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