ch05

CHAPTER 5 BALANCE SHEET AND STATEMENT OF CASH FLOWS IFRS questions are availale at t!e en" o# t!is $!a%ter&

TR'E(FALSE)Con$e%tual Ans*er F T T T F F T F F T F F F F T T T F T F

No& 1. 2. 3. 4. !. ". $. &. '. 1(. 11. 12. 13. 14. 1!. 1". 1$. 1&. 1'. 2(.

Des$ri%tion Liquidity and solvency. Limitations of the balance sheet. Definition of financial flexibility. Long-tem liability disclosues. Definitions of the balance sheet. Land held fo s#eculation. %alance sheet fomat. Disclosue of fai values. Disclosue of com#any o#eations and estimates. Disclosue of #etinent infomation. )se of the tem eseve. *d+unct account. ,u#ose of statement of cash flos. tatement of cash flos e#oting. Financial flexibility. /ollection of a loan. Detemining ca cash # #ovided by by o#eating ac activities. 0e#oting significant financing and investing activities. /uent cash debt coveage atio. 0e#oting ot othe com#ehensive income.

M'LTIPLE CHOICE)Con$e%tual Ans*er d c b d d c b c d b b d d d d d

No& 21. 22. 23. 24. 2!.  2".  2$. 2$. , 2&. 2'. 3(. 31. 32. 33. 34. 3!. 3".

Des$ri%tion Limitation of the balance sheet. )ses of the balance sheet. )se of balance sheet infomation. )se of balance sheet infomation. Limitation of the balance sheet. )ses of of th the ba balance sh sheet. /iti itici cism sms s of of the the bala balanc nce e she sheet et.. Definition of of liliquidity. ty. Definition of net assets. /uent assets #esentation. #eating cycle. #eating cycle. dentification of cuent asset. dentification of cuent asset. dentification of cuent asset. /lassification of shot-tem investments.

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

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c

3$.

/lassification of inventoy #ledged as secuity.

M'LTIPLE CHOICE)Con$e%tual /$ont&0 Ans*er b d b d b d d d d d c d d d d b c d d d d d d b c c c b d d b b c a d b b d c b b ,

No& 3&. 3'. 4(. 41. 42. 43. 44. 4!. 4". 4$. 4&. 4'. , !(. !(.  !1. !1. !2. !3. !4. !!. !". !$. !&. !'. "(. "1. "2.  "3. "3. "4. "!. "". "$. "&. "'. $(. $1. $2. $3. $4. $!. $".  $$. $$. , $&.

Des$ri%tion dentification of long-tem investments. dentification of valuation methods. dentification of cuent liabilities. Definition of oing ca#ital. dentification of oing ca#ital items. dentification of long-tem liabilities. dentification of long-tem liabilities. /lassification of teasuy stoc. Disclosues fo common stoc. /lassification of investment in affiliate. /lassification of ones equity. /lassification of assets. den denti tifi fica cati tion on of cont conta a acco accoun unt. t. %ala %alanc nce e shee sheett su## su##le leme ment nta ay y disc disclo losu sue e.. Long-tem liabilities disclosue. %alance sheet su##lementay disclosue. Disclosue of contactual situations. Disclosue of accounting #olicies. /ontingency e#oted in financial statement notes. 5ethods of disclosue. Disclosue of significant accounting #olicies. Disclosue of de#eciation methods used. 0equied notes to the financial statements. dentification of geneally acce#ted account titles. ,u#ose of the statement of cash flos. tat tatem emen entt of cash cash flo flos s ans anse es. s. tatement of cash flos e#oting. tatement of cash flos ob+ective. 0e#oting issuance of stoc fo machine. dentify a financing activity. /lassification of cash ecei#ts. dentify a financing activity. /ash flo fom o#eating activities. dentify an investing activity. ,e#aing the statement of cash flos. /ash debt coveage atio. /uent cash debt coveage atio. Financial flexibility measue. /alculation of fee cash flo. Desc Desci i#t #tio ion n of fina financ ncia iall flex flexib ibililit ity. y. /ash de debt co coveage a atio.

6ote7 these questions also a##ea in the ,oblem-olving uvival 8uide. 6ote7 these questions also a##ea in the tudy 8uide.




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/lassification of inventoy #ledged as secuity.

M'LTIPLE CHOICE)Con$e%tual /$ont&0 Ans*er b d b d b d d d d d c d d d d b c d d d d d d b c c c b d d b b c a d b b d c b b ,

No& 3&. 3'. 4(. 41. 42. 43. 44. 4!. 4". 4$. 4&. 4'. , !(. !(.  !1. !1. !2. !3. !4. !!. !". !$. !&. !'. "(. "1. "2.  "3. "3. "4. "!. "". "$. "&. "'. $(. $1. $2. $3. $4. $!. $".  $$. $$. , $&.

Des$ri%tion dentification of long-tem investments. dentification of valuation methods. dentification of cuent liabilities. Definition of oing ca#ital. dentification of oing ca#ital items. dentification of long-tem liabilities. dentification of long-tem liabilities. /lassification of teasuy stoc. Disclosues fo common stoc. /lassification of investment in affiliate. /lassification of ones equity. /lassification of assets. den denti tifi fica cati tion on of cont conta a acco accoun unt. t. %ala %alanc nce e shee sheett su## su##le leme ment nta ay y disc disclo losu sue e.. Long-tem liabilities disclosue. %alance sheet su##lementay disclosue. Disclosue of contactual situations. Disclosue of accounting #olicies. /ontingency e#oted in financial statement notes. 5ethods of disclosue. Disclosue of significant accounting #olicies. Disclosue of de#eciation methods used. 0equied notes to the financial statements. dentification of geneally acce#ted account titles. ,u#ose of the statement of cash flos. tat tatem emen entt of cash cash flo flos s ans anse es. s. tatement of cash flos e#oting. tatement of cash flos ob+ective. 0e#oting issuance of stoc fo machine. dentify a financing activity. /lassification of cash ecei#ts. dentify a financing activity. /ash flo fom o#eating activities. dentify an investing activity. ,e#aing the statement of cash flos. /ash debt coveage atio. /uent cash debt coveage atio. Financial flexibility measue. /alculation of fee cash flo. Desc Desci i#t #tio ion n of fina financ ncia iall flex flexib ibililit ity. y. /ash de debt co coveage a atio.

6ote7 these questions also a##ea in the ,oblem-olving uvival 8uide. 6ote7 these questions also a##ea in the tudy 8uide.



%alance heet and tatement of /ash Flos

M'LTIPLE CHOICE)Co,%utational Ans*er c a b d a b c c d b b a c c a b a b

No& $'. &(. &1. &2. &3. &4. &!. &". &$. &&. &'. '(. '1. '2. '3. '4. '!. '".

Des$ri%tion /lassifying investments. dentifying intangible assets /alculate total stocholdes9 equity. /lassifying investments. dentifying intangible assets. /alculate total stocholdes9 equity. /alculate be beginning st stocholdes9 eq equity. /alculate ending stocholdes9 equity. /alculate net income. /alculate ending cash balance. /alculate ending cash balance. /alculate cash #ovided by o#eating activities. /ash #ovided by o#eating activities. /ash #ovided by o#eating activities. /ash debt coveage atio. Fee cash flo. /ash debt coveage atio. Fee cash flo.

M'LTIPLE CHOICE)CPA A"a%te" Ans*er d d a c b c c a d b

No& '$. '$. '&. ''. 1((. 1(1. 1(2. 1(3. 1(4. 1(!. 1(".

Des$ri%tion /alc /alcul ulat ate e tota totall cu cuen entt asse assets ts.. /alculate total cuent assets. /alculate total cuent liabilities. /alculate etained eanings balance. /alculate cu cuent and long-tem liliabilities. ummay of significant accounting #olicies. /lassification of investing activity. /lassification of o#eating activity. /lassification of financing activity. /lassification of investing activity.

E2ERCISES Ite, :!-1($ :!-1(& :!-1(' :!-11( :!-111 :!-112 :!-113 :!-114 :!-11! :!-11"

Des$ri%tion Definitions. Teminology. /uent assets. *ccount cl classification. ;aluation of of balance sh sheet items. %alance sh sheet classifications. %alance sh sheet classifications. %alance sh sheet classifications. tatement of cash flos. tatement of cash flos atios.

5(3

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PROBLEMS Ite, ,!-11$ ,!-11& ,!-11' ,!-12( ,!-121

Des$ri%tion %alance sheet fomat. %alance sheet #e#aation. %alance sh sheet # #esentation. tatement of cash flos #e#aation. tatement of cash flos #e#aation.

CHAPTER LEARNIN4 OBECTI6ES 1. :x#lain :x#lain the uses and limita limitations tions of a balance balance sheet. sheet. 2. dentify dentify the the ma+o ma+o classifi classificatio cations ns of the the balance balance sheet. sheet. 3. ,e#ae a classified classified balance balance sheet sheet using using the e#ot e#ot and and account account fomats. fomats. 4. Detemine Detemine hich hich balance balance sheet infomat infomation ion equies equies su##lement su##lemental al disclosue. disclosue. !. Descibe Descibe the ma+o ma+o disclosu disclosue e techniques techniques fo fo the balance balance sheet. sheet. ". ndicate ndicate the the #u#ose #u#ose of of the statement statement of cash cash flos. flos. $. dentify dentify the the content content of the stateme statement nt of cash flos flos.. &. ,e#ae ,e#ae a basi basic c statem statement ent of of cash cash flos. flos. '. )ndestand )ndestand the the usefulnes usefulness s of the the statemen statementt of cash cash flos. flos.


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S'MMAR8 OF LEARNIN4 OBECTI6ES B8 9'ESTIONS Item

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TR'E FALSE)Con$e%tual 1. Liquidity efes to the ability of an ente#ise to #ay its debts as they matue. 2. The balance sheet omits many items that ae of financial value to the business but cannot be ecoded ob+ectively. 3. Financial flexibility measues the ability of an ente#ise to tae effective actions to alte the amounts and timing of cash flos. 4. /om#anies fequently descibe the tems of all long-tem liability ageements in notes to the financial statements. !. *n asset hich is ex#ected to be conveted into cash= sold= o consumed ithin one yea of the balance sheet date is alays e#oted as a cuent asset. ". Land held fo s#eculation is e#oted in the #o#ety= #lant= and equi#ment section of the balance sheet. $. The account fom and the e#ot fom of the balance sheet ae both acce#table unde 8**,. &. %ecause of the histoical cost #inci#le= fai values may not be disclosed in the balance sheet. '. /om#anies have the o#tion of disclosing infomation about the natue of thei o#eations and the use of estimates in #e#aing financial statements. 1(. /om#anies may use #aenthetical ex#lanations= notes= coss efeences= and su##oting schedules to disclose #etinent infomation. 11. The accounting #ofession has ecommended that com#anies use the od eseve only to descibe amounts deducted fom assets. 12. n the balance sheet= an ad+unct account educes eithe an asset= a liability= o an ones9 equity account. 13. The #imay #u#ose of a statement of cash flos is to e#ot the cash effects of o#eations duing a #eiod. 14. The statement of cash flos e#ots only the cash effects of o#eations duing a #eiod and financing tansactions. 1!. Financial flexibility is a com#any9s ability to es#ond and ada#t to financial advesity and unex#ected needs and o##otunities. 1". /ollection of a loan is e#oted as an investing activity in the statement of cash flos. 1$. /om#anies detemine cash #ovided by o#eating activities by conveting net income on an accual basis to a cash basis.


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1&. ignificant financing and investing activities that do not affect cash ae not e#oted in the statement of cash flos o any othe #lace. 1'. Financial statement eades often assess liquidity by using the cuent cash debt coveage atio. 2(. Fee cash flo is net income less ca#ital ex#enditues and dividends.

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M'LTIPLE CHOICE)Con$e%tual 21.

>hich of the folloing is a limitation of the balance sheet? a. 5any items that ae of financial value ae omitted. b. @udgments and estimates ae used. c. /uent fai value is not e#oted. d. *ll of these

22.

The balance sheet is useful fo analyAing all of the folloing exce#t a. liquidity. b. solvency. c. #ofitability. d. financial flexibility.

23.

%alance sheet infomation is useful fo all of the folloing exce#t to a. com#ute ates of etun b. analyAe cash inflos and outflos fo the #eiod c. evaluate ca#ital stuctue d. assess futue cash flos

24.

%alance sheet infomation is useful fo all of the folloing exce#t a. assessing a com#anys is b. evaluating a com#anys liquidity c. evaluating a com#anys financial flexibility d. detemining fee cash flos.

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2!.

* limitation of the balance sheet that is not also a limitation of the income statement is a. the use of +udgments and estimates b. omitted items c. the numbes ae affected by the accounting methods em#loyed d. valuation of items at histoical cost



2".

The balance sheet contibutes to financial e#oting by #oviding a basis fo all of the folloing except a. com#uting ates of etun. b. evaluating the ca#ital stuctue of the ente#ise. c. detemining the incease in cash due to o#eations. d. assessing the liquidity and financial flexibility of the ente#ise.



2$.

ne citicism not nomally aimed at a balance sheet #e#aed using cuent accounting and e#oting standads is a. failue to eflect cuent value infomation. b. the extensive use of se#aate classifications. c. an extensive use of estimates. d. failue to include items of financial value that cannot be ecoded ob+ectively.

,

2&.

The amount of time that is ex#ected to ela#se until an asset is ealiAed o otheise conveted into cash is efeed to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability.

2'.

The net assets of a business ae equal to a. cuent assets minus cuent liabilities. b. total assets #lus total liabilities. c. total assets minus total stocholdes equity. d. none of these.

3(.

The coect ode to #esent cuent assets is a. cash= accounts eceivable= #e#aid items= inventoies. b. cash= accounts eceivable= inventoies= #e#aid items. c. cash= inventoies= accounts eceivable= #e#aid items. d. cash= inventoies= #e#aid items= accounts eceivable.

31.

The basis fo classifying assets as cuent o noncuent is convesion to cash ithin a. the accounting cycle o one yea= hicheve is shote. b. the o#eating cycle o one yea= hicheve is longe. c. the accounting cycle o one yea= hicheve is longe. d. the o#eating cycle o one yea= hicheve is shote.

32.

The basis fo classifying assets as cuent o noncuent is the #eiod of time nomally equied by the accounting entity to convet cash invested in a. inventoy bac into cash= o 12 months= hicheve is shote. b. eceivables bac into cash= o 12 months= hicheve is longe. c. tangible fixed assets bac into cash= o 12 months= hicheve is longe. d. inventoy bac into cash= o 12 months= hicheve is longe.


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33.

The cuent assets section of the balance sheet should include a. machiney. b. #atents. c. goodill. d. inventoy.

34.

>hich of the folloing is a cuent asset? a. /ash suende value of a life insuance #olicy of hich the com#any is the beneficiay. b. nvestment in equity secuities fo the #u#ose of contolling the issuing com#any. c. /ash designated fo the #uchase of tangible fixed assets. d. Tade installment eceivables nomally collectible in 1& months.

3!.

>hich of the folloing should not be consideed as a cuent asset in the balance sheet? a. nstallment notes eceivable due ove 1& months in accodance ith nomal tade #actice. b. ,e#aid taxes hich cove assessments of the folloing o#eating cycle of the business. c. :quity o debt secuities #uchased ith cash available fo cuent o#eations. d. The cash suende value of a life insuance #olicy caied by a co#oation= the beneficiay= on its #esident.

3".

:quity o debt secuities held to finance futue constuction of additional #lants should be classified on a balance sheet as a. cuent assets. b. #o#ety= #lant= and equi#ment. c. intangible assets. d. long-tem investments.

3$.

>hen a #otion of inventoies has been #ledged as secuity on a loan= a. the value of the #otion #ledged should be subtacted fom the debt. b. an equal amount of etained eanings should be a##o#iated. c. the fact should be disclosed but the amount of cuent assets should not be affected. d. the cost of the #ledged inventoies should be tansfeed fom cuent assets to noncuent assets.

3&.

>hich of the folloing is not a long-tem investment? a. /ash suende value of life insuance b. Fanchise c. Land held fo s#eculation d. * sining fund

3'.

* geneally acce#ted method of valuation is 1. tading secuities at maet value. 2. accounts eceivable at net ealiAable value. 3. inventoies at cuent cost. a. 1 b. 2 c. 3 d. 1 and 2

5 ( ;@


4(.

>hich item belo is not a cuent liability? a. )neaned evenue b. toc dividends distibutable c. The cuently matuing #otion of long-tem debt d. Tade accounts #ayable

41.

>oing ca#ital is a. ca#ital hich has been einvested in the business. b. una##o#iated etained eanings. c. cash and eceivables less cuent liabilities. d. none of these.

42.

*n exam#le of an item hich is not an element of oing ca#ital is a. accued inteest on notes eceivable. b. goodill. c. goods in #ocess. d. tem#oay investments.

43.

Long-tem liabilities include a. obligations not ex#ected to be liquidated ithin the o#eating cycle. b. obligations #ayable at some date beyond the o#eating cycle. c. defeed income taxes and most lease obligations. d. all of these.

44.

>hich of the folloing should be excluded fom long-tem liabilities? a. bligations #ayable at some date beyond the o#eating cycle b. 5ost #ension obligations c. Long-tem liabilities that matue ithin the o#eating cycle and ill be #aid fom a sining fund d. 6one of these

4!.

Teasuy stoc should be e#oted as aBnC a. cuent asset. b. investment. c. othe asset. d. eduction of stocholdes equity.

4".

>hich of the folloing should be e#oted fo ca#ital stoc? a. The shaes authoiAed b. The shaes issued c. The shaes outstanding d. *ll of these

4$.

>hich of the folloing ould be classified in a diffeent ma+o section of a balance sheet fom the othes? a. /a#ital stoc b. /ommon stoc subscibed c. toc dividend distibutable d. toc investment in affiliate


5 ( ;;

4&.

The stocholdes equity section is usually divided into hat thee #ats? a. ,efeed stoc= common stoc= teasuy stoc b. ,efeed stoc= common stoc= etained eanings c. /a#ital stoc= additional #aid-in ca#ital= etained eanings d. /a#ital stoc= a##o#iated etained eanings= una##o#iated etained eanings

4'.

>hich of the folloing is not an acce#table ma+o asset classification? a. /uent assets b. Long-tem investments c. ,o#ety= #lant= and equi#ment d. Defeed chages

,

!(.

>hich of the folloing is a conta account? a. ,emium on bonds #ayable b. )neaned evenue c. ,atents d. *ccumulated de#eciation



!1.

>hich of the folloing balance sheet classifications ould nomally equie the geatest amount of su##lementay disclosue? a. /uent assets b. /uent liabilities c. ,lant assets d. Long-tem liabilities

!2.

The #esentation of long-tem liabilities in the balance sheet should disclose a. matuity dates. b. inteest ates. c. convesion ights. d. *ll of the above.

!3.

>hich of the folloing is not a equied su##lemental disclosue fo the balance sheet? a. /ontingencies b. Financial foecasts c. *ccounting #olicies d. /ontactual situations

!4.

Ty#ical contactual situations that ae disclosed in the notes to the balance sheet include all of the folloing exce#t a. debt covenants b. lease obligations c. advetising contacts d. #ension obligations

!!.

*ccounting #olicies disclosed in the notes to the financial statements ty#ically include all of the folloing exce#t a. the cost flo assum#tion used b. the de#eciation methods used c. significant estimates made d. significant inventoy #uchasing #olicies

5 ( ;1




!".

>hich of the folloing best exem#lifies a contingency that is e#oted in the notes to the financial statements? a. Losses fom #otential futue lasuits b. Loss fom a lasuit settled out of cout #io to the end of the fiscal yea c. >aanty claims on futue sales d. :stimated loss fom an ongoing lasuit

!$.

>hich of the folloing is not a method of disclosing #etinent infomation? a. u##oting schedules b. ,aenthetical ex#lanations c. /oss efeence and conta items d. *ll of these ae methods of disclosing #etinent infomation.

!&.

ignificant accounting #olicies may not be a. selected on the basis of +udgment. b. selected fom existing acce#table altenatives. c. unusual o innovative in a##lication. d. omitted fom financial-statement disclosue.

!'.

* geneal desci#tion of the de#eciation methods a##licable to ma+o classes of de#eciable assets a. is not a cuent #actice in financial e#oting. b. is not essential to a fai #esentation of financial #osition. c. is needed in financial e#oting hen com#any #olicy diffes fom income tax #olicy. d. should be included in co#oate financial statements o notes theeto.

"(.

t is mandatoy that the essential #ovisions of hich of the folloing be clealy stated in the notes to the financial statements? a. toc o#tion #lans b. ,ension obligations c. Lease contacts d. *ll of these

"1.

* geneally acce#ted account title is a. ,e#aid 0evenue. b. *##o#iation fo /ontingencies. c :aned u#lus. d. 0eseve fo Doubtful *ccounts.

"2.

The financial statement hich summaiAes o#eating= investing= and financing activities of an entity fo a #eiod of time is the a. etained eanings statement. b. income statement. c. statement of cash flos. d. statement of financial #osition.

"3.

The statement of cash flos #ovides anses to all of the folloing questions except a. hee did the cash come fom duing the #eiod? b. hat as the cash used fo duing the #eiod? c. hat is the im#act of inflation on the cash balance at the end of the yea? d. hat as the change in the cash balance duing the #eiod?


5 ( ;3

"4.

The statement of cash flos e#ots all of the folloing exce#t a. the net change in cash fo the #eiod. b. the cash effects of o#eations duing the #eiod. c. the fee cash flos geneated duing the #eiod. d. investing tansactions.

"!.

The statement of cash flos hel#s meet one of the ob+ectives of financial e#oting= hich is to assess all of the folloing exce#t the a. amount of futue cash flos. b. souce of futue cash flos. c. timing of futue cash flos. d. uncetainty of futue cash flos.

"".

f common stoc as issued to acquie an &=((( machine= ho ould the tansaction a##ea on the statement of cash flos? a. t ould de#end on hethe you ae using the diect o the indiect method. b. t ould be a #ositive &=((( in the financing section and a negative &=((( in the investing section. c. t ould be a negative &=((( in the financing section and a #ositive &=((( in the investing section. d. t ould not a##ea on the statement of cash flos but athe on a schedule of noncash investing and financing activities.

"$.

>hich of the folloing events ill a##ea in the cash flos fom financing activities section of the statement of cash flos? a. /ash #uchases of equi#ment. b. /ash #uchases of bonds issued by anothe com#any. c. /ash eceived as e#ayment fo funds loaned. d. /ash #uchase of teasuy stoc.

"&.

5aing and collecting loans and dis#osing of #o#ety= #lant= and equi#ment ae a. o#eating activities. b. investing activities. c. financing activities. d. liquidity activities.

"'.

n #e#aing a statement of cash flos= sale of teasuy stoc at an amount geate than cost ould be classified as aBnC a. o#eating activity. b. financing activity. c. extaodinay activity. d. investing activity.

$(.

n a. b. c.

#e#aing a statement of cash flos= cash flos fom o#eating activities ae alays equal to accual accounting income. ae calculated as the diffeence beteen evenues and ex#enses. can be calculated by a##o#iately adding to o deducting fom net income those items in the income statement that do not affect cash. d. can be calculated by a##o#iately adding to o deducting fom net income those items in the income statement that do affect cash.

5 ( ;7


$1.

n #e#aing a statement of cash flos= hich of the folloing tansactions ould be consideed an investing activity? a. ale of equi#ment at boo value b. ale of mechandise on cedit c. Declaation of a cash dividend d. ssuance of bonds #ayable at a discount

$2.

,e#aing the statement of cash flos involves all of the folloing exce#t detemining the a. cash #ovided by o#eations. b. cash #ovided by o used in investing and financing activities. c. change in cash duing the #eiod. d. cash collections fom customes duing the #eiod.

$3.

The cash debt coveage atio is com#uted by dividing net cash #ovided by o#eating activities by a. aveage long-tem liabilities. b. aveage total liabilities. c. ending long-tem liabilities. d. ending total liabilities.

$4.

The cuent cash debt coveage atio is often used to assess a. financial flexibility. b. liquidity. c. #ofitability. d. solvency.

$!.

* measue of a com#any9s financial flexibility is the a. cash debt coveage atio. b. cuent cash debt coveage atio. c. fee cash flo. d. cash debt coveage atio and fee cash flo.

$".

Fee cash flo is calculated as net cash #ovided by o#eating activities less a. ca#ital ex#enditues. b. dividends. c. ca#ital ex#enditues and dividends. d. ca#ital ex#enditues and de#eciation.



$$.

ne of the benefits of the statement of cash flos is that it hel#s uses evaluate financial flexibility. >hich of the folloing ex#lanations is a desci#tion of financial flexibility? a. The neaness to cash of assets and liabilities. b. The fims ability to es#ond and ada#t to financial advesity and unex#ected needs and o##otunities. c. The fims ability to #ay its debts as they matue. d. The fims ability to invest in a numbe of #o+ects ith diffeent ob+ectives and costs.

,

$&.

6et cash #ovided by o#eating activities divided by aveage total liabilities equals the a. cuent cash debt coveage atio. b. cash debt coveage atio. c. fee cash flo. d. cuent atio.


5 ( ;5

Multi%le C!oi$e Ans*ers )Con$e%tual Ite,

21. 22. 23. 24. 2!. 2". 2$. 2&. 2'.

Ans&

d c b d d c b c d

Ite,

3(. 31. 32. 33. 34. 3!. 3". 3$. 3&.

Ans&

b b d d d d d c b

Ite,

Ans&

3'. 4(. 41. 42. 43. 44. 4!. 4". 4$.

d b d b d d d d d

Ite,

4&. 4'. !(. !1. !2. !3. !4. !!. !".

Ans&

c d d d d b c d d

Ite,

Ans&

!$. !&. !'. "(. "1. "2. "3. "4. "!.

Ite,

d d d d b c c c b

"". "$. "&. "'. $(. $1. $2. $3. $4.

Ans&

Ite,

d d b b c a d b b

$!. $". $$. $&.

Ans&

d c b b

olutions to those 5ulti#le /hoice questions fo hich the anse is Enone of these. 2'. Total assets minus total liabilities. 41. /uent assets less cuent liabilities. 44. 5any anses ae #ossible.

M'LTIPLE CHOICE)Co,%utational $'.

Fulton /om#any ons the folloing investments7 Tading secuities Bfai valueC *vailable-fo-sale secuities Bfai valueC Geld-to-matuity secuities BamotiAed costC

"(=((( 3!=((( 4$=(((

Fulton ill e#ot investments in its cuent assets section of a. (. b. exactly "(=(((. c. "(=((( o an amount geate than "(=(((= de#ending on the cicumstances. d. exactly '!=(((. &(.

Fo 8immett /om#any= the folloing infomation is available7 /a#italiAed leases Tademas Long-tem eceivables

2((=((( "!=((( $!=(((

n 8immett9s balance sheet= intangible assets should be e#oted at a. "!=(((. b. $!=(((. c. 2"!=(((. d. 2$!=(((. &1.

Goughton /om#any has the folloing items7 common stoc= $2(=(((H teasuy stoc= &!=(((H defeed taxes= 1((=((( and etained eanings= 313=(((. >hat total amount should Goughton /om#any e#ot as stocholdes9 equity? a. &4&=(((. b. '4&=(((. c. 1=(4&=(((. d. 1=11&=(((.

5 ( ;<

&2.


Iohle /om#any ons the folloing investments7 Tading secuities Bfai valueC *vailable-fo-sale secuities Bfai valueC Geld-to-matuity secuities BamotiAed costC

 "(=((( 3!=((( 4$=(((

Iohle ill e#ot secuities in its long-tem investments section of a. exactly '!=(((. b. exactly 1($=(((. c. exactly 142=(((. d. &2=((( o an amount less than &2=(((= de#ending on the cicumstances. &3.

Fo 0andol#h /om#any= the folloing infomation is available7 /a#italiAed leases Tademas Long-tem eceivables

2&(=((( '(=((( 1(!=(((

n 0andol#h9s balance sheet= intangible assets should be e#oted at a. '(=(((. b. 1(!=(((. c. 3$(=(((. d. 3&!=(((. &4.

lmsted /om#any has the folloing items7 common stoc= $2(=(((H teasuy stoc= &!=(((H defeed taxes= 1((=((( and etained eanings= 3"3=(((. >hat total amount should lmsted /om#any e#ot as stocholdes9 equity? a. &'&=(((. b. ''&=(((. c. 1=('&=(((. d. 1=1'&=(((.

&!.

,esented belo ae data fo *nte# /o#. *ssets= @anuay 1 Liabilities= @anuay 1 tocholdes :quity= @an. 1 Dividends /ommon toc tocholdes :quity= Dec. 31 6et ncome tocholdes :quity at @anuay 1= 2(1( is a.  !(4. b.  !"(. c. 1=12(. d. 1="24.

2(1(

2(11

2(12

2=&(( 1="&( ? !"( !(4 ? !"(

3=3"( ? ? 42( 44& ? 44&

? 2=(1" 2=1(( 4$" !(( 1=!'" ?

%alance heet and tatement of /ash Flos &".

,esented belo ae data fo %ando /o#. *ssets= @anuay 1 Liabilities= @anuay 1 tocholdes :quity= @an. 1 Dividends /ommon toc tocholdes :quity= Dec. 31 6et ncome

2(1(

2(11

2(12

!=4(( 3=24( ? 1=(&( '$2 ? 1=(&(

"=4&( ? ? &1( &"4 ? &"4

? 3=&&& 4=(!( '1& '2( 3=($& ?

2(1(

2(11

2(12

3=&(( 2=2&( ? $"( "&4 ? $"(

4=!"( ? ? !$( "(& ? "&4

? 2=$3" 2=&!( "4" "!( 2=1"" ?

tocholdes :quity at @anuay 1= 2(11 is a. 1=&'(. b. 1=''&. c. 3=132. d. 3=1&". &$.

,esented belo ae data fo /aacas /o#. *ssets= @anuay 1 Liabilities= @anuay 1 tocholdes :quity= @an. 1 Dividends /ommon toc tocholdes :quity= Dec. 31 6et ncome 6et income fo 2(12 is a. "&4 income. b. "&4 loss. c. 3& income. d. 3& loss.

&&.

Lohmeye /o#oation e#ots7 /ash #ovided by o#eating activities /ash used by investing activities /ash #ovided by financing activities %eginning cash balance >hat is Lohmeye9s ending cash balance? a. 2&(=(((. b. 3!(=(((. c. !((=(((. d. !$(=(((.

2!(=((( 11(=((( 14(=((( $(=(((

5 ( ;=

5 ( ;>

&'.


Ieisle /o#oation e#ots7 /ash #ovided by o#eating activities /ash used by investing activities /ash #ovided by financing activities %eginning cash balance

2((=((( 11(=((( 14(=((( $(=(((

>hat is Ieisle9s ending cash balance? a. 23(=(((. b. 3((=(((. c. 4!(=(((. d. !2(=(((. '(.

Duing 2(1( the DLD /om#any had a net income of !(=(((. n addition= selected accounts shoed the folloing changes7 *ccounts 0eceivable 3=((( incease *ccounts ,ayable 1=((( incease %uilding 4=((( decease De#eciation :x#ense 1=!(( incease %onds ,ayable &=((( incease >hat as the amount of cash #ovided by o#eating activities? a. 4'=!(( b. !(=((( c. !1=!(( d. !'=!((

'1.

Gading /o#oation e#ots the folloing infomation7 6et income De#eciation ex#ense ncease in accounts eceivable

!((=((( 14(=((( "(=(((

Gading should e#ot cash #ovided by o#eating activities of a. 3((=(((. b. 42(=(((. c. !&(=(((. d. $((=(((. '2.

aude /o#oation e#ots the folloing infomation7 6et income De#eciation ex#ense ncease in accounts eceivable

2!(=((( $(=((( 3(=(((

aude should e#ot cash #ovided by o#eating activities of a. 1!(=(((. b. 21(=(((. c. 2'(=(((. d. 3!(=(((.

%alance heet and tatement of /ash Flos '3.

,acad /o#oation e#ots the folloing infomation7 6et cash #ovided by o#eating activities *veage cuent liabilities *veage long-tem liabilities Dividends declaed /a#ital ex#enditues ,ayments of debt

21!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=(((

,acad9s cash debt coveage atio is a. (.&". b. 1.43. c. 2.1!. d. 4.$&. '4.

,acad /o#oation e#ots the folloing infomation7 6et cash #ovided by o#eating activities *veage cuent liabilities *veage long-tem liabilities Dividends #aid /a#ital ex#enditues ,ayments of debt

21!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=(((

,acad9s fee cash flo is a. 1(=(((. b. 4!=(((. c. 1(!=(((. d. 1!!=(((. '!.

,edigo /o#oation e#ots the folloing infomation7 6et cash #ovided by o#eating activities *veage cuent liabilities *veage long-tem liabilities Dividends #aid /a#ital ex#enditues ,ayments of debt ,edigo9s cash debt coveage atio is a. 1.(2. b. 1.$(. c. 2.!!. d. 3.((.

2!!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=(((

5 ( ;?

5 ( 1@

'".


6oton /o#oation e#ots the folloing infomation7 6et cash #ovided by o#eating activities *veage cuent liabilities *veage long-tem liabilities Dividends #aid /a#ital ex#enditues ,ayments of debt 6oton9s fee cash flo is a. !(=(((. b. &!=(((. c. 14!=(((. d. 1'!=(((.

2!!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=(((

Multi%le C!oi$e Ans*ers) Co,%utational Ite,

$'. &(. &1. &2.

Ans&

c a b d

Ite,

&3. &4. &!. &".

Ans&

a b c c

Ite,

&$. &&. &'. '(.

Ans&

d b b a

Ite,

'1. '2. '3. '4.

Ans&

c c a b

Ite,

'!. '".

Ans&

a b

M'LTIPLE CHOICE)CPA A"a%te" '$.

tine /o#.s tial balance eflected the folloing account balances at Decembe 31= 2(1(7 *ccounts eceivable BnetC 24=((( Tading secuities "=((( *ccumulated de#eciation on equi#ment and funitue 1!=((( /ash 11=((( nventoy 3(=((( :qui#ment 2!=((( ,atent 4=((( ,e#aid ex#enses 2=((( Land held fo futue business site 1&=((( n tines Decembe 31= 2(1( balance sheet= the cuent assets total is a. '(=(((. b. &2=(((. c. $$=(((. d. $3=(((.


5 ( 1;

)se the folloing infomation fo questions '& though 1((. The folloing tial balance of 0eese /o#. at Decembe 31= 2(1( has been #o#ely ad+usted exce#t fo the income tax ex#ense ad+ustment. 0eese /o#. Tial %alance Decembe 31= 2(1( D. /. /ash  $$!=((( *ccounts eceivable BnetC 2="'!=((( nventoy 2=(&!=((( ,o#ety= #lant= and equi#ment BnetC $=3""=((( *ccounts #ayable and accued liabilities  1=$(1=((( ncome taxes #ayable "!4=((( Defeed income tax liability &!=((( /ommon stoc 2=3!(=((( *dditional #aid-in ca#ital 3="&(=((( 0etained eanings= 1J1J1( 3=4!(=((( 6et sales and othe evenues 13=3"(=((( /osts and ex#enses 11=1&(=((( ncome tax ex#enses 1=1$'=((( 2!=2&(=((( 2!=2&(=((( the financial data fo the yea ended Decembe 31= 2(1(7 •

ncluded in accounts eceivable is 1=2((=((( due fom a custome and #ayable in quately installments of 1!(=(((. The last #ayment is due Decembe 2'= 2(12.

•

The balance in the Defeed ncome Tax Liability account #etains to a tem#oay diffeence that aose in a #io yea= of hich 2(=((( is classified as a cuent liability.

•

Duing the yea= estimated tax #ayments of !2!=((( ee chaged to income tax ex#ense. The cuent and futue tax ate on all ty#es of income is 3(K.

n 0eeses Decembe 31= 2(1( balance sheet= '&.

The cuent assets total is a. "=(&(=(((. b. !=!!!=(((. c. !=4(!=(((. d. 4='!!=(((.

''.

The cuent liabilities total is a. 1=&!(=(((. b. 1='1!=(((. c. 2=3$!=(((. d. 2=44(=(((.

1((.

The final etained eanings balance is a. 4=4!1=(((. b. 4=!3"=(((. c. 4='$"=(((. d. 4='(!=(((.

5 ( 11

1(1.


n @anuay 4= 2(1(= Iiley /o. leased a building to Dodd /o#. fo a ten-yea tem at an annual ental of $!=(((. *t ince#tion of the lease= Dodd eceived 3((=((( coveing the fist to yeas ent of 1!(=((( and a secuity de#osit of 1!(=(((. This de#osit ill not be etuned to Dodd u#on ex#iation of the lease but ill be a##lied to #ayment of ent fo the last to yeas of the lease. >hat #otion of the 3((=((( should be shon as a cuent and long-tem liability in Iileys Decembe 31= 2(1( balance sheet? a. b. c. d.

1(2.

/uent Liability ( $!=((( 1!(=((( 1!(=(((

Long-tem Liability 3((=((( 1!(=((( 1!(=((( $!=(((

>hich of the folloing facts concening fixed assets should be included in the summay of significant accounting #olicies? a. b. c. d.

De#eciation 5ethod 6o es es 6o

/om#osition es es 6o 6o

1(3.

n a statement of cash flos= ecei#ts fom sales of #o#ety= #lant= and equi#ment and othe #oductive assets should geneally be classified as cash inflos fom a. o#eating activities. b. financing activities. c. investing activities. d. selling activities.

1(4.

n a statement of cash flos= inteest #ayments to lendes and othe ceditos should be classified as cash outflos fo a. o#eating activities. b. booing activities. c. lending activities. d. financing activities.

1(!.

n a statement of cash flos= #oceeds fom issuing equity instuments should be classified as cash inflos fom a. lending activities. b. o#eating activities. c. investing activities. d. financing activities.

1(".

n a statement of cash flos= #ayments to acquie debt instuments of othe entities Bothe than cash equivalentsC should be classified as cash outflos fo a. o#eating activities. b. investing activities. c. financing activities. d. lending activities.


5 ( 13

Multi%le C!oi$e Ans*ers) CPA A"a%te" Ite,

'$. '&.

Ans&

Ite,

Ans&

Ite,

Ans&

Ite,

Ans&

Ite,

Ans&

d d

''. 1((.

a c

1(1. 1(2.

b c

1(3. 1(4.

c a

1(!. 1(".

d b

DERI6ATIONS ) Co,%utational No& Ans*er $'. c

Derivation

&(.

a

&1.

b

&2.

d

&3.

a

&4.

b

$2(=((( M &!=((( N 3"3=((( < ''&=(((.

&!.

c

2=&(( M 1="&( < 1=12(.

&".

c

B!=4(( M 3=24(C N 1=(&( N '$2 M 1=(&( < 3=132.

&$.

d

2=&!( M "4" M 2=1"" < B3&C.

&&.

b

$(=((( N 2!(=((( M 11(=((( N 14(=((( < 3!(=(((.

&'.

b

$(=((( N 2((=((( M 11(=((( N 14(=((( < 3((=(((.

'(.

a

!(=((( M 3=((( N 1=((( N 1=!(( < 4'=!((.

'1.

c

!((=((( N 14(=((( M "(=((( < !&(=(((.

'2.

c

2!(=((( N $(=((( M 3(=((( < 2'(=(((.

'3.

a

21!=((( O B1!(=((( N 1((=(((C < (.&".

'4.

b

21!=((( M "(=((( M 11(=((( < 4!=(((.

'!.

a

2!!=((( O B1!(=((( N 1((=(((C < 1.(2.

'".

b

2!!=((( M "(=((( M 11(=((( < &!=(((.

$2(=((( M &!=((( N 313=((( < '4&=(((.

DERI6ATIONS ) CPA A"a%te" No& Ans*er '$. d

Derivation 24=((( N "=((( N 11=((( N 3(=((( N 2=((( < $3=(((.

'&.

d

$$!=((( N P2="'!=((( M B1!(=((( Q 4CR N 2=(&!=((( < 4='!!=(((.

''.

a

1=$(1=((( N B"!4=((( M !2!=(((C N 2(=((( < 1=&!(=(((.

1((.

c

3=4!(=((( N 13=3"(=((( M 11=1&(=((( M B1=1$'=((( M !2!=(((C < 4='$"=(((.

1(1.

b

/once#tual.

1(2.

c

/once#tual.

5 ( 17


No& Ans*er

Derivation

1(3.

c

/once#tual.

1(4.

a

/once#tual.

1(!.

d

/once#tual.

1(".

b

/once#tual.

E2ERCISES E& 5(;@=SDefinitions.

,ovide clea= concise anses fo the folloing. 1. >hat ae assets? 2. >hat ae liabilities? 3. >hat is equity? 4. >hat ae cuent liabilities? !. :x#lain hat oing ca#ital is and ho it is com#uted. ". >hat ae intangible assets? $. >hat ae cuent assets?

Solution 5(;@=

1. *ssets ae #obable futue economic benefits obtained o contolled by an entity as a esult of #ast tansactions o events. 2. Liabilities ae #obable futue sacifices of economic benefits aising fom #esent obligations of an entity as a esult of #ast tansactions o events. 3. :quity is the esidual inteest in the net assets of an entity. 4. /uent liabilities ae obligations that ae ex#ected to be liquidated though the use of cuent assets o the ceation of othe cuent liabilities. !. >oing ca#ital is the net amount of a com#any9s elatively liquid esouces. t is the excess of total cuent assets ove total cuent liabilities. ". ntangible assets ae economic esouces o com#etitive advantages. They lac #hysical substance and have a high degee of uncetainty about the futue benefits to be eceived. $. /uent assets ae esouces Bfutue economic benefitsC ex#ected to be conveted to cash= sold= o consumed in one yea o the o#eating cycle= hicheve is longe.


5 ( 15

E& 5(;@>STeminology.

n the s#ace #ovided at ight= ite the od o #hase that is defined o indicated. 1. bligations ex#ected to be liquidated though use of cuent assets.

1.

2. tatement shoing financial condition at a #oint in time.

2.

3. :vents that de#end u#on futue outcomes.

3.

4. ,obable futue sacifices of economic benefits.

4.

!. 0esouces ex#ected to be conveted to cash in one yea o the o#eating cycle= hicheve is longe.

!.

". 0esouces of a duable natue used in o#eations.

".

$. :conomic ights o com#etitive advantages hich lac #hysical substance.

$.

&. ,obable futue economic benefits.

&.

'. 0esidual inteest in the net assets of an entity.

'.

Solution 5(;@>

1. 2. 3. 4. !.

/uent liabilities. %alance sheet. /ontingencies. Liabilities. /uent assets.

". $. &. '.

,o#ety= #lant= and equi#ment. ntangible assets. *ssets. :quity.

E& 5(;@?S/uent assets.

Define cuent assets ithout using the od Uasset.U Solution 5(;@?

/uent assets ae esouces Bfutue economic benefitsC ex#ected to be conveted to cash= sold= o consumed in one yea o the o#eating cycle= hicheve is longe.

5 ( 1<


E& 5(;;@S*ccount classification.

a. b. c. d. e.

*:T /uent assets nvestments ,lant and equi#ment ntangibles the assets

L*%LT: *6D /*,T*L f. /uent liabilities g. Long-tem liabilities h. ,efeed stoc i. /ommon stoc +. *dditional #aid-in ca#ital . 0etained eanings l. tems excluded fom balance sheet

)sing the lettes above= classify the folloing accounts accoding to the #efeed and odinay balance sheet #esentation.  1. %ond sining fund  2. /ommon stoc distibutable  3. *##o#iation fo #lant ex#ansion  4. %an ovedaft  !. %onds #ayable Bdue 2(13C  ". ,emium on common stoc  $. ecuities oned by anothe com#any hich ae collateal fo that com#anys note  &. Tading secuities  '. nventoy  1(. )namotiAed discount on bonds #ayable  11. ,atents  12. )neaned evenue Solution 5(;;@

1. 2. 3. 4.

b i  f

!. ". $. &.

g + l a

'. 1(. 11. 12.

a g d f


5 ( 1=

E& 5(;;;S;aluation of %alance heet tems.

)se the code lettes listed belo Ba M lC to indicate= fo each balance sheet item B1 M 13C listed belo the usual valuation e#oted on the balance sheet.  1. /ommon stoc

 &. Long-tem bonds #ayable

 2. ,e#aid ex#enses

 '. Land Bin useC

 3. 6atual esouces

 1(. Land Bfutue #lant siteC

 4. ,o#ety= #lant= and equi#ment

 11. ,atents

 !. Tade accounts eceivable

 12. Tading secuities

 ". /o#yights

 13. Tade accounts #ayable

 $. 5echandise inventoy a. ,a value b. /uent cost of e#lacement c. *mount #ayable hen due= less unamotiAed discount o #lus unamotiAed #emium d. *mount #ayable hen due e. 5aet value at balance sheet date f.

6et ealiAable value

g. Loe of cost o maet h. iginal cost less accumulated amotiAation i.

iginal cost less accumulated de#letion

+.

iginal cost less accumulated de#eciation

. Gistoical cost l.

)nex#ied o unconsumed cost

Solution 5(;;;

1. 2. 3. 4. !.

a l i + f

". $. &. '. 1(.

h g c  

11. 12. 13.

h e d

5 ( 1>


E& 5(;;1S%alance sheet classifications.

Ty#ical balance sheet classifications ae as follos. a. /uent *ssets g. b. nvestments h. c. ,lant *ssets i. d. ntangible *ssets +. e. the *ssets . f. /uent Liabilities l.

Long-Tem Liabilities /a#ital toc *dditional ,aid-n /a#ital 0etained :anings 6otes to Financial tatements 6ot 0e#oted on %alance heet

ndicate by use of the above lettes ho each of the folloing items ould be classified on a balance sheet #e#aed at Decembe 31= 2(1(. f a conta account= o any amount that is negative o o##osite the nomal balance= #ut #aentheses aound the lette selected. * lette may be used moe than once o not at all.  1. *ccued salaies and ages  2. 0ental evenues fo 3 months collected in advance  3. Land used as #lant site  4. :quity secuities classified as tading  !. /ash  ". *ccued inteest #ayable due in 3( days  $. ,emium on #efeed stoc issued  &. Dividends in aeas on #efeed stoc  '. ,etty cash fund  1(. )namotiAed discount on bonds #ayable due 2(13  11. /ommon stoc at #a value  12. %ond indentue covenants  13. )namotiAed #emium on bonds #ayable due in 2(1"  14. *lloance fo doubtful accounts  1!. *ccumulated de#eciation

 1". 6atual esouceStimbelands  1$. Deficit Bno net income eaned since beginning of com#anyC  1&. 8oodill  1'. '( day notes #ayable  2(. nvestment in bonds of anothe com#anyH ill be held to 2(13 matuity  21. Land held fo s#eculation  22. Death of com#any #esident  23. /uent matuity of bonds #ayable  24. nvestment in subsidiayH no #lans to sell in nea futue  2!. Tade accounts #ayable 2".

,efeed stoc B1( #aC

2$.

,e#aid ent fo next 12 months

 2&. /o#yight  2'. *ccumulated amotiAation= #atents  3(. :anings not distibuted to stocholdes


5 ( 1?

Solution 5(;;1

1. 2. 3. 4. !.

f f c a a

". $. &. '. 1(.

f i  a BgC

11. 12. 13. 14. 1!.

h  g BaC BcC

1". 1$. 1&. 1'. 2(.

c B+C d f b

21. 22. 23. 24. 2!.

b l f b f

2". 2$. 2&. 2'. 3(.

h a d BdC +


The vaious classifications listed belo have been used in the #ast by 5ais /om#any on its balance sheet. t ass you #ofessional o#inion concening the a##o#iate classification of each of the items 1-14 belo. a. b. c. d. e.

/uent *ssets nvestments ,lant and :qui#ment ntangible *ssets the *ssets

f. g. h. i.

/uent Liabilities Long-Tem Liabilities /ommon toc and ,aid-in /a#ital in :xcess of ,a 0etained :anings

ndicate by lette ho each of the folloing items should be classified. f an item need not be e#oted on the balance sheet= use the lette UV.U * lette may be used moe than once o not at all. f an item can be classified in moe than one categoy= choose the categoy most favoed by the authos of you textboo.  1. :m#loyees #ayoll deductions.  2. /ash in sining fund.  3. 0ent evenue collected in advance.  4. :qui#ment etied fom use and held fo sale.  !. ,atents.  ". ,ayoll cash fund.  $. 8oods held on consignment.  &. *ccued evenue on tem#oay investments.  '. *dvances to sales#esons.  1(. ,emium on bonds #ayable due to yeas fom date.  11. %an ovedaft.  12. alaies hich com#any budget shos ill be #aid to em#loyees ithin the next yea.  13. >o in #ocess.  14. *##o#iation fo bonded indebtedness.

5 ( 3@


Solution 5(;;3

1. 2. 3. 4.

f b f a o e

!. ". $. &.

d a x a

'. 1(. 11. 12.

a g f x

13. 14.

a i


The vaious classifications listed belo have been used in the #ast by Gale /om#any on its balance sheet. a. b. c. d.

/uent *ssets nvestments ,lant and :qui#ment ntangible *ssets

e. f. g. h.

/uent Liabilities Long-tem Liabilities /ommon toc and ,aid-in /a#ital in :xcess of ,a 0etained :anings

Instru$tions

ndicate by lette ho each of the items belo should be classified at Decembe 31= 2(1(. f an item is not e#oted on the Decembe 31= 2(1( balance sheet= use the lette UVU fo you anse. f the item is a conta account ithin the #aticula classification= #lace #aentheses aound the lette. * lette may be used moe than once o not at all. am#le question and anse7 BaC

*lloance fo doubtful accounts.

 1. /ustomes accounts ith cedit balances.  2. %ond sining fund.  3. alaies hich the com#anys cash budget shos ill be #aid to em#loyees in 2(11.  4. *ccumulated de#eciation.  !. *##o#iation fo #lant ex#ansion.  ". *motiAation of #atents fo 2(1(.  $. n Decembe 31= 2(1(= Gale signed a #uchase commitment to buy all of its a mateials fom Delta /om#any fo the next 2 yeas.  &. Discount on bonds #ayable due 5ach 31= 2(13.  '. Launching of Gale9s ntenet etailing division in Febuay= 2(11.  1(. /ash dividends declaed on Decembe 1!= 2(1( #ayable to stocholdes on @anuay 1!= 2(11.


5 ( 3;

Solution 5(;;7

1. e 2. b 3. x

4. !. ".

BcC h x

$. &. '.

x BfC x

1(.

e

E& 5(;;5Statement of cash flos.

Fo each event listed belo= select the a##o#iate categoy hich descibes the effect of the event on a statement of cash flos7 a. /ash #ovidedJused by o#eating activities. b. /ash #ovidedJused by investing activities. c. /ash #ovidedJused by financing activities. d. 6ot a cash flo.  1. ,ayment on long-tem debt  2. ssuance of bonds at a #emium  3. /ollection of accounts eceivable  4. /ash dividends declaed  !. ssuance of stoc to acquie land  ". ale of available-fo-sale secuities Blong-temC  $. ,ayment of em#loyees ages  &. ssuance of common stoc fo cash  '. ,ayment of income taxes #ayable  1(. ,uchase of equi#ment  11. ,uchase of teasuy stoc BcommonC  12. ale of eal estate held as a long-tem investment

Solution 5(;;5

1. c 2. c 3. a

4. !. ".

d d b

$. &. '.

a c a

1(. 11. 12.

b c b

5 ( 31


E& 5(;;
Financial statements fo Gilton /om#any ae #esented belo7 Gilton /om#any %alance heet Decembe 31= 2(1( *ssets /ash *ccounts eceivable %uildings and equi#ment *ccumulated de#eciationS buildings and equi#ment ,atents

 4(=((( 3!=((( 1!(=((( B!(=(((C 2(=((( 1'!=(((

Liabilities W tocholdes9 :quity *ccounts #ayable  2(=((( %onds #ayable !(=((( /ommon stoc 0etained eanings

"!=((( "(=((( 1'!=(((

Gilton /om#any tatement of /ash Flos Fo the ea :nded Decembe 31= 2(1( /ash flos fom o#eating activities 6et income *d+ustments to econcile net income to net cash #ovided by o#eating activities7 ncease in accounts eceivable ncease in accounts #ayable De#eciationSbuildings and equi#ment 8ain on sale of equi#ment *motiAation of #atents 6et cash #ovided by o#eating activities

!(=((( B1"=(((C &=((( 1!=((( B"=(((C 2=(((

/ash flos fom investing activities ale of equi#ment ,uchase of land ,uchase of buildings and equi#ment 6et cash used by investing activities

12=((( B2!=(((C B4&=(((C

/ash flos fom financing activities ,ayment of cash dividend ale of bonds 6et cash #ovided by financing activities

B1!=(((C 4(=(((

6et incease in cash /ash= @anuay 1= 2(1( /ash= Decembe 31= 2(1(

3=((( !3=(((

B"1=(((C

2!=((( 1$=((( 23=((( 4(=(((

*t the beginning of 2(1(= *ccounts ,ayable amounted to 12=((( and %onds ,ayable as 1(=(((. Instru$tions

/alculate the folloing fo Gilton /om#any7 a. /uent cash debt coveage atio b. /ash debt coveage atio c. Fee cash flo

%alance heet and tatement of /ash Flos Solution 5(;;<

6et cash #ovided by o#eating activities a. /uent cash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage cuent liabilities !3=((( !3=((( < SSSSSSSSSSS < SSSS < 3.3 7 1 B12=((( N 2(=(((C O 2 1"=((( 6et cash #ovided by o#eating activities b. /ash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage total liabilities !3=((( !3=((( < SSSSSSSSSSS < SSSS < 1.2 7 1 B22=((( N $(=(((C O 2 4"=((( c. Fee cash flo < 6et cash #ovided by o#eating activities M ca#ital ex#enditues and dividends < !3=((( M X$3=((( M 1!=((( < B3!=(((C X2!=((( N 4&=(((

5 ( 33

5 ( 37


PROBLEMS Pr& 5(;;= S%alance sheet fomat.

The folloing balance sheet has been submitted to you by an inex#eienced booee#e. List you suggestions fo im#ovements in the fomat of the balance sheet. /onside both teminology deficiencies as ell as classification inaccuacies. @as#e ndusties= nc. %alance heet Fo the ,eiod :nded 12J31J1( *ssets Fixed *ssetsSTangible :qui#ment 11(=((( Less7 eseve fo de#eciation B4(=(((C  $(=((( Factoy su##lies 22=((( Land and buildings 4((=((( Less7 eseve fo de#eciation B1!(=(((C 2!(=((( ,lant site held fo futue use '(=(((  432=((( /uent *ssets *ccounts eceivable 1$!=((( /ash &(=((( nventoy 22(=((( Teasuy stoc Bat costC 2(=((( 4'!=((( Fixed *ssets--ntangible 8oodill &(=((( 6otes eceivable 4(=((( ,atents 2"=((( 14"=((( Defeed /hages *dvances to sales#esons "(=((( ,e#aid ent 2$=((( 0etunable containes $!=((( 1"2=((( TT*L *:T 1=23!=((( Liabilities /uent Liabilities *ccounts #ayable 14(=((( *lloance fo doubtful accounts &=((( /ommon stoc dividend distibutable 3!=((( ncome taxes #ayable 42=((( ales taxes #ayable 1$=(((  242=((( Long-Tem Liabilities= !K debentue bonds= due 2(13 !((=((( 0eseve fo contingencies 1!(=((( "!(=((( TT*L L*%LT: &'2=((( :quity /a#ital stoc= 1(.(( #a value= issued 12=((( shaes ith "( shaes held as teasuy stoc 1!(=((( /a#ital su#lus '(=((( Dividends #aid B2(=(((C :aned su#lus 123=((( TT*L :Y)T 343=((( TT*L L*%LT: *6D :Y)T 1=23!=(((


5 ( 35

6ote 1. The eseve fo contingencies has been ceated by chages to eaned su#lus and has been established to #ovide a cushion fo futue uncetainties. 6ote 2. The inventoy account includes only items #hysically #esent at the main #lant and aehouse. tems located at the com#anys banch sales office amounting to 4(=((( ae excluded since the com#any has consistently folloed this #ocedue fo many yeas. Solution 5(;;=

1. The heading should be as of a s#ecific date athe than fo a #eiod of time. 2. 0eseve fo De#eciation is #oo teminologyH the title *ccumulated De#eciation is moe a##o#iate. 3. Land and buildings should be segegated into to accounts. The *ccumulated De#eciation account should only be e#oted fo the buildings. 4. ,lant site held fo futue use should be shon in the nvestments section. !. /uent assets should be shon on the balance sheet fist in most situationsH cuent assets ae listed usually in ode of liquidityH factoy su##lies should be shon as a cuent asset. ". Teasuy stoc is not an asset= but a conta account to stocholdes equity in most situations. $. 6otes eceivable should be e#oted as a cuent asset o an investment. &. The defeed chage items should be eclassified as follos in most situations7 *dvances to sales#esonsScuent asset ,e#aid entScuent asset 0etunable containesScuent asset '. *lloance fo doubtful accounts should be shon as a conta account to accounts eceivable. 1(. /ommon stoc dividend distibutable should be shon in stocholdes equity. 11. !K debentue bonds should be shon on a se#aate line. 12. 0eseve fo /ontingencies should be shon as an a##o#iation of etained eanings. The authos #efe the tem Ua##o#iationU to the tem Ueseve.U 13. /a#ital stoc should be shon at the #a value of the shaes issued= 12(=(((. *ny excess should be included in a #aid-in ca#ital account. 14. /a#ital su#lus and eaned su#lus ae #oo teminology. The tems Uadditional #aid-in ca#italU and Uetained eaningsU ae moe a##o#iate. 1!. The dividends #aid title is a misnome. t #obably is a dividends declaed item that should be closed to etained eanings. 1". 6o efeence in the body of the statement is made to the notes. The ode of the notes is ong. 1$. 6ote 2 indicates that the inventoy account is undestated by 4(=(((. 1&. #ecific identification and desci#tion of all significant accounting #inci#les and methods that involve selection fom among altenatives andJo those that ae #eculia to a given industy should be disclosed in the annual e#ot.

5 ( 3<


Pr& 5(;;> S%alance sheet #esentation.

The folloing balance sheet as #e#aed by the booee#e fo Iaus /om#any as of Decembe 31= 2(1(. Iaus /om#any %alance heet as of Decembe 31= 2(1( /ash *ccounts eceivable BnetC nventoies nvestments :qui#ment BnetC ,atents

 &(=((( !2=2(( !$=((( $"=3(( '"=((( 32=((( 3'3=!((

*ccounts #ayable Long-tem liabilities tocholdes equity

 $!=((( 1((=((( 21&=!((

3'3=!((

The folloing additional infomation is #ovided7 1. /ash includes the cash suende value of a life insuance #olicy '=4((= and a ban ovedaft of 2=!(( has been deducted. 2. The net accounts eceivable balance includes7 BaC accounts eceivableSdebit balances "(=(((H BbC accounts eceivableScedit balances 4=(((H BcC alloance fo doubtful accounts 3=&((. 3. nventoies do not include goods costing 3=((( shi##ed out on consignment. 0eceivables of 3=((( ee ecoded on these goods. 4. nvestments include investments in common stoc= tading 1'=((( and available-fo-sale 4&=3((= and fanchises '=(((. !. :qui#ment costing !=((( ith accumulated de#eciation 4=((( is no longe used and is held fo sale. *ccumulated de#eciation on the othe equi#ment is 4(=(((. Instru$tions

,e#ae a balance sheet in good fom Bstocholdes equity details can be omitted.C


5 ( 3=

Solution 5(;;>

Iaus /om#any %alance heet *s of Decembe 31= 2(1( *ssets /uent assets /ash Tading secuities *ccounts eceivable Less7 *lloance fo doubtful accounts nventoies X:qui#ment held fo sale Total cuent assets nvestments *vailable-fo-sale secuities /ash suende value

 $3=1(( 1'=(((  !$=((( 3=&((

B2C !3=2(( "(=((( 1=((( 2("=3((

4&=3(( '=4((

,o#ety= #lant= and equi#ment :qui#ment Less accumulated de#eciation ntangible assets ,atents Fanchises Total assets

13!=((( 4(=((( 32=((( '=(((

B1C

B3C B4C

!$=$(( B!C '!=(((

41=((( 4((=(((

Liabilities and tocholdes :quity /uent liabilities *ccounts #ayable %an ovedaft Total cuent liabilities Long-tem liabilities Total liabilities tocholdes equity Total liabilities and stocholdes equity B1C B2C B3C B4C B!C B"C

B&(=((( M '=4(( N 2=!((C B"(=((( M 3=(((C B!$=((( N 3=(((C B!=((( M 4=(((C B'"=((( N 4(=((( M !=((( N 4=(((C B$!=((( N 4=(((C

X*n altenative is to sho it as an othe asset.

 $'=((( 2=!(( &1=!(( 1((=((( 1&1=!(( 21&=!(( 4((=(((

B"C

5 ( 3>


Pr& 5(;;? S%alance sheet #esentation.

8iven the folloing account infomation fo Leong /o#oation= #e#ae a balance sheet in e#ot fom fo the com#any as of Decembe 31= 2(1(. *ll accounts have nomal balances. :qui#ment nteest :x#ense nteest ,ayable 0etained :anings Dividends Land nventoy %onds ,ayable 6otes ,ayable Bdue in " monthsC /ommon toc *ccumulated De#eciation - :q. ,e#aid *dvetising 0evenue %uildings u##lies Taxes ,ayable )tilities :x#ense *dvetising :x#ense alay :x#ense alaies ,ayable *ccumulated De#. - %ld. /ash De#eciation :x#ense= %uilding W :qui#ment

4(=((( 2=4(( "(( ? !(=4(( 13$=32( 1(2=((( $&=((( 14=4(( "(=((( 1(=((( !=((( 331=4(( &(=4(( 1=&"( 3=((( 1=32( 1=!"( !3=(4( '(( 1!=((( 3(=((( &=(((


5 ( 3?

Solution 5(;;?

Leong /o#oation %alance heet Decembe 31= 2(1( *ssets /ash nventoy u##lies ,e#aid advetising Total cuent assets Land %uilding *ccumulated de#eciation - bld :qui#ment *ccumulated de#eciation -eq Total assets Liabilities W tocholdes :quity 6otes #ayable Taxes #ayable alaies #ayable nteest #ayable Total cuent liabilities Long-tem liabilities %ond #ayable Total liabilities /ommon stoc 0etained eanings B2"!=(&(X- !(=4((C Total stocholdes equity Total liabilities W stocholdes equity

X331=4(( - !3=(4( - &=((( - 2=4(( - 1=!"( - 1=32(

 3(=((( 1(2=((( 1=&"( !=(((  13&=&"( 13$=32(  &(=4(( B1!=(((C 4(=((( B1(=(((C

"!=4(( 3(=(((

232=$2(  3$1=!&(

 14=4(( 3=((( '(( "((  1&='(( $&=((( '"='(( "(=((( 214="&( 2$4="&(  3$1=!&(

5 ( 7@


Pr& 5(;1@ Statement of cash flos #e#aation.

elected financial statement infomation and additional data fo tanislaus /o. is #esented belo. ,e#ae a statement of cash flos fo the yea ending Decembe 31= 2(1( Decembe 31 2(('

2(1(

/ash....................................................... 42=((( *ccounts eceivable BnetC....................... &4=((( nventoy................................................. 1"&=((( Land....................................................... !&=&(( :qui#ment.............................................. !(4=((( TT*L........................................&!"=&((

"3=((( 1!1=2(( 2(1="(( 21=((( $&'="(( 1=22"=4((

*ccumulated de#eciation....................... &4=((( *ccounts #ayable................................... !(=4(( 6otes #ayable - hot-tem..................... "$=2(( 6otes #ayable - Long-tem..................... 1"&=((( /ommon stoc........................................ 42(=((( 0etained eanings................................... "$=2(( TT*L........................................&!"=&((

11!="(( &"=((( 2'=4(( 3(2=4(( 4&$=2(( 2(!=&(( 1=22"=4((

*dditional data fo 2(1(7 1. 6et income as 23!=2((. 2. De#eciation as 31="((. 3. Land as sold at its oiginal cost. 4. Dividends of '"="(( ee #aid. !. :qui#ment as #uchased fo &4=((( cash. ". * long-tem note fo 2(1="(( as used to #ay fo an equi#ment #uchase. $. /ommon stoc as issued to #ay a "$=2(( long-tem note #ayable.

%alance heet and tatement of /ash Flos Solution 5(;1@

tanislaus /o. tatement of /ash Flos Fo the yea ended Decembe 31= 2(1( 6et ncome /ash flo fom o#eating activities De#eciation ex#ense ncease in accounts eceivable ncease in inventoy ncease in accounts #ayable Decease in shot-tem notes #ayable 6et cash #ovided by o#eating activities /ash flo fom investing activities ,uchase equi#ment ale of land 6et cash used by investing activities /ash flo fom financing activities ,ayment of cash dividend 6et cash used by financing activities 6et incease in cash /ash at beginning of yea /ash at end of the yea

23!=2(( 31="(( B"$=2((C B33="((C 3!="(( B3$=&((C

B$1=4((C 1"3=&((

B&4=(((C 3$=&(( B4"=2((C B'"="((C B'"="((C 21=((( 42=((( "3=(((

6oncash investing and financing activities ,ayment of long-tem note #ayable ith issuance of "$=2(( of common stoc

5 ( 7;

5 ( 71


Pr& 5(;1; Statement of cash flos #e#aation.

elected financial statement infomation and additional data fo @ohnston :nte#ises is #esented belo. ,e#ae a statement of cash flos fo the yea ending Decembe 31= 2(1( @ohnston :nte#ises %alance heet and ncome tatement Data Decembe 31= 2(1( /uent *ssets7 /ash *ccounts 0eceivable nventoy Total /uent *ssets ,o#ety= ,lant= and :qui#ment Less7 *ccumulated De#eciation Total *ssets /uent Liabilities7 *ccounts ,ayable 6otes ,ayable ncome Tax ,ayable Total /uent Liabilities %onds ,ayable Total Liabilities tocholdes :quity7 /ommon toc 0etained :anings Total tocholdes :quity Total Liabilities W tocholdes :quity ales Less /ost of 8oods old 8oss ,ofit :x#enses7 De#eciation :x#ense alay :x#ense nteest :x#ense Loss on ale of :qui#ment ncome %efoe Taxes Less ncome Tax :x#ense 6et ncome

Decembe 31= 2(('

1!3=((( 23&=((( 3'1=((( $&2=(((

11'=((( 3("=((( 34(=((( $"!=(((

1=241=((( B4$"=(((C 1=!4$=(((

1=122=((( B442=(((C 1=44!=(((

1&$=((( !1=((( &!=((( 323=(((

1(2=((( "&=((( $"=!(( 24"=!((

34(=((( ""3=(((

3'1=((( "3$=!((

!1(=((( 3$4=((( &&4=((( 1=!4$=(((

4"$=!(( 34(=((( &($=!(( 1=44!=(((

1="1!=((( $31=((( &&4=(((

1=!13=((( $31=((( $&2=(((

1!3=((( 3'1=((( 34=((( 1$=((( 2&'=((( 11'=((( 1$(=(((

13"=((( 3!$=((( 34=((( ( 2!!=((( 1(2=((( 1!3=(((

*dditional nfomation7 Duing the yea= @ohnston sold equi#ment ith an oiginal cost of 1!3=((( and accumulated de#eciation of 11'=((( and #uchased ne equi#ment fo 2$2=(((.

%alance heet and tatement of /ash Flos Solution 5(;1;

@ohnston :nte#ises tatement of /ash Flos Fo the ea :nded Decembe 31= 2(1( 6et ncome

 1$(=(((

/ash flo fom o#eating activities De#eciation ex#ense Loss on sale of equi#ment Decease in accounts eceivable ncease in inventoy ncease in accounts #ayable Decease in notes #ayable ncease in tax #ayable 6et cash #ovided by o#eating activities

1!3=((( 1$=((( "&=((( B!1=(((C &!=((( B1$=(((C &=!((

/ash flo fom investing activities ale of equi#ment ,uchase of equi#ment 6et cash used by investing activities

1$=((( B2$2=(((C

/ash flo fom financing activities 0etiement of bonds #ayable ssuance of common stoc ,ayment of dividends 6et cash used by financing activities

2"3=!(( 433=!((

B2!!=(((C B!1=(((C 42=!(( B13"=(((CXX

6et incease in cash %eginning cash /ash at end of yea XX%eginning 0J: + 6et income − Dividends = :nding 0J: 34(=((( + 1$(=((( − Dividends = 3$4=((( Dividends = 13"=(((

B144=!((C 34=((( 11'=((( 1!3=(((

5 ( 73

5 ( 77


IFRS 9'ESTIONS TrueFalse

1. *lthough the #esentation fomats fo the balance sheet and statement of cash flos ae simila unde i8**, and ).. 8**,= i8**, equies fa moe extensive disclosue. 2. ne significant diffeence beteen a balance sheet #e#aed using i8**, athe than ).. 8**, is that long-tem tangible assets ill be e#oted at fai value athe than histoical cost. 3. %oth i8**, and ).. 8**, equie that s#ecific items be e#oted on the balance sheet. 4. %oth i8**, and ).. 8**, equie cuent assets to be listed fist on the balance sheet. Ans*ers to TrueFalse

1. 2. 3. 4.

False Tue False False

Multi%le C!oi$e 9uestions

1. >hich of the folloing statements about i8**, and ).. 8**, accounting and e#oting equiements fo the balance sheet is not coect? a. The #esentation fomats equied by i8**, and ).. 8**, fo the balance sheet ae simila. b. ne diffeence beteen the e#oting equiements unde i8**, and those of ).. 8**, balance sheet is that an i8**, balance sheet may list long-tem assets fist. c. %oth i8**, and ).. 8**, equie that #o#ety= #lant and equi#ment be e#oted at histoical cost on the balance sheet. d. %oth i8**, and ).. 8**, equie that com#aative infomation be e#oted. Use the following information to answer the next two questions.

Fanco /om#any uses i8**, and ons #o#ety= #lant and equi#ment ith a histoical cost of !=(((=((( euos. *t Decembe 31= 2(('= the com#any e#oted a valuation eseve of &=3"!=((( euos. *t Decembe 31= 2(1(= the #o#ety= #lant and equi#ment as a##aised at !=32!=((( euos. 2. The #o#ety= #lant and equi#ment ill be e#oted on the Decembe 31= 2(1( balance sheet at a. !=(((=((( euos. b. !=32!=((( euos. c. &=3"!=((( euos. d. &="'(=((( euos. 3. The valuation eseve at Decembe 31= 2(1( ill be e#oted at a. &=(4(=((( euos on the tatement of tocholdes :quity. b. &=3"!=((( euos in the *ssets section of the %alance heet c. &="'(=((( euos in the stocholdes equity section of the %alance heet. d. 32!=((( euos on the ncome tatement.

ch05

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