The document provides an overview of balance sheets and statements of cash flows. It discusses key topics like the uses and limitations of balance sheets, major classifications in a balance sheet, required disclosures, and the purpose of statements of cash flows. It also includes sample multiple choice and true/false questions related to balance sheet and cash flow statement concepts.
The document provides an overview of balance sheets and statements of cash flows. It discusses key topics like the uses and limitations of balance sheets, major classifications in a balance sheet, required disclosures, and the purpose of statements of cash flows. It also includes sample multiple choice and true/false questions related to balance sheet and cash flow statement concepts.
The document provides an overview of balance sheets and statements of cash flows. It discusses key topics like the uses and limitations of balance sheets, major classifications in a balance sheet, required disclosures, and the purpose of statements of cash flows. It also includes sample multiple choice and true/false questions related to balance sheet and cash flow statement concepts.
The document provides an overview of balance sheets and statements of cash flows. It discusses key topics like the uses and limitations of balance sheets, major classifications in a balance sheet, required disclosures, and the purpose of statements of cash flows. It also includes sample multiple choice and true/false questions related to balance sheet and cash flow statement concepts.
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CHAPTER 5
BALANCE SHEET AND STATEMENT OF CASH FLOWS
IFRS questions are availale at t!e en" o# t!is $!a%ter& TR'E(FALSE)Con$e%tual Ans*er No& Des$ri%tion 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. M'LTIPLE CHOICE)Con$e%tual Ans*er No& Des$ri%tion d 21. Limitation of the balance sheet. c 22. )ses of the balance sheet. b 23. )se of balance sheet infomation. d 24. )se of balance sheet infomation. d 2!. Limitation of the balance sheet. c . 2". )ses of the balance sheet. b . 2$. /iticisms of the balance sheet. c , 2&. Definition of liquidity. d 2'. Definition of net assets. b 3(. /uent assets #esentation. b 31. 1#eating cycle. d 32. 1#eating cycle. d 33. 2dentification of cuent asset. d 34. 2dentification of cuent asset. d 3!. 2dentification of cuent asset. d 3". /lassification of shot-tem investments. c 3$. /lassification of inventoy #ledged as secuity. Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition M'LTIPLE CHOICE)Con$e%tual /$ont&0 Ans*er No& Des$ri%tion b 3&. 2dentification of long-tem investments. d 3'. 2dentification of valuation methods. b 4(. 2dentification of cuent liabilities. d 41. Definition of -o3ing ca#ital. b 42. 2dentification of -o3ing ca#ital items. d 43. 2dentification of long-tem liabilities. d 44. 2dentification of long-tem liabilities. d 4!. /lassification of teasuy stoc3. d 4". Disclosues fo common stoc3. d 4$. /lassification of investment in affiliate. c 4&. /lassification of o-nes4 equity. d 4'. /lassification of assets. d , !(. 2dentification of conta account. d . !1. %alance sheet su##lementay disclosue. d !2. Long-tem liabilities4 disclosue. b !3. %alance sheet su##lementay disclosue. c !4. Disclosue of contactual situations. d !!. Disclosue of accounting #olicies. d !". /ontingency e#oted in financial statement notes. d !$. 5ethods of disclosue. d !&. Disclosue of significant accounting #olicies. d !'. Disclosue of de#eciation methods used. d "(. 0equied notes to the financial statements. b "1. 2dentification of geneally acce#ted account titles. c "2. ,u#ose of the statement of cash flo-s. c . "3. .tatement of cash flo-s ans-es. c "4. .tatement of cash flo-s e#oting. b "!. .tatement of cash flo-s ob+ective. d "". 0e#oting issuance of stoc3 fo machine. d "$. 2dentify a financing activity. b "&. /lassification of cash ecei#ts. b "'. 2dentify a financing activity. c $(. /ash flo- fom o#eating activities. a $1. 2dentify an investing activity. d $2. ,e#aing the statement of cash flo-s. b $3. /ash debt coveage atio. b $4. /uent cash debt coveage atio. d $!. Financial flexibility measue. c $". /alculation of fee cash flo-. b . $$. Desci#tion of financial flexibility. b , $&. /ash debt coveage atio. , 6ote7 these questions also a##ea in the ,oblem-.olving .uvival 8uide. . 6ote7 these questions also a##ea in the .tudy 8uide. 5 ( 1 %alance .heet and .tatement of /ash Flo-s M'LTIPLE CHOICE)Co,%utational Ans*er No& Des$ri%tion c $'. /lassifying investments. a &(. 2dentifying intangible assets b &1. /alculate total stoc3holdes9 equity. d &2. /lassifying investments. a &3. 2dentifying intangible assets. b &4. /alculate total stoc3holdes9 equity. c &!. /alculate beginning stoc3holdes9 equity. c &". /alculate ending stoc3holdes9 equity. d &$. /alculate net income. b &&. /alculate ending cash balance. b &'. /alculate ending cash balance. a '(. /alculate cash #ovided by o#eating activities. c '1. /ash #ovided by o#eating activities. c '2. /ash #ovided by o#eating activities. a '3. /ash debt coveage atio. b '4. Fee cash flo-. a '!. /ash debt coveage atio. b '". Fee cash flo-. M'LTIPLE CHOICE)CPA A"a%te" Ans*er No& Des$ri%tion d '$. /alculate total cuent assets. d '&. /alculate total cuent assets. a ''. /alculate total cuent liabilities. c 1((. /alculate etained eanings balance. b 1(1. /alculate cuent and long-tem liabilities. c 1(2. .ummay of significant accounting #olicies. c 1(3. /lassification of investing activity. a 1(4. /lassification of o#eating activity. d 1(!. /lassification of financing activity. b 1(". /lassification of investing activity. E2ERCISES Ite, Des$ri%tion :!-1($ Definitions. :!-1(& Teminology. :!-1(' /uent assets. :!-11( *ccount classification. :!-111 ;aluation of balance sheet items. :!-112 %alance sheet classifications. :!-113 %alance sheet classifications. :!-114 %alance sheet classifications. :!-11! .tatement of cash flo-s. :!-11" .tatement of cash flo-s atios. 5 ( 3 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition PROBLEMS Ite, Des$ri%tion ,!-11$ %alance sheet fomat. ,!-11& %alance sheet #e#aation. ,!-11' %alance sheet #esentation. ,!-12( .tatement of cash flo-s #e#aation. ,!-121 .tatement of cash flo-s #e#aation. CHAPTER LEARNIN4 OB5ECTI6ES 1. :x#lain the uses and limitations of a balance sheet. 2. 2dentify the ma+o classifications of the balance sheet. 3. ,e#ae a classified balance sheet using the e#ot and account fomats. 4. Detemine -hich balance sheet infomation equies su##lemental disclosue. !. Descibe the ma+o disclosue techniques fo the balance sheet. ". 2ndicate the #u#ose of the statement of cash flo-s. $. 2dentify the content of the statement of cash flo-s. &. ,e#ae a basic statement of cash flo-s. '. )ndestand the usefulness of the statement of cash flo-s. 5 ( 7 %alance .heet and .tatement of /ash Flo-s S'MMAR8 OF LEARNIN4 OB5ECTI6ES B8 9'ESTIONS Item Type Item Type Item Type Item Type Item Type Item Type Item Type Learnin- O:e$tive ; 1. TF 3. TF 22. 5/ 24. 5/ . 2". 5/ , 2&. 5/ 2. TF 21. 5/ 23. 5/ 2!. 5/ . 2$. 5/ Learnin- O:e$tive 1 4. TF 33. 5/ 4(. 5/ 4$. 5/ &3. 5/ 1($. : 114. : !. TF 34. 5/ 41. 5/ 4&. 5/ &4. 5/ 1(&. : 11$. , ". TF 3!. 5/ 42. 5/ 4'. 5/ '$. 5/ 1('. : 11&. , 2'. 5/ 3". 5/ 43. 5/ $'. 5/ '&. 5/ 11(. : 3(. 5/ 3$. 5/ 44. 5/ &(. 5/ ''. 5/ 111. : 31. 5/ 3&. 5/ 4!. 5/ &1. 5/ 1((. 5/ 112. : 32. 5/ 3'. 5/ 4". 5/ &2. 5/ 1(1. 5/ 113. : Learnin- O:e$tive 3 $. TF , !(. 5/ &!. 5/ &". 5/ &$. 5/ Learnin- O:e$tive 7 &. TF !2. 5/ !!. 5/ 1($. : 112. : '. TF !3. 5/ !". 5/ 1(&. : 114. : . !1. 5/ !4. 5/ 1(2. 5/ 11(. : 11$. , Learnin- O:e$tive 5 1(. TF 12. TF !&. 5/ "(. 5/ 11. TF !$. 5/ !'. 5/ "1. 5/ Learnin- O:e$tive < 13. TF 14. TF "2. 5/ . "3. 5/ "4. 5/ "!. 5/ Learnin- O:e$tive = 1!. TF "$. 5/ $(. 5/ &'. 5/ 1(4. 5/ 11!. : 1". TF "&. 5/ $1. 5/ '(. 5/ 1(!. 5/ "". 5/ "'. 5/ &&. 5/ 1(3. 5/ 1(". 5/ Learnin- O:e$tive > 1$. TF 1&. TF $2. 5/ '1. 5/ '2. 5/ Learnin- O:e$tive ? 1'. TF $3. 5/ $!. 5/ . $$. 5/ '3. 5/ '!. 5/ 11". : 2(. TF $4. 5/ $". 5/ , $&. 5/ '4. 5/ '". 5/ 6ote7 TF < Tue-False : < :xecise 5/ < 5ulti#le /hoice , < ,oblem 5 ( 5 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition TR'E FALSE)Con$e%tual 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 ( < %alance .heet and .tatement of /ash Flo-s 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. True False Ans*ers)Con$e%tual Ite, Ans& Ite, Ans& Ite, Ans& Ite, 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 M'LTIPLE CHOICE)Con$e%tual 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. %alance sheet infomation is useful fo all of the follo-ing exce#t to a. com#ute ates of etun b. analyAe cash inflo-s and outflo-s fo the #eiod c. evaluate ca#ital stuctue d. assess futue cash flo-s 24. %alance sheet infomation is useful fo all of the follo-ing exce#t a. assessing a com#any4s is3 b. evaluating a com#any4s liquidity c. evaluating a com#any4s financial flexibility d. detemining fee cash flo-s. 5 ( = Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 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 numbes ae affected by the accounting methods em#loyed d. valuation of items at histoical cost . 2". 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. . 2$. 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. , 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. 3(. The coect ode to #esent cuent assets is a. cash= accounts eceivable= #e#aid items= inventoies. b. cash= accounts eceivable= inventoies= #e#aid items. c. cash= inventoies= accounts eceivable= #e#aid items. d. cash= inventoies= #e#aid items= accounts eceivable. 31. 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. 32. 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. 5 ( > %alance .heet and .tatement of /ash Flo-s 33. The cuent assets section of the balance sheet should include a. machiney. b. #atents. c. good-ill. d. inventoy. 34. >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. 3!. >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. 3". :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. 3$. >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 5 ( ? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 4(. >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 41. >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. 42. *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. 43. 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. 44. >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 4!. Teasuy stoc3 should be e#oted as aBnC a. cuent asset. b. investment. c. othe asset. d. eduction of stoc3holdes4 equity. 4". >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 4$. >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 5 ( ;@ %alance .heet and .tatement of /ash Flo-s 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 , !(. >hich of the follo-ing is a conta account? a. ,emium on bonds #ayable b. )neaned evenue c. ,atents d. *ccumulated de#eciation . !1. >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 !2. The #esentation of long-tem liabilities in the balance sheet should disclose a. matuity dates. b. inteest ates. c. convesion ights. d. *ll of the above. !3. >hich of the follo-ing is not a equied su##lemental disclosue fo the balance sheet? a. /ontingencies b. Financial foecasts c. *ccounting #olicies d. /ontactual situations !4. Ty#ical contactual situations that ae disclosed in the notes to the balance sheet include all of the follo-ing exce#t a. debt covenants b. lease obligations c. advetising contacts 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 inventoy #uchasing #olicies 5 ( ;; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition !". >hich of the follo-ing best exem#lifies a contingency that is e#oted in the notes to the financial statements? a. Losses fom #otential futue la-suits b. Loss fom a la-suit settled out of cout #io to the end of the fiscal yea c. >aanty claims on futue sales d. :stimated loss fom an ongoing la-suit !$. >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. !'. * 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. "(. 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 "1. * geneally acce#ted account title is a. ,e#aid 0evenue. b. *##o#iation fo /ontingencies. c :aned .u#lus. d. 0eseve fo Doubtful *ccounts. "2. 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. . "3. 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? 5 ( ;1 %alance .heet and .tatement of /ash Flo-s "4. The statement of cash flo-s e#ots all of the follo-ing exce#t a. the net change in cash fo the #eiod. b. the cash effects of o#eations duing the #eiod. c. the fee cash flo-s geneated duing the #eiod. d. investing tansactions. "!. The statement of cash flo-s hel#s meet one of the ob+ectives of financial e#oting= -hich is to assess all of the follo-ing exce#t the a. amount of futue cash flo-s. b. souce of futue cash flo-s. c. timing of futue cash flo-s. d. uncetainty of futue cash flo-s. "". 2f common stoc3 -as issued to acquie an D&=((( machine= ho- -ould the tansaction a##ea on the statement of cash flo-s? a. 2t -ould de#end on -hethe you ae using the diect o the indiect method. b. 2t -ould be a #ositive D&=((( in the financing section and a negative D&=((( in the investing section. c. 2t -ould be a negative D&=((( in the financing section and a #ositive D&=((( in the investing section. d. 2t -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 fom financing activities section of the statement of cash flo-s? a. /ash #uchases of equi#ment. b. /ash #uchases of bonds issued by anothe com#any. c. /ash eceived as e#ayment fo funds loaned. d. /ash #uchase of teasuy stoc3. "&. 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. 5 ( ;3 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition $1. 2n #e#aing a statement of cash flo-s= -hich of the follo-ing tansactions -ould be consideed an investing activity? a. .ale of equi#ment at boo3 value b. .ale of mechandise on cedit c. Declaation of a cash dividend d. 2ssuance of bonds #ayable at a discount $2. ,e#aing the statement of cash flo-s involves all of the follo-ing exce#t detemining the a. cash #ovided by o#eations. b. cash #ovided by o used in investing and financing activities. c. change in cash duing the #eiod. d. cash collections fom customes duing the #eiod. $3. The cash debt coveage atio is com#uted by dividing net cash #ovided by o#eating activities by a. aveage long-tem liabilities. b. aveage total liabilities. c. ending long-tem liabilities. d. ending total liabilities. $4. The cuent cash debt coveage atio is often used to assess a. financial flexibility. b. liquidity. c. #ofitability. d. solvency. $!. * measue of a com#any9s financial flexibility is the a. cash debt coveage atio. b. cuent cash debt coveage atio. c. fee cash flo-. d. cash debt coveage atio and fee cash flo-. $". Fee cash flo- is calculated as net cash #ovided by o#eating activities less a. ca#ital ex#enditues. b. dividends. c. ca#ital ex#enditues and dividends. d. ca#ital ex#enditues and de#eciation. . $$. 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. , $&. 6et cash #ovided by o#eating activities divided by aveage total liabilities equals the a. cuent cash debt coveage atio. b. cash debt coveage atio. c. fee cash flo-. d. cuent atio. 5 ( ;7 %alance .heet and .tatement of /ash Flo-s Multi%le C!oi$e Ans*ers)Con$e%tual Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& 21. d 3(. b 3'. d 4&. c !$. d "". d $!. d 22. c 31. b 4(. b 4'. d !&. d "$. d $". c 23. b 32. d 41. d !(. d !'. d "&. b $$. b 24. d 33. d 42. b !1. d "(. d "'. b $&. b 2!. d 34. d 43. d !2. d "1. b $(. c 2". c 3!. d 44. d !3. b "2. c $1. a 2$. b 3". d 4!. d !4. c "3. c $2. d 2&. c 3$. c 4". d !!. d "4. c $3. b 2'. d 3&. b 4$. d !". d "!. b $4. b .olutions to those 5ulti#le /hoice questions fo -hich the ans-e is Enone of these.F 2'. Total assets minus total liabilities. 41. /uent assets less cuent liabilities. 44. 5any ans-es ae #ossible. M'LTIPLE CHOICE)Co,%utational $'. Fulton /om#any o-ns the follo-ing investments7 Tading secuities Bfai valueC D"(=((( *vailable-fo-sale secuities Bfai valueC 3!=((( Geld-to-matuity secuities BamotiAed costC 4$=((( Fulton -ill e#ot investments in its cuent assets section of a. D(. b. exactly D"(=(((. c. D"(=((( o an amount geate than D"(=(((= de#ending on the cicumstances. d. exactly D'!=(((. &(. Fo 8immett /om#any= the follo-ing infomation is available7 /a#italiAed leases D2((=((( Tadema3s "!=((( Long-tem eceivables $!=((( 2n 8immett9s balance sheet= intangible assets should be e#oted at a. D"!=(((. b. D$!=(((. c. D2"!=(((. d. D2$!=(((. &1. Goughton /om#any has the follo-ing items7 common stoc3= D$2(=(((H teasuy stoc3= D&!=(((H defeed taxes= D1((=((( and etained eanings= D313=(((. >hat total amount should Goughton /om#any e#ot as stoc3holdes9 equity? a. D&4&=(((. b. D'4&=(((. c. D1=(4&=(((. d. D1=11&=(((. 5 ( ;5 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition &2. Iohle /om#any o-ns the follo-ing investments7 Tading secuities Bfai valueC D "(=((( *vailable-fo-sale secuities Bfai valueC 3!=((( Geld-to-matuity secuities BamotiAed costC 4$=((( Iohle -ill e#ot secuities in its long-tem investments section of a. exactly D'!=(((. b. exactly D1($=(((. c. exactly D142=(((. d. D&2=((( o an amount less than D&2=(((= de#ending on the cicumstances. &3. Fo 0andol#h /om#any= the follo-ing infomation is available7 /a#italiAed leases D2&(=((( Tadema3s '(=((( Long-tem eceivables 1(!=((( 2n 0andol#h9s balance sheet= intangible assets should be e#oted at a. D'(=(((. b. D1(!=(((. c. D3$(=(((. d. D3&!=(((. &4. 1lmsted /om#any has the follo-ing items7 common stoc3= D$2(=(((H teasuy stoc3= D&!=(((H defeed taxes= D1((=((( and etained eanings= D3"3=(((. >hat total amount should 1lmsted /om#any e#ot as stoc3holdes9 equity? a. D&'&=(((. b. D''&=(((. c. D1=('&=(((. d. D1=1'&=(((. &!. ,esented belo- ae data fo *nt-e# /o#. 2(1( 2(11 2(12 *ssets= @anuay 1 D2=&(( D3=3"( ? Liabilities= @anuay 1 1="&( ? D2=(1" .toc3holdes4 :quity= @an. 1 ? ? 2=1(( Dividends !"( 42( 4$" /ommon .toc3 !(4 44& !(( .toc3holdes4 :quity= Dec. 31 ? ? 1=!'" 6et 2ncome !"( 44& ? .toc3holdes4 :quity at @anuay 1= 2(1( is a. D !(4. b. D !"(. c. D1=12(. d. D1="24. 5 ( ;< %alance .heet and .tatement of /ash Flo-s &". ,esented belo- ae data fo %and3o3 /o#. 2(1( 2(11 2(12 *ssets= @anuay 1 D!=4(( D"=4&( ? Liabilities= @anuay 1 3=24( ? D3=&&& .toc3holdes4 :quity= @an. 1 ? ? 4=(!( Dividends 1=(&( &1( '1& /ommon .toc3 '$2 &"4 '2( .toc3holdes4 :quity= Dec. 31 ? ? 3=($& 6et 2ncome 1=(&( &"4 ? .toc3holdes4 :quity at @anuay 1= 2(11 is a. D1=&'(. b. D1=''&. c. D3=132. d. D3=1&". &$. ,esented belo- ae data fo /aacas /o#. 2(1( 2(11 2(12 *ssets= @anuay 1 D3=&(( D4=!"( ? Liabilities= @anuay 1 2=2&( ? D2=$3" .toc3holdes4 :quity= @an. 1 ? ? 2=&!( Dividends $"( !$( "4" /ommon .toc3 "&4 "(& "!( .toc3holdes4 :quity= Dec. 31 ? ? 2=1"" 6et 2ncome $"( "&4 ? 6et income fo 2(12 is a. D"&4 income. b. D"&4 loss. c. D3& income. d. D3& loss. &&. Lohmeye /o#oation e#ots7 /ash #ovided by o#eating activities D2!(=((( /ash used by investing activities 11(=((( /ash #ovided by financing activities 14(=((( %eginning cash balance $(=((( >hat is Lohmeye9s ending cash balance? a. D2&(=(((. b. D3!(=(((. c. D!((=(((. d. D!$(=(((. 5 ( ;= Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition &'. Ieisle /o#oation e#ots7 /ash #ovided by o#eating activities D2((=((( /ash used by investing activities 11(=((( /ash #ovided by financing activities 14(=((( %eginning cash balance $(=((( >hat is Ieisle9s ending cash balance? a. D23(=(((. b. D3((=(((. c. D4!(=(((. d. D!2(=(((. '(. Duing 2(1( the DLD /om#any had a net income of D!(=(((. 2n addition= selected accounts sho-ed the follo-ing changes7 *ccounts 0eceivable D3=((( incease *ccounts ,ayable 1=((( incease %uilding 4=((( decease De#eciation :x#ense 1=!(( incease %onds ,ayable &=((( incease >hat -as the amount of cash #ovided by o#eating activities? a. D4'=!(( b. D!(=((( c. D!1=!(( d. D!'=!(( '1. Gading /o#oation e#ots the follo-ing infomation7 6et income D!((=((( De#eciation ex#ense 14(=((( 2ncease in accounts eceivable "(=((( Gading should e#ot cash #ovided by o#eating activities of a. D3((=(((. b. D42(=(((. c. D!&(=(((. d. D$((=(((. '2. .aude /o#oation e#ots the follo-ing infomation7 6et income D2!(=((( De#eciation ex#ense $(=((( 2ncease in accounts eceivable 3(=((( .aude should e#ot cash #ovided by o#eating activities of a. D1!(=(((. b. D21(=(((. c. D2'(=(((. d. D3!(=(((. 5 ( ;> %alance .heet and .tatement of /ash Flo-s '3. ,ac3ad /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D21!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends declaed "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( ,ac3ad9s cash debt coveage atio is a. (.&". b. 1.43. c. 2.1!. d. 4.$&. '4. ,ac3ad /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D21!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( ,ac3ad9s fee cash flo- is a. D1(=(((. b. D4!=(((. c. D1(!=(((. d. D1!!=(((. '!. ,edigo /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D2!!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( ,edigo9s cash debt coveage atio is a. 1.(2. b. 1.$(. c. 2.!!. d. 3.((. 5 ( ;? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition '". 6oton /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D2!!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( 6oton9s fee cash flo- is a. D!(=(((. b. D&!=(((. c. D14!=(((. d. D1'!=(((. Multi%le C!oi$e Ans*ers)Co,%utational Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& $'. c &3. a &$. d '1. c '!. a &(. a &4. b &&. b '2. c '". b &1. b &!. c &'. b '3. a &2. d &". c '(. a '4. b M'LTIPLE CHOICE)CPA A"a%te" '$. .tine /o#.4s tial balance eflected the follo-ing account balances at Decembe 31= 2(1(7 *ccounts eceivable BnetC D24=((( 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 .tine4s Decembe 31= 2(1( balance sheet= the cuent assets total is a. D'(=(((. b. D&2=(((. c. D$$=(((. d. D$3=(((. 5 ( 1@ %alance .heet and .tatement of /ash Flo-s )se the follo-ing infomation fo questions '& though 1((. The follo-ing tial balance of 0eese /o#. at Decembe 31= 2(1( has been #o#ely ad+usted exce#t fo the income tax ex#ense ad+ustment. 0eese /o#. Tial %alance Decembe 31= 2(1( D. /. /ash D $$!=((( *ccounts eceivable BnetC 2="'!=((( 2nventoy 2=(&!=((( ,o#ety= #lant= and equi#ment BnetC $=3""=((( *ccounts #ayable and accued liabilities D 1=$(1=((( 2ncome taxes #ayable "!4=((( Defeed income tax liability &!=((( /ommon stoc3 2=3!(=((( *dditional #aid-in ca#ital 3="&(=((( 0etained eanings= 1J1J1( 3=4!(=((( 6et sales and othe evenues 13=3"(=((( /osts and ex#enses 11=1&(=((( 2ncome tax ex#enses 1=1$'=((( D2!=2&(=((( D2!=2&(=((( 1the financial data fo the yea ended Decembe 31= 2(1(7 2ncluded in accounts eceivable is D1=2((=((( due fom a custome and #ayable in quately installments of D1!(=(((. The last #ayment is due Decembe 2'= 2(12. The balance in the Defeed 2ncome Tax Liability account #etains to a tem#oay diffeence that aose in a #io yea= of -hich D2(=((( is classified as a cuent liability. Duing the yea= estimated tax #ayments of D!2!=((( -ee chaged to income tax ex#ense. The cuent and futue tax ate on all ty#es of income is 3(K. 2n 0eese4s Decembe 31= 2(1( balance sheet= '&. The cuent assets total is a. D"=(&(=(((. b. D!=!!!=(((. c. D!=4(!=(((. d. D4='!!=(((. ''. The cuent liabilities total is a. D1=&!(=(((. b. D1='1!=(((. c. D2=3$!=(((. d. D2=44(=(((. 1((. The final etained eanings balance is a. D4=4!1=(((. b. D4=!3"=(((. c. D4='$"=(((. d. D4='(!=(((. 5 ( 1; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 1(1. 1n @anuay 4= 2(1(= Iiley /o. leased a building to Dodd /o#. fo a ten-yea tem at an annual ental of D$!=(((. *t ince#tion of the lease= Dodd eceived D3((=((( coveing the fist t-o yeas4 ent of D1!(=((( and a secuity de#osit of D1!(=(((. This de#osit -ill not be etuned to Dodd 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 D3((=((( should be sho-n as a cuent and long-tem liability in Iiley4s Decembe 31= 2(1( balance sheet? /uent Liability Long-tem Liability a. D( D3((=((( b. D$!=((( D1!(=((( c. D1!(=((( D1!(=((( d. D1!(=((( D$!=((( 1(2. >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 1(3. 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 a. o#eating activities. b. financing activities. c. investing activities. d. selling activities. 1(4. 2n a statement of cash flo-s= inteest #ayments to lendes and othe ceditos should be classified as cash outflo-s fo a. o#eating activities. b. boo-ing activities. c. lending activities. d. financing activities. 1(!. 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. 1(". 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 a. o#eating activities. b. investing activities. c. financing activities. d. lending activities. 5 ( 11 %alance .heet and .tatement of /ash Flo-s Multi%le C!oi$e Ans*ers)CPA A"a%te" Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& '$. d ''. a 1(1. b 1(3. c 1(!. d '&. d 1((. c 1(2. c 1(4. a 1(". b DERI6ATIONS ) Co,%utational No& Ans*er Derivation $'. c &(. a &1. b D$2(=((( M D&!=((( N D313=((( < D'4&=(((. &2. d &3. a &4. b D$2(=((( M D&!=((( N D3"3=((( < D''&=(((. &!. c D2=&(( M D1="&( < D1=12(. &". c BD!=4(( M D3=24(C N D1=(&( N D'$2 M D1=(&( < D3=132. &$. d D2=&!( M D"4" M D2=1"" < BD3&C. &&. b D$(=((( N D2!(=((( M D11(=((( N D14(=((( < D3!(=(((. &'. b D$(=((( N D2((=((( M D11(=((( N D14(=((( < D3((=(((. '(. a D!(=((( M D3=((( N D1=((( N D1=!(( < D4'=!((. '1. c D!((=((( N D14(=((( M D"(=((( < D!&(=(((. '2. c D2!(=((( N D$(=((( M D3(=((( < D2'(=(((. '3. a D21!=((( O BD1!(=((( N D1((=(((C < (.&". '4. b D21!=((( M D"(=((( M D11(=((( < D4!=(((. '!. a D2!!=((( O BD1!(=((( N D1((=(((C < 1.(2. '". b D2!!=((( M D"(=((( M D11(=((( < D&!=(((. DERI6ATIONS ) CPA A"a%te" No& Ans*er Derivation '$. d D24=((( N D"=((( N D11=((( N D3(=((( N D2=((( < D$3=(((. '&. d D$$!=((( N PD2="'!=((( M BD1!(=((( Q 4CR N D2=(&!=((( < D4='!!=(((. ''. a D1=$(1=((( N BD"!4=((( M D!2!=(((C N D2(=((( < D1=&!(=(((. 1((. c D3=4!(=((( N D13=3"(=((( M D11=1&(=((( M BD1=1$'=((( M D!2!=(((C < D4='$"=(((. 1(1. b /once#tual. 1(2. c /once#tual. 5 ( 13 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition No& Ans*er Derivation 1(3. c /once#tual. 1(4. a /once#tual. 1(!. d /once#tual. 1(". b /once#tual. E2ERCISES EA& 5(;@=SDefinitions. ,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? Solution 5(;@= 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 ( 17 %alance .heet and .tatement of /ash Flo-s EA& 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. Solution 5(;@> 1. /uent liabilities. ". ,o#ety= #lant= and equi#ment. 2. %alance sheet. $. 2ntangible assets. 3. /ontingencies. &. *ssets. 4. Liabilities. '. :quity. !. /uent assets. EA& 5(;@?S/uent assets. Define cuent assets -ithout using the -od Uasset.U Solution 5(;@? /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 ( 15 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition EA& 5(;;@S*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(13C 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 TTTTT 11. ,atents TTTTT12. )neaned evenue Solution 5(;;@ 1. b !. g '. a 2. i ". + 1(. g 3. 3 $. l 11. d 4. f &. a 12. f 5 ( 1< %alance .heet and .tatement of /ash Flo-s EA& 5(;;;S;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 TTTTTT 11. ,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 Solution 5(;;; 1. a ". h 11. h 2. l $. g 12. e 3. i &. c 13. d 4. + '. 3 !. f 1(. 3 5 ( 1= Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition EA& 5(;;1S%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(1(. 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(13 TTTTT 11. /ommon stoc3 at #a value TTTTT12. %ond indentue covenants TTTTT13. )namotiAed #emium on bonds #ayable due in 2(1" TTTTT14. *llo-ance fo doubtful accounts TTTTT1!. *ccumulated de#eciation 5 ( 1> 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(13 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 BD1( #aC TTTTTT2$. ,e#aid ent fo next 12 months TTTTTT2&. /o#yight TTTTTT2'. *ccumulated amotiAation= #atents TTTTTT3(. :anings not distibuted to stoc3holdes %alance .heet and .tatement of /ash Flo-s Solution 5(;;1 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(. + EA& 5(;;3S%alance sheet classifications. The vaious classifications listed belo- have been used in the #ast by 5ais /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. TTTTT 11. %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 ( 1? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Solution 5(;;3 1. f !. d '. a 13. a 2. b ". a 1(. g 14. i 3. f $. x 11. f 4. a o e &. a 12. x EA& 5(;;7S%alance sheet classifications. The vaious classifications listed belo- have been used in the #ast by Gale /om#any on its balance sheet. a. /uent *ssets e. /uent Liabilities b. 2nvestments f. Long-tem Liabilities c. ,lant and :qui#ment g. /ommon .toc3 and ,aid-in /a#ital in :xcess of ,a d. 2ntangible *ssets h. 0etained :anings Instru$tions 2ndicate by lette ho- each of the items belo- should be classified at Decembe 31= 2(1(. 2f an item is not e#oted on the Decembe 31= 2(1( 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(11. TTTTT 4. *ccumulated de#eciation. TTTTT !. *##o#iation fo #lant ex#ansion. TTTTT ". *motiAation of #atents fo 2(1(. TTTTT $. 1n Decembe 31= 2(1(= Gale 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(13. TTTTT '. Launching of Gale9s 2ntenet etailing division in Febuay= 2(11. TTTTT1(. /ash dividends declaed on Decembe 1!= 2(1( #ayable to stoc3holdes on @anuay 1!= 2(11. 5 ( 3@ %alance .heet and .tatement of /ash Flo-s Solution 5(;;7 1. e 4. BcC $. x 1(. e 2. b !. h &. BfC 3. x ". x '. x EA& 5(;;5S.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 TTTTT 11. ,uchase of teasuy stoc3 BcommonC TTTTT12. .ale of eal estate held as a long-tem investment Solution 5(;;5 1. c 4. d $. a 1(. b 2. c !. d &. c 11. c 3. a ". b '. a 12. b 5 ( 3; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition EA& 5(;;<S.tatement of cash flo-s atios. Financial statements fo Gilton /om#any ae #esented belo-7 Gilton /om#any %alance .heet Decembe 31= 2(1( *ssets Liabilities W .toc3holdes9 :quity /ash D 4(=((( *ccounts #ayable D 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 "(=((( D1'!=((( D1'!=((( Gilton /om#any .tatement of /ash Flo-s Fo the Lea :nded Decembe 31= 2(1( /ash flo-s fom o#eating activities 6et income D!(=((( *d+ustments to econcile net income to net cash #ovided by o#eating activities7 2ncease in accounts eceivable DB1"=(((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(1( 23=((( /ash= Decembe 31= 2(1( D4(=((( *t the beginning of 2(1(= *ccounts ,ayable amounted to D12=((( and %onds ,ayable -as D1(=(((. Instru$tions /alculate the follo-ing fo Gilton /om#any7 a. /uent cash debt coveage atio b. /ash debt coveage atio c. Fee cash flo- 5 ( 31 %alance .heet and .tatement of /ash Flo-s Solution 5(;;< 6et cash #ovided by o#eating activities a. /uent cash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage cuent liabilities D!3=((( D!3=((( < SSSSSSSSSSS < SSSS < 3.3 7 1 BD12=((( N D2(=(((C O 2 D1"=((( 6et cash #ovided by o#eating activities b. /ash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage total liabilities D!3=((( D!3=((( < SSSSSSSSSSS < SSSS < 1.2 7 1 BD22=((( N D$(=(((C O 2 D4"=((( c. Fee cash flo- < 6et cash #ovided by o#eating activities M ca#ital ex#enditues and dividends < D!3=((( M XD$3=((( M D1!=((( < DB3!=(((C XD2!=((( N D4&=((( 5 ( 33 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition PROBLEMS Pr& 5(;;=S%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. @as#e 2ndusties= 2nc. %alance .heet Fo the ,eiod :nded 12J31J1( *ssets Fixed *ssetsSTangible :qui#ment D11(=((( Less7 eseve fo de#eciation B4(=(((C D $(=((( Factoy su##lies 22=((( Land and buildings 4((=((( Less7 eseve fo de#eciation B1!(=(((C 2!(=((( ,lant site held fo futue use '(=((( D 432=((( /uent *ssets *ccounts eceivable 1$!=((( /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 $!=((( 1"2=((( T1T*L *..:T. D1=23!=((( Liabilities /uent Liabilities *ccounts #ayable D14(=((( *llo-ance fo doubtful accounts &=((( /ommon stoc3 dividend distibutable 3!=((( 2ncome taxes #ayable 42=((( .ales taxes #ayable 1$=((( D 242=((( Long-Tem Liabilities= !K debentue bonds= due 2(13 !((=((( 0eseve fo contingencies 1!(=((( "!(=((( T1T*L L2*%2L2T2:. &'2=((( :quity /a#ital stoc3= D1(.(( #a value= issued 12=((( shaes -ith "( shaes held as teasuy stoc3 D1!(=((( /a#ital su#lus '(=((( Dividends #aid B2(=(((C :aned su#lus 123=((( T1T*L :Y)2TL 343=((( T1T*L L2*%2L2T2:. *6D :Y)2TL D1=23!=((( 5 ( 37 %alance .heet and .tatement of /ash Flo-s 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 D4(=((( ae excluded since the com#any has consistently follo-ed this #ocedue fo many yeas. Solution 5(;;= 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. $. 6otes eceivable should be e#oted as a cuent asset o an investment. &. The defeed chage items should be eclassified as follo-s in most situations7 *dvances to sales#esonsScuent asset ,e#aid entScuent asset 0etunable containesScuent asset '. *llo-ance fo doubtful accounts should be sho-n as a conta account to accounts eceivable. 1(. /ommon stoc3 dividend distibutable should be sho-n in stoc3holdes4 equity. 11. !K debentue bonds should be sho-n on a se#aate line. 12. 0eseve fo /ontingencies should be sho-n as an a##o#iation of etained eanings. The authos #efe the tem Ua##o#iationU to the tem Ueseve.U 13. /a#ital stoc3 should be sho-n at the #a value of the shaes issued= D12(=(((. *ny excess should be included in a #aid-in ca#ital account. 14. /a#ital su#lus and eaned su#lus ae #oo teminology. The tems Uadditional #aid-in ca#italU and Uetained eaningsU ae moe a##o#iate. 1!. The dividends #aid title is a misnome. 2t #obably is a dividends declaed item that should be closed to etained eanings. 1". 6o efeence in the body of the statement is made to the notes. The ode of the notes is -ong. 1$. 6ote 2 indicates that the inventoy account is undestated by D4(=(((. 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 ( 35 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;;>S%alance sheet #esentation. The follo-ing balance sheet -as #e#aed by the boo33ee#e fo Iaus /om#any as of Decembe 31= 2(1(. Iaus /om#any %alance .heet as of Decembe 31= 2(1( /ash D &(=((( *ccounts #ayable D $!=((( *ccounts eceivable BnetC !2=2(( Long-tem liabilities 1((=((( 2nventoies !$=((( .toc3holdes4 equity 21&=!(( 2nvestments $"=3(( :qui#ment BnetC '"=((( ,atents 32=((( D3'3=!(( D3'3=!(( The follo-ing additional infomation is #ovided7 1. /ash includes the cash suende value of a life insuance #olicy D'=4((= and a ban3 ovedaft of D2=!(( has been deducted. 2. The net accounts eceivable balance includes7 BaC accounts eceivableSdebit balances D"(=(((H BbC accounts eceivableScedit balances D4=(((H BcC allo-ance fo doubtful accounts D3=&((. 3. 2nventoies do not include goods costing D3=((( shi##ed out on consignment. 0eceivables of D3=((( -ee ecoded on these goods. 4. 2nvestments include investments in common stoc3= tading D1'=((( and available-fo-sale D4&=3((= and fanchises D'=(((. !. :qui#ment costing D!=((( -ith accumulated de#eciation D4=((( is no longe used and is held fo sale. *ccumulated de#eciation on the othe equi#ment is D4(=(((. Instru$tions ,e#ae a balance sheet in good fom Bstoc3holdes4 equity details can be omitted.C 5 ( 3< %alance .heet and .tatement of /ash Flo-s Solution 5(;;> Iaus /om#any %alance .heet *s of Decembe 31= 2(1( *ssets /uent assets /ash D $3=1(( B1C Tading secuities 1'=((( *ccounts eceivable D !$=((( 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 D4((=((( Liabilities and .toc3holdes4 :quity /uent liabilities *ccounts #ayable D $'=((( 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 D4((=((( B1C BD&(=((( M D'=4(( N D2=!((C B2C BD"(=((( M D3=(((C B3C BD!$=((( N D3=(((C B4C BD!=((( M D4=(((C B!C BD'"=((( N D4(=((( M D!=((( N D4=(((C B"C BD$!=((( N D4=(((C X*n altenative is to sho- it as an othe asset. 5 ( 3= Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;;?S%alance sheet #esentation. 8iven the follo-ing account infomation fo Leong /o#oation= #e#ae a balance sheet in e#ot fom fo the com#any as of Decembe 31= 2(1(. *ll accounts have nomal balances. :qui#ment 4(=((( 2nteest :x#ense 2=4(( 2nteest ,ayable "(( 0etained :anings ? Dividends !(=4(( Land 13$=32( 2nventoy 1(2=((( %onds ,ayable $&=((( 6otes ,ayable Bdue in " monthsC 14=4(( /ommon .toc3 "(=((( *ccumulated De#eciation - :q. 1(=((( ,e#aid *dvetising !=((( 0evenue 331=4(( %uildings &(=4(( .u##lies 1=&"( Taxes ,ayable 3=((( )tilities :x#ense 1=32( *dvetising :x#ense 1=!"( .alay :x#ense !3=(4( .alaies ,ayable '(( *ccumulated De#. - %ld. 1!=((( /ash 3(=((( De#eciation :x#ense= %uilding W :qui#ment &=((( 5 ( 3> %alance .heet and .tatement of /ash Flo-s Solution 5(;;? Leong /o#oation %alance .heet Decembe 31= 2(1( *ssets /ash D 3(=((( 2nventoy 1(2=((( .u##lies 1=&"( ,e#aid advetising !=((( Total cuent assets D 13&=&"( Land 13$=32( %uilding D &(=4(( *ccumulated de#eciation - bld B1!=(((C "!=4(( :qui#ment 4(=((( *ccumulated de#eciation -eq B1(=(((C 3(=((( 232=$2( Total assets D 3$1=!&( Liabilities W .toc3holdes4 :quity 6otes #ayable D 14=4(( Taxes #ayable 3=((( .alaies #ayable '(( 2nteest #ayable "(( Total cuent liabilities D 1&='(( Long-tem liabilities %ond #ayable $&=((( Total liabilities '"='(( /ommon stoc3 "(=((( 0etained eanings BD2"!=(&(X- D!(=4((C 214="&( Total stoc3holdes4 equity 2$4="&( Total liabilities W stoc3holdes4 equity D 3$1=!&( XD331=4(( - D!3=(4( - D&=((( - D2=4(( - D1=!"( - D1=32( 5 ( 3? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;[email protected] of cash flo-s #e#aation. .elected financial statement infomation and additional data fo .tanislaus /o. is #esented belo-. ,e#ae a statement of cash flo-s fo the yea ending Decembe 31= 2(1( Decembe 31 2((' 2(1( /ash....................................................... D42=((( D"3=((( *ccounts eceivable BnetC....................... &4=((( 1!1=2(( 2nventoy................................................. 1"&=((( 2(1="(( Land....................................................... !&=&(( 21=((( :qui#ment.............................................. !(4=((( $&'="(( T1T*L.........................................D&!"=&(( D1=22"=4(( *ccumulated de#eciation....................... D&4=((( D11!="(( *ccounts #ayable................................... !(=4(( &"=((( 6otes #ayable - .hot-tem..................... "$=2(( 2'=4(( 6otes #ayable - Long-tem..................... 1"&=((( 3(2=4(( /ommon stoc3........................................ 42(=((( 4&$=2(( 0etained eanings................................... "$=2(( 2(!=&(( T1T*L.........................................D&!"=&(( D1=22"=4(( *dditional data fo 2(1(7 1. 6et income -as D23!=2((. 2. De#eciation -as D31="((. 3. Land -as sold at its oiginal cost. 4. Dividends of D'"="(( -ee #aid. !. :qui#ment -as #uchased fo D&4=((( cash. ". * long-tem note fo D2(1="(( -as used to #ay fo an equi#ment #uchase. $. /ommon stoc3 -as issued to #ay a D"$=2(( long-tem note #ayable. 5 ( 7@ %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 2ncome D23!=2(( /ash flo- fom o#eating activities De#eciation ex#ense 31="(( 2ncease in accounts eceivable B"$=2((C 2ncease in inventoy B33="((C 2ncease in accounts #ayable 3!="(( Decease in shot-tem notes #ayable B3$=&((C B$1=4((C 6et cash #ovided by o#eating activities 1"3=&(( /ash flo- fom investing activities ,uchase equi#ment B&4=(((C .ale of land 3$=&(( 6et cash used by investing activities B4"=2((C /ash flo- fom financing activities ,ayment of cash dividend B'"="((C 6et cash used by financing activities B'"="((C 6et incease in cash 21=((( /ash at beginning of yea 42=((( /ash at end of the yea "3=((( 6oncash investing and financing activities ,ayment of long-tem note #ayable -ith issuance of D"$=2(( of common stoc3 5 ( 7; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;1;S.tatement of cash flo-s #e#aation. .elected financial statement infomation and additional data fo @ohnston :nte#ises is #esented belo-. ,e#ae a statement of cash flo-s fo the yea ending Decembe 31= 2(1( @ohnston :nte#ises %alance .heet and 2ncome .tatement Data Decembe 31= Decembe 31= 2(1( 2(('TTT /uent *ssets7 /ash D1!3=((( D11'=((( *ccounts 0eceivable 23&=((( 3("=((( 2nventoy 3'1=((( 34(=((( Total /uent *ssets $&2=((( $"!=((( ,o#ety= ,lant= and :qui#ment 1=241=((( 1=122=((( Less7 *ccumulated De#eciation B4$"=(((C B442=(((C Total *ssets D1=!4$=((( D1=44!=((( /uent Liabilities7 *ccounts ,ayable D1&$=((( D1(2=((( 6otes ,ayable !1=((( "&=((( 2ncome Tax ,ayable &!=((( $"=!(( Total /uent Liabilities 323=((( 24"=!(( %onds ,ayable 34(=((( 3'1=((( Total Liabilities ""3=((( "3$=!(( .toc3holdes4 :quity7 /ommon .toc3 !1(=((( 4"$=!(( 0etained :anings 3$4=((( 34(=((( Total .toc3holdes4 :quity &&4=((( &($=!(( Total Liabilities W .toc3holdes4 :quity D1=!4$=((( D1=44!=((( .ales 1="1!=((( D1=!13=((( Less /ost of 8oods .old $31=((( $31=((( 8oss ,ofit &&4=((( $&2=((( :x#enses7 De#eciation :x#ense 1!3=((( 13"=((( .alay :x#ense 3'1=((( 3!$=((( 2nteest :x#ense 34=((( 34=((( Loss on .ale of :qui#ment 1$=((( ( 2ncome %efoe Taxes 2&'=((( 2!!=((( Less 2ncome Tax :x#ense 11'=((( 1(2=((( 6et 2ncome D1$(=((( D1!3=((( *dditional 2nfomation7 Duing the yea= @ohnston sold equi#ment -ith an oiginal cost of D1!3=((( and accumulated de#eciation of D11'=((( and #uchased ne- equi#ment fo D2$2=(((. 5 ( 71 %alance .heet and .tatement of /ash Flo-s Solution 5(;1; @ohnston :nte#ises .tatement of /ash Flo-s Fo the Lea :nded Decembe 31= 2(1( 6et 2ncome D 1$(=((( /ash flo- fom o#eating activities De#eciation ex#ense 1!3=((( Loss on sale of equi#ment 1$=((( Decease in accounts eceivable "&=((( 2ncease in inventoy B!1=(((C 2ncease in accounts #ayable &!=((( Decease in notes #ayable B1$=(((C 2ncease in tax #ayable &=!(( 2"3=!(( 6et cash #ovided by o#eating activities 433=!(( /ash flo- fom investing activities .ale of equi#ment 1$=((( ,uchase of equi#ment B2$2=(((C 6et cash used by investing activities B2!!=(((C /ash flo- fom financing activities 0etiement of bonds #ayable B!1=(((C 2ssuance of common stoc3 42=!(( ,ayment of dividends B13"=(((CXX 6et cash used by financing activities B144=!((C 6et incease in cash 34=((( %eginning cash 11'=((( /ash at end of yea D1!3=((( XX%eginning 0J: + 6et income Dividends = :nding 0J: D34(=((( + D1$(=((( Dividends = D3$4=((( Dividends = D13"=((( 5 ( 73 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition IFRS 9'ESTIONS TrueBFalseC 1. *lthough the #esentation fomats fo the balance sheet and statement of cash flo-s ae simila unde i8**, and )... 8**,= i8**, equies fa moe extensive disclosue. 2. 1ne significant diffeence bet-een a balance sheet #e#aed using i8**, athe than )... 8**, is that long-tem tangible assets -ill be e#oted at fai value athe than histoical cost. 3. %oth i8**, and )... 8**, equie that s#ecific items be e#oted on the balance sheet. 4. %oth i8**, and )... 8**, equie cuent assets to be listed fist on the balance sheet. Ans*ers to TrueBFalseC 1. False 2. Tue 3. False 4. False Multi%le C!oi$e 9uestionsC 1. >hich of the follo-ing statements about i8**, and )... 8**, accounting and e#oting equiements fo the balance sheet is not coect? a. The #esentation fomats equied by i8**, and )... 8**, fo the balance sheet ae simila. b. 1ne diffeence bet-een the e#oting equiements unde i8**, and those of )... 8**, balance sheet is that an i8**, balance sheet may list long-tem assets fist. c. %oth i8**, and )... 8**, equie that #o#ety= #lant and equi#ment be e#oted at histoical cost on the balance sheet. d. %oth i8**, and )... 8**, equie that com#aative infomation be e#oted. Use the following information to answer the next two questions. Fanco /om#any uses i8**, and o-ns #o#ety= #lant and equi#ment -ith a histoical cost of !=(((=((( euos. *t Decembe 31= 2(('= the com#any e#oted a valuation eseve of &=3"!=((( euos. *t Decembe 31= 2(1(= the #o#ety= #lant and equi#ment -as a##aised at !=32!=((( euos. 2. The #o#ety= #lant and equi#ment -ill be e#oted on the Decembe 31= 2(1( balance sheet at a. !=(((=((( euos. b. !=32!=((( euos. c. &=3"!=((( euos. d. &="'(=((( euos. 3. The valuation eseve at Decembe 31= 2(1( -ill be e#oted at a. &=(4(=((( euos on the .tatement of .toc3holdes4 :quity. b. &=3"!=((( euos in the *ssets section of the %alance .heet c. &="'(=((( euos in the stoc3holdes4 equity section of the %alance .heet. d. 32!=((( euos on the 2ncome .tatement. 5 ( 77 %alance .heet and .tatement of /ash Flo-s 4. .imilaities bet-een i8**, and )... 8**, equiements fo balance sheet #esentation include all of the follo-ing exce#t7 a. %oth equie that changes to the valuation eseve be disclosed in the notes to the financial statements. b. %oth equie disclosue of significant accounting #olicies. c. %oth equie the #e#aation of financial statements annually. d. %oth geneally equie the use of the cuentJ non-cuent classification fo both assets and liabilities. Ans*ers to Multi%le C!oi$eC 1. c 2. b 3. c 4. a 2F0. .hot *ns-e7 1. %iefly descibe some of the similaities and diffeences bet-een )... 8**, and i8**, -ith es#ect to balance sheet e#oting. 1. *mong the similaities bet-een )... and i8**, elated to balance sheet #esentation ae as follo-s7 2*. 1 s#ecifies minimum note disclosues. These must include infomation about B1C accounting #olicies follo-ed= B2C +udgments that management has made in the #ocess of a##lying the entity9s accounting #olicies= and B3C the 3ey assum#tions and estimation uncetainty that could esult in a mateial ad+ustment to the caying amounts of assets and liabilities -ithin the next financial yea. /om#aative #io-#eiod infomation must be #esented and financial statements must be #e#aed annually. /uentJnon-cuent classification fo assets and liabilities is nomally equied. 2n geneal= #ost-balance sheet events ae not consideed in classifying items as cuent o non-cuent. Diffeences include B1C i8**, statements may e#ot #o#ety= #lant= and equi#ment fist in the balance sheet. .ome com#anies e#ot the sub-total Enet assetsF= -hich equals total assets minus total liabilities. B2C >hile the use of the tem EeseveF is discouaged in )... 8**,= thee is no such #ohibition in i8**,. 2. %iefly descibe the convegence effots elated to financial statement #esentation. 2. The 2*.% and the F*.% ae -o3ing on a #o+ect to convege thei standads elated to financial statement #esentation. This +oint #o+ect -ill establish a common= high-quality standad fo #esentation of infomation in the financial statements= including the classification and dis#lay of line items. * 3ey featue of the #o#osed fame-o3 fo financial statement #esentation is that each of the statements -ill be oganiAed in the same fomat to se#aate an entity9s financing activities fom its o#eating and othe activities BinvestingC and futhe se#aates financing activities into tansactions -ith o-nes and ceditos. Thus= the same classifications used in the balance sheet -ould also be used in the income statement and the statement of cash flo-s. 5 ( 75