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

What is conservatism?

Describe the following concepts: (1) going concern, (2) recognition and realization, and (3) relevance and reliability,

A potential investor can easily ascertain market value of common equity for a given publicly traded firm by looking up the most recent share price (as reported in various online services) and then multiplying this share price times the number of common shares outstanding, as reported on the balance sheet.

Any subsequent sale of a firm's previously issued common shares from one investor to another (such as occurs on public stock exchanges):

_____ is the net cash (selling price less selling costs) that the firm would receive if it sold the asset today, in orderly fashion in an arm's-length transaction. It is an example of an exit value, because it reflects a price that the firm would receive in a transaction in which an asset leaves the firm.

The _____ account accumulates the amounts of the undistributed earnings over time.

How does one assess the impact of asset and liability recognition and their measurement?

For a firm to recognize an asset

The _____ of an asset as defined in U.S.GAAP is an opportunity cost in the sense that it reflects an amount that the firm could receive if it sold the asset today.It is the amount the firm forgoes by not selling the asset.In U.S.GAAP, it reflects a market participant perspective, so that the intentions of managers regarding how they plan to use the asset do not determine the measurement.

A prefabricated steel storage shed is purchased for $20,000 cash and a $80,000 interest-bearing note payable over a 5-year period at an annual interest rate of 10 percent per annum.The cost to be recorded as an asset (in addition to the $100,000 purchase price) should include all of the following except

Accounting records all executory promises.

An accounting _____ arises when a firm incurs an obligation to make a future sacrifice that, because of a past event or transaction, it has little or no discretion to avoid.

Realization is the presumption that a firm will remain in operation long enough to carry out its current plans.and in the normal course of its operations, realize changes in the fair values of its assets either by using those assets or selling them.

Under both U.S.GAAP and IFRS, the firm must immediately expense all expenditures on _____.

What is the amount of the liability that the company recognizes in each of the following independent cases? a. A cereal company issues coupons that can be exchanged for boxes of cereal.It issues 1 million coupons that promise the retailer who redeems the coupons $1 per coupon.The probability of redemption of any one coupon is 8%. b. A plaintiff files a lawsuit against the company.The probability is 80% that the company will lose.If it loses, the amount of the loss will most likely be $100,000.

Retained earnings represent the source of net assets generated by the earnings process that exceed the firm's dividend declarations.Common practice refers to the process of curtailing dividends to accumulate assets, represented by retained earnings, as _____.

_____ means that the information is pertinent to the decisions of users of financial reports, in the sense that the information can make a difference in those decisions.

Many firms disaggregate the initial amounts they received from shareholders for common shares into the _____ and the amounts received in excess of this value, called additional paid-in capital (APIC), share premium, or capital contributed in excess of par value.

All-American University, a U.S.university, provides tuition support for up to eight semesters of undergraduate education for up to two children of faculty and staff of the university.To qualify for this tuition benefit, the faculty or staff member must have at least seven contiguous years of full-time service and be a full-time employee when the benefits are received.All-American estimates that this tuition benefit helps retain and attract employees.How should All-American treat its expenditures on these tuition benefits each year?

Assume that Trader Pete's, an organic food retailer in the United States, recently purchased a new refrigeration system for its Washington, DC, store.Trader Pete's paid $1.3 million for the refrigeration unit and paid an additional $120,000 to modify the unit to meet its specific needs.Trader Pete's paid $55,000 for the transportation and installation of the unit, plus $48,000 for an annual insurance premium for the first year, which begins next month.Finally, assume that Trader Pete's hired a refrigeration technician, who is charged with the maintenance of the unit; that technician's annual salary is $80,000.How much should Trader Pete's record as the acquisition cost of the refrigeration unit?