Exam 4: Balance Sheet: Presenting and Analyzing Resources and Financing

On January 1, Year 3, All Business Machines (ABM) issued 1,000 shares of its common stock for a building.Real estate appraisers estimated the building to have a market value of $55,000 on the date of acquisition.The common stock of ABM sold for $50 per share on the date of the acquisition.On January 1, Year 3, ABM paid $650 in real estate transfer taxes, $500 in real estate legal fees for recording the transaction, $1,750 in property taxes for Year 3, and $2,000 for a two-year insurance policy beginning January 1, Year 3.At what amount should the building appear in the Building account of ABM on January 1, Year 3?

Retained earnings are

Applying asset and liability definitions and recognition criteria under U.S.GAAP and IFRS results in the balance sheet including all economic benefits (resources) and obligations.

_____ measures the net assets generated by a firm from operations exceeding dividends declared.

The following transactions relate to MicroChip, a manufacturer located in Thailand.Indicate whether each transaction immediately gives rise to an asset of the company under U.S.GAAP and separately, under IFRS.If MicroChip recognizes an asset, state the account title, the amount, and the classification of the asset on the balance sheet as either a current asset or a noncurrent asset.MicroChip reports its results in millions of baht (Bt). a. MicroChip invests Bt800 million in a government bond. The bond has a maturity value of Bt1,000 million in five years, and MicroChip intends to hold the bond to maturity. b. Two months prior to its year-end, MicroChip pays its insurer Bt240 million to cover annual premiums on its European plants. c. MicroChip pays a developer in another country Bt6 million for an option to purchase a tract of land on which it intends to build a warehouse to serve future markets. The price of the land is Bt450 million. d. MicroChip signs a four-year employment agreement with its chief executive officer for a package valued at Bt17.4 million per year. Of this amount, Bt3.1 million is base salary; the rest is expected bonus and deferred compensation arrangements. The contract period begins next month. e. MicroChip spends Bt80 million on research and development (R&D) related to new, circuitry; 60% of the total amount was spent on pure research, the rest on development. The R&D is successful, and the firm is able to acquire a patent on the new circuitry. The cost of filing the paperwork and other procedures to obtain the patent is Bt0.5 million. f. MicroChip received notice that a component supplier had shipped by freight components invoiced at Bt700 million with payment due in 30 days. The supplier retains title to the components until received by MicroChip.

Acquisition cost includes all costs required to prepare an asset for its intended use.

Under U.S.GAAP, assets and liabilities are listed on the balance sheet in order of decreasing liquidity, so the most liquid assets (liabilities) are shown first, under their respective categories.

When analyzing a balance sheet

The stockholders' equity of a firm can be defined as

Depreciation allocates the asset's cost to the periods of benefit in some systematic and rational way, and it attempts to track changes in the asset's fair value.

What is a probable future economic benefit that a firm controls because of a past event or transaction?

The principal objective of accounting reports as currently prepared is to present accurately the results of operations and the financial condition of the firm.

Key factors in preparing a balance sheet is/are deciding

_____ is a residual interest or claim-that is, the owners (shareholders) of a firm have a claim on assets not required to meet the claims of creditors.

Which of the following is not cash?

The sum of the par value amount and the additional paid-in capital amount is the total amount received from shareholders for the shares when the firm first issued them.This total amount is also called _____.

On December 30, Year 1, Plank Company entered into a contract to purchase inventory over the next year.This is an example of a(n)

The balance sheet portrays the effects of a firm's investing and financing decisions.

For each of the following items, indicate whether the item meets all of the criteria in the definition of a liability [Yes or No].If so, how does the firm value it? If not, why not? a..Bonds payable. b.Interest accrued but not paid on a note. c.Confirmed orders from customers for goods and services to be delivered later. d.Advances from customers for goods and services to be delivered later. e.Promises by an airline to provide flights in the future in exchange for miles flown, if customers accumulate a certain number of miles at regular fares. f.Product warranties. g.Contractual promises to purchase specific quantities of natural gas for each of the next 10 years. h.Damages the company must pay if it loses a pending lawsuit. i.Future costs of restoring strip-mining sites after completing mining operations.

The same asset can have different measurements for tax purposes, for financial reporting purposes, and for internal managerial decision-making purposes.