acc ch 3 sb
Assets not used directly in the operations of the business are called what?
Investments
True or false: The operating cycle for most firms is 1 year or less.
true
Schwinn is a company that makes bicycles. Which of the following items would be included in Schwinn's inventory? (3) -bicycle chains -bicycle tires -finished bicycles -salary for salesperson
-bicycle chains -bicycle tires -finished bicycles
The full-disclosure principle requires that financial statements report which of the following?
All material relevant information
In a balance sheet, how are assets classified?
Current and noncurrent
An analysis provided by the company's management is included in the
Management Discussion and Analysis.
What does a liability represent?
Obligations owed to other entities
Classifying items on the balance sheet as current and noncurrent assists financial statement users in assessing what aspects about a company?
Solvency and liquidity.
What is the role of the auditor?
To attest to the fairness of the financial statements.
The account that represents the amount of money owed by customers is called ____________ _______________
accounts receivable
Current ______________ include cash and other items that will be converted to cash or consumed within the coming year.
assets
The current ratio is expressed as current ____________ divided by current ____________.
assets; liabilities
The two classifications used for assets and liabilities on the balance sheet are ___________ and _____________
current; noncurrent
The risk that a company will not be able to pay its obligations when they come due is referred to as _____________ risk.
default
True or false: Investments are assets used directly in the operations of the business.
false
Default risk refers to the ability of a company to
pay its obligations when they come due
The debt to equity ratio is calculated as
total liabilities divided by total stockholders' equity
The Management Discussion and Analysis section of the financial statements includes a perspective on which of the following? (Select all that apply.) (3) -Liquidity -Operations -Capital resources -Job costing -Auditors' report
-Liquidity -Operations -Capital resources
Which of the following are likely examples of a related-party transaction? (Select all that apply.) (3) -Selling goods to affiliated companies. -Loaning money to officers and directors. -Purchasing goods from independent suppliers. -Borrowing or lending money at an unusually low interest rate to an affiliated company.
-Selling goods to affiliated companies. -Loaning money to officers and directors. -Borrowing or lending money at an unusually low interest rate to an affiliated company.
How should liquid investments expected to be converted to cash within the current operating cycle be reported in the balance sheet?
As a short-term investment in the current asset section.
Which of the following is the formula for the current ratio?
Current assets divided by current liabilities
Sustainability Disclosures include (Select all that apply.) (3) Environmental Finance Governance Social Third-party
Environmental Governance Social
True or false: The debt to equity ratio is calculated as total liabilities divided by common stock.
False Reason: The debt to equity ratio is total liabilities divided by total owners' equity.
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.) (3) Method of depreciation. Supporting calculations for income taxes. Items included in cash and cash equivalents. Choice between LIFO and FIFO.
Method of depreciation Items included in cash and cash equivalents Choice between LIFO and FIFO
Which of the following are examples of prepaid expenses? (Select all that apply.) (2) Customer payment in advance. Prepaid insurance. Rent paid in advance. Unearned revenue.
Prepaid insurance. Rent paid in advance.
Which of the following are limitations of the balance sheet? (Select all that apply.) (2) -Assets minus liabilities is not representative of the company's true book value -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 -The balance sheet reports the company's financial position over a period of time rather than on a particular date
The balance sheet is heavily reliant on estimates rather than determinable amounts Assets minus liabilities is not representative of the company's true market value
What is the role of the auditor's attest function?
To provide an opinion on the financial statements
Which of the following are included in inventory? (Select all that apply.) (3) Trade receivables Work in process Finished goods Raw materials Intangibles
Work in process Finished goods Raw materials
_________________ _________________ result from the sale of goods or services on credit.
accounts receivable
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
Which of the following financial statements shows a firm's financial position on a particular date?
balance sheet
A company's assets minus its liabilities shown on the balance sheet is referred to as its ___________ value.
book
A company's total assets minus its total liabilities as shown on the balance sheet is known as the _______________ value
book
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
True or false: The balance sheet displays all items at their fair value or market value.
false Reason: The balance sheet displays many items at book value. Only certain items may be valued at fair value.
Inventories include which of the following items? (Select all that apply.) (3) finished goods all assets held for sale goods in production goods directly consumed in production
finished goods goods in production goods directly consumed in production
Assets not used directly in the operations of the business are referred to as _________________
investments
Obligations to other entities are classified as ________________ on the balance sheet
liabilities
Responsibility for the financial statements and other information found in the annual report lies with _________________
management
Assets minus liabilities, measured according to GAAP, is not likely to be representative of the _______________ value of the entity.
market
The full-disclosure principle requires financial statements to provide all ____________ ______________ information regarding the company
material relevant
The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on the account receivable is referred to as the _____________ cycle.
operating
The two sources of shareholders' equity are amounts ___________(2) paid in from shareholders earned by the corporation borrowed from related companies borrowed from banks
paid in from shareholders earned by the corporation
Which of the following represents an expense paid in advance that creates benefits used in the future? (1) accounts receivable inventory cash equivalents prepaid expense
prepaid expense
Borrowing or lending money at an interest rate significantly different from the market interest rate is a likely example of a(n) ________________ ____________________ transaction.
related party
Borrowing or lending money at an interest rate significantly different from the market interest rate is a likely example of a(n) _____________________ ____________________transaction
related party
Shareholders' equity is composed of which of the following accounts? (Select all that apply.) retained earnings long-term liabilities paid-in capital deferred revenues
retained earnings paid-in capital
Shareholders' equity is composed of which of the following accounts? (Select all that apply.) (2) retained earnings long-term liabilities paid-in capital deferred revenues
retained earnings paid-in capital
Investments in stock and debt securities of other corporations are included as ____________ if the company has the ability and intent to sell them within the next 12 months.
short-term investments
A _______________ event is a significant development that occurs after a company's fiscal year-end but before the financial statements are issued or available to be issued.
subsequent
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
Reports that communicate the environmental, social, and governance factors of an organization's activities are called:
sustainability reports
A summary of significant accounting policies includes information regarding
the choice of accounting policies