Chapter 3 smartbook

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, Year 1, Renquist Corp. borrowed $100,000 by signing a 5-year interest bearing note payable with annual interest of 8%. The terms of the contract require Renquist to repay the principal over 5 years with a payment of $20,000 made at the end of each year. On December 31, Year 1, Renquist made the first payment plus interest. What portion of the note should be classified as current liabilities?

$20,000

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

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.

Which of the following are limitations of the balance sheet? (Select all that apply.) 1. The balance sheet reports the company's financial position over a period of time rather than on a particular date 2. Assets minus liabilities is not representative of the company's true book value 3. The balance sheet is heavily reliant on estimates rather than determinable amounts 4. Assets minus liabilities is not representative of the company's true market value

3. The balance sheet is heavily reliant on estimates rather than determinable amounts 4. Assets minus liabilities is not representative of the company's true market value

What is included in a company's paid in capital? (Select all that apply.) Multiple select question. Comprehensive income Retained earnings Additional paid-in capital Common stock

Additional paid-in capital Common stock

Which of the following items is classified as cash?

Bank drafts

______ ________ result from the sale of goods or services on credit. (Enter one word per blank.)

Blank 1: Accounts or Account Blank 2: Receivable, Receivables, Recievable, or Recievables

A prepaid expense represents a(n) _______ recorded when an expense is paid in advance. (Enter only one word.)

Blank 1: asset

Investments are reported as _______ when the company has both the intent and ability to sell within one year (or operating cycle).

Blank 1: current, short-term, or short term

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

Blank 1: current, short-term, or shortterm

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

Blank 1: future, subsequent, or later

Long-term _______ are obligations that will not be satisfied in the next year or operating cycle, whichever is longer. (Enter only one word.)

Blank 1: liabilities or liability

Obligations to other entities are classified as _________ on the balance sheet. (Enter only one word.)

Blank 1: liabilities or liability

Retained earnings represents the accumulated _____ ______ reported since the inception of the corporation and not yet paid to shareholders as dividends. (Enter one word per blank.)

Blank 1: net Blank 2: income

When a receivable is supported by a formal agreement that specifies payment terms, it is called a _______ ______ (Enter one word per blank.)

Blank 1: note or notes Blank 2: receivable, receivables, recievable, or recievables

The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as _____ ______. (Enter one word per blank.)

Blank 1: retained Blank 2: earnings

The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as _________ ________. (Enter one word per blank.)

Blank 1: retained Blank 2: earnings

The Management Discussion and Analysis section of the financial statements includes a perspective on which of the following? (Select all that apply.) Multiple select question. Capital resources Operations Job costing Liquidity Auditors' report

Capital resources Operations Liquidity

Current assets include which of the following? (Select all that apply.) Multiple select question. Cash Intangible assets Property and equipment Short term investments

Cash Short term investments

What is included in a company's paid in capital? (Select all that apply.) Multiple select question. Comprehensive income Retained earnings Common stock Additional paid-in capital

Common stock Additional paid-in capital

Deferred revenues and accrued salaries payable are examples of what?

Current liabilities

True or false: Accounts receivable result from the sale of goods or services for cash.

False

True or false: The balance sheet displays all items at their fair value or market value.

False

True or false: The balance sheet will directly measure the company's market value.

False

The ability of a company to alter cash flows in order to take advantage of unexpected investment opportunities is known as what? Multiple choice question. Long-term solvency Liquidity Financial flexibility

Financial flexibility

Which of the following transactions would be recorded as a prepaid expense? (Select all that apply.) Multiple select question. Salaries paid for the previous 2 months. Insurance paid for 6 months. January's utility bill paid in February. Rent for an office building paid for 12 months. Inventory purchased and held for sale.

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

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

What is the criterion to classify an investment as a cash equivalent versus a short-term investment?

It is a highly liquid investment with a maturity date of 3 months or less from date of purchase.

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

Land

Obligations to other entities are known as what?

Liabilities

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

Liquidity

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

Management Discussion and Analysis.

Which of the following investments would be classified as a cash equivalent? (Select all that apply.) Multiple select question. Common stock held for trading purposes Money market funds U.S. Treasury bills with a maturity of 90 days

Money market funds U.S. Treasury bills with a maturity of 90 days

Which of the following investments would be classified as a cash equivalent? (Select all that apply.) Multiple select question. Money market funds U.S. Treasury bills with a maturity of 90 days Common stock held for trading purposes

Money market funds U.S. Treasury bills with a maturity of 90 days

How are property, plant, and equipment presented on the balance sheet?

Original cost less accumulated depreciation

Which of the following are included in inventory? (Select all that apply.) Multiple select question. Trade receivables Raw materials Work in process Finished goods Intangibles

Raw materials Work in process Finished goods

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

Solvency and liquidity.

How are current liabilities satisfied? (Select all that apply.) Multiple select question. The creation of other current assets. The use of current liabilities. The use of current assets. The creation of other current liabilities.

The use of current assets. The creation of other current liabilities.

Why are inventories reported as current assets?

They are normally sold within the operating cycle.

True or false: The operating cycle for most firms is 1 year or less.

True

The purpose of the balance sheet is to report

a company's financial position on a specific date.

Another term for a trade receivable that occurs in the course of a company's normal trade or business is

accounts receivable.

An expense that has been incurred but not yet paid results is a(n)

accrued liability.

Which of the following should be classified as current liabilities? (Select all that apply.) Multiple select question. accrued salaries accounts payable notes payable due in 3 years current maturities of long-term debt

accrued salaries accounts payable current maturities of long-term debt

Which of the following accounts represent amounts shareholders have invested in the company? (Select all that apply.) Multiple select question. accumulated other comprehensive income retained earnings additional paid-in capital common stock

additional paid-in capital common stock

Zantron Corp. pays $100,000 for robotic equipment to be used in its production facility. Zantron should include this transaction as

an increase in plant, property, and equipment.

Current _________ include cash and other items that will be converted to cash or consumed within the coming year. (Enter only one word.)

assets or asset

The financial statement that displays a firm's financial position on a particular date is the ____ (Enter one word per blank)

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

Schwinn is a company that makes bicycles. Which of the following items would be included in Schwinn's inventory? (Select all that apply.) Multiple select question. bicycle chains salary for salesperson bicycle tires finished bicycles

bicycle chains bicycle tires finished bicycles

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

book

Which of the following are noncurrent assets? (Select all that apply.) Multiple select question. building intangible assets inventory land

building intangible assets land

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. (Enter only one word.)

cash

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

cash and cash equvalents accounts receivable inventory prepaid expenses

Which of the following items should be included in cash on the balance sheet? (Select all that apply.) Multiple select question. short-term investments cash on hand cashier's checks money orders

cash on hand cashier's checks money orders

Which of the following accounts represent amounts shareholders have invested in the company? (Select all that apply.) Multiple select question. accumulated other comprehensive income common stock additional paid-in capital retained earnings

common stock additional paid-in capital

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

current asset

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

current assets

Investments are reported as ________ when the company has both the intent and ability to sell within one year (or operating cycle).

current, short-term, or short term

What account is affected when a customer pays in advance for services to be performed in the future?

deferred revenues

The two sources of stockholders' equity are amounts ______. Multiple select question. earned by the corporation paid in from shareholders borrowed from banks borrowed from related companies

earned by the corporation paid in from shareholders

Financial _______ is the ability of a company to alter cash flows in order to take advantage of unexpected investment opportunities and needs. (Enter only one word.)

flexibility

Financial _________ is the ability of a company to alter cash flows in order to take advantage of unexpected investment opportunities and needs. (Enter only one word.)

flexibility

An asset that has no physical substance is referred to as a(n) ______ asset

intangible

An investment should be classified as current on the balance sheet if (Select all that apply.) Multiple select question. it will be sold within 12 months. it does not have a maturity date. management has the intent and ability to liquidate it in the near term. it is an investment of stock of another company regardless of maturity.

it will be sold within 12 months. management has the intent and ability to liquidate it in the near term.

Common practice requires that current assets are presented on the balance sheet in the order of . (Enter only one word.)

liquidity

The balance sheet provides useful information about a company's _______ and long-term solvency. (Enter only one word.)

liquidity

Property, plant, and equipment is a(n) ______ asset. (Select all that apply.) Multiple select question. short-lived intangible long-lived tangible

long-lived tangible

Which of the following items are included in property, plant, and equipment? (Select all that apply.) Multiple select question. investments machines mineral mines furniture oil wells inventory

machines mineral mines furniture oil wells

A _____ firm will include finished goods, work in process, and raw materials as part of their inventory.

manufacturing

Rice Company purchases a building for $500,000, which will be used as a production facility. How should the building be classified on the balance sheet?

noncurrent asset

Any receivable not expected to be collected within one year or the operating cycle, whichever is longer, is classified as a

noncurrent asset.

Which of the following items should be classified as investments on the balance sheet? (Select all that apply.) Multiple select question. note receivable due in 3 years cash restricted to purchase building investments in stock of another company accounts receivable from customers

note receivable due in 3 years cash restricted to purchase building investments in stock of another company

Which of the following items are included in investments? (Select all that apply.) Multiple select question. note receivable due in 5 years cash reserved to purchase land accounts receivable due in 60 days inventory on hand

note receivable due in 5 years cash reserved to purchase land

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 accounts common stock and paid-in capital in excess of par are classified as

paid-in capital

Which of the following are classified as long-term liabilities? (Select all that apply.) Multiple select question. pension obligations notes due in more than 1 year accrued salaries payable lease obligations longer than 1 year

pension obligations notes due in more than 1 year lease obligations longer than 1 year

Which of the following are noncurrent assets? (Select all that apply.) Multiple select question. inventory property accounts receivable machines investments with maturity of 18 months

property machines investments with maturity of 18 months

A manufacturing firm will use which of the following accounts to record inventory? (Select all that apply.) Multiple select question. raw material work in process short-term investments finished goods sales returns and allowances

raw material work in process finished goods

Which of the following represents the net income earned by a corporation and not yet paid to shareholders?

retained earnings

Shareholders' equity is composed of which of the following accounts? (Select all that apply.) Multiple select question. retained earnings long-term liabilities deferred revenues paid-in capital

retained earnings paid-in capital

Which of the following are accrued liabilities? (Select all that apply.) Multiple select question. salaries payable interest payable notes payable warranty liabilities

salaries payable interest payable warranty liabilities

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

Goodwill is calculated as

the acquisition price above the fair value of the identifiable net assets acquired.

Assets are classified as long-term if:

they are expected to be converted to cash or consumed in more than one operating cycle

Which of the following are common characteristics of property, plant, and equipment? (Select all that apply.) Multiple select question. used in normal operations long-lived used within 1 year or the operating cycle, whichever is longer intangible tangible

used in normal operations long-lived tangible

Which of the following are characteristics of plant, property, and equipment? (Select all that apply.) Multiple select question. used long-term in production used or converted to cash within 1 year or the current operating cycle tangible

used long-term in production tangible

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

utilities payable taxes payable

Which of the following are accrued liabilities? (Select all that apply.) Multiple select question. warranty liabilities notes payable interest payable salaries payable

warranty liabilities interest payable salaries payable

Goodwill is shown on the balance sheet

when one company acquires another company for a price above the fair value of the assets acquired.

A liability is classified as current if it is due

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