Long-term liabilities |
| 110 |
|
Prepaid expenses |
| 25 |
| Total liabilities |
| 430 |
|
Total current assets |
| 505 |
| Shareholders' equity: |
|
|
|
Equipment (net) |
| 255 |
| Common stock |
| 150 |
|
|
|
|
| Retained earnings |
| 180 |
|
|
|
|
| Total shareholders' equity |
| 330 |
|
Total assets | $ | 760 |
| Total liabilities and equity | $ | 760 |
|
The current ratio is (Round your answer to 2 decimal places.):
A) 1.98.
B) 1.58.
C) 1.17.
D) 0.66.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
85) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below.
Assets |
|
|
| Liabilities and Equity |
|
|
|
Current assets: |
|
|
| Current liabilities: |
|
|
|
Cash | $ | 60 |
| Accounts payable | $ | 240 |
|
Accounts receivable (net) |
| 170 |
| Other current liabilities |
| 80 |
|
Notes receivable |
| 50 |
| Total current liabilities |
| 320 |
|
Inventory |
| 200 |
| Long-term liabilities |
| 110 |
|
Prepaid expenses |
| 25 |
| Total liabilities |
| 430 |
|
Total current assets |
| 505 |
| Shareholders' equity: |
|
|
|
Equipment (net) |
| 255 |
| Common stock |
| 150 |
|
|
|
|
| Retained earnings |
| 180 |
|
|
|
|
| Total shareholders' equity |
| 330 |
|
Total assets | $ | 760 |
| Total liabilities and equity | $ | 760 |
|
Working capital is:
A) $505 thousand.
B) $265 thousand.
C) $185 thousand.
D) $75 thousand.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
86) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below.
Assets |
|
|
| Liabilities and Equity |
|
|
|
Current assets: |
|
|
| Current liabilities: |
|
|
|
Cash | $ | 60 |
| Accounts payable | $ | 240 |
|
Accounts receivable (net) |
| 170 |
| Other current liabilities |
| 80 |
|
Notes receivable |
| 50 |
| Total current liabilities |
| 320 |
|
Inventory |
| 200 |
| Long-term liabilities |
| 110 |
|
Prepaid expenses |
| 25 |
| Total liabilities |
| 430 |
|
Total current assets |
| 505 |
| Shareholders' equity: |
|
|
|
Equipment (net) |
| 255 |
| Common stock |
| 150 |
|
|
|
|
| Retained earnings |
| 180 |
|
|
|
|
| Total shareholders' equity |
| 330 |
|
Total assets | $ | 760 |
| Total liabilities and equity | $ | 760 |
|
Quick assets total:
A) $60 thousand.
B) $230 thousand.
C) $280 thousand.
D) $305 thousand.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
87) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below.
Assets |
|
|
| Liabilities and Equity |
|
|
|
Current assets: |
|
|
| Current liabilities: |
|
|
|
Cash | $ | 60 |
| Accounts payable | $ | 240 |
|
Accounts receivable (net) |
| 170 |
| Other current liabilities |
| 80 |
|
Notes receivable |
| 50 |
| Total current liabilities |
| 320 |
|
Inventory |
| 200 |
| Long-term liabilities |
| 110 |
|
Prepaid expenses |
| 25 |
| Total liabilities |
| 430 |
|
Total current assets |
| 505 |
| Shareholders' equity: |
|
|
|
Equipment (net) |
| 255 |
| Common stock |
| 150 |
|
|
|
|
| Retained earnings |
| 180 |
|
|
|
|
| Total shareholders' equity |
| 330 |
|
Total assets | $ | 760 |
| Total liabilities and equity | $ | 760 |
|
The acid-test ratio is (Round your answer to 2 decimal places.):
A) 0.25.
B) 0.88.
C) 1.17.
D) 1.58.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
88) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
Current liabilities | $ | 180 |
| Income before interest and taxes | $ | 125 |
|
10% Bonds, long-term |
| 360 |
| Interest expense |
| 36 |
|
Total liabilities |
| 540 |
| Income before tax |
| 89 |
|
Shareholders' equity |
|
|
| Income tax |
| 27 |
|
Common stock |
| 200 |
| Net income | $ | 62 |
|
Retained earnings |
| 280 |
|
|
|
|
|
Total shareholders' equity |
| 480 |
|
|
|
|
|
Total liabilities and equity | $ | 1,020 |
|
|
|
|
|
HHF's debt to equity ratio is (Round your answer to 2 decimal places.):
A) 0.75.
B) 1.13.
C) 0.53.
D) 1.80.
Difficulty: 2 Medium
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
89) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
Current liabilities | $ | 180 |
| Income before interest and taxes | $ | 125 |
|
10% Bonds, long-term |
| 360 |
| Interest expense |
| 36 |
|
Total liabilities |
| 540 |
| Income before tax |
| 89 |
|
Shareholders' equity |
|
|
| Income tax |
| 27 |
|
Common stock |
| 200 |
| Net income | $ | 62 |
|
Retained earnings |
| 280 |
|
|
|
|
|
Total shareholders' equity |
| 480 |
|
|
|
|
|
Total liabilities and equity | $ | 1,020 |
|
|
|
|
|
HHF's times interest earned ratio is (Round your answer to 2 decimal places.):
A) 3.47.
B) 1.73.
C) 2.47.
D) 10.0.
Difficulty: 3 Hard
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
90) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
Current liabilities | $ | 180 |
| Income before interest and taxes | $ | 125 |
|
10% Bonds, long-term |
| 360 |
| Interest expense |
| 36 |
|
Total liabilities |
| 540 |
| Income before tax |
| 89 |
|
Shareholders' equity |
|
|
| Income tax |
| 27 |
|
Common stock |
| 200 |
| Net income | $ | 62 |
|
Retained earnings |
| 280 |
|
|
|
|
|
Total shareholders' equity |
| 480 |
|
|
|
|
|
Total liabilities and equity | $ | 1,020 |
|
|
|
|
|
HHF's long-term debt to equity ratio equity is:
A) 133.3%.
B) 75%.
C) 180%.
D) 0%.
Difficulty: 2 Medium
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
91) Using borrowed funds to generate additional profits for shareholders is referred to as:
A) Liquidity management.
B) Operational expansion.
C) Capital budgeting.
D) Financial leverage.
Difficulty: 1 Easy
Topic: Using information―Return on equity
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
92) A company that borrows funds at 6% and then generates a return on those funds of 9% typically has:
A) Greater default risk.
B) Favorable financial leverage.
C) Higher return on equity.
D) All of the other answers are true.
Difficulty: 2 Medium
Topic: Using information―Return on equity
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
93) Which of the following features is typical of a balance sheet prepared under IFRS?
A) A shareholders' equity section often is not included.
B) Assets often are listed after liabilities.
C) Long-term items often are listed before current items.
D) Assets sometimes do not equal liabilities plus shareholders' equity.
Difficulty: 1 Easy
Topic: IFRS―Balance sheet presentation
Learning Objective: 03-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the balance sheet, financial disclosures, and segment reporting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
94) For a balance sheet prepared under IFRS, long-term liabilities typically are listed:
A) Just before the current assets section.
B) In the shareholders' equity section.
C) In the long-term asset section.
D) Just before the current liabilities section.
Difficulty: 1 Easy
Topic: IFRS―Balance sheet presentation
Learning Objective: 03-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the balance sheet, financial disclosures, and segment reporting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
95) 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.
Difficulty: 1 Easy
Topic: Segment reporting - Appendix
Learning Objective: 03-Appendix 3: Reporting Segment Information.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
96) Which of the following is not a required segment reporting disclosure according to International Financial Reporting Standards (IFRS)?
A) Segment profit or loss.
B) Segment assets.
C) Segment liabilities.
D) All are required disclosures.
Difficulty: 1 Easy
Topic: IFRS―Segment Reporting - Appendix
Learning Objective: 03-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the balance sheet, financial disclosures, and segment reporting.; 03-Appendix 3: Reporting Segment Information.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
97) 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 recognize revenues and incur expenses.
D) Represents more than 20% of total company revenues, assets, or net income.
Difficulty: 1 Easy
Topic: Segment reporting - Appendix
Learning Objective: 03-Appendix 3: Reporting Segment Information.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
98) Listed below are 5 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Unqualified opinion | a. Independent and professional report about the fairness of the financial statements. |
_____ 2. Disclaimer | b. Given by an auditor when there is a limitation of audit procedures or a departure from GAAP. |
_____ 3. Auditor's report | c. Given by an auditor when financial statements are presented fairly in conformity with GAAP. |
_____ 4. Qualified opinion | d. Given by an auditor when there are substantial reporting errors and a qualified opinion is not appropriate. |
_____ 5. Adverse opinion | e. Given by an auditor when information is insufficient to express an opinion. |
_c_ 1. Unqualified opinion | a. Independent and professional report about the fairness of the financial statements. |
_e_ 2. Disclaimer | b. Given by an auditor when there is a limitation of audit procedures or a departure from GAAP. |
_a_ 3. Auditor's report | c. Given by an auditor when financial statements are presented fairly in conformity with GAAP. |
_b_ 4. Qualified opinion | d. Given by an auditor when there are substantial reporting errors and a qualified opinion is not appropriate. |
_d_ 5. Adverse opinion | e. Given by an auditor when information is insufficient to express an opinion. |
Difficulty: 2 Medium
Topic: Audit and Auditor's report
Learning Objective: 03-06 Explain the purpose of an audit and describe the content of the audit report.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Reporting
99) Listed below are 5 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Current ratio | a. Also known as the quick ratio. |
_____ 2. Acid-test ratio | b. Refers to riskiness of a company with regard to the amount of liabilities in its capital structure. |
_____ 3. Long-term solvency | c. Relates to the amount of time before an asset is converted to cash or a liability is paid. |
_____ 4. Liquidity | d. If four to one, 80% of assets are debt-financed. |
_____ 5. Debt to equity ratio | e. Current assets divided by current liabilities. |
_e_ 1. Current ratio | a. Also known as the quick ratio. |
_a_ 2. Acid-test ratio | b. Refers to riskiness of a company with regard to the amount of liabilities in its capital structure. |
_b_ 3. Long-term solvency | c. Relates to the amount of time before an asset is converted to cash or a liability is paid. |
_c_ 4. Liquidity | d. If four to one, 80% of assets are debt-financed. |
_d_ 5. Debt to equity ratio | e. Current assets divided by current liabilities. |
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
100) Listed below are 5 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Long-term liabilities | a. Obligations payable in more than one year or longer than the operating cycle. |
_____ 2. Current liabilities | b. Ownership of an exclusive right. |
_____ 3. Intangible asset | c. Items expected to be converted to cash or consumed within one year or the operating cycle. |
_____ 4. Current assets | d. Obligations payable within one year or the operating cycle. |
_____ 5. Property, plant, and equipment | e. Includes buildings and land used in operations. |
_a_ 1. Long-term liabilities | a. Obligations payable in more than one year or longer than the operating cycle. |
_d_ 2. Current liabilities | b. Ownership of an exclusive right. |
_b_ 3. Intangible asset | c. Items expected to be converted to cash or consumed within one year or the operating cycle. |
_c_ 4. Current assets | d. Obligations payable within one year or the operating cycle. |
_e_ 5. Property, plant, and equipment | e. Includes buildings and land used in operations. |
Difficulty: 1 Easy
Topic: Classify assets―Current assets; Classify assets―Long-term assets; Classify liabilities―Current liabilities; Classify liabilities―Long-term liabilities
Learning Objective: 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
101) Listed below are 5 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Notes receivable | a. Insurance premiums paid in advance. |
_____ 2. Short-term investments | b. Goods to be sold in the ordinary course of business. |
_____ 3. Inventory | c. Due from customers in the ordinary course of business. |
_____ 4. Accounts receivable | d. Formal agreement that specifies customer's payment terms. |
_____ 5. Prepaid expenses | e. Liquid investments not classified as cash equivalents. |
_d_ 1. Notes receivable | a. Insurance premiums paid in advance. |
_e_ 2. Short-term investments | b. Goods to be sold in the ordinary course of business. |
_b_ 3. Inventory | c. Due from customers in the ordinary course of business. |
_c_ 4. Accounts receivable | d. Formal agreement that specifies customer's payment terms. |
_a_ 5. Prepaid expenses | e. Liquid investments not classified as cash equivalents. |
Difficulty: 1 Easy
Topic: Classify assets―Current assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
102) Listed below are 5 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Subsequent events | a. Management's views on its operations, liquidity, and capital resources. |
_____ 2. Proxy statement | b. Includes disclosures of executive compensation. |
_____ 3. MD&A | c. Independent and professional opinion about the fairness of the financial statements. |
_____ 4. Auditor's report | d. Occurs after the fiscal year-end, but before the statements are issued. |
_____ 5. Summary of significant accounting policies | e. Information about the company's choices from among various alternative accounting methods. |
_d_ 1. Subsequent events | a. Management's views on its operations, liquidity, and capital resources. |
_b_ 2. Proxy statement | b. Includes disclosures of executive compensation. |
_a_ 3. MD&A | c. Independent and professional opinion about the fairness of the financial statements. |
_c_ 4. Auditor's report | d. Occurs after the fiscal year-end, but before the statements are issued. |
_e_ 5. Summary of significant accounting policies | e. Information about the company's choices from among various alternative accounting methods. |
Difficulty: 2 Medium
Topic: Disclosure―Notes to financial statements; Disclosure—Management-Directors-Executives; Audit and Auditor's report
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.; 03-05 Describe disclosures related to management's discussion and analysis, responsibilities, and compensation.; 03-06 Explain the purpose of an audit and describe the content of the audit report.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; BB Legal; FN Reporting; FN Measurement
103) Listed below are 5 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Paid-in capital | a. Accumulated net income less dividends since the inception of the corporation. |
_____ 2. Prepaid expense | b. Cash received from a customer for goods or services to be provided in a future period. |
_____ 3. Deferred revenue | c. Converting cash to inventory to receivables to cash. |
_____ 4. Operating cycle | d. Cash paid in advance for a cost of the company. |
_____ 5. Retained earnings | e. Amounts invested by shareholders in the corporation. |
_e_ 1. Paid-in capital | a. Accumulated net income less dividends since the inception of the corporation. |
_d_ 2. Prepaid expense | b. Cash received from a customer for goods or services to be provided in a future period. |
_b_ 3. Deferred revenue | c. Converting cash to inventory to receivables to cash. |
_c_ 4. Operating cycle | d. Cash paid in advance for a cost of the company. |
_a_ 5. Retained earnings | e. Amounts invested by shareholders in the corporation. |
Difficulty: 2 Medium
Topic: Classify assets―Current assets; Classify liabilities―Current liabilities; Classify shareholders' equity
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
104) Listed below are ten terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Related-party transactions | a. Material events that occur after the end of the fiscal year and before the statements are issued. |
_____ 2. Deferred revenues | b. Obligations to suppliers of merchandise or of services purchased on account. |
_____ 3. Accounts receivable | c. Transactions with owners, managers, and affiliated companies. |
_____ 4. Inventory | d. Net income less dividends since inception of the corporation. |
_____ 5. Accounts payable | e. Management's views on significant events. |
_____ 6. Prepaid expense | f. Amounts due from customers. |
_____ 7. Retained earnings | g. Goods to be sold in the ordinary course of business. |
_____ 8. Subsequent events | h. Asset recorded when an expense is paid for in advance. |
_____ 9. MD&A | i. Cash received from a customer in advance of providing a good or service. |
_____ 10. Franchise | j. An intangible asset. |
_c_ 1. Related-party transactions | a. Material events that occur after the end of the fiscal year and before the statements are issued. |
_i_ 2. Deferred revenues | b. Obligations to suppliers of merchandise or of services purchased on account. |
_f_ 3. Accounts receivable | c. Transactions with owners, managers, and affiliated companies. |
_g_ 4. Inventory | d. Net income less dividends since inception of the corporation. |
_b_ 5. Accounts payable | e. Management's views on significant events. |
_h_ 6. Prepaid expense | f. Amounts due from customers. |
_d_ 7. Retained earnings | g. Goods to be sold in the ordinary course of business. |
_a_ 8. Subsequent events | h. Asset recorded when an expense is paid for in advance. |
_e_ 9. MD&A | i. Cash received from a customer in advance of providing a good or service. |
_j_ 10. Franchise | j. An intangible asset. |
Difficulty: 2 Medium
Topic: Classify assets―Current assets; Classify assets―Long-term assets; Classify liabilities―Current liabilities; Classify shareholders' equity; Disclosure―Notes to financial statements; Disclosure—Management-Directors-Executives
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.; 03-04 Explain the purpose of financial statement disclosures.; 03-05 Describe disclosures related to management's discussion and analysis, responsibilities, and compensation.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
105) Listed below are 4 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
_____ 1. Default risk | a. An indication of whether a company won't be able to pay its obligations when they come due. |
_____ 2. Operational risk | b. Each item in a financial statement is expressed as a percentage of that same item in the financial statements of another year (base amount). |
_____ 3. Horizontal analysis | c. Each item in the financial statements is expressed as a percentage of an appropriate corresponding total, or base amount, but within the same year. |
_____ 4. Vertical analysis | d. An indication of how adept a company is at withstanding various events and circumstances that might impair its ability to earn profits. |
_a_ 1. Default risk | a. An indication of whether a company won't be able to pay its obligations when they come due. |
_d_ 2. Operational risk | b. Each item in a financial statement is expressed as a percentage of that same item in the financial statements of another year (base amount). |
_b_ 3. Horizontal analysis | c. Each item in the financial statements is expressed as a percentage of an appropriate corresponding total, or base amount, but within the same year. |
_c_ 4. Vertical analysis | d. An indication of how adept a company is at withstanding various events and circumstances that might impair its ability to earn profits. |
Difficulty: 2 Medium
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
106) Carter Appliances is preparing its annual report for the current fiscal year. The company's controller has asked for your help in determining how best to disclose information about the following items:
1. A subsequent event.
2. Inventory costing method.
3. Composition of accrued liabilities.
4. Useful lives of depreciable assets.
5. Information on long-term leases.
6. Allowance for uncollectible accounts.
7. Revenue recognition policy.
8. Pension plans.
Required: Indicate whether the above items should be disclosed (a) in the summary of significant accounting policies note, (b) in a separate disclosure note, or (c) on the face of the balance sheet
Difficulty: 3 Hard
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
107) As controller for Henderson, you are attempting to reconstruct and revise the following balance sheet prepared by a staff accountant.
Henderson Manufacturing Company
Balance Sheet
At December 31, 2021
($ in 000s)
Assets
Current assets:
Cash $ 1,600
Accounts receivable 4,300
Allowance for uncollectible accounts (500)
Finished goods inventory 5,000
Prepaid expenses 2,400
Total current assets 12,800
Long-term assets:
Investments 2,000
Raw materials and work in process inventory 3,200
Equipment 18,000
Accumulated depreciation–equipment (8,000)
Franchise ________ ?
Total assets $ ?
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $6,200
Notes payable 8,000
Interest payable–note 200
Deferred revenue 2,400
Total current liabilities 16,800
Long-term liabilities:
Bonds payable 7,000
Interest payable–bonds 200
Shareholders' equity:
Common stock $ ?
Retained earnings ? ?
Total liabilities and shareholders' equity $ ?
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 2021 was $2,500, and $800 in cash dividends were declared and paid to shareholders.
2. The investments represent treasury bills purchased in December 2021 that mature in January 2022. These are considered cash equivalents.
3. Interest on both the notes and the bonds is payable annually.
4. The notes payable account contains one note that is due in annual installments of $800 for each payment due.
5. Deferred revenue will be recognized equally over the next 18 months.
6. The common stock represents 500,000 shares of no par stock authorized, of which 300,000 shares are issued and outstanding.
Required:
Prepare a complete, corrected, classified balance sheet.
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness-Limits-Elements; Total assets; Total liabilities; Classify shareholders' equity; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
108) You recently joined the internal auditing department of Kaitlyn Sportswear Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.
Kaitlyn Sportswear Corporation
Balance Sheet
At December 31, 2021
Assets
Current assets:
Cash $ 220,000
Accounts receivable, net 340,000
Notes receivable 80,000
Inventory 600,000
Prepaid expenses 40,000
Total current assets 1,280,000
Other assets:
Land $ 500,000
Buildings, net 2,200,000
Equipment, net 400,000
Investments 50,000
Patent 60,000
Total other assets 3,156,000
Total assets $4,346,000
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 165,000
Salaries payable 75,000
Interest payable 45,000
Total current liabilities 285,000
Long-term liabilities:
Notes payable $300,000
Bonds payable 500,000
Deferred revenue 80,000
Total long-term liabilities 880,000
Total liabilities 1,165,000
Shareholders' equity:
Common stock $2,000,000
Retained earnings 1,181,000
Total shareholders' equity 3,181,000
Total liabilities and
shareholders' equity $4,346,000
In the course of your examination you uncover the following information pertaining to the balance sheet:
1. The land and buildings represent the corporate headquarters and manufacturing facilities.
2. The notes receivable are due in 2023. The balance of $80,000 includes $5,000 of accrued interest. The next interest payment is due in July 2022.
3. The notes payable account is due in installments of $50,000 per year. Interest on both the notes and bonds is payable annually.
4. The company's investments consist of equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.
5. Deferred revenue will be recognized ratably (equally) over the next two years.
Required:
Identify and explain the deficiencies in the statement prepared by the company's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness - Limits - Elements; Total assets; Total liabilities; Classify shareholders' equity; Disclosure―Notes to financial statements
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.; 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
109) Presented below is a partial trial balance for the Messenger Corporation at December 31, 2021.
Account Title Debits Credits
Cash and cash equivalents 30,000
Accounts receivable 195,000
Raw materials inventory 36,000
Notes receivable 120,000
Interest receivable 4,000
Interest payable 7,000
Investments 48,000
Land 100,000
Buildings 1,500,000
Accumulated depreciation–buildings 740,000
Work in process inventory 38,000
Finished goods inventory 98,000
Equipment 400,000
Accumulated depreciation–equipment 230,000
Franchise (net of amortization) 120,000
Prepaid insurance (for the next year) 60,000
Deferred revenue 48,000
Accounts payable 240,000
Notes payable 500,000
Salaries payable 6,000
Allowance for uncollectible accounts 24,000
Sales revenue 900,000
Cost of goods sold 500,000
Salaries expense 48,000
Additional information:
1. The notes receivable, along with any accrued interest, are due on November 1, 2022.
2. The notes payable are due in 2026. Interest is payable annually.
3. The investments consist of equity securities of other corporations. Management does not intend to sell any of the securities in the next year.
4. Deferred revenue will be recognized equally over the next 18 months.
Required:
Determine the company's working capital at December 31, 2021.
Difficulty: 3 Hard
Topic: Classify assets―Current assets; Classify liabilities―Current liabilities; Using information―Liquidity ratios
Learning Objective: 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
110) The December 31, 2021, post-closing trial balance ($ in thousands) for Libby Corporation is presented below:
Debits Credits
Cash 22,500
Investments (long-term) 55,000
Accounts receivable 30,000
Allowance for uncollectible accounts 7,500
Prepaid insurance 4,500
Inventory 100,000
Land 45,000
Buildings 140,000
Accumulated depreciation—buildings 50,000
Equipment 132,500
Accumulated depreciation—equipment 30,000
Patents (unamortized balance) 5,000
Accounts payable 37,500
Notes payable, due 2022 65,000
Interest payable 10,000
Bonds payable, due 2031 120,000
Common stock (no par), 20,000 shares
authorized, issued, and outstanding 150,000
Retained earnings ________ 64,500
Totals 534,500 534,500
Required: Prepare a classified balance sheet for Libby Corporation at December 31, 2021.
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness - Limits - Elements; Total assets; Total liabilities; Classify shareholders' equity
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
Use this information to answer the following questions:
The condensed balance sheet and income statement for Marjoram Company are presented below.
Marjoram Company
Balance Sheet
At December 31, 2021
Cash $ 19,000
Notes receivable (due August 15, 2022) 35,000
Accounts receivable (net) 48,400
Inventory 70,600
Property, plant, and equipment (net) 250,000
Intangible assets 12,400
Total Assets $435,400
Current liabilities $108,400
Bonds payable (11%) (long-term) 100,000
Common stock 70,000
Retained earnings 157,000
Total liabilities and equity $435,400
Marjoram Company
Income Statement
For the Year ended December 31, 2021
Sales $704,000
Cost of goods sold 422,400
Gross profit $281,600
Operating expenses 166,200
Operating income $115,400
Interest expense 11,000
Income before income tax $104,400
Income tax expense 31,320
Net income $ 73,080
111) Compute the current ratio for Marjoram Company. Round your answer to two decimal places.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
112) Compute the acid-test ratio for Marjoram Company. Round your answer to two decimal places.
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Risk Analysis
113) Compute the debt to equity ratio for Marjoram Company. Round your answer to two decimal places.
Difficulty: 3 Hard
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
114) Compute the times interest earned ratio for Marjoram Company. Round your answer to two decimal places.
Difficulty: 3 Hard
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
115) Compute the return on shareholders' equity ratio for Marjoram Company. Round your answer to two decimal places.
Difficulty: 3 Hard
Topic: Using information―Return on equity
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
Use this information to answer the following questions:
The balance sheet for Altoid Co. is shown below.
Altoid Co.
Balance Sheet
At December 31, 2021
Assets:
Cash $ 150
Short-term investments 200
Accounts receivable (net) 300
Inventory 450
Property, plant, and equipment (net) 1,100
Total assets $2,200
Liabilities and shareholders' equity:
Current liabilities $ 450
Long-term liabilities 600
Common stock 150
Retained earnings 1,000
Total liabilities and shareholders' equity $2,200
Selected 2021 income statement information for Altoid Co. includes:
Net sales $7,700
Operating expenses 7,110
Income before interest and tax 590
Interest expense 90
Income tax expense 150
Net income 350
Required: Compute the following financial statement ratios for 2021:
116) Altoid Co.'s current ratio. Round your answer to two decimal places.
Difficulty: 2 Medium
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
117) Altoid Co.'s acid-test ratio. Round your answer to two decimal places.
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
118) Altoid Co.'s debt to equity ratio. Round your answer to two decimal places.
Difficulty: 2 Medium
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
119) Altoid Co.'s times interest earned ratio. Round your answer to two decimal places.
Difficulty: 3 Hard
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
120) Altoid Co.'s long term debt to equity ratio. Round your answer to two decimal places.
Difficulty: 2 Medium
Topic: Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
Use this information to answer the following questions:
Bronco Electronics' current assets consist of cash, short-term investments, accounts receivable, and inventory. The following data were abstracted from a recent financial statement:
Inventory $150,000
Total assets $1,400,000
Current ratio 3
Acid-test ratio 2.25
Debt to equity ratio 1.5
Required: Compute the following for Bronco:
121) Current assets
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
122) Shareholders' equity
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness - Limits - Elements; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis
123) Long-term assets
Difficulty: 3 Hard
Topic: Total assets; Using information―Liquidity ratios
Learning Objective: 03-02 Identify and describe the various asset classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis
124) Long-term liabilities
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness - Limits - Elements; Total assets; Total liabilities; Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis
Use this information to answer the following questions:
Spartan Sportswear's current assets consist of cash, short-term investments, accounts receivable, and inventory. The following data were abstracted from a recent financial statement:
Inventory $180,000
Total assets $720,000
Current ratio 2.75
Acid-test ratio 1.5
Debt to equity ratio 1.4
Required: Compute the following for Spartan:
125) Current assets
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
126) Shareholders' equity
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness - Limits - Elements; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis
127) Long-term assets
Difficulty: 2 Medium
Topic: Total assets; Using information―Liquidity ratios
Learning Objective: 03-02 Identify and describe the various asset classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis
128) Long-term liabilities
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness - Limits - Elements; Total assets; Total liabilities; Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis
129) The following balance sheet information (in $ millions) comes from the Annual Report to Shareholders of Merry International Inc. for the 2021 fiscal year. Certain amounts have been replaced with question marks to test your understanding of balance sheets. In addition, you are provided with the following information from an analysis of Merry's financial position at the same date:
Current ratio = 1.352259; Acid-test ratio = 0.5769692; Debt to equity ratio = 1.505718.
Required: Compute the missing amounts (rounded to the nearest $ in millions) in the balance sheet.
Assets
Current assets
Cash and cash equivalents $505
Accounts and notes receivable ?
Inventory ?
Other 450
Total current assets ?
Property and equipment, net $1,307
Intangible assets, net ?
Investments 250
Notes and other receivables, net 1,264
Other assets 1,137
Total long-term assets ____?
Total assets ?
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 634
Salaries payable 692
Other payables 1,175
Total current liabilities 2,501
Long-term debt ?
Other long-term liabilities 2,206
Total long-term liabilities _____?
Total liabilities ?
Shareholders' equity
Common stock 500
Additional paid-in capital 1,244
Retained earnings 1,841
Total shareholders' equity 1,585
Total liabilities and shareholders' equity $8,983
Difficulty: 3 Hard
Topic: Balance sheet―Usefulness - Limits - Elements; Total assets; Total liabilities; Classify shareholders' equity; Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-01 Describe the purpose of the balance sheet and understand its usefulness and limitations.; 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis
Use this information to answer the following questions:
Indicate whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is greater than 1.0 before the action is taken.
130)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Prepay rent for 3 months |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Prepay rent for 3 months | N | D | N |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
131)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Cash sale of land for a gain |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Cash sale of land for a gain | I | I | D |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
132)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Purchase of inventory on account |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Purchase of inventory on account | D | D | I |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
133)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Collection of an Account Receivable |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Collection of an Account Receivable | N | N | N |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
134)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Refinancing currently maturing debt for five more years |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Refinancing currently maturing debt for five more years | I | I | N |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
135)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Purchasing advertising on 30-day credit |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Purchasing advertising on 30-day credit | D | D | I |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
136)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Payment of recently accrued income taxes |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Payment of recently accrued income taxes | I | I | D |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
137)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Cash sale of inventory for a profit |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Cash sale of inventory for a profit | I | I | D |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
138)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Purchase of a warehouse with a 6-month note |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Purchase of a warehouse with a 6-month note | D | D | I |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
139)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Issuance of long-term debt for cash |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Issuance of long-term debt for cash | I | I | I |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
140)
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Record annual depreciation on office equipment |
Current ratio | Acid-test ratio | Total debt to equity ratio | |
Record annual depreciation on office equipment | N | N | I |
Difficulty: 3 Hard
Topic: Using information―Liquidity ratios; Using information―Solvency ratios
Learning Objective: 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
141) You are reviewing the December 31, 2021, financial statements of Ellie's Antiques. Ellie's management is considering an initial public offering of shares of its common stock. The following items come to your attention:
a. Included in long-term investments are 10-year U.S. Treasury bonds that mature March 31, 2022. The bonds were purchased November 20, 2021.
b. The property, plant, and equipment account is stated at cost, except that it includes a parcel of land purchased for investment purposes at a cost of $40,000. Because of rising land prices, the value of the land has been written up to $60,000. The company has an independent appraisal that attests to this amount.
c. The accounts receivable account includes $20,000 due in three years from officers and employees, as well as a two-year, 8% note for $25,000 due from a customer. The loan enabled the customer to buy equipment needed to process materials purchased from Ellie's Antiques.
Required: Determine the proper balance sheet presentation and amounts for the above items.
Difficulty: 2 Medium
Topic: Total assets; Disclosure―Notes to financial statements
Learning Objective: 03-02 Identify and describe the various asset classifications.; 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
142) List the circumstances under which land would be classified under the following balance sheet classifications:
1. Current assets.
2. Investments (long-term).
3. Property, plant, and equipment.
4. Other long-term assets.
Difficulty: 2 Medium
Topic: Total assets
Learning Objective: 03-02 Identify and describe the various asset classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
143) You are the independent accountant assigned to the audit of Neophyte Company. The company's accountant, a graduate of Rival State University, has prepared financial statements that contained the following questionable items:
a. The balance sheet reports land at $100,000. Included in this amount is a property held for speculation at a cost of $30,000.
b. Current liabilities include $50,000 for long-term debt that is due in three months. The company has received a suitable firm commitment to refinance the debt for five years and intends to do so.
c. Investments include $20,000 in short-term, high-grade commercial paper, which is a cash equivalent.
Required. Describe the appropriate balance sheet presentation for the above items.
Difficulty: 2 Medium
Topic: Total assets; Total liabilities
Learning Objective: 03-02 Identify and describe the various asset classifications.; 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
144) Provide an example of a liability that would not require the payment of cash.
Difficulty: 2 Medium
Topic: Total liabilities
Learning Objective: 03-03 Identify and describe the various liability and shareholders' equity classifications.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
145) Briefly explain the purpose of the disclosure note on significant accounting policies. Provide two examples of what might be found in this note.
Difficulty: 2 Medium
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
146) Briefly explain what is meant by a subsequent event. Give two examples of subsequent events.
Difficulty: 2 Medium
Topic: Disclosure―Notes to financial statements
Learning Objective: 03-04 Explain the purpose of financial statement disclosures.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
147) Explain how management's discussion and analysis of its operations and liquidity may be helpful to investors.
Difficulty: 2 Medium
Topic: Disclosure―Management - Directors - Executives
Learning Objective: 03-05 Describe disclosures related to management's discussion and analysis, responsibilities, and compensation.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Resource Management
148) The following is the 2021 report of the independent registered public accounting firm that audited The Great Food Company, Inc., a large supermarket chain:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' deficit and comprehensive loss, and cash flows present fairly, in all material respects, the financial position of The Great Food Company, Inc. and its subsidiaries (debtor-in-possession) at December 31, 2021, and December 31, 2020, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company is currently operating pursuant to a Chapter 11 bankruptcy filing which, together with the uncertain outcomes of the matters discussed in Note 1 to the consolidated financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for share lending arrangements during fiscal 2020.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Required. Interpret the main points indicated in this report by Great Food’s auditors.
Difficulty: 3 Hard
Topic: Audit and Auditor's report
Learning Objective: 03-06 Explain the purpose of an audit and describe the content of the audit report.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Reporting; FN Risk Analysis
149) Using an example, discuss the techniques that analysts use to transform accounting numbers into more useful forms.
Difficulty: 2 Medium
Topic: Using information―Analysis and methods
Learning Objective: 03-07 Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Industry
150) The current asset section of Seifert & Seifert, CPAs' balance sheet consists of cash, accounts receivable, investments, and prepaid expenses. The 2021 balance sheet reported the following: cash, $110,000; investments, $22,000; prepaid expenses, $18,000; long-term assets, $422,000; and shareholders' equity, $350,000. The current ratio at the end of the year was 1.6 and the debt to equity ratio was .8.
Required:
Determine the following 2021 amounts and ratios:
1. Current liabilities.
2. Long-term liabilities.
3. Accounts receivable.
4. The acid-test ratio.
Difficulty: 3 Hard
Topic: Liquidity ratios
Learning Objective: 03-02 Identify and describe the various asset classifications.; 03-08 Identify and calculate the common liquidity and solvency ratios used to assess risk.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis
151) The balance sheets of Callaway Foods list current assets followed by long-term assets and current liabilities before long-term liabilities. If Callaway Foods prepared its financial statements according to International Financial Reporting Standards, what other approach might it take in preparing its balance sheet?
Difficulty: 2 Medium
Topic: IFRS―Balance sheet presentation
Learning Objective: 03-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the balance sheet, financial disclosures, and segment reporting.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement
Document Information
Connected Book
Answer Key + Test Bank | Intermediate Accounting 10e
By J. David Spiceland, Mark W. Nelson, Wayne Thomas