Intermediate Accounting Chapter 3

Quick assets divided by current liabilities is which ratio?

Acid test ratio

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

inventory.

Cash set aside for future plant expansion and a 3 year note receivable are both examples of what on a company's balance sheet?

investments

Which of the following items could be classified as short-term investments?

investments in debt securities of another company, investments in stock in another company

Which of the following items should be classified as a short-term investment?

investments to be sold in 12 months

Which of the following are included in the summary of significant accounting policies included in the notes to the financial statements?

items included in cash and cash equivalents, choice between lifo and fifo, method of recognizing contract revenue

What asset is listed as a separate item on the balance sheet because it has unlimited life and is not depreciated?

land

If an asset is expected to provide benefits beyond the current operating cycle, it should be reported as a ______ asset.

noncurrent

Which of the following categories is typically presented first on an IFRS-based statement of financial position?

noncurrent assets

if a company's long term investments are not material in amount, where should they be disclosed on the balance sheet?

other assets

Which of the following items are found on a balance sheet?

owners' equity, liabilities, assets

Which of the following are classified as long-term liabilities?

pension obligations, lease obligations longer than one year, notes due in more than one year.

Which of the following are examples of prepaid expenses?

prepaid expenses, rent paid in advance.

The auditors' report provides an opinion about the fairness of the financial statement that is

professional, independent

Which of the following are characteristics of plant, property, and equipment?

tangible, used in long-term production

a summary of significant accounting policies includes information regarding

the choice of accounting policies.

What is the role of the auditor's attest function?

to provide an opinion on the financial statements.

The debt to equity ratio is calculated as _____ _____ divided by shareholders equity.

total liabilities

Which of the following items are not included as an asset on the balance sheet?

trained employees, customers

Which of the following situations would require an explanatory paragraph even though the auditors' report is unqualified?

uncertainty regarding a contingency for which a loss is material in amount, a significant matter concerning the financial statements and a related party transaction

Which type of audit opinion indicates the financial statements are prepared in accordance with U.S. GAAP?

unqualified

A liability is classified as current if its due

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

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

1. cash and cash equivalents 2. accounts receivable 3. inventory 4. prepaid assets

_____ _____ result from the sale of goods or services on credit.

Accounts receivable

Which of the following are items included in the numerator of quick ratio?

Accounts receivable, cash, trading securities

On October 1, 2021, Jenkins Corp. signed a $10,000 interest bearing note payable at 10% interest that matures on September 30, 2025. On December 31, 2021, what entry is required?

An accrual for 3 months interest

Simply put, ______ are the economic resources of a company.

Assets

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

Assets and liabilities

A company's total assets minus its total liabilities as shown on the balance sheet is known as the _____ value.

Book

The formula for the acid-test or quick ratio is quick assets divided by _______ ________.

Current Liabilities

Which of the following is the formula for the current ratio?

Current assets divided by current liabilities

The SEC requires disclosures on compensation to which of the following?

Directors, executives

The _____ and the _____ are jointly working on the Financial Statement Presentation project.

FASB, IASB

Which of the following transactions would be recorded as a prepaid expense?

Insurance paid for 24 months

Land held for speculation, noncurrent receivables, and cash set aside for future plant expansion are all examples of _____.

Investments

______ are assets not used directly in the operations of the business.

Investments

Which of the following is a probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events?

Liabilities

_________ represent obligations to other entities.

Liabilities

Which of the following items are considered cash equivalents?

Money market funds quickly converted into cash, commercial paper due in less than three months.

The risk that relates to how effectively a company manages its business and its ability to earn profits is referred to as ______ risk.

Operational

Shareholders' Equity is composed of which of the following accounts?

Paid in capital, Retained earnings

A ratio used to measure liquidity is the

Quick Ratio.

Which of the following items are required disclosures in the notes to financial statements?

Significant accounting policies, related third-party transactions, description of subsequent events

Industrywide risk factors include which of the following?

Technological factors, labor conditions, competition

How are current liabilities satisfied?

The creation of other current liabilities, the use of current assets

Correctly match the accounting standard on the left with the description on the right.

U.S. GAAP - Does not specify a minimum list of items to be presented. IFRS - Specifies a minimum list of items to be presented.

Correctly match the order in which liabilities are presented under U.S. GAAP and IFRS.

U.S. GAAP - current liabilities are presented first IFRS - Noncurrent liabilities are presented first

Which of the following are accrued liabilities?

Utilities payable, accrued compensation, taxes payable

_____ analysis examines the relationship of items on the financial statements of one year.

Vertical

____ ____ is a popular measure of a company's ability to pay its short-term debt.

Working capital

Other assets represents

a catch-all category of noncurrent assets

Which of the following accounts are assets?

accounts receivable, intangible assets

Which of the following accounts represent cash received from shareholders?

additional paid-in capital, common stock

What is the difference between an account payable and a note payable?

an account payable is usually due in 30-60 days

segments that must be disclosed are those which comprise 10% or more of total company revenue, income, or _____.

assets

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

balance sheet

A temporary investment or short-term marketable security should be reported in which section of the balance sheet?

current asset

If an accounts receivable is due within 60 days, it is classified on the balance sheet as a _____ _____.

current asset

Current assets include which of the following?

cash, short-term investments

Which of the following are noncurrent assets?

land, building, intangible assets, machines, property, investments

Which of the following ratios are used to evaluate a company's ability to pay long-term debts?

debt to equity ratio, times interest earned ratio

______ risk is the risk that a company will not be able to pay its obligations when they come due.

default

Identify the primary goal of the FASB / IASB financial statement presentation project.

develop new common standards for presenting financial statements.

Additional _____ are critical to understanding financial statements and to evaluating a firm's performance.

disclosures

The ability of a company to alter cash flows in order to take advantage of unexpected investment opportunities is known as what?

financial flexibility

Schwinn is a company that makes bicycles. Which of the following items would be included in Schwinn's inventory?

finished bicycles, bicycle chains, bicycle tires

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

future

Which of the following valuation methods are used to display items on the balance sheet?

historical cost, fair value

Which type of analysis uses ratios to analyze the financial statements of two or more years?

horizontal analysis

An expense that has been incurred but not yet paid results in an

incurred liability.

An asset that has no physical substance is an _______ asset.

intangible

Patents, copyrights, and franchises are examples of what?

intangibles

The times interest earned formula is calculated as earnings before interest and taxes divided by _____ _____.

interest expense

The times interest earned ratio can be calculated as (net income + interest expense + tax expense) divided by ______ _____.

interest expense.

The three primary elements found on a balance sheet are assets, ______, and shareholders' equity.

liabilities

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

liquidity

Which term refers to the period of time before an asset is converted to cash or a liability is paid?

liquidity

What refers to the riskiness of a company with regard to the amount of liabilities in its capital structure?

long term solvency

A long term liability is an obligation that will not be satisfied within 1 year or the operating cycle, whichever is _______.

longer.

Which of the following items are included in property, plant, and equipment?

natural resources, land, buildings

Retained earnings represents the accumulated _____ _____ reported since the inception of the corporation and not yet paid to shareholders as dividends.

net income

A common method of analysis is to express a relationship between the two financial statement items, such as net income divided by sales, and compare this relationship with previous years. This comparison is referred to as ______ analysis.

ratio

Borrowing or lending money at an interest rate significantly different from the market interest rate is an example of a _____ _____ transaction.

related party

Which of the following items are not required disclosures in the notes to financial statements?

related party transactions, significant accounting policies, description of subsequent events.

Which of the following are subsequent events that must be disclosed in the notes to the financial statements?

sale of a business, event that affects a loss contingency, issuance of debt securities.

The FASB requires that companies that engage in more than one significant business must provide supplemental information concerning individual operating _____.

segments

The residual interest in the assets of an entity that remains after deducting the liabilities is _____.

stockholders' equity.