acct ch3

The SEC requires disclosures on compensation for which of the following? (Select all that apply.)

Directors Executives

Common practice requires that current assets are presented on the balance sheet in the order of

liquidity

Assets not used directly in the operations of the business are called what?

Investments

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

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

A ratio used to measure liquidity is the

current ratio

Barsky Corp. has the following items: Cash $5,000 Prepaid expenses 2,000 Building 40,000 Land 20,000 Inventory 15,000 Total noncurrent assets on the balance sheet is

60,000

The full-disclosure principle requires that financial statements report which of the following?

All material relevant information

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

An account payable is usually due in 30-60 days

An accrued liability represents which of the following?

An expense that has been incurred but will be paid in a future period

Bear Corp. has $100,000 cash in the bank restricted to repay a note payable that matures in 2 years. How should this $100,000 be reported?

As restricted cash in the long-term section of the balance sheet

Which of the following are required SEC disclosures? (Select all that apply.)

Executive compensation Executive stock option information Director compensation

Which of the following transactions would be recorded as a prepaid expense? (Select all that apply.)

Insurance paid for 6 months. Rent for an office building paid for 12 months.

Ownership of an exclusive right to something such as a product, a process, or a name is called what?

Intangible asset

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

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

Liquidity

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

Long-term solvency

An analysis provided by the company's management is included in the

Management Discussion and Analysis

Who is responsible for the information in the annual report?

Management of the company

Which of the following items are considered cash equivalents? (Select all that apply.)

Money market funds that are quickly converted to cash. U.S. Treasury bills due in 2 months. Commercial paper due in 1 month.

What does a liability represent?

Obligations owed to other entities

The Management Discussion and Analysis section of the financial statements includes a perspective on which of the following? (Select all that apply.)

Operations Capital resources Liquidity

Short-term investments are sometimes called which of the following? (Select all that apply.)

Short-term marketable securities Temporary investments

Classifying items on the balance sheet as current and noncurrent assists financial statement users in assessing what aspects about a company?

Solvency and liquidity

Accounts receivable represents which of the following?

The amount owed by customers

Which of the following is true regarding disclosure notes?

They explain or elaborate on data presented in the financial statements.

What is the purpose of additional financial disclosures in an annual report?

To assist in understanding the financial statements.

What is the role of the auditor?

To attest to the fairness of the financial statements

The purpose of the balance sheet is to report

a company's financial position on a specific date.

An obligation to pay a supplier within 30 days should be recorded in ............. payable, whereas a signed promise to pay cash at some point in the future should be recorded as .............. payable

accounts and notes

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

accounts receivable

Current ......... include cash and other items that will be converted to cash or consumed within the coming year.

assets

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

assets and liabilities

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

balance sheet

Which of the following items is classified as cash?

bank drafts

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

book

Money on hand and in banks that is available for use in the operations of the business is shown in the ............. account on the balance sheet.

cash

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

cash and cash equivalents, a/r, inventory, prepaid expenses

Which of the following items are considered cash equivalents?

commercial paper due in less than 3months, and money market funds quickly converted into cash

If an accounts receivable is due within 60 days, it is classified on the balance sheet as a(n) asset.

current

In a balance sheet, how are assets classified?

current and noncurrent

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

current asset

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

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

current assets

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

current liability

The risk that a company will not be able to pay its obligations when they come due is referred to as

default risk

Which type of risk is the risk of a company not being able to pay its obligations when they come due?

default risk

The balance sheet will directly measure the company's market value.

false

Inventory for a wholesale or retail company includes which of the following?

finished goods

Inventories include which of the following items? (Select all that apply.)

finished goods goods in production goods directly consumed in production

A manufacturing firm will use which of the following accounts to record inventory? (Select all that apply.)

finished goods raw material work in process

What is the principle that requires that financial statements provide all material relevant information concerning the entity?

full-disclosure

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

future

.......consist of assets that a retail or wholesale company acquires for resale or goods that manufacturers produce for sale

inventory

Assets not used directly in the operations of the business are referred to as

investments

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

liquidity

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

management

The full-disclosure principle requires financial statements to provide all ............ , .......... information regarding the company

material and relevant

Which of the following items are included in investments? (Select all that apply.)

note receivable due in 5 years cash reserved to purchase land

The ........... cycle refers to the period of time necessary to convert cash to raw materials, raw materials to a finished product, the finished product to receivables, and then receivables back to cash.

operating

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

Balance sheets often include a catch-all classification of noncurrent assets called ..... assets.

other

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

prepaid expense

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

property machines investments with maturity of 18 months

Which document is required to provide information on executive and director compensation?

proxy statement

A ratio used to measure liquidity is the

quick ratio

Which of the following items should not be included in cash and cash equivalents in the balance sheet?

restricted cash

The ability to pay its long-term debts as they become due is referred to as ______ of the company.

solvency

SEC requirements provide for disclosures on executive and director compensation, particularly concerning

stock options

Which of the following are common characteristics of property, plant, and equipment? (Select all that apply.)

used in normal operations tangible long-lived

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

utilities and taxes payable

A liability is classified as current if it is due

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