Document 4

CHAPTER 3—BALANCE SHEET
MULTIPLE CHOICE
1. The balance sheet reports:

a. the assets, liabilities, gains, and losses for a period of time.
b. the changes in assets, liabilities, and equity for a period of time.
c. the assets, expenses, and liabilities as of a certain date.
d. the probable future benefits, probable future sacrifices, and residual interest for a period of
time.
e. the financial condition of an accounting entity as of a particular date.
2. Which of the following would not appear on a conventional balance sheet?

a. Income taxes payable
b. Funds from operations
c. Cash surrender value of life insurance
d. Appropriation for contingencies (restriction of retained earnings)
e. Patents
3. At the beginning of the year, Execon Company had total assets of $200,000, total liabilities of
$110,000, and shareholders' equity of $90,000. For the year, Execon Company earned net income of
$75,000 and declared cash dividends of $30,000. At the end of the year, the company had total assets
of $300,000 and its shareholders' equity was at $135,000. At the end of the year, Execon Corporation
had total liabilities of:
a. $0.
b. $45,000.
c. $50,000.
d. $165,000.
e. None of the answers are correct.
4. Ownership of debt instruments of the government and other companies that can be readily converted to
cash are best reported as:
a. long-term investments.
b. cash.
c. marketable securities.
d. intangibles.
e. inventory of near-cash items.
5. Tangible assets on the balance sheet should include:

a. equipment.
b. inventory.
c. trademarks.
d. investments.
e. accrued insurance.
6. The current asset section of the balance sheet should include:

a. land.
b. trademarks.
c. investment in C Company (for purposes of control).
d. dividends payable.
e. work in process inventory.
7. The current liability section of the balance sheet should include:

a. buildings.
b. goodwill.
c. land held for speculation purposes.
d. accounts payable.
8. Which of the following is not a current asset?
a. Marketable securities
b. Material inventory
c. Unearned rent income
d. Prepaid interest
e. Accrued insurance
9. If a parent has some control over a subsidiary but the subsidiary is not consolidated, the subsidiary is
accounted for as:
a. a marketable security.
b. an investment.
c. a liability.
d. a fixed asset.
10. Which of the following is not a proper use of notes?

a. To describe the nature and effect of a change in accounting principle, such as from FIFO
to LIFO.
b. To indicate the basis for asset valuation.
c. To indicate the method of depreciation.
d. To correct an improper financial statement presentation.
e. To describe a firm's debt.
11. Company A owns shares of Company B and Company C. The statements of Company B are
consolidated with those of Company A. The statements of Company C are not consolidated. Company
A reports "Noncontrolling Interest" on its balance sheet. This account represents:
a. A's noncontrolling share of the stock of B.
b. A's noncontrolling share of the stock of C.
c. the noncontrolling share by outside owners of the stock of A.
d. the noncontrolling share by outside owners of the stock of B.
e. the noncontrolling share by outside owners of the stock of C.
12. Drama Products Inc. has issued redeemable preferred stock. For analysis purposes, these securities are
best classified as:
a. marketable securities.
b. long-term investments.
c. long-term debt.
d. paid-in capital.
e. retained earnings.
13. Treasury stock is best classified as:

a. a current asset.
b. a long-term investment.
c. a contra liability.
d. a reduction of stockholders' equity.
e. a reduction of retained earnings.
14. Which of the following is not a common characteristic of preferred stock?

a. Voting rights
b. Preference as to dividends
c. Preference in liquidation
d. Callability by the corporation
15. Which of the following is not a problem inherent in balance sheet presentation?
a. Most assets are valued at cost.
b. Varying methods are used for asset valuation.
c. Not all items of value to the firm are included as assets.
d. Liabilities related to contingencies may not appear on the balance sheet.
e. The owners' interest will be indicated.
16. Which of the following is not true relating to treasury stock?

a. A firm creates treasury stock when it repurchases its own stock and does not retire it.
b. Treasury stock lowers the stock outstanding.
c. Treasury stock may be recorded at the cost of the stock.
d. Treasury stock may be recorded at par or stated value.
e. Treasury stock is, in essence, an increase in paid-in capital.
17. Which of the following is not true about an ESOP?

a. An ESOP will reduce the amount of voting stock in the hands of employees.
b. An ESOP must be a permanent trusted plan for the exclusive benefit of the employees.
c. The plan participants become eligible for favorable taxation of distributions from the plan.
d. Commercial lending institutions, insurance companies, and mutual funds are permitted an
exclusion from income for 50% of the interest received on loans used to finance an
ESOP's acquisition of company stock.
e. An ESOP may reduce the potential of an unfriendly takeover.
18. The most popular depreciation method for financial reporting is the following:
a. units-of-production.
b. sum-of-the-years'-digits.
c. declining-balance.
d. straight-line.
e. other.
19. Which of the following is a current liability?

a. Prepaid insurance
b. Retained earnings
c. Unearned rent revenue
d. Bonds payable
e. Common stock
20. Which of the following accounts would not be classified as an intangible?
a. Franchises
b. Research and development
c. Patent
d. Trademarks
e. Goodwill
21. Which of the following would not be considered a subsequent event to financial statements?
a. A major customer declares bankruptcy subsequent to the balance sheet date, but prior to
issuing the statements. This event was not considered on the balance sheet date.
b. A major purchase of a subsidiary to the balance sheet date, but prior to issuing the
statements.
c. Substantial debt incurred subsequent to the balance sheet date, but prior to issuing the
statements.
d. Substantial stock issued subsequent to the balance sheet date, but prior to issuing the
statements.
e. Hiring of employees for a new store, subsequent to the balance sheet date, but prior to
issuing the statements.

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CHAPTER 3—BALANCE SHEET

1. The balance sheet reports:

2. Which of the following would not appear on a conventional balance sheet?

5. Tangible assets on the balance sheet should include:

6. The current asset section of the balance sheet should include:

7. The current liability section of the balance sheet should include:

10. Which of the following is not a proper use of notes?

13. Treasury stock is best classified as:

14. Which of the following is not a common characteristic of preferred stock?

16. Which of the following is not true relating to treasury stock?

17. Which of the following is not true about an ESOP?

19. Which of the following is a current liability?

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