Exam 3: The Balance Sheet and Notes to the Financial Statements

Which of the following would not be classified as a current asset on a classified balance sheet?

Which of the following would not be considered an element of working capital?

Martin Corporation was organized on January 3, 2012. Martin was authorized to issue 50,000 shares of common stock with a par value of $10 per share. On January 4, Martin issued 30,000 shares of common stock at $25 per share. On July 15, Martin issued an additional 10,000 shares at $20 per share. Martin reported income of $33,000 during 2012. In addition, Martin declared a dividend of $.50 per share on December 31, 2012. See Martin Corporation information above. The amount reported on Martin Corporation's December 31, 2012, balance sheet as additional paid-in capital was

The balance sheet category receivables represents claims to cash. Accounts receivable typically constitutes the largest dollar value of receivables. An estimated allowance for doubtful accounts should be deducted from the gross amount of accounts receivable to arrive at the estimated amount collectible. Plant assets are reported on the balance sheet at their historical cost less any accumulated depreciation. The allowance for doubtful accounts and accumulated depreciation are both termed contra-asset accounts. Which of the following statements regarding these two contra-asset accounts is true?

Which of the following statements best describes a subsequent event?

Troy Co. began operations on January 1, 2011, with $100,000 from the issuance of stock and borrowed funds of $15,000. Net income for 2011 was $5,000 and Troy paid a $400 cash dividend on December 15. No additional activities affected owners' equity in 2011. At December 31, 2011, Troy's liabilities had increased to $18,800. In Troy's December 31, 2011, balance sheet, total assets should be reported at

Which of the following statements regarding assets is not true?

As a member of the audit staff of Brown & Co., CPAs, you have been assigned to the audit of a new client, Black Corporation. Upon arriving at the client's offices, the controller provides you with copies of the company's annual financial statements. You quickly observe that the balance of accounts receivable has increased materially over the amount reported on the prior year's balance sheet. Your inquiry of the controller produces the following response: "This year we have included several other items with our trade receivables. All of these items represent receivables and include: I have included a description of the tax item in the note to the financial statements. Since the other two items represent internal matters, I saw no reason to disclose them or present them as separate items on the balance sheet." Do you concur with the controller's treatment of these items? Explain.

Which of the following is an appropriate computation for return on investment?

Hogi-Yogi Co. has total debt of $252,000 and stockholders' equity of $420,000. Hogi-Yogi is seeking capital to fund an expansion. Hogi-Yogi is planning to issue an additional $180,000 in common stock, and is negotiating with a bank to borrow additional funds. The bank requires a maximum debt ratio of .75. What is the maximum additional amount Hogi-Yogi will be able to borrow after the common stock is issued?

Which of the following characteristics may result in the classification of a liability as current?

A general principle of disclosure is that material related-party transactions should be disclosed. As the auditor of the Clarence Company, you have noted the following transactions entered into by Clarence during the past fiscal year: Assuming all of the above transactions are material, which transaction or transactions above most likely would be a related party transaction requiring disclosure in Clarence's financial statements?