AC310 Chapter 3 (Classified Balance Sheet)

Subsequent event

A significant development that occurs after the fiscal year end but before the release of financial statements.

Current ratio

Current assets/current liabilities

Current maturities of long term debt

Financing

Times interest earned ratio

Income before tax and interest expense/interest expense

Comprehensive income

Items the company owns that have changed in value, recognized on the balance sheet but not the income statement.

Noncash transactions

Noted at bottom of statement of cashflows

Order of statement of cash flows

Operating, investing, financing

Future value

Present value(1+interest)to the power of time periods(n)

Equipment

Property, plant, equipment

Acid test ratio

Quick assets (current assets less prepaids and inventory)/current liabilities

Indirect method

Start with net income Add noncash expenses and losses take away gains Adjust for changes in current assets and liabilities Determine flows of I and F Add cash balance at beginning to arrive at ending balance

Debt-to-equity ratio

Total liabilities/total shareholder equity

Related party transaction

Transaction between two parties who are joined by a relationship prior to business deal, it is required that all such transactions are disclosed. (Because of Enron)

Cash flows from operations

Usually involve current assets and liabilities

Tangible assets on the balance sheet should include: a. equipment b. taxes payable c. trademarks d. bonds payable e. none of the answers are correct

a. equipment

current liabilities A U W I N B A O

accounts payable unearned revenue wages payable interest payable notes payable bonds payable accrued liabilities other accrued expenses payable

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 e. none of the answers are correct

b. an investment

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

b. funds from operations

tangible assets: have substance B A F F L E

buildings automobiles furniture fixture land (not depreciated) equipment

Which of the following is not a current asset? a. marketable securities b. material inventory c. unearned rent income d. prepaid interest e. prepaid insurance

c. unearned rent income

current assets: C A M P I N

cash and cash equivalent accounts receivables marketable securities prepaid expenses inventory notes receivables

current assets are expected to turn into...

cash or expense within one year or one operating cycle

owner's equity C P R T

common stock preferred stock retained earnings treasury stock

shareholders equity

comprised of paid-in capital (invested capital) and retained earnings (earned capital)

accounts receivable

current asset; arise from the sale of goods or services on credit and are valued net of allowance for uncollectible accounts

cash

current asset; bank drafts, cashiers checks, money orders

inventories

current asset; consist of assets that a retail or wholesale company acquires for resale or goods that manufacturers produce for sale

cash equivalents

current asset; liquid investments that have a maturity date of 3 months or less from date of purchase; commercial paper, money market funds, US treasury bills

short term investments

current asset; management intends to liquidate the investment in the next year to operating cycle, whichever is longer and has the ability to do so

prepaid expenses

current asset;arise when a cash payment creates benefits beyond the current period. ex- ppd rent or ppd insurance

allowance for uncollected accounts

current assets

cash

current assets

inventory

current assets

prepaid rent

current assets

supplies

current assets

taxes payable

current liabilities

accounts payable

current liability

accrued liabilities

current liability

notes payable, due in 6 months

current liability

unearned rent revenue

current liability

wages payable

current liability

accrued liabilities

current liability; obligations created when expenses have been incurred but wont be paid until a subsequent reporting period; ex- salaries payable, interest payable, taxes payable

accounts payable

current liability; obligations to suppliers of merchandise or services purchased on open account; usually payment is due 30-60 days

unearned revenues

current liability; represent cash received from a customer for goods or services to be provided in a future period

notes payable

current liability; written promises to pay cash at some future date; usually require the payment of explicit interest

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

d. $165,000

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.

d. To correct an improper financial statement presentation.

The current liability section of the balance sheet should include: a. buildings b. goodwill c. land held for speculation purposes d. accounts payable e. none of the answers are correct

d. accounts payable

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 "Minority Interest" on its balance sheet. This account represents: a. A's minority share of the stock of B b. A's minority share of the stock of C c. the minority share by outside owners of the stock of A d. the minority share by outside owners of the stock of B e. the minority share by outside owners of the stock of C

d. the minority share by outside owners of the stock of B

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

e. the financial condition of an accounting entity as of a particular date

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

e. work in process inventory

liabilities are recognized by

ends in "payable" starts with "unearned" starts with "accrued"

intangible assets: do not have substance G T C

goodwill trademarks copyrights

copyright

intangible assets

patent

intangible assets

investment, long-term

investment and funds

land, held for investment

investment and funds

non-current assets is also called...

long-term assets

notes payable, due in 5 years

long-term liability

intangible assets

noncurrent asset; lack physical existence; ex- patents, copyrights, franchises, goodwill

other assets

noncurrent asset; long term prepaid expenses/ deferred charges any other non current assets

property, plant and equipment

noncurrent asset; tangible, long lived assets used in the operations of the business. They are usually primary revenue generating assets of the business. ex- land, buildings, equipt etc.

investments

noncurrent assets; assets not used directly in the operations of the business. ex- land held for speculation, noncurrent receivables

current liabilities are...

obligations expected to be satisfied within one year or operating cycle

long term liabilities

obligations that are not expected to be satisfied within one year or the operating cycle, whichever is longer; ex- long term notes, bonds, pension obligations, lease obligations

long-term receivables

other assets

bond sinking funds

other assets/ investment and funds

common stock

paid-in-capital

preferred stock

paid-in-capital

building, in use

property, plant, and equipment

land, in use

property, plant, and equipment

machinery

property, plant, and equipment

liabilities are incurred by

purchasing assets, expenses, services, and taking out loans

income less dividends, accumulated

retained earnings