Deck 18: Company Performance: Owners Equity and Financial Position

Question 1

Borrowing money in a manner designed to avoid having to record the resulting obligation as a liability in the financial statements is referred to as:

A)compensating balance financing
B)off-balance sheet financing
C)contingent financing
D)deferred financing

Answer 1

off-balance sheet financing

Question 2

Inventory would be reported on the balance sheet as a(n):

A)plant asset
B)investment
C)current asset
D)intangible asset

Answer 2

current asset

Question 3

Which of the following statements is prepared as of a given point in time?

A)Balance sheet
B)Income statement
C)Statement of cash flows
D)Statement of stockholders' equity

Answer 3

Balance sheet

Question 4

Trading securities are reported on the balance sheet at their:

A)market value
B)stated value
C)net realizable value
D)lower of cost or market value

Question 5

Which of the following would not appear on the Balance Sheet.

A)Common Stock
B)Prior Period Adjustment
C)Retained Earnings
D)Paid-in-Capital in Excess of Par

Question 6

Which of the following would not appear on both the Balance Sheet and the Statement of Changes in Owners' Equity?

A)Common Stock
B)Accumulated Comprehensive Income
C)Prior Period Adjustment
D)Preferred Stock

Question 7

The accounting equation is presented on the:

A)balance sheet
B)income statement
C)statement of cash flows
D)statement of stockholders' equity

Question 8

Plant assets are reported on the balance sheet at their:

A)fair value
B)book value
C)net realizable value
D)lower of cost or market value

Question 9

Which of the following would appear on both the Balance Sheet and the Statement of Changes in Owners' Equity?

A)Net Income
B)Prior Period Adjustment
C)Paid-in-Capital in Excess of Par
D)Common Stock Dividends

Question 10

Prepaid Insurance would generally be reported on the balance sheet as a(n):

A)plant asset
B)investment
C)current asset
D)intangible asset

Question 11

Given the following list of general ledger accounts for the Scottish Company,indicate which of the accounts would appear on the statement of financial position.

Question 12

The method chosen by a company to account for its inventories would generally be disclosed in the:

A)auditor's report accompanying the financial statements
B)summary of significant accounting policies note
C)management's letter to the stockholders
D)current asset section of the balance sheet

Question 13

A compensating balance is generally reported on a company's balance sheet as:

A)a cash equivalent
B)a long-term investment
C)a short-term investment
D)a part of the total cash balance

Question 14

Accounts receivable are reported on the balance sheet at their:

A)fair value
B)stated value
C)net realizable value
D)lower of cost or market value

Question 15

Potential events that could create negative financial results for a company,which are required to be recorded when the event is both probable and reasonably estimated in terms of its monetary effects,are referred to as:

A)deferred charges
B)cumulative effects
C)contingent liabilities
D)prior period adjustments

Question 16

The assets on the balance sheet are listed:

A)In alphabetical order
B)In order of liquidity
C)In financial order
D)In order of their function

Question 17

The allowance for Uncollectible Accounts would be reported on the balance sheet in the:

A)plant asset section
B)investment section
C)current asset section
D)intangible asset section

Question 18

A minimum cash balance that a company must maintain in a bank account to continue to earn interest or to avoid service charges is referred to as a:

A)petty cash balance
B)connecting balance
C)compensating balance
D)non-sufficient funds balance

Question 19

The more formal name for a balance sheet is:

A)statement of net worth
B)statement of financial position
C)statement of stockholders' equity
D)statement of financial operations

Question 20

Available-for-sale securities are reported on the balance sheet

A)In the Investments classification at their historic cost
B)In the Current Assets classification at their market value
C)In the Investments classification at their market value
D)In the Stockholders' Equity section at their market value.

Question 21

Goodwill would be reported on the balance sheet as a(n):

A)intangible asset
B)current asset
C)investment
D)plant asset

Question 22

Available-for-Sale Securities that management expects to hold for several years would be reported on the balance sheet as a(n):

A)plant asset
B)current asset
C)intangible asset
D)long-term investment

Question 23

A discount on bonds payable would be reported on the balance sheet as part of the:

A)long-term investment section
B)other owners' equity section
C)long-term liability section
D)current liability section

Question 24

Customer Deposits would generally be reported on the balance sheet as a(n):

A)investment
B)current asset
C)current liability
D)long-term liability

Question 25

Which of the following would be the correct order that these assets would be reported on the balance sheet?

A)Building,Patent,Prepaid Rent,Investment in IBM Common Stock
B)Prepaid Rent,Building,Investment in IBM Common Stock,Patent
C)Investment in IBM Common Stock,Building,Patent,Prepaid Rent
D)Prepaid Rent,Investment in IBM Common Stock,Building,Patent

Question 26

Accounts Payable would be reported on the balance sheet as a(n):

A)long-term liability
B)current liability
C)other liability
D)current asset

Question 27

Equipment would be reported on the balance sheet as a(n):

A)long-term investment
B)intangible asset
C)current asset
D)property,plant,and equipment asset

Question 28

Deferred Income Tax Payable would generally be reported on the balance sheet as a(n):

A)other asset
B)other liability
C)current liability
D)adjustment to stockholders' equity

Question 29

Which of the following would not be reported as part of stockholders' equity on the balance sheet?

A)Treasury Stock
B)Premium on Bonds
C)Retained Earnings
D)Paid-in-capital from common stock

Question 30

Lease obligations that are reported on the balance sheet would generally be classified as:

A)a plant asset
B)a current liability
C)a long-term liability
D)other owners' equity

Question 31

Which of the following is not an intangible asset?

A)Patent
B)Goodwill
C)Oil Lease
D)Copyright

Question 32

Which of the following accounts has a debit balance and is reported in the liability classification?

A)Treasury stock
B)Premium on Bonds Payable
C)Paid-in-capital from Treasury stock
D)Discount on Bonds Payable

Question 33

Trading Securities would be reported on the balance sheet as a(n):

A)plant asset
B)current asset
C)intangible asset
D)long-term investment

Question 34

Copyrights would be reported on the balance sheet as a(n):

A)plant asset
B)intangible assets
C)current asset
D)investments

Question 35

Accumulated Depreciation-Buildings would be reported on the balance sheet in the:

A)long-term investment section
B)intangible asset section
C)current asset section
D)plant asset section

Question 36

The term "Deficit" would most likely appear on the balance sheet in the:

A)retained earnings section
B)contributed capital section
C)other owners' equity section
D)long-term investment section

Question 37

Unrealized Gains and Losses would be reported on the balance sheet as an adjustment to:

A)retained earnings
B)contributed capital
C)comprehensive income
D)a long-term investment

Question 38

Preferred Stock issued by a company would be reported on that company's balance sheet as:

A)retained earnings
B)contributed capital
C)other owners' equity
D)a long-term investment

Question 39

Paid-in-Capital in Excess of Par would be reported on the balance sheet as:

A)a long-term investment
B)other owners' equity
C)contributed capital
D)retained earnings

Question 40

The assets on the balance sheet are listed:

A)in alphabetical order
B)in order of significance
C)by dollar value
D)in order of liquidity

Question 41

Which of the following has a credit balance and is reported in the asset section of the balance sheet?

A)Accumulated Depreciation
B)Premium on Bonds Payable
C)Depreciation Expense
D)Paid-in-Capital in excess of Par

Question 42

In 2010 MacFee Inc discovered that its ending inventory in 2007 was too big by $45,000.How much will MacFee's beginning retained earnings (Jan.1,2010)need to be adjusted to correct this error given a tax rate of 30%.

A)Increase retained earnings $31,500
B)Do not adjust retained earnings
C)Decrease retained earnings by $45,000
D)Decrease retained earnings $31,500.

Question 43

The balance sheet cannot provide valuable information about

A)the length of the operating cycle
B)priority of creditors' claims if the firm were liquidated
C)the ability to realize cash from the sale of non-current assets
D)all of the above

Question 44

The correction of a previously undetected error relating to the net income or loss of a prior accounting period is reported as:

A)an extraordinary item
B)discontinued operations
C)a prior period adjustment
D)a cumulative accounting adjustment

Question 45

Assets are shown on the balance sheet at

A)historical cost
B)fair market value
C)net realizable value
D)all of the above

Question 46

Colby Enterprses is subject to a 30% tax rate and has a December 31 year-end.During 2010,the accountant discovered an error made in 2009 relative to an expenditure that was incorrectly classified as an asset when it should have been expensed.The total pre-tax amount of the error was $70,000.The prior period adjustment to beginning retained earnings will be ______ by $_______.

A)reduced $49,000
B)reduced $21,000
C)increased $70,000
D)increased $49,000

Question 47

Which of the following assets is most likely to be omitted from the balance sheet?

A)land
B)inventory
C)goodwill generated by the firm
D)deferred tax asset

Question 48

Brentwood,Inc.'s Statement of Changes in Owners' Equity for the year ended December 31,2010 showed a reduction to prior period adjustment,net of taxes,equal to $41,250.The company has an effective tax rate of 45%.The gross amount of the error was an:

A)understatement of income in the prior year of $18,563
B)overstatement of income in the prior year of $75,000
C)understatement of income in the current year of $22,688
D)overstatement of income in the prior year of $91,667

Question 49

In 2010 Townsend Inc discovered that its ending inventory in 2009 was too big by $95,000.How much will Townsend'ss beginning retained earnings (Jan.1,2010)need to be adjusted to correct this error given a tax rate of 30%.

A)Increase retained earnings $66,500
B)Do not adjust retained earnings
C)Decrease retained earnings by $95,000
D)Decrease retained earnings $66,500.

Question 50

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

A)held-to-maturity securities
B)accounts receivable
C)inventory
D)cash

Question 51

If a firm failed to classify the portion of long-term debt that is due within one year as a current liability,which of the following ratios would not be overstated?

A)quick ratio
B)current ratio
C)debt to equity ratio
D)current-debt-to-cash ratio

Question 52

What item would not be included in comprehensive income?

A)foreign currency translation adjustments
B)unrealized gains & losses
C)dividends to stockholders
D)all would be included in comprehensive income

Question 53

Which of the following answers would not be classified as a current asset?

A)inventory
B)prepaid insurance
C)common stock
D)cash

Question 54

Belmont Industries is subject to a 35% tax rate and has a December 31 year-end.During 2010,the accountant discovered an error made in 2009 relative to a capital expenditure that was incorrectly expensed.The total pre-tax amount of the error was $67,500.The prior period adjustment to beginning retained earnings will equal:

A)$(67,500)
B)$(23,625)
C)$ 67,500
D)$ 43,875

Question 55

Big River Enterprises is subject to a 40% tax rate and has a December 31 year-end.During 2010,the accountant discovered that in 2009 some interest expense relative to a note payable had not been accrued.The amount of omitted interest totaled $53,800.The prior period adjustment to beginning retained earnings will equal:

A)$(32,280)
B)$(53,800)
C)$ 21,520
D)$ 53,800

Question 56

Treasury Stock would be reported on the balance sheet as:

A)retained earnings
B)contributed capital
C)reduction to stockholders' equity
D)a long-term investment

Question 57

Matrix and Associates reports depreciation expense of $100,000 but deducts $150,000 depreciation on its tax return.Which of the following statements is correct?

A)Matrix is breaking the law
B)Matrix will report a deferred tax asset
C)Matrix will report a deferred tax liability
D)Matrix will report income tax expense equal to income tax payable

Question 58

Name the asset that will most likely pay for a company's accounts payable.

A)intangible asset
B)accounts receivable
C)equipment
D)prepaid insurance

Question 59

Cassiopeia Corporation acquired an asset in a transaction which resulted in a non-cancelable obligation to make future payments.The transaction was classified as an operating lease.What is the term for this procedure?

A)off-the-balance-sheet financing
B)compound financing
C)phantom financing
D)illegal financing

Question 60

Which of the following would be classified as an investment?

A)prepaid expenses
B)trading securities
C)estimated pension obligation
D)land held for sale in the future

Question 61

Given the below accounts,create the current liabilities total (show your work).

Question 62

Create the current asset section of the balance sheet.Include a heading and a list of at least 5 accounts typically found in the current asset section of the balance sheet.

Question 63

What order are current assets classified?

A)liquidity
B)value
C)assets
D)age

Question 64

Explain how reporting a long-term,non-cancelable lease that provides most of the benefits of ownership as an operating lease instead of a capital lease affects the usefulness of the lessee's balance sheet.

Question 65

How can a balance sheet predict a company's future net income?

Question 66

What account would not be found in the stockholders' equity section of the balance sheet?

A)paid-in-capital
B)common stock
C)retained earnings
D)treasury stock
E)bonds payable

Question 67

What is the value of current liabilities? $$\begin{array} { l l l r } \text { Cash } & \$ 50,000 & \text { Irventory } & \$ 9,000 \\\text { Sales } & \$ 30,000 & \text { Accounts Payble } & \$ 9,000 \\\text { Cost of Goods Sold } & \$ 8,000 & \text { Accourts Receivable } & \$ 18,000 \\\text { Prepaid Irsurance } & \$ 8,000 & \text { Insurance Expense } & \$ 9,000 \\& & \text { Long-Term Liabilities (due withirl one year) } & \$ 30,000\end{array}$$

A)$ 30,000
B)$ 39,000
C)$ 42,000
D)$ 44,000

Question 68

Given the below accounts,create the current assets total (show your work).

Question 69

Comment on this statement: "Dividends are paid out of retained earnings; so,obviously,retained earnings is the cash generated by earnings".

Question 70

A company has 30,000 shares authorized and 13,000 shares issued (common stock).The par value equals $ 1.00 per share.What value will be placed in the account "paid-in capital in excess of par?"

A)$ 13,000
B)$ 30,000
C)$ 43,000
D)not enough information to answer the question

Question 71

Create the stockholders' equity section of the balance sheet.Must include the appropriate heading,2 types of stock with at least one with a par value and treasury stock.

Question 72

Given the following list of general ledger accounts for the Shenghai Company,choose the appropriate accounts and show how they would be reported (using the proper headings and format)in the current asset and current liability sections of the statement of financial position.
Accounts Receivable
Accounts Payable
Accumulated Depreciation-Buildings
Administrative Expenses
Allowance for Uncollectible Accounts
Available-for-Sale Securities
Bonds Payable
Buildings
Cash
Common Stock
Cost of Goods Sold
Customer Deposits
Deferred Income Tax Payable
Discount on Bonds Payable
Gain on Sale of Equipment
Income Tax Payable
Interest Income
Lease Obligations
Loss on Sale of Bonds
Market Adjustment - Trading Securities
Merchandise Inventory
Note Payable (due in 6 months)Prepaid Expenses
Retained Earnings
Sales
Selling Expenses
Trading Securities
Treasury Stock
Unrealized Gains and Losses
Wages Payable

Question 73

Given the following list of general ledger accounts for the Castinet Company,pick the appropriate accounts and show how they would be reported (using the proper headings and format)in the stockholders' equity section of the statement of financial position.
Accounts Receivable
Accounts Payable
Accumulated Depreciation-Buildings
Administrative Expenses
Allowance for Uncollectible Accounts
Available-for-Sale Securities
Bonds Payable
Buildings
Cash
Common Stock
Cost of Goods Sold
Customer Deposits
Deferred Income Tax Payable
Discount on Bonds Payable
Finished Goods
Gain on Sale of Equipment
Income Tax Payable
Interest Income
Lease Obligations
Loss on Sale of Bonds
Paid-in-Capital in Excess of Par
Paid-in-Capital from Treasury Stock Transactions
Preferred Stock
Prepaid Expenses
Retained Earnings
Sales
Selling Expenses
Trading Securities
Treasury Stock
Unrealized Gains and Losses

Question 74

Evaluate the lower-of-cost-or-market method of reporting inventory in terms of conservatism and consistency.

Question 75

Why would a banker reject a company's application for a one-year loan based on information taken from the company's balance sheet?

Question 76

What is the value of current assets? $$\begin{array} { l l l l } \text { Cash } & \$ 50,000 & \text { Irventory } & \$ 9,000 \\\text { Sales } & \$ 30,000 & \text { Accounts Payable } & \$ 9,000 \\\text { Cost of Goods Sold } & \$ 8,000 & \text { Accourts Receivable } & \$ 18,000 \\\text { Prepaid Irsurance } & \$ 8,000 & \text { Insurance Expense } \$ 9,000 & \\& & \text { Long-Tern Liabilities (due withirn one year) } & \$ 30,000\end{array}$$

A)$ 50,000
B)$ 58,000
C)$ 85,000
D)$ 115,000

Question 77

Given the following list of general ledger accounts,prepare a statement of financial position for Populus Corporation as of December 31,2010:

Question 78

Create the liabilities (current & long-term)section of the balance sheet.Include a heading and at least 3 current liability accounts and two long-term liability accounts,and one other liabilities account found in the liabilities section of the balance sheet.

Question 79

Using only the appropriate accounts below create a stockholders' equity section of the balance sheet.

Question 80

Why would a banker demand a company's assets and liabilities to be properly classified?