ch05 1227461538405075 9

CHAPTER 5
BALANCE SHEET AND STATEMENT OF CASH FLOWS

TRUE-FALSEConceptual
Anse! No" Desc!#pt#on
F 1. Liquidity and solvency.
T 2. Limitations of the balance sheet.
T 3. Definition of financial flexibility.
T 4. Long-tem liability disclosues.
F !. Definitions of the balance sheet.
F ". Land held fo s#eculation.
T $. %alance sheet fomat.
F &. Disclosue of fai values.
F '. Disclosue of com#any o#eations and estimates.
T 1(. Disclosue of #etinent infomation.
F 11. )se of the tem eseve.
F 12. *d+unct account.
F 13. ,u#ose of statement of cash flo-s.
F 14. .tatement of cash flo-s e#oting.
T 1!. Financial flexibility.
T 1". /ollection of a loan.
T 1$. Detemining cash #ovided by o#eating activities.
F 1&. 0e#oting significant financing and investing activities.
T 1'. /uent cash debt coveage atio.
F 2(. 0e#oting othe com#ehensive income.
MULT$PLE CHO$CEConceptual
d 21. Limitation of the balance sheet.
c 22. )ses of the balance sheet.
c
.
23. )ses of the balance sheet.
b
.
24. /iticisms of the balance sheet.
c
,
2!. Definition of liquidity.
d 2". Definition of net assets.
b 2$. /uent assets #esentation.
b 2&. 1#eating cycle.
d 2'. 1#eating cycle.
d 3(. 2dentification of cuent asset.
d 31. 2dentification of cuent asset.
d 32. 2dentification of cuent asset.
d 33. /lassification of shot-tem investments.
c 34. /lassification of inventoy #ledged as secuity.
b 3!. 2dentification of long-tem investments.
d 3". 2dentification of valuation methods.
Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on
b 3$. 2dentification of cuent liabilities.
d 3&. Definition of -o3ing ca#ital.
b 3'. 2dentification of -o3ing ca#ital items.
d 4(. 2dentification of long-tem liabilities.
d 41. 2dentification of long-tem liabilities.
d 42. /lassification of teasuy stoc3.
d 43. Disclosues fo common stoc3.
d 44. /lassification of investment in affiliate.
c 4!. /lassification of o-nes4 equity.
d 4". /lassification of assets.
d
,
4$. 2dentification of conta account.
d
.
4&. %alance sheet su##lementay disclosue.
d 4'. 5ethods of disclosue.
d !(. Disclosue of significant accounting #olicies.
d !1. Disclosue of de#eciation methods used.
d !2. 0equied notes to the financial statements.
b !3. 2dentification of geneally acce#ted account titles.
c !4. ,u#ose of the statement of cash flo-s.
c
.
!!. .tatement of cash flo-s ans-es.
b !". /lassification of cash ecei#ts.
b !$. 2dentify a financing activity.
c !&. /ash flo- fom o#eating activities.
a !'. 2dentify an investing activity.
d "(. ,e#aing the statement of cash flo-s.
b "1. /ash debt coveage atio.
b "2. /uent cash debt coveage atio.
d "3. Financial flexibility measue.
c "4. /alculation of fee cash flo-.
b
.
"!. Desci#tion of financial flexibility.
b
,
"". /ash debt coveage atio.
,
6ote7 these questions also a##ea in the ,oblem-.olving .uvival 8uide.
.
6ote7 these questions also a##ea in the .tudy 8uide.
MULT$PLE CHO$CECo'putat#onal
c "$. /lassifying investments.
a "&. 2dentifying intangible assets
b "'. /alculate total stoc3holdes9 equity.
d $(. /lassifying investments.
a $1. 2dentifying intangible assets.
b $2. /alculate total stoc3holdes9 equity.
b $3. /alculate ending cash balance.
b $4. /alculate ending cash balance.
c $!. /ash #ovided by o#eating activities.
c $". /ash #ovided by o#eating activities.
a $$. /ash debt coveage atio.
b $&. Fee cash flo-.
a $'. /ash debt coveage atio.
5 - ,
%alance .heet and .tatement of /ash Flo-s
b &(. Fee cash flo-.
MULT$PLE CHO$CECPA A(apte(
d &1. /alculate total cuent assets.
d &2. /alculate total cuent assets.
a &3. /alculate total cuent liabilities.
c &4. /alculate etained eanings balance.
b &!. /alculate cuent and long-tem liabilities.
c &". .ummay of significant accounting #olicies.
c &$. /lassification of investing activity.
a &&. /lassification of o#eating activity.
d &'. /lassification of financing activity.
b '(. /lassification of investing activity.
E-ERC$SES
$te' Desc!#pt#on
:!-'1 Definitions.
:!-'2 Teminology.
:!-'3 /uent assets.
:!-'4 *ccount classification.
:!-'! ;aluation of balance sheet items.
:!-'" %alance sheet classifications.
:!-'$ %alance sheet classifications.
:!-'& %alance sheet classifications.
:!-'' .tatement of cash flo-s.
:!-1(( .tatement of cash flo-s atios.
PROBLEMS
$te' Desc!#pt#on
,!-1(1 %alance sheet fomat.
,!-1(2 %alance sheet #e#aation.
CHAPTER LEARN$N. OB/ECT$0ES
1. :x#lain the uses and limitations of a balance sheet.
2. 2dentify the ma+o classifications of the balance sheet.
3. ,e#ae a classified balance sheet using the e#ot and account fomats.
4. Detemine -hich balance sheet infomation equies su##lemental disclosue.
!. Detemine the ma+o disclosue techniques fo the balance sheet.
". 2ndicate the #u#ose of the statement of cash flo-s.
$. 2dentify the content of the statement of cash flo-s.
&. ,e#ae a statement of cash flo-s.
5 - 1
'. )ndestand the usefulness of the statement of cash flo-s.
SUMMAR2 OF LEARN$N. OB/ECT$0ES B2 3UEST$ONS
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Lea!n#n) O45ect#6e 7
1. TF 3. TF 22. 5/
.
24. 5/
2. TF 21. 5/
.
23. 5/
,
2!. 5/
Lea!n#n) O45ect#6e ,
4. TF 3(. 5/ 3$. 5/ 44. 5/ $1. 5/ '1. : '&. :
!. TF 31. 5/ 3&. 5/ 4!. 5/ $2. 5/ '2. : 1(1. ,
". TF 32. 5/ 3'. 5/ 4". 5/ &1. 5/ '3. : 1(2. ,
2". 5/ 33. 5/ 4(. 5/ "$. 5/ &2. 5/ '4. :
2$. 5/ 34. 5/ 41. 5/ "&. 5/ &3. 5/ '!. :
2&. 5/ 3!. 5/ 42. 5/ "'. 5/ &4. 5/ '". :
2'. 5/ 3". 5/ 43. 5/ $(. 5/ &!. 5/ '$. :
$. TF
,
4$. 5/
&. TF
.
4&. 5/ '1. : '4. : '&. :
'. TF &". 5/ '2. : '". : 1(1. ,
1( TF 12. TF !(. 5/ !2. 5/
11. TF 4'. 5/ !1. 5/ !3. 5/
13. TF 14. TF !4. 5/
.
!!. 5/
Lea!n#n) O45ect#6e :
1!. TF !". 5/ !&. 5/ $3. 5/ &$. 5/ &'. 5/ ''. :
1". TF !$. 5/ !'. 5/ $4. 5/ &&. 5/ '(. 5/
Lea!n#n) O45ect#6e ;
1$. TF 1&. TF "(. 5/ $!. 5/ $". 5/
Lea!n#n) O45ect#6e <
1'. TF "1. 5/ "3. 5/
.
"!. 5/ $$. 5/ $'. 5/ 1((. :
2(. TF "2. 5/ "4. 5/
,
"". 5/ $&. 5/ &(. 5/
6ote7 TF < Tue-False : < :xecise
5/ < 5ulti#le /hoice , < ,oblem
5 - 8
TRUE FALSEConceptual
1. Liquidity efes to the ability of an ente#ise to #ay its debts as they matue.
2. The balance sheet omits many items that ae of financial value to the business but cannot
be ecoded ob+ectively.
3. Financial flexibility measues the ability of an ente#ise to ta3e effective actions to alte the
amounts and timing of cash flo-s.
4. /om#anies fequently descibe the tems of all long-tem liability ageements in notes to the
financial statements.
!. *n asset -hich is ex#ected to be conveted into cash= sold= o consumed -ithin one yea of
the balance sheet date is al-ays e#oted as a cuent asset.
". Land held fo s#eculation is e#oted in the #o#ety= #lant= and equi#ment section of the
balance sheet.
$. The account fom and the e#ot fom of the balance sheet ae both acce#table unde
8**,.
&. %ecause of the histoical cost #inci#le= fai values may not be disclosed in the balance
sheet.
'. /om#anies have the o#tion of disclosing infomation about the natue of thei o#eations
and the use of estimates in #e#aing financial statements.
1(. /om#anies may use #aenthetical ex#lanations= notes= coss efeences= and su##oting
schedules to disclose #etinent infomation.
11. The accounting #ofession has ecommended that com#anies use the -od eseve only to
descibe amounts deducted fom assets.
12. 1n the balance sheet= an ad+unct account educes eithe an asset= a liability= o an o-nes9
equity account.
13. The #imay #u#ose of a statement of cash flo-s is to e#ot the cash effects of o#eations
duing a #eiod.
14. The statement of cash flo-s e#ots only the cash effects of o#eations duing a #eiod and
financing tansactions.
1!. Financial flexibility is a com#any9s ability to es#ond and ada#t to financial advesity and
unex#ected needs and o##otunities.
1". /ollection of a loan is e#oted as an investing activity in the statement of cash flo-s.
1$. /om#anies detemine cash #ovided by o#eating activities by conveting net income on an
accual basis to a cash basis.
5 - 5
1&. .ignificant financing and investing activities that do not affect cash ae not e#oted in the
statement of cash flo-s o any othe #lace.
1'. Financial statement eades often assess liquidity by using the cuent cash debt coveage
atio.
2(. Fee cash flo- is net income less ca#ital ex#enditues and dividends.
T!ue False Anse!sConceptual
$te' Ans" $te' Ans" $te' Ans" $te' Ans"
1. F ". F 11. F 1". T
2. T $. T 12. F 1$. T
3. T &. F 13. F 1&. F
4. T '. F 14. F 1'. T
!. F 1(. T 1!. T 2(. F
MULT$PLE CHO$CEConceptual
21. >hich of the follo-ing is a limitation of the balance sheet?
a. 5any items that ae of financial value ae omitted.
b. @udgments and estimates ae used.
c. /uent fai value is not e#oted.
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. The balance sheet contibutes to financial e#oting by #oviding a basis fo all of the
follo-ing except
a. com#uting ates of etun.
b. evaluating the ca#ital stuctue of the ente#ise.
c. detemining the incease in cash due to o#eations.
d. assessing the liquidity and financial flexibility of the ente#ise.
.
24. 1ne citicism not nomally aimed at a balance sheet #e#aed using cuent accounting
and e#oting standads is
a. failue to eflect cuent value infomation.
b. the extensive use of se#aate classifications.
c. an extensive use of estimates.
d. failue to include items of financial value that cannot be ecoded ob+ectively.
5 - 9
,
2!. The amount of time that is ex#ected to ela#se until an asset is ealiAed o othe-ise
conveted into cash is efeed to as
a. solvency.
b. financial flexibility.
c. liquidity.
d. exchangeability.
2". The net assets of a business ae equal to
a. cuent assets minus cuent liabilities.
b. total assets #lus total liabilities.
c. total assets minus total stoc3holdes4 equity.
d. none of these.
2$. The coect ode to #esent cuent assets is
a. /ash= accounts eceivable= #e#aid items= inventoies.
b. /ash= accounts eceivable= inventoies= #e#aid items.
c. /ash= inventoies= accounts eceivable= #e#aid items.
d. /ash= inventoies= #e#aid items= accounts eceivable.
2&. The basis fo classifying assets as cuent o noncuent is convesion to cash -ithin
a. the accounting cycle o one yea= -hicheve is shote.
b. the o#eating cycle o one yea= -hicheve is longe.
c. the accounting cycle o one yea= -hicheve is longe.
d. the o#eating cycle o one yea= -hicheve is shote.
2'. The basis fo classifying assets as cuent o noncuent is the #eiod of time nomally
equied by the accounting entity to convet cash invested in
a. inventoy bac3 into cash= o 12 months= -hicheve is shote.
b. eceivables bac3 into cash= o 12 months= -hicheve is longe.
c. tangible fixed assets bac3 into cash= o 12 months= -hicheve is longe.
d. inventoy bac3 into cash= o 12 months= -hicheve is longe.
3(. The cuent assets section of the balance sheet should include
a. machiney.
b. #atents.
c. good-ill.
d. inventoy.
31. >hich of the follo-ing is a cuent asset?
a. /ash suende value of a life insuance #olicy of -hich the com#any is the bene-
ficiay.
b. 2nvestment in equity secuities fo the #u#ose of contolling the issuing com#any.
c. /ash designated fo the #uchase of tangible fixed assets.
d. Tade installment eceivables nomally collectible in 1& months.
5 - :
32. >hich of the follo-ing should not be consideed as a cuent asset in the balance sheet?
a. 2nstallment notes eceivable due ove 1& months in accodance -ith nomal tade
#actice.
b. ,e#aid taxes -hich cove assessments of the follo-ing o#eating cycle of the
business.
c. :quity o debt secuities #uchased -ith cash available fo cuent o#eations.
d. The cash suende value of a life insuance #olicy caied by a co#oation= the
beneficiay= on its #esident.
33. :quity o debt secuities held to finance futue constuction of additional #lants should be
classified on a balance sheet as
a. cuent assets.
b. #o#ety= #lant= and equi#ment.
c. intangible assets.
d. long-tem investments.
34. >hen a #otion of inventoies has been #ledged as secuity on a loan=
a. the value of the #otion #ledged should be subtacted fom the debt.
b. an equal amount of etained eanings should be a##o#iated.
c. the fact should be disclosed but the amount of cuent assets should not be affected.
d. the cost of the #ledged inventoies should be tansfeed fom cuent assets to
noncuent assets.
3!. >hich of the follo-ing is not a long-tem investment?
a. /ash suende value of life insuance
b. Fanchise
c. Land held fo s#eculation
d. * sin3ing fund
3". * geneally acce#ted method of valuation is
1. tading secuities at ma3et value.
2. accounts eceivable at net ealiAable value.
3. inventoies at cuent cost.
a. 1
b. 2
c. 3
d. 1 and 2
3$. >hich item belo- is not a cuent liability?
a. )neaned evenue
b. .toc3 dividends distibutable
c. The cuently matuing #otion of long-tem debt
d. Tade accounts #ayable
3&. >o3ing ca#ital is
a. ca#ital -hich has been einvested in the business.
b. una##o#iated etained eanings.
c. cash and eceivables less cuent liabilities.
d. none of these.
5 - ;
3'. *n exam#le of an item -hich is not an element of -o3ing ca#ital is
a. accued inteest on notes eceivable.
b. good-ill.
c. goods in #ocess.
d. tem#oay investments.
4(. Long-tem liabilities include
a. obligations not ex#ected to be liquidated -ithin the o#eating cycle.
b. obligations #ayable at some date beyond the o#eating cycle.
c. defeed income taxes and most lease obligations.
d. all of these.
41. >hich of the follo-ing should be excluded fom long-tem liabilities?
a. 1bligations #ayable at some date beyond the o#eating cycle
b. 5ost #ension obligations
c. Long-tem liabilities that matue -ithin the o#eating cycle and -ill be #aid fom a
sin3ing fund
d. 6one of these
42. Teasuy stoc3 should be e#oted as aBnC
a. cuent asset.
b. investment.
c. othe asset.
d. eduction of stoc3holdes4 equity.
43. >hich of the follo-ing should be e#oted fo ca#ital stoc3?
a. The shaes authoiAed
b. The shaes issued
c. The shaes outstanding
d. *ll of these
44. >hich of the follo-ing -ould be classified in a diffeent ma+o section of a balance sheet
fom the othes?
a. /a#ital stoc3
b. /ommon stoc3 subscibed
c. .toc3 dividend distibutable
d. .toc3 investment in affiliate
4!. The stoc3holdes4 equity section is usually divided into -hat thee #ats?
a. ,efeed stoc3= common stoc3= teasuy stoc3
b. ,efeed stoc3= common stoc3= etained eanings
c. /a#ital stoc3= additional #aid-in ca#ital= etained eanings
d. /a#ital stoc3= a##o#iated etained eanings= una##o#iated etained eanings
4". >hich of the follo-ing is not an acce#table ma+o asset classification?
a. /uent assets
b. Long-tem investments
c. ,o#ety= #lant= and equi#ment
d. Defeed chages
5 - <
,
4$. >hich of the follo-ing is a conta account?
a. ,emium on bonds #ayable
b. )neaned evenue
c. ,atents
d. *ccumulated de#eciation
.
4&. >hich of the follo-ing balance sheet classifications -ould nomally equie the geatest
amount of su##lementay disclosue?
a. /uent assets
b. /uent liabilities
c. ,lant assets
d. Long-tem liabilities
4'. >hich of the follo-ing is not a method of disclosing #etinent infomation?
a. .u##oting schedules
b. ,aenthetical ex#lanations
c. /oss efeence and conta items
d. *ll of these ae methods of disclosing #etinent infomation.
!(. .ignificant accounting #olicies may not be
a. selected on the basis of +udgment.
b. selected fom existing acce#table altenatives.
c. unusual o innovative in a##lication.
d. omitted fom financial-statement disclosue.
!1. * geneal desci#tion of the de#eciation methods a##licable to ma+o classes of de#eci-
able assets
a. is not a cuent #actice in financial e#oting.
b. is not essential to a fai #esentation of financial #osition.
c. is needed in financial e#oting -hen com#any #olicy diffes fom income tax #olicy.
d. should be included in co#oate financial statements o notes theeto.
!2. 2t is mandatoy that the essential #ovisions of -hich of the follo-ing be clealy stated in
the notes to the financial statements?
a. .toc3 o#tion #lans
b. ,ension obligations
c. Lease contacts
d. *ll of these
!3. * geneally acce#ted account title is
a. ,e#aid 0evenue.
b. *##o#iation fo /ontingencies.
c :aned .u#lus.
d. 0eseve fo Doubtful *ccounts.
!4. The financial statement -hich summaiAes o#eating= investing= and financing activities of
an entity fo a #eiod of time is the
a. etained eanings statement.
b. income statement.
c. statement of cash flo-s.
d. statement of financial #osition.
5 - 7=
.
!!. The statement of cash flo-s #ovides ans-es to all of the follo-ing questions except
a. >hee did the cash come fom duing the #eiod?
b. >hat -as the cash used fo duing the #eiod?
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 duing the #eiod?
!". 5a3ing and collecting loans and dis#osing of #o#ety= #lant= and equi#ment ae
a. o#eating activities.
b. investing activities.
c. financing activities.
d. liquidity activities.
!$. 2n #e#aing a statement of cash flo-s= sale of teasuy stoc3 at an amount geate than
cost -ould be classified as aBnC
a. o#eating activity.
b. financing activity.
c. extaodinay activity.
d. investing activity.
!&. 2n #e#aing a statement of cash flo-s= cash flo-s fom o#eating activities
a. ae al-ays equal to accual accounting income.
b. ae calculated as the diffeence bet-een evenues and ex#enses.
c. can be calculated by a##o#iately adding to o deducting fom 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 fom net income those items
in the income statement that do affect cash.
!'. 2n #e#aing a statement of cash flo-s= -hich of the follo-ing tansactions -ould be
consideed an investing activity?
a. .ale of equi#ment at boo3 value
b. .ale of mechandise on cedit
c. Declaation of a cash dividend
d. 2ssuance of bonds #ayable at a discount
"(. ,e#aing the statement of cash flo-s involves all of the follo-ing exce#t detemining the
a. cash #ovided by o#eations.
b. cash #ovided by o used in investing and financing activities.
c. change in cash duing the #eiod.
d. cash collections fom customes duing the #eiod.
"1. The cash debt coveage atio is com#uted by dividing net cash #ovided by o#eating
activities by
a. aveage long-tem liabilities.
b. aveage total liabilities.
c. ending long-tem liabilities.
d. ending total liabilities.
"2. The cuent cash debt coveage atio is often used to assess
a. financial flexibility.
b. liquidity.
c. #ofitability.
d. solvency.
5 - 77
"3. * measue of a com#any9s financial flexibility is the
a. cash debt coveage atio.
b. cuent cash debt coveage atio.
c. fee cash flo-.
d. cash debt coveage atio and fee cash flo-.
"4. Fee cash flo- is calculated as net cash #ovided by o#eating activities less
a. ca#ital ex#enditues.
b. dividends.
c. ca#ital ex#enditues and dividends.
d. ca#ital ex#enditues and de#eciation.
.
"!. 1ne of the benefits of the statement of cash flo-s is that it hel#s uses evaluate financial
flexibility. >hich of the follo-ing ex#lanations is a desci#tion of financial flexibility?
a. The neaness to cash of assets and liabilities.
b. The fim4s ability to es#ond and ada#t to financial advesity and unex#ected needs
and o##otunities.
c. The fim4s ability to #ay its debts as they matue.
d. The fim4s ability to invest in a numbe of #o+ects -ith diffeent ob+ectives and costs.
,
"". 6et cash #ovided by o#eating activities divided by aveage total liabilities equals the
a. cuent cash debt coveage atio.
b. cash debt coveage atio.
c. fee cash flo-.
d. cuent atio.
Mult#ple C+o#ce Anse!sConceptual
$te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans"
21. d 2&. b 3!. b 42. d 4'. d !". b "3. d
22. c 2'. d 3". d 43. d !(. d !$. b "4. c
23. c 3(. d 3$. b 44. d !1. d !&. c "!. b
24. b 31. d 3&. d 4!. c !2. d !'. a "". b
2!. c 32. d 3'. b 4". d !3. b "(. d
2". d 33. d 4(. d 4$. d !4. c "1. b
2$. b 34. c 41. d 4&. d !!. c "2. b
.olutions to those 5ulti#le /hoice questions fo -hich the ans-e is Dnone of these.E
2". Total assets minus total liabilities.
3&. /uent assets less cuent liabilities.
41. 5any ans-es ae #ossible.
5 - 7,
MULT$PLE CHO$CECo'putat#onal
"$. 8aet /om#any o-ns the follo-ing investments7
Tading secuities Bfai valueC F"(=(((
*vailable-fo-sale secuities Bfai valueC 3!=(((
Geld-to-matuity secuities BamotiAed costC 4$=(((
8aet -ill e#ot investments in its cuent assets section of
a. F(.
b. exactly F"(=(((.
c. F"(=((( o an amount geate than F"(=(((= de#ending on the cicumstances.
d. exactly F'!=(((.
"&. Fo 6icholson /om#any= the follo-ing infomation is available7
/a#italiAed leases F2((=(((
Tadema3s "!=(((
Long-tem eceivables $!=(((
2n 6icholson9s balance sheet= intangible assets should be e#oted at
a. F"!=(((.
b. F$!=(((.
c. F2"!=(((.
d. F2$!=(((.
"'. .am Gud /om#any has the follo-ing items7 common stoc3= F$2(=(((H teasuy stoc3=
F&!=(((H defeed taxes= F1((=((( and etained eanings= F313=(((. >hat total amount
should .am Gud /om#any e#ot as stoc3holdes9 equity?
a. F&4&=(((.
b. F'4&=(((.
c. F1=(4&=(((.
d. F1=11&=(((.
$(. Goton /om#any o-ns the follo-ing investments7
Tading secuities Bfai valueC F "(=(((
*vailable-fo-sale secuities Bfai valueC 3!=(((
Geld-to-matuity secuities BamotiAed costC 4$=(((
Goton -ill e#ot secuities in its long-tem investments section of
a. exactly F'!=(((.
b. exactly F1($=(((.
c. exactly F142=(((.
d. F&2=((( o an amount less than F&2=(((= de#ending on the cicumstances.
$1. Fo 5itchell /om#any= the follo-ing infomation is available7
/a#italiAed leases F2&(=(((
Tadema3s '(=(((
Long-tem eceivables 1(!=(((
2n 5itchell9s balance sheet= intangible assets should be e#oted at
a. F'(=(((.
b. F1(!=(((.
c. F3$(=(((.
d. F3&!=(((.
5 - 71
$2. .tanton /om#any has the follo-ing items7 common stoc3= F$2(=(((H teasuy stoc3=
F&!=(((H defeed taxes= F1((=((( and etained eanings= F3"3=(((. >hat total amount
should .tanton /om#any e#ot as stoc3holdes9 equity?
a. F&'&=(((.
b. F''&=(((.
c. F1=('&=(((.
d. F1=1'&=(((.
$3. Iuince Golman /o#oation e#ots7
/ash #ovided by o#eating activities F2!(=(((
/ash used by investing activities 11(=(((
/ash #ovided by financing activities 14(=(((
%eginning cash balance $(=(((
>hat is Golman9s ending cash balance?
a. F2&(=(((.
b. F3!(=(((.
c. F!((=(((.
d. F!$(=(((.
$4. 8odman /o#oation e#ots7
/ash #ovided by o#eating activities F2((=(((
/ash used by investing activities 11(=(((
/ash #ovided by financing activities 14(=(((
%eginning cash balance $(=(((
>hat is 8odman9s ending cash balance?
a. F23(=(((.
b. F3((=(((.
c. F4!(=(((.
d. F!2(=(((.
$!. /aig 0usch /o#oation e#ots the follo-ing infomation7
6et income F!((=(((
De#eciation ex#ense 14(=(((
2ncease in accounts eceivable "(=(((
0usch should e#ot cash #ovided by o#eating activities of
a. F3((=(((.
b. F42(=(((.
c. F!&(=(((.
d. F$((=(((.
$". ,ote /o#oation e#ots the follo-ing infomation7
6et income F2!(=(((
De#eciation ex#ense $(=(((
2ncease in accounts eceivable 3(=(((
,ote should e#ot cash #ovided by o#eating activities of
a. F1!(=(((.
b. F21(=(((.
c. F2'(=(((.
d. F3!(=(((.
5 - 78
$$. @oe 6ova3 /o#oation e#ots the follo-ing infomation7
6et cash #ovided by o#eating activities F21!=(((
*veage cuent liabilities 1!(=(((
*veage long-tem liabilities 1((=(((
Dividends declaed "(=(((
/a#ital ex#enditues 11(=(((
,ayments of debt 3!=(((
@oe 6ova39s cash debt coveage atio is
a. (.&".
b. 1.43.
c. 2.1!.
d. 4.$&.
$&. @oe 6ova3 /o#oation e#ots the follo-ing infomation7
6et cash #ovided by o#eating activities F21!=(((
Dividends #aid "(=(((
@oe 6ova39s fee cash flo- is
a. F1(=(((.
b. F4!=(((.
c. F1(!=(((.
d. F1!!=(((.
$'. Lincoln /o#oation e#ots the follo-ing infomation7
6et cash #ovided by o#eating activities F2!!=(((
Lincoln9s cash debt coveage atio is
a. 1.(2.
b. 1.$(.
c. 2.!!.
d. 3.((.
&(. 5ogan /o#oation e#ots the follo-ing infomation7
6et cash #ovided by o#eating activities F2!!=(((
5 - 75
5ogan9s fee cash flo- is
a. F!(=(((.
b. F&!=(((.
c. F14!=(((.
d. F1'!=(((.
Mult#ple C+o#ce Anse!sCo'putat#onal
$te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans"
"$. c $(. d $3. b $". c $'. a
"&. a $1. a $4. b $$. a &(. b
"'. b $2. b $!. c $&. b
MULT$PLE CHO$CECPA A(apte(
&1. 0eese /o#.4s tial balance eflected the follo-ing account balances at Decembe 31=
2(($7
*ccounts eceivable BnetC F24=(((
Tading secuities "=(((
*ccumulated de#eciation on equi#ment and funitue 1!=(((
/ash 11=(((
2nventoy 3(=(((
:qui#ment 2!=(((
,atent 4=(((
,e#aid ex#enses 2=(((
Land held fo futue business site 1&=(((
2n 0eese4s Decembe 31= 2(($ balance sheet= the cuent assets total is
a. F'(=(((.
b. F&2=(((.
c. F$$=(((.
d. F$3=(((.
)se the follo-ing infomation fo questions &2 though &4.
The follo-ing tial balance of .cott /o#. at Decembe 31= 2(($ has been #o#ely ad+usted
exce#t fo the income tax ex#ense ad+ustment.
5 - 79
.cott /o#.
Tial %alance
Decembe 31= 2(($
D. /.
/ash F $$!=(((
*ccounts eceivable BnetC 2="'!=(((
2nventoy 2=(&!=(((
,o#ety= #lant= and equi#ment BnetC $=3""=(((
*ccounts #ayable and accued liabilities F 1=$(1=(((
2ncome taxes #ayable "!4=(((
Defeed income tax liability &!=(((
/ommon stoc3 2=3!(=(((
*dditional #aid-in ca#ital 3="&(=(((
0etained eanings= 1J1J(4 3=4!(=(((
6et sales and othe evenues 13=3"(=(((
/osts and ex#enses 11=1&(=(((
2ncome tax ex#enses 1=1$'=(((
F2!=2&(=((( F2!=2&(=(((
1the financial data fo the yea ended Decembe 31= 2(($7
2ncluded in accounts eceivable is F1=2((=((( due fom a custome and #ayable in quately
installments of F1!(=(((. The last #ayment is due Decembe 2'= 2(('.
The balance in the Defeed 2ncome Tax Liability account #etains to a tem#oay diffeence
that aose in a #io yea= of -hich F2(=((( is classified as a cuent liability.
Duing the yea= estimated tax #ayments of F!2!=((( -ee chaged to income tax ex#ense.
The cuent and futue tax ate on all ty#es of income is 3(K.
2n .cott4s Decembe 31= 2(($ balance sheet=
&2. The cuent assets total is
a. F"=(&(=(((.
b. F!=!!!=(((.
c. F!=4(!=(((.
d. F4='!!=(((.
&3. The cuent liabilities total is
a. F1=&!(=(((.
b. F1='1!=(((.
c. F2=3$!=(((.
d. F2=44(=(((.
&4. The final etained eanings balance is
a. F4=4!1=(((.
b. F4=!3"=(((.
c. F4='$"=(((.
d. F4='(!=(((.
5 - 7:
&!. 1n @anuay 4= 2(($= 8egg /o. leased a building to /ole /o#. fo a ten-yea tem at an
annual ental of F$!=(((. *t ince#tion of the lease= 8egg eceived F3((=((( coveing the
fist t-o yeas4 ent of F1!(=((( and a secuity de#osit of F1!(=(((. This de#osit -ill not
be etuned to /ole u#on ex#iation of the lease but -ill be a##lied to #ayment of ent fo
the last t-o yeas of the lease. >hat #otion of the F3((=((( should be sho-n as a
cuent and long-tem liability in 8egg4s Decembe 31= 2(($ balance sheet?
/uent Liability Long-tem Liability
a. F( F3((=(((
b. F$!=((( F1!(=(((
c. F1!(=((( F1!(=(((
d. F1!(=((( F$!=(((
&". >hich of the follo-ing facts concening fixed assets should be included in the summay of
significant accounting #olicies?
De#eciation 5ethod /om#osition
a. 6o Les
b. Les Les
c. Les 6o
d. 6o 6o
&$. 2n a statement of cash flo-s= ecei#ts fom sales of #o#ety= #lant= and equi#ment and
othe #oductive assets should geneally be classified as cash inflo-s fom
b. financing activities.
c. investing activities.
d. selling activities.
&&. 2n a statement of cash flo-s= inteest #ayments to lendes and othe ceditos should be
classified as cash outflo-s fo
b. boo-ing activities.
c. lending activities.
d. financing activities.
&'. 2n a statement of cash flo-s= #oceeds fom issuing equity instuments should be
classified as cash inflo-s fom
a. lending activities.
b. o#eating activities.
c. investing activities.
d. financing activities.
'(. 2n a statement of cash flo-s= #ayments to acquie debt instuments of othe entities Bothe
than cash equivalentsC should be classified as cash outflo-s fo
b. investing activities.
c. financing activities.
d. lending activities.
5 - 7;
Mult#ple C+o#ce Anse!sCPA A(apte(
$te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans"
&1. d &3. a &!. b &$. c &'. d
&2. d &4. c &". c &&. a '(. b
DER$0AT$ONS Co'putat#onal
No" Anse! De!#6at#on
"$. c
"&. a
"'. b F$2(=((( M F&!=((( N F313=((( < F'4&=(((.
$(. d
$1. a
$2. b F$2(=((( M F&!=((( N F3"3=((( < F''&=(((.
$3. b F$(=((( N F2!(=((( M F11(=((( N F14(=((( < F3!(=(((.
$4. b F$(=((( N F2((=((( M F11(=((( N F14(=((( < F3((=(((.
$!. b F!((=((( N F14(=((( M F"(=((( < F!&(=(((.
$". c F2!(=((( N F$(=((( M F3(=((( < F2'(=(((.
$$. a F21!=((( O BF1!(=((( N F1((=(((C < (.&".
$&. b F21!=((( M F"(=((( M F11(=((( < F4!=(((.
$'. a F2!!=((( O BF1!(=((( N F1((=(((C < 1.(2.
&(. b F2!!=((( M F"(=((( M F11(=((( < F&!=(((.
DER$0AT$ONS CPA A(apte(
No" Anse! De!#6at#on
&1. d F24=((( N F"=((( N F11=((( N F3(=((( N F2=((( < F$3=(((.
&2. d F$$!=((( N PF2="'!=((( M BF1!(=((( Q 4CR N F2=(&!=((( < F4='!!=(((.
&3. a F1=$(1=((( N BF"!4=((( M F!2!=(((C N F2(=((( < F1=&!(=(((.
&4. c F3=4!(=((( N F13=3"(=((( M F11=1&(=((( M BF1=1$'=((( M F!2!=(((C <
F4='$"=(((.
&!. b /once#tual.
&". c /once#tual.
&$. c /once#tual.
&&. a /once#tual.
&'. d /once#tual.
'(. b /once#tual.
5 - 7<
E-ERC$SES
E>" 5-<7SDefinitions.
,ovide clea= concise ans-es fo the follo-ing.
1. >hat ae assets?
2. >hat ae liabilities?
3. >hat is equity?
4. >hat ae cuent liabilities?
!. :x#lain -hat -o3ing ca#ital is and ho- it is com#uted.
". >hat ae intangible assets?
$. >hat ae cuent assets?
Solut#on 5-<7
1. *ssets ae #obable futue economic benefits obtained o contolled by an entity as a esult of
#ast tansactions o events.
2. Liabilities ae #obable futue sacifices of economic benefits aising fom #esent obligations
of an entity as a esult of #ast tansactions o events.
3. :quity is the esidual inteest in the net assets of an entity.
4. /uent liabilities ae obligations that ae ex#ected to be liquidated though the use of cuent
assets o the ceation of othe cuent liabilities.
!. >o3ing ca#ital is the net amount of a com#any9s elatively liquid esouces. 2t is the excess
of total cuent assets ove total cuent liabilities.
". 2ntangible assets ae economic esouces o com#etitive advantages. They lac3 #hysical
substance and have a high degee of uncetainty about the futue benefits to be eceived.
$. /uent assets ae esouces Bfutue economic benefitsC ex#ected to be conveted to cash=
sold= o consumed in one yea o the o#eating cycle= -hicheve is longe.
5 - ,=
E>" 5-<,STeminology.
2n the s#ace #ovided at ight= -ite the -od o #hase that is defined o indicated.
1. 1bligations ex#ected to be liquidated 1.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
though use of cuent assets.
2. .tatement sho-ing financial condition at a 2.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
#oint in time.
3. :vents that de#end u#on futue outcomes. 3.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
4. ,obable futue sacifices of economic 4.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
benefits.
!. 0esouces ex#ected to be conveted to !.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
cash in one yea o the o#eating cycle=
-hicheve is longe.
". 0esouces of a duable natue used in ".TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
o#eations.
$. :conomic ights o com#etitive advantages $.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
-hich lac3 #hysical substance.
&. ,obable futue economic benefits. &.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
'. 0esidual inteest in the net assets of an '.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
entity.
Solut#on 5-<,
1. /uent liabilities. ". ,o#ety= #lant= and equi#ment.
2. %alance sheet. $. 2ntangible assets.
3. /ontingencies. &. *ssets.
4. Liabilities. '. :quity.
!. /uent assets.
E>" 5-<1S/uent assets.
Define cuent assets -ithout using the -od Uasset.U
Solut#on 5-<1
/uent assets ae esouces Bfutue economic benefitsC ex#ected to be conveted to cash= sold=
o consumed in one yea o the o#eating cycle= -hicheve is longe.
5 - ,7
E>" 5-<8S*ccount classification.
*..:T. L2*%2L2T2:. *6D /*,2T*L
a. /uent assets f. /uent liabilities
b. 2nvestments g. Long-tem liabilities
c. ,lant and equi#ment h. ,efeed stoc3
d. 2ntangibles i. /ommon stoc3
e. 1the assets +. *dditional #aid-in ca#ital
3. 0etained eanings
l. 2tems excluded fom balance sheet
)sing the lettes above= classify the follo-ing accounts accoding to the #efeed and odinay
balance sheet #esentation.
TTTTT 1. %ond sin3ing fund
TTTTT 2. /ommon stoc3 distibutable
TTTTT 3. *##o#iation fo #lant ex#ansion
TTTTT 4. %an3 ovedaft
TTTTT !. %onds #ayable Bdue 2(1(C
TTTTT ". ,emium on common stoc3
TTTTT $. .ecuities o-ned by anothe com#any -hich ae collateal fo that com#any4s note
TTTTT &. Tading secuities
TTTTT '. 2nventoy
TTTTT1(. )namotiAed discount on bonds #ayable
TTTTT11. ,atents
TTTTT12. )neaned evenue
Solut#on 5-<8
1. b !. g '. a
2. i ". + 1(. g
3. 3 $. l 11. d
4. f &. a 12. f
5 - ,,
E>" 5-<5S;aluation of %alance .heet 2tems.
)se the code lettes listed belo- Ba M lC to indicate= fo each balance sheet item B1 M 13C listed
belo- the usual valuation e#oted on the balance sheet.
TTTTTT 1. /ommon stoc3 TTTTTT &. Long-tem bonds #ayable
TTTTTT 2. ,e#aid ex#enses TTTTTT '. Land Bin useC
TTTTTT 3. 6atual esouces TTTTTT1(. Land Bfutue #lant siteC
TTTTTT 4. ,o#ety= #lant= and equi#ment TTTTTT11. ,atents
TTTTTT !. Tade accounts eceivable TTTTTT12. Tading secuities
TTTTTT ". /o#yights TTTTTT13. Tade accounts #ayable
TTTTTT $. 5echandise inventoy
a. ,a value
b. /uent cost of e#lacement
c. *mount #ayable -hen due= less unamotiAed discount o #lus unamotiAed #emium
d. *mount #ayable -hen due
e. 5a3et value at balance sheet date
f. 6et ealiAable value
g. Lo-e of cost o ma3et
h. 1iginal cost less accumulated amotiAation
i. 1iginal cost less accumulated de#letion
+. 1iginal cost less accumulated de#eciation
3. Gistoical cost
l. )nex#ied o unconsumed cost
Solut#on 5-<5
1. a ". h 11. h
2. l $. g 12. e
3. i &. c 13. d
4. + '. 3
!. f 1(. 3
5 - ,1
E>" 5-<9S%alance sheet classifications.
Ty#ical balance sheet classifications ae as follo-s.
a. /uent *ssets g. Long-Tem Liabilities
b. 2nvestments h. /a#ital .toc3
c. ,lant *ssets i. *dditional ,aid-2n /a#ital
d. 2ntangible *ssets +. 0etained :anings
e. 1the *ssets 3. 6otes to Financial .tatements
f. /uent Liabilities l. 6ot 0e#oted on %alance .heet
2ndicate by use of the above lettes ho- each of the follo-ing items -ould be classified on a
balance sheet #e#aed at Decembe 31= 2(($. 2f a conta account= o any amount that is
negative o o##osite the nomal balance= #ut #aentheses aound the lette selected. * lette may
be used moe than once o not at all.
TTTTT 1. *ccued salaies and -ages
TTTTT 2. 0ental evenues fo 3 months
collected in advance
TTTTT 3. Land used as #lant site
TTTTT 4. :quity secuities classified as
tading
TTTTT !. /ash
TTTTT ". *ccued inteest #ayable due in
3( days
TTTTT $. ,emium on #efeed stoc3 issued
TTTTT &. Dividends in aeas on #efeed
stoc3
TTTTT '. ,etty cash fund
TTTTT1(. )namotiAed discount on bonds
#ayable due 2(1(
TTTTT11. /ommon stoc3 at #a value
TTTTT12. %ond indentue covenants
TTTTT13. )namotiAed #emium on bonds
#ayable due in 2(13
TTTTT14. *llo-ance fo doubtful accounts
TTTTT1!. *ccumulated de#eciation
5 - ,8
TTTTTT1". 6atual esouceStimbelands
TTTTTT1$. Deficit Bno net income eaned since
beginning of com#anyC
TTTTTT1&. 8ood-ill
TTTTTT1'. '( day notes #ayable
TTTTTT2(. 2nvestment in bonds of anothe
com#anyH -ill be held to 2(1( matuity
TTTTTT21. Land held fo s#eculation
TTTTTT22. Death of com#any #esident
TTTTTT23. /uent matuity of bonds #ayable
TTTTTT24. 2nvestment in subsidiayH no #lans to
sell in nea futue
TTTTTT2!. Tade accounts #ayable
TTTTTT2". ,efeed stoc3 BF1( #aC
TTTTTT2$. ,e#aid ent fo next 12 months
TTTTTT2&. /o#yight
TTTTTT2'. *ccumulated amotiAation= #atents
TTTTTT3(. :anings not distibuted to
stoc3holdes
Solut#on 5-<9
1. f ". f 11. h 1". c 21. b 2". h
2. f $. i 12. 3 1$. B+C 22. l 2$. a
3. c &. 3 13. g 1&. d 23. f 2&. d
4. a '. a 14. BaC 1'. f 24. b 2'. BdC
!. a 1(. BgC 1!. BcC 2(. b 2!. f 3(. +
E>" 5-<:S%alance sheet classifications.
The vaious classifications listed belo- have been used in the #ast by ,yle /om#any on its
balance sheet. 2t as3s you #ofessional o#inion concening the a##o#iate classification of each
of the items 1-14 belo-.
a. /uent *ssets f. /uent Liabilities
b. 2nvestments g. Long-Tem Liabilities
c. ,lant and :qui#ment h. /ommon .toc3 and ,aid-in /a#ital in :xcess of ,a
d. 2ntangible *ssets i. 0etained :anings
e. 1the *ssets
2ndicate by lette ho- each of the follo-ing items should be classified. 2f an item need not be
e#oted on the balance sheet= use the lette UV.U * lette may be used moe than once o not at
all. 2f an item can be classified in moe than one categoy= choose the categoy most favoed by
the authos of you textboo3.
TTTTT 1. :m#loyees4 #ayoll deductions.
TTTTT 2. /ash in sin3ing fund.
TTTTT 3. 0ent evenue collected in advance.
TTTTT 4. :qui#ment etied fom use and held fo sale.
TTTTT !. ,atents.
TTTTT ". ,ayoll cash fund.
TTTTT $. 8oods held on consignment.
TTTTT &. *ccued evenue on tem#oay investments.
TTTTT '. *dvances to sales#esons.
TTTTT1(. ,emium on bonds #ayable due t-o yeas fom date.
TTTTT11. %an3 ovedaft.
TTTTT12. .alaies -hich com#any budget sho-s -ill be #aid to em#loyees -ithin the next yea.
TTTTT13. >o3 in #ocess.
TTTTT14. *##o#iation fo bonded indebtedness.
5 - ,5
Solut#on 5-<:
1. f !. d '. a 13. a
2. b ". a 1(. g 14. i
3. f $. x 11. f
4. a o e &. a 12. x
E>" 5-<;S%alance sheet classifications.
The vaious classifications listed belo- have been used in the #ast by Lo-e /om#any on its
balance sheet.
a. /uent *ssets e. /uent Liabilities
b. 2nvestments f. Long-tem Liabilities
c. ,lant and :qui#ment g. /ommon .toc3 and ,aid-in /a#ital in :xcess of ,a
d. 2ntangible *ssets h. 0etained :anings
$nst!uct#ons
2ndicate by lette ho- each of the items belo- should be classified at Decembe 31= 2(($. 2f an
item is not e#oted on the Decembe 31= 2(($ balance sheet= use the lette UVU fo you ans-e.
2f the item is a conta account -ithin the #aticula classification= #lace #aentheses aound the
lette. * lette may be used moe than once o not at all.
.am#le question and ans-e7
BaC *llo-ance fo doubtful accounts.
TTTTT 1. /ustomes4 accounts -ith cedit balances.
TTTTT 2. %ond sin3ing fund.
TTTTT 3. .alaies -hich the com#any4s cash budget sho-s -ill be #aid to em#loyees in 2((&.
TTTTT 4. *ccumulated de#eciation.
TTTTT !. *##o#iation fo #lant ex#ansion.
TTTTT ". *motiAation of #atents fo 2(($.
TTTTT $. 1n Decembe 31= 2(($= Lo-e signed a #uchase commitment to buy all of its a-
mateials fom Delta /om#any fo the next 2 yeas.
TTTTT &. Discount on bonds #ayable due 5ach 31= 2(1(.
TTTTT '. Launching of Lo-e9s 2ntenet etailing division in Febuay= 2((&.
TTTTT1(. /ash dividends declaed on Decembe 1!= 2(($ #ayable to stoc3holdes on @anuay
1!= 2((&.
5 - ,9
Solut#on 5-<;
1. e 4. BcC $. x 1(. e
2. b !. h &. BfC
3. x ". x '. x
E>" 5-<<S.tatement of cash flo-s.
Fo each event listed belo-= select the a##o#iate categoy -hich descibes the effect of the
event on a statement of cash flo-s7
a. /ash #ovidedJused by o#eating activities.
b. /ash #ovidedJused by investing activities.
c. /ash #ovidedJused by financing activities.
d. 6ot a cash flo-.
TTTTT 1. ,ayment on long-tem debt
TTTTT 2. 2ssuance of bonds at a #emium
TTTTT 3. /ollection of accounts eceivable
TTTTT 4. /ash dividends declaed
TTTTT !. 2ssuance of stoc3 to acquie land
TTTTT ". .ale of available-fo-sale secuities Blong-temC
TTTTT $. ,ayment of em#loyees4 -ages
TTTTT &. 2ssuance of common stoc3 fo cash
TTTTT '. ,ayment of income taxes #ayable
TTTTT1(. ,uchase of equi#ment
TTTTT11. ,uchase of teasuy stoc3 BcommonC
TTTTT12. .ale of eal estate held as a long-tem investment
Solut#on 5-<<
1. c 4. d $. a 1(. b
2. c !. d &. c 11. c
3. a ". b '. a 12. b
5 - ,:
E>" 5-7==S.tatement of cash flo-s atios.
Financial statements fo 1lson /om#any ae #esented belo-7
1lson /om#any
%alance .heet
Decembe 31= 2(($
*ssets Liabilities W .toc3holdes9 :quity
/ash F 4(=((( *ccounts #ayable F 2(=(((
*ccounts eceivable 3!=((( %onds #ayable !(=(((
%uildings and equi#ment 1!(=(((
*ccumulated de#eciationS
buildings and equi#ment B!(=(((C /ommon stoc3 "!=(((
,atents 2(=((( 0etained eanings "(=(((
F1'!=((( F1'!=(((
1lson /om#any
.tatement of /ash Flo-s
Fo the Lea :nded Decembe 31= 2(($
/ash flo-s fom o#eating activities
6et income F!(=(((
*d+ustments to econcile net income to net cash
#ovided by o#eating activities7
2ncease in accounts eceivable FB1"=(((C
2ncease in accounts #ayable &=(((
De#eciationSbuildings and equi#ment 1!=(((
8ain on sale of equi#ment B"=(((C
*motiAation of #atents 2=((( 3=(((
6et cash #ovided by o#eating activities !3=(((
/ash flo-s fom investing activities
.ale of equi#ment 12=(((
,uchase of land B2!=(((C
,uchase of buildings and equi#ment B4&=(((C
6et cash used by investing activities B"1=(((C
/ash flo-s fom financing activities
,ayment of cash dividend B1!=(((C
.ale of bonds 4(=(((
6et cash #ovided by financing activities 2!=(((
6et incease in cash 1$=(((
/ash= @anuay 1= 2(($ 23=(((
/ash= Decembe 31= 2(($ F4(=(((
*t the beginning of 2(($= *ccounts ,ayable amounted to F12=((( and %onds ,ayable -as
F1(=(((.
$nst!uct#ons
/alculate the follo-ing fo 1lson /om#any7
a. /uent cash debt coveage atio
b. /ash debt coveage atio
c. Fee cash flo-
5 - ,;
Solut#on 5-7==
6et cash #ovided by o#eating activities
a. /uent cash debt coveage atio < SSSSSSSSSSSSSSSSSS
*veage cuent liabilities
F!3=((( F!3=(((
< SSSSSSSSSSS < SSSS < 3.3 7 1
BF12=((( N F2(=(((C O 2 F1"=(((
6et cash #ovided by o#eating activities
b. /ash debt coveage atio < SSSSSSSSSSSSSSSSSS
*veage total liabilities
F!3=((( F!3=(((
< SSSSSSSSSSS < SSSS < 1.2 7 1
BF22=((( N F$(=(((C O 2 F4"=(((
c. Fee cash flo- < 6et cash #ovided by o#eating activities M
ca#ital ex#enditues and dividends
< F!3=((( M XF$3=((( M F1!=((( < FB3!=(((C
XF2!=((( N F4&=(((
5 - ,<
PROBLEMS
P!" 5-7=7S%alance sheet fomat.
The follo-ing balance sheet has been submitted to you by an inex#eienced boo33ee#e. List
you suggestions fo im#ovements in the fomat of the balance sheet. /onside both teminology
deficiencies as -ell as classification inaccuacies.
Densen 2ndusties= 2nc.
%alance .heet
Fo the ,eiod :nded 12J31J($
*ssets
Fixed *ssetsSTangible
:qui#ment F11(=(((
Less7 eseve fo de#eciation B4(=(((C F $(=(((
Factoy su##lies 22=(((
Land and buildings 4((=(((
Less7 eseve fo de#eciation B1!(=(((C 2!(=(((
,lant site held fo futue use '(=((( F 432=(((
/uent *ssets
*ccounts eceivable 1$!=(((
/ash &(=(((
2nventoy 22(=(((
Teasuy stoc3 Bat costC 2(=((( 4'!=(((
Fixed *ssets--2ntangible
8ood-ill &(=(((
6otes eceivable 4(=(((
,atents 2"=((( 14"=(((
Defeed /hages
*dvances to sales#esons "(=(((
,e#aid ent 2$=(((
0etunable containes $!=((( 1"2=(((
T1T*L *..:T. F1=23!=(((
Liabilities
/uent Liabilities
*ccounts #ayable F14(=(((
*llo-ance fo doubtful accounts &=(((
/ommon stoc3 dividend distibutable 3!=(((
2ncome taxes #ayable 42=(((
.ales taxes #ayable 1$=((( F 242=(((
Long-Tem Liabilities= !K debentue bonds= due 2(1( !((=(((
0eseve fo contingencies 1!(=((( "!(=(((
T1T*L L2*%2L2T2:. &'2=(((
:quity
/a#ital stoc3= F1(.(( #a value= issued 12=((( shaes -ith
"( shaes held as teasuy stoc3 F1!(=(((
/a#ital su#lus '(=(((
Dividends #aid B2(=(((C
:aned su#lus 123=(((
T1T*L :I)2TL 343=(((
T1T*L L2*%2L2T2:. *6D :I)2TL F1=23!=(((
5 - 1=
6ote 1. The eseve fo contingencies has been ceated by chages to eaned su#lus and has
been established to #ovide a cushion fo futue uncetainties.
6ote 2. The inventoy account includes only items #hysically #esent at the main #lant and
-aehouse. 2tems located at the com#any4s banch sales office amounting to F4(=(((
ae excluded since the com#any has consistently follo-ed this #ocedue fo many
yeas.
Solut#on 5-7=7
1. The heading should be as of a s#ecific date athe than fo a #eiod of time.
2. 0eseve fo De#eciation is #oo teminologyH the title *ccumulated De#eciation is moe
a##o#iate.
3. Land and buildings should be segegated into t-o accounts. The *ccumulated De#eciation
account should only be e#oted fo the buildings.
4. ,lant site held fo futue use should be sho-n in the 2nvestments section.
!. /uent assets should be sho-n on the balance sheet fist in most situationsH cuent assets
ae listed usually in ode of liquidityH factoy su##lies should be sho-n as a cuent asset.
". Teasuy stoc3 is not an asset= but a conta account to stoc3holdes4 equity in most situations.
$. 6otes eceivable should be e#oted as a cuent asset o an investment.
&. The defeed chage items should be eclassified as follo-s in most situations7
*dvances to sales#esonsScuent asset
,e#aid entScuent asset
0etunable containesScuent asset
'. *llo-ance fo doubtful accounts should be sho-n as a conta account to accounts
eceivable.
1(. /ommon stoc3 dividend distibutable should be sho-n in stoc3holdes4 equity.
11. !K debentue bonds should be sho-n on a se#aate line.
12. 0eseve fo /ontingencies should be sho-n as an a##o#iation of etained eanings. The
authos #efe the tem Ua##o#iationU to the tem Ueseve.U
13. /a#ital stoc3 should be sho-n at the #a value of the shaes issued= F12(=(((. *ny excess
should be included in a #aid-in ca#ital account.
14. /a#ital su#lus and eaned su#lus ae #oo teminology. The tems Uadditional #aid-in
ca#italU and Uetained eaningsU ae moe a##o#iate.
1!. The dividends #aid title is a misnome. 2t #obably is a dividends declaed item that should
be closed to etained eanings.
1". 6o efeence in the body of the statement is made to the notes. The ode of the notes is
-ong.
1$. 6ote 2 indicates that the inventoy account is undestated by F4(=(((.
1&. .#ecific identification and desci#tion of all significant accounting #inci#les and methods
that involve selection fom among altenatives andJo those that ae #eculia to a given
industy should be disclosed in the annual e#ot.
5 - 17
P!" 5-7=,S%alance sheet #esentation.
The follo-ing balance sheet -as #e#aed by the boo33ee#e fo ,ey /om#any as of
Decembe 31= 2(($.
,ey /om#any
%alance .heet
as of Decembe 31= 2(($
/ash F &(=((( *ccounts #ayable F $!=(((
*ccounts eceivable BnetC !2=2(( Long-tem liabilities 1((=(((
2nventoies !$=((( .toc3holdes4 equity 21&=!((
2nvestments $"=3((
:qui#ment BnetC '"=(((
,atents 32=(((
F3'3=!(( F3'3=!((
The follo-ing additional infomation is #ovided7
1. /ash includes the cash suende value of a life insuance #olicy F'=4((= and a ban3
ovedaft of F2=!(( has been deducted.
2. The net accounts eceivable balance includes7
BaC accounts eceivableSdebit balances F"(=(((H
BbC accounts eceivableScedit balances F4=(((H
BcC allo-ance fo doubtful accounts F3=&((.
3. 2nventoies do not include goods costing F3=((( shi##ed out on consignment. 0eceivables of
F3=((( -ee ecoded on these goods.
4. 2nvestments include investments in common stoc3= tading F1'=((( and available-fo-sale
F4&=3((= and fanchises F'=(((.
!. :qui#ment costing F!=((( -ith accumulated de#eciation F4=((( is no longe used and is
held fo sale. *ccumulated de#eciation on the othe equi#ment is F4(=(((.
$nst!uct#ons
,e#ae a balance sheet in good fom Bstoc3holdes4 equity details can be omitted.C
5 - 1,
Solut#on 5-7=,
,ey /om#any
%alance .heet
*s of Decembe 31= 2(($
*ssets
/uent assets
/ash F $3=1(( B1C
Tading secuities 1'=(((
*ccounts eceivable F !$=((( B2C
Less7 *llo-ance fo doubtful accounts 3=&(( !3=2((
2nventoies "(=((( B3C
X:qui#ment held fo sale 1=((( B4C
Total cuent assets 2("=3((
2nvestments
*vailable-fo-sale secuities 4&=3((
/ash suende value '=4(( !$=$((
,o#ety= #lant= and equi#ment
:qui#ment 13!=((( B!C
Less accumulated de#eciation 4(=((( '!=(((
2ntangible assets
,atents 32=(((
Fanchises '=((( 41=(((
Total assets F4((=(((
Liabilities and .toc3holdes4 :quity
/uent liabilities
*ccounts #ayable F $'=((( B"C
%an3 ovedaft 2=!((
Total cuent liabilities &1=!((
Long-tem liabilities 1((=(((
Total liabilities 1&1=!((
.toc3holdes4 equity 21&=!((
Total liabilities and stoc3holdes4 equity F4((=(((
B1C BF&(=((( M F'=4(( N F2=!((C
B2C BF"(=((( M F3=(((C
B3C BF!$=((( N F3=(((C
B4C BF!=((( M F4=(((C
B!C BF'"=((( N F4(=((( M F!=((( N F4=(((C
B"C BF$!=((( N F4=(((C
X*n altenative is to sho- it as an othe asset.
5 - 11

ch05 1227461538405075 9

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

ch05 1227461538405075 9

Загружено:

Авторское право:

Доступные форматы

CHAPTER 5

BALANCE SHEET AND STATEMENT OF CASH FLOWS

Вам также может понравиться