Ch 3 smartbook

On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a noncurrent asset?

$24,000

The current versus noncurrent classification applies to what in the financial statements?

Assets and liabilities

Which of the following are limitations of the balance sheet? (Select all that apply.)

Assets minus liabilities is not representative of the company's true market value The balance sheet is heavily reliant on estimates rather than determinable amounts

Deferred revenues and accrued salaries payable are examples of what?

Current liabilities

Obligations to other entities are known as what?

Liabilities

Current assets include which of the following? (Select all that apply.)

Short term investments Cash

True or false: Any event having a material effect on operations that occurs after a company's year-end but before the financial statements are issued requires a subsequent event disclosure.

True

What are the primary elements found on a balance sheet?

assets, liabilities, and equity

Which of the following financial statements shows a firm's financial position on a particular date?

balance sheet

Indicate the order of the following current assets on the balance sheet.

cash and cash equivalents AR Inventory prepaid exp.

Unearned revenue represents cash received from a customer for goods or services to be provided in a(n) period.

future

Which of the following are noncurrent assets? (Select all that apply.)

intangible assets land building

The balance sheet provides useful information about a company's and long-term solvency.

liquidity

Retained earnings represents the accumulated reported since the inception of the corporation and not yet paid to shareholders as dividends. (Enter one word per blank.)

net income

When a receivable is supported by a formal agreement that specifies payment terms, it is called a

note receivable

A significant development that occurs after a company's fiscal year-end but before the financial statements are issued is called a(n)

subsequent event.

Which of the following are accrued liabilities? (Select all that apply.)

taxes payable utilities payable

A summary of significant accounting policies includes information regarding

the choice of accounting policies.

A liability is classified as current if it is due

within 1 year or the current operating cycle, whichever is longer.

On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a current asset?

$12,000

What are the primary elements found on a balance sheet? (Select all that apply.)

Equity Liabilities Assets

True or false: The balance sheet displays all items at their fair value or market value.

False

True or false: The balance sheet will directly measure the company's market value.

False

On the balance sheet, current assets are listed in the order of their what?

Liquidity

Who is responsible for the information in the annual report?

Management of the company.

Which of the following are included in the summary of significant accounting policies included in the notes to the financial statements? (Select all that apply.)

Method of depreciation. Choice between LIFO and FIFO. Items included in cash and cash equivalents.

What does a liability represent?

Obligations owed to other entities

Which of the following are examples of prepaid expenses? (Select all that apply.)

Rent paid in advance. Prepaid insurance.

Accounts receivable represents which of the following?

The amount owed by customers.

Why are inventories reported as current assets?

They are normally sold within the operating cycle.

Which of the following describe long-term liabilities? (Select all that apply.)

They do not require the use of current assets. They do not require the creation of current liabilities for payment.

result from the sale of goods or services on credit. (Enter one word per blank.)

accounts receivable

Another term for a trade receivable that occurs in the course of a company's normal trade or business is

accounts receivable.

An expense that has been incurred but not yet paid results is a(n)

accrued liability.

Current include cash and other items that will be converted to cash or consumed within the coming year. (Enter only one word.)

assets

The financial statement that displays a firm's financial position on a particular date is the

balance sheet

The financial statement that provides information about liquidity and long-term solvency is the

balance sheet

A company's assets minus its liabilities shown on the balance sheet is referred to as its Blank______ value.

book

How are accounts receivable classified on the balance sheet?

current asset

Inventories held for sale in the normal course of business are classified in the balance sheet as

current assets

Cash and other assets that are reasonably expected to be converted to cash or consumed within 1 year or the current operating cycle are classified as

current assets.

A Blank______ is satisfied within 1 year or the current operating cycle, whichever is longer.

current liability

Which of the following should be classified as current liabilities? (Select all that apply.)

current maturities of long-term debt accounts payable accrued salaries

The two classifications used for assets and liabilities on the balance sheet are Blank______ and Blank______.

current; noncurrent

A customer pays in advance for services to be performed in a future period. In which account should the transaction be recorded?

deferred revenues

Shareholders' equity arises primarily from amounts invested by shareholders and amounts Blank______.

earned by the corporation

The two sources of shareholders' equity are amounts Blank______.

earned by the corporation paid in from shareholders

Which of the following should be classified as current liabilities? (Select all that apply.)

income taxes payable unearned revenues accrued warranties

Which of the following are noncurrent assets? (Select all that apply.)

investments with maturity of 18 months property machines

The criteria used to determine if a liability should be classified as long-term is

it will not be satisfied within 12 months or the operating cycle, whichever is longer.

Which of the following are classified as long-term liabilities? (Select all that apply.)

lease obligations longer than 1 year pension obligations notes due in more than 1 year

Which of the following are classified as long-term liabilities? (Select all that apply.)

lease obligations of more than 1 year bonds payable

Responsibility for the financial statements and other information found in the annual report lies with

management

Any receivable not expected to be collected within one year or the operating cycle, whichever is longer, is classified as a

noncurrent asset.

Which of the following items requires supplemental disclosures in the notes to the financial statements? (Select all that apply.)

pension plans leases long-term debt

Which of the following represents an expense paid in advance that creates benefits used in the future?

prepaid expense

Which of the following items are required disclosures in the notes to financial statements? (Select all that apply.)

related third-party transactions description of subsequent events significant accounting policies

The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as

retained earnings

Shareholders' equity is composed of which of the following accounts? (Select all that apply.)

retained earnings paid-in capital

Which of the following are accrued liabilities? (Select all that apply.)

salaries payable interest payable warranty liabilities