ch5

For Grimmett Company, the following information is available: Capitalized leases $600,000 Trademarks 275,000 Long-term receivables 225,000 In Grimmett's balance sheet, intangible assets should be reported at a. $275,000. b. $500,000. c. $825,000. d. $875,000.

a

For Randolph Company, the following information is available: Capitalized leases $560,000 Copyrights 240,000 Long-term receivables 210,000 In Randolph's balance sheet, intangible assets should be reported at a. $240,000. b. $210,000. c. $800,000. d. $770,000.

a

Level 1 of fair value hierarchy measures are based on: a. market prices for identical assets. b. market prices for similar assets. c. unobservable inputs. d. historical cost of similar assets.

a

An example of an item which is not an element of working capital is a. accrued interest on notes receivable. b. goodwill. c. goods in process. d. temporary investments.

b

Balance sheet information is useful for all of the following except to a. compute rates of return b. analyze cash inflows and outflows for the period c. evaluate capital structure d. assess future cash flows

b

Houghton Company has the following items: common stock, $1,600,000; treasury stock, $210,000; deferred income taxes, $250,000 and retained earnings, $780,000. What total amount should Houghton Company report as stockholders' equity? a. $1,390,000. b. $2,170,000. c. $2,420,000. d. $2,590,000.

b

Olmsted Company has the following items: common stock, $950,000; treasury stock, $105,000; deferred income taxes, $125,000 and retained earnings, $454,000. What total amount should Olmsted Company report as stockholders' equity? a. $1,174,000. b. $1,299,000. c. $1,424,000. d. $1,549,000.

b

One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is a. failure to reflect current value information. b. the extensive use of separate classifications. c. an extensive use of estimates. d. failure to include items of financial value that cannot be recorded objectively.

b

Receivables are valued based on their ________. a. fair value b. estimated amount collectible c. lower-of-cost-or-market value d. historical cost

b

The basis for classifying assets as current or noncurrent is conversion to cash within a. the accounting cycle or one year, whichever is shorter. b. the operating cycle or one year, whichever is longer. c. the accounting cycle or one year, whichever is longer. d. the operating cycle or one year, whichever is shorter.

b

The correct order to present current assets is a. cash, accounts receivable, prepaid items, inventories. b. cash, accounts receivable, inventories, prepaid items. c. cash, inventories, accounts receivable, prepaid items. d. cash, inventories, prepaid items, accounts receivable.

b

Which item below is not a current liability? a. Unearned revenue b. Stock dividends distributable c. The currently maturing portion of long-term debt d. Trade accounts payable

b

Which of the following is not a long-term investment? a. Cash surrender value of life insurance b. Franchise c. Land held for speculation d. A sinking fund

b

Which of the following is not a required supplemental disclosure for the balance sheet? a. Contingencies b. Financial forecasts c. Accounting policies d. Contractual situations

b

Current assets are presented in the balance sheet in a. ascending order of their balances. b. descending order of their balances. c. order of their liquidity. d. reverse order of their liquidity.

c

Fulton Company owns the following investments: Trading securities (fair value) $160,000 Available-for-sale securities (fair value) 70,000 Held-to-maturity securities (amortized cost) 94,000 Fulton will report investments in its current assets section of a. $0. b. exactly $160,000. c. $160,000 or an amount greater than $160,000, depending on the circumstances. d. exactly $230,000.

c

Huge Cart Inc. gives you the following information pertaining to the year 2020. Net sales $850,000 Cost of goods sold 500,000 Current assets 500,000 Current liabilities 250,000 Average total assets 1,000,000 Total liabilities 550,000 Net income 150,000 The asset turnover ratio of Huge Cart Inc. is a. 0.50 b. 0.15 c. 0.85 d. 1.18

c

The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability.

c

The balance sheet is useful for analyzing all of the following except a. liquidity. b. solvency. c. profitability. d. financial flexibility.

c

The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the a. retained earnings statement. b. income statement. c. statement of cash flows. d. statement of financial position.

c

The stockholders' equity section is usually divided into what three parts? a. Preferred stock, common stock, treasury stock b. Preferred stock, common stock, retained earnings c. Capital stock, additional paid-in capital, retained earnings d. Capital stock, appropriated retained earnings, unappropriated retained earnings

c

Typical contractual situations that are disclosed in the notes to the balance sheet include all of the following except a. debt covenants b. lease obligations c. advertising contracts d. pension obligations

c

When a portion of inventories has been pledged as security on a loan, a. the value of the portion pledged should be subtracted from the debt. b. an equal amount of retained earnings should be appropriated. c. the fact should be disclosed but the amount of current assets should not be affected. d. the cost of the pledged inventories should be transferred from current assets to noncurrent assets.

c

A general description of the depreciation methods applicable to major classes of depreciable assets a. is not a current practice in financial reporting. b. is not essential to a fair presentation of financial position. c. is needed in financial reporting when company policy differs from income tax policy. d. should be included in corporate financial statements or notes thereto.

d

A generally accepted method of valuation is 1. trading securities at market value. 2. accounts receivable at net realizable value. 3. inventories at current cost. a. 1 b. 2 c. 3 d. 1 and 2

d

A limitation of the balance sheet that is not also a limitation of the income statement is a. the use of judgments and estimates b. omitted items c. the numbers are affected by the accounting methods employed d. valuation of items at historical cost

d

Accounting policies disclosed in the notes to the financial statements typically include all of the following except a. the cost flow assumption used b. the depreciation methods used c. significant estimates made d. significant inventory purchasing policies

d

Balance sheet information is useful for all of the following except a. assessing a company's risk b. evaluating a company's liquidity c. evaluating a company's financial flexibility d. determining free cash flows.

d

Huge Cart Inc. gives you the following information pertaining to the year 2020. Net sales $850,000 Cost of goods sold 500,000 Current assets 500,000 Current liabilities 250,000 Average total assets 1,000,000 Total liabilities 550,000 Net income 150,000 The rate of return on assets Huge Cart Inc. is: a. 85.0%. b. 30.0%. c. 17.6%. d. 15.0%.

d

It is mandatory that the essential provisions of which of the following be clearly stated in the notes to the financial statements? a. Stock option plans b. Pension obligations c. Lease contracts d. All of these answer choices are correct

d

Kohler Company owns the following investments: Trading securities (fair value) $120,000 Available-for-sale securities (fair value) 90,000 Held-to-maturity securities (amortized cost) 94,000 Kohler will report securities in its long-term investments section of a. exactly $210,000. b. exactly $214,000. c. exactly $294,000. d. $184,000 or an amount less than $184,000, depending on the circumstances.

d

Long-term liabilities include a. obligations not expected to be liquidated within the operating cycle. b. obligations payable at some date beyond the operating cycle. c. deferred income taxes and most lease obligations. d. all of these answer choices are correct.

d

Presented below are data for Caracas Corp. 2017 2018 Assets, January 1 $6,840 ? Liabilities, January 1 ? $4,104 Stockholders' Equity, Jan. 1 ? $4,125 Dividends 855 969 Common Stock 912 975 Stockholders' Equity, Dec. 31 ? 3,399 Net Income 1,026 ? Net income for 2021 is a. $726 income. b. $726 loss. c. $243 loss. d. $243 income.

d

Significant accounting policies may not be a. selected on the basis of judgment. b. selected from existing acceptable alternatives. c. unusual or innovative in application. d. omitted from financial-statement disclosure.

d

The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in a. inventory back into cash, or 12 months, whichever is shorter. b. receivables back into cash, or 12 months, whichever is longer. c. tangible fixed assets back into cash, or 12 months, whichever is longer. d. inventory back into cash, or 12 months, whichever is longer.

d

The current assets section of the balance sheet should include a. machinery. b. patents. c. goodwill. d. inventory.

d

The net assets of a business are equal to a. current assets minus current liabilities. b. total assets plus total liabilities. c. total assets minus total stockholders' equity. d. none of these answer choices are correct.

d

Treasury stock should be reported as a(n) a. current asset. b. investment. c. other asset. d. reduction of stockholders' equity.

d

Which of the following balance sheet classifications would normally require the greatest amount of supplementary disclosure? a. Current assets b. Current liabilities c. Plant assets d. Long-term liabilities

d

Which of the following best exemplifies a contingency that is reported in the notes to the financial statements? a. Losses from potential future lawsuits b. Loss from a lawsuit settled out of court prior to the end of the fiscal year c. Warranty claims on future sales d. Estimated loss from an ongoing lawsuit

d

Which of the following is a contra account? a. Premium on bonds payable b. Unearned revenue c. Patents d. Accumulated depreciation

d

Which of the following is a current asset? a. Cash surrender value of a life insurance policy of which the company is the beneficiary. b. Investment in equity securities for the purpose of controlling the issuing company. c. Cash designated for the purchase of tangible fixed assets. d. Trade installment receivables normally collectible in 18 months.

d

Which of the following is a limitation of the balance sheet? a. Many items that are of financial value are omitted. b. Judgments and estimates are used. c. Current fair value is not reported. d. All of these answer choices are correct.

d

Which of the following is not a method of disclosing pertinent information? a. Supporting schedules b. Parenthetical explanations c. Cross reference and contra items d. All of these are methods of disclosing pertinent information.

d

Which of the following is not an acceptable major asset classification? a. Current assets b. Long-term investments c. Property, plant, and equipment d. Deferred charges

d

Which of the following should be excluded from long-term liabilities? a. Obligations payable at some date beyond the operating cycle b. Most pension obligations c. Long-term liabilities that mature within the operating cycle and will be paid from a sinking fund d. None of these answer choices are correct.

d

Which of the following should be reported for capital stock? a. The shares authorized b. The shares issued c. The shares outstanding d. All of these answer choices are correct.

d

Which of the following would be classified in a different major section of a balance sheet from the others? a. Capital stock b. Common stock subscribed c. Stock dividend distributable d. Stock investment in affiliate

d

Working capital is a. capital which has been reinvested in the business. b. unappropriated retained earnings. c. cash and receivables less current liabilities. d. none of these answer choices are correct.

d

Because of the historical cost principle, fair values may not be disclosed in the balance sheet.

f

Companies have the option of disclosing information about the nature of their operations and the use of estimates in preparing financial statements.

f

Land held for speculation is reported in the property, plant, and equipment section of the balance sheet.

f

Liquidity refers to the ability of an enterprise to pay its debts as they mature.

f

Significant financing and investing activities that do not affect cash are not reported in the statement of cash flows or any other place.

f

A company excludes from the current assets section, the amount of cash restricted for purposes other than payment of current obligations or for use in current operations.

t

Companies frequently describe the terms of all long-term liability agreements in notes to the financial statements.

t

Companies may use parenthetical explanations, notes, cross references, and supporting schedules to disclose pertinent information.

t

Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows.

t

Financial statement readers often assess liquidity by using the current cash debt coverage.

t

The account form and the report form of the balance sheet are both acceptable under GAAP.

t

The balance sheet omits many items that are of financial value to the business but cannot be recorded objectively.

t