Deck 4: The Balance Sheet and the Statement of Shareholders Equity

Question 1

Asset measurement methods that reflect historical values include fair value, present value, replacement cost, and net realizable value.

Answer 1

True

Question 2

The SEC requires listed companies to report changes in shareholder's equity and ending balances as a separate financial statement, but smaller companies may report this information in a supporting schedule or as a note.

Answer 2

True

Question 3

A company must make adjustments to the financial statements for certain events that occur after the end of the accounting period.

Answer 3

True

Question 4

Companies typically recognize monetary assets and liabilities using present values.

Question 5

Current assets include cash, accounts receivable, inventory, and prepaid items.

Question 6

Asset measurement methods that reflect historical values include acquisition cost and residual value.

Question 7

The balance sheet reports the financial position of a company at a specific date in time whereas all other financial statements report changes in the financial position of the company over a period of time.

Question 8

FASB's definition of fair value of an asset is characterized as a measure of market-based exit value, which is the amount for which a company could sell the asset.

Question 9

Distributions to owners increase equity and investments by owners decrease equity.

Question 10

Long-term investments are listed on the balance sheet at historical cost.

Question 11

Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.

Question 12

Adjusted present value is based on the present-day fair value adjusted to reflect the passage of time.

Question 13

The elements recognized on the balance sheet are assets, liabilities, revenues, and expenses.

Question 14

Equity of a wholly-owned company is comprised only of contributed capital and earned capital.

Question 15

All long-term investments are listed on the balance sheet at fair value.

Question 16

Net realizable value is the amount a company would have to pay currently to acquire an asset it now holds.

Question 17

Equity is defined as a residual claim such that assets plus liabilities equals equity.

Question 18

Gain contingencies must be accrued if they are probable and can reasonably be estimated.

Question 19

Derivative financial instruments must be reported as either assets or liabilities on the balance sheet and be measured at their net realizable value.

Question 20

Typically, the first note to the financial statements is the Summary of Significant Accounting Policies.

Question 21

Which of the following financial statements reports changes in financial position of the company during the accounting period?

A) Statement of cash flows
B) Balance sheet
C) Statement of financial position
D) All of the above report changes in financial position during the accounting period.

Question 22

Which is not a required characteristic for a liability to be recognized?

A) Transfer
B) Service potential
C) Nonavoidable
D) Incurred

Question 23

The residual interest in a company's assets after deducting liabilities is

A) net income.
B) equity.
C) noncontrolling interest
D) earned capital

Question 24

Cross-sectional analysis involves intercompany comparisons.

Question 25

Which of the following statements about executory contracts is false?

A) Executory contracts are contracts in the process of begin filled.
B) A purchase order is an example of an executory contract.
C) Executory contracts are recognized as liabilities when the company receives the benefits
D) Executory contracts are contingent obligations.

Question 26

The primary attribute of all assets is

A) service potential.
B) productive capacity.
C) historical cost.
D) service contribution.

Question 27

All of the following are non-monetary assets except

A) goodwill.
B) patents
C) inventory.
D) accounts receivable.

Question 28

An asset is valued by the price that would be received by selling it in an orderly transaction between market participants on the date of measurement. Which measurement method is being used in this case?

A) Fair value
B) Historical cost
C) Present value
D) Reliable value

Question 29

Which of the following is a measurement method that reflects historical value?

A) Fair value
B) Acquisition cost
C) Replacement cost
D) Net realizable value

Question 30

Which of the following is not a general category of shareholders' equity?

A) Net income
B) Contributed capital
C) Noncontrolling interest
D) Earned capital

Question 31

All of the following items would appear on the balance sheet except

A) an investment in another company's bonds
B) an investment in marketable securities
C) a realized gain on the sale of a equipment
D) the premium related to a bond liability that is still two years from maturity

Question 32

Which of the following assets is reported at net realizable value on the balance sheet?

A) Short-term investments
B) Merchandise inventory
C) Accounts receivable
D) Prepaid insurance

Question 33

In common-size analysis, all balance sheet items and income statement items are presented as a percentage of total assets.

Question 34

Financial leverage is measured by the debt-to-assets ratio.

Question 35

Which of the following elements is not recognized on the balance sheet?

A) Equity
B) Expense
C) Liability
D) Asset

Question 36

A balance sheet shows the

A) fair value of a company at a particular date.
B) results of the company's income-producing activities.
C) financial position of a company at a particular date.
D) cash inflows and outflows of a company for the accounting period.

Question 37

What element is a probable future economic benefit controlled and previously acquired by a company?

A) Equity
B) Gain
C) Revenue
D) Asset

Question 38

Which of the following is a probable future sacrifice of economic benefits arising from present obligations as a result of past events?

A) Expense
B) Liability
C) Loss
D) Asset

Question 39

Time-series analysis is the same as rate of change analysis.

Question 40

Which financial statement is also called the statement of financial position?

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

Question 41

Which of the following accounts is not classified as a current asset?

A) Receivables
B) Inventory
C) Patent
D) Prepaid Insurance

Question 42

The systematic allocation of the costs of natural assets to expense is called

A) amortization.
B) depreciation.
C) impairment.
D) depletion.

Question 43

Which of the following statements about fair value is true?

A) Level 1 inputs should be used to determine fair value only when Level 2 and Level 3 inputs are not available.
B) Level 3 inputs are observable market prices for similar assets in active markets.
C) Fair value accounting is also known as "mark-to-market" accounting.
D) Fair value is a measure of market-based entry value.

Question 44

The adjusted historical cost of fixed assets, calculated as historical cost minus depreciation, is called

A) amortization.
B) net book value.
C) impairment.
D) depreciable cost.

Question 45

Long-term investments include all of the following except

A) sinking funds.
B) cash surrender value of life insurance policies.
C) a building held for rental activity.
D) bonds payable.

Question 46

Current liabilities includes all of the following except

A) income tax payable.
B) mortgage due to be paid this year.
C) notes receivable.
D) advance payments from customers.

Question 47

A balance sheet account that is usually reported at present value is

A) Land.
B) Note Payable.
C) Accounts Payable.
D) Inventory.

Question 48

A balance sheet account that is usually reported at fair value is

A) Marketable Securities.
B) Land.
C) Accounts Payable.
D) Inventory.

Question 49

Cash equivalents are securities that

A) management intends to convert into cash within one year.
B) are denominated in a recognized national currency.
C) management intends to convert into cash within the normal operating cycle.
D) have maturity dates of three months or less.

Question 50

Which of the following would typically be recorded as an intangible asset with a finite useful life?

A) Franchises
B) Trademarks
C) Brand name
D) Goodwill

Question 51

Which of the following is amortized over its useful life and reported at adjusted historical cost?

A) Intangible asset with finite useful lives
B) Intangible asset with indefinite useful lives
C) Goodwill
D) Property, plant, and equipment

Question 52

The expected exit value is also referred to as the

A) fair value.
B) present value.
C) input value.
D) current replacement cost.

Question 53

Property, plant, and equipment section of the balance sheet includes all of the following except

A) construction in progress.
B) natural resources.
C) intangible assets
D) leasehold improvements.

Question 54

The amount a company would pay to acquire an asset it now holds is the asset's

A) historical cost.
B) current replacement cost.
C) current exit value.
D) present value.

Question 55

Intangible assets include all of the following except

A) natural resources.
B) licenses.
C) goodwill.
D) trademarks

Question 56

Which of the following is not an intangible asset?

A) Computer software
B) Deferred tax asset
C) Brand name
D) Franchise

Question 57

Current liabilities are defined as obligations that will be paid

A) by refinancing through issuing new long-term liabilities
B) by using existing resources properly classified as current assets
C) out of a fund classified as a long-term investment
D) by using existing resources, regardless of their classification

Question 58

Which balance sheet account is usually reported at net realizable value?

A) Investments
B) Land.
C) Accounts Receivable.
D) Inventory.

Question 59

The measurement of an asset's value based on the discounted future cash flows relating to the asset is

A) net realizable value.
B) future value.
C) historical value.
D) present value.

Question 60

What is the term for the systematic allocation of the costs of intangible assets to expense?

A) Amortization
B) Depreciation
C) Impairment
D) Depletion

Question 61

Activities between affiliated entities such as subsidiaries must be disclosed in the financial statements of a corporation as

A) segment analysis.
B) significant events.
C) related party transactions..
D) contingent activities.

Question 62

Additional paid-in capital represents

A) the value of earnings not paid out as dividends.
B) the difference between contributed capital and earned capital.
C) the value of repurchased treasury stock.
D) the difference between par value and market value .

Question 63

Time-series analysis is most closely associated with

A) Common-size analysis
B) Cross-sectional analysis
C) Intracompany comparisons
D) Intercompany comparisons

Question 64

A component of equity that arises when a parent company owns a majority of the common shares of a subsidiary company is known as

A) majority interest.
B) noncontrolling interest.
C) earned capital.
D) unearned capital.

Question 65

The SEC requires disclosure of quarterly high and low market prices for

A) two years.
B) three years.
C) four years.
D) The SEC does not require disclosure of quarterly high and low market prices.

Question 66

Which of the following is not a component of contributed capital?

A) Preferred stock
B) Treasury stock
C) Earned capital
D) Additional paid-in capital

Question 67

All of the following are examples of subsequent events that would be disclosed in the footnotes to the financial statements except

A) fire or flood loss.
B) a litigation settlement.
C) a bond issuance after the balance sheet date.
D) the write off of a significant uncollectible account.

Question 68

On the balance sheet, treasury stock is presented as a

A) long-term investment account.
B) contra shareholders' equity account.
C) companion shareholders' equity account.
D) contra asset account.

Question 69

Cross-sectional analysis is most closely associated with

A) Common-size analysis
B) Time-series analysis
C) Intracompany comparisons
D) Intercompany comparisons

Question 70

In preparing a statement of changes in shareholders' equity, the company includes land given to a shareholder as a dividend. This transaction is included in the statement because it represents

A) an investment by a shareholder that increases equity.
B) an investment by a shareholder that decreases equity.
C) a distribution to a shareholder that increases equity.
D) a distribution to a shareholder that decreases equity.

Question 71

Distributions to owners include all of the following except

A) paying dividends.
B) repurchasing treasury stock.
C) giving away fixed assets.
D) noncontrolling interests.

Question 72

Most long-term liabilities are reported on the balance sheet at their

A) net realizable value.
B) replacement value.
C) historical cost.
D) present value.

Question 73

A negative balance for retained earnings due to cumulative net losses is called an)

A) deficit.
B) retained loss.
C) retained debit.
D) other comprehensive loss.

Question 74

A subsequent event is an event that occurs

A) after the annual report is issued.
B) anytime after the end of the accounting period.
C) between the end of the accounting period and the date the annual report is issued.
D) anytime before the annual report is issued.

Question 75

A deficit occurs when a company's

A) retained earnings are less than its common stock.
B) dividends distributed are greater than comprehensive income.
C) dividends and cumulative losses are greater than cumulative net income.
D) retained earnings are less than assets minus liabilities.

Question 76

A reader of a set of financial statements would expect to be able to find in the statement of changes in shareholders' equity

A) increases in total assets.
B) increases in total liabilities.
C) increases to net income.
D) increases from other comprehensive income.

Question 77

Which of the following is included in shareholders' equity?

A) Sinking funds
B) Deferred revenues
C) Accumulated other comprehensive income
D) Goodwill

Question 78

A reader might find information about gain contingencies in an annual report by examining

A) a contingent account receivable.
B) an accrued revenue.
C) a deferred revenue.
D) footnote disclosures.

Question 79

GAAP requires that all derivative financial instruments be reported at their

A) historical cost.
B) fair value.
C) present value.
D) par value.

Question 80

Which of the following is not a component of shareholders' equity?

A) Noncontrolling interest
B) Residual capital
C) Earned capital
D) Contributed capital