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

Question 1

Which of the following circumstances would require recording an accrual for a loss contingency under current generally accepted accounting principles?

A) Event is unusual in nature and occurrence of event is probable
B) Event is unusual in nature and event occurs infrequently
C) Amount of loss is reasonably estimable and occurrence of event is probable
D) Amount of loss is reasonably estimable and event occurs infrequently

Answer 1

C

Question 2

Analysis of a firm's balance sheet provides information on its liquidity,which is the ability to

A) satisfy short-term obligations.
B) maintain profitable operations.
C) maintain past levels of preferred and common dividends.
D) survive a major economic downturn.

Answer 2

A

Question 3

How should a contingent liability be reported in the financial statements when it is "reasonably possible" the company will have to pay the liability at a future date?

A) As a deferred liability
B) As an accrued liability
C) As a disclosure only
D) As an account payable with an additional disclosure explaining the nature of the transaction

Answer 3

C

Question 4

Investment securities held for the purpose of retiring bonds should be classified on a balance sheet as

A) investments.
B) current assets.
C) deferred bond liability.
D) intangible assets.

Question 5

Which of the following would NOT be reported in the stockholders' equity section of the balance sheet?

A) Retained earnings appropriated for future plant expansion
B) Dividends declared on preferred stock
C) Paid-in capital in excess of par value
D) Deficit in retained earnings

Question 6

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

A) Investment securities (trading)
B) Short-term investments
C) Intangible assets
D) Prepaid expenses

Question 7

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

A) Investment securities (current)
B) Work in process inventories
C) Accrued interest on notes payable
D) Organization costs

Question 8

The correct order to present current assets is

A) cash,inventories,prepaid items,accounts receivable.
B) cash,inventories,accounts receivable,prepaid items.
C) cash,accounts receivable,prepaid items,inventories.
D) cash,accounts receivable,inventories,prepaid items.

Question 9

Which of the following is NOT a long-term investment?

A) Stock held to exert influence on another company
B) Land held for speculation
C) Trademarks
D) Cash surrender value of life insurance

Question 10

Which of the following would NOT be reported for capital stock in the contributed capital section of a classified balance sheet?

A) Dividends per share
B) Shares authorized
C) Shares issued
D) Shares outstanding

Question 11

Which of the following statements regarding assets is NOT true?

A) An asset represents a probable future economic benefit.
B) Assets are obtained or controlled as a result of past or probable future transactions or events.
C) Assets reported on the balance sheet include both monetary and nonmonetary resources.
D) Assets include costs that have not yet been matched with revenues.

Question 12

A contingent liability should be recorded when

A) any lawsuit is actually filed against a company.
B) it is certain that funds are available to pay the amount of the claim.
C) it is probable that a liability has been incurred even though the amount of the loss cannot be reasonably estimated.
D) the amount of the loss can be reasonably estimated and it is probable prior to issuance of financial statements that a liability has been incurred.

Question 13

Which of the following characteristics may result in the classification of a liability being changed from current to noncurrent?

A) Violation of a subjective acceleration clause
B) Violation of an objective acceleration clause
C) A demand provision for payment
D) Refinancing after the balance sheet date

Question 14

Which of the following would NOT be classified as a current liability on a classified balance sheet?

A) Unearned revenue
B) Mandatory redeemable preferred stock
C) The currently maturing portion of long-term debt
D) Accrued salaries payable to management

Question 15

In order for a liability to exist,

A) there must be a past transaction or event.
B) the exact amount must be known.
C) the identity of the party to whom the liability is owed must be known.
D) there must be an obligation to pay cash in the future.

Question 16

Which of the following best describes contributed capital?

A) The amount of capital provided by stockholders' investments
B) The amount that would be distributed to the stockholders in a liquidation of the corporation
C) The amount of capital provided by stockholders' investments and undistributed earnings
D) The value of the common and preferred stock

Question 17

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

A) Short-term obligations expected to be refinanced with long-term debt
B) Debts to be liquidated from funds that have been accumulated and are reported as noncurrent assets
C) Violation of provisions of a debt agreement
D) Obligations for advance collections that involve long-term deferment of the delivery of goods or services

Question 18

Unearned rent would normally appear on the balance sheet as a

A) plant asset.
B) current liability.
C) long-term liability.
D) current asset.

Question 19

Pending litigation would generally be considered a(n)

A) nonmonetary liability.
B) contingent liability.
C) estimated liability.
D) current liability.

Question 20

Accrued revenues would normally appear on the balance sheet as

A) plant assets.
B) current liabilities.
C) long-term liabilities.
D) current assets.

Question 21

Hondo Co.has total debt of $252,000 and stockholders' equity of $420,000.Hondo is seeking capital to fund an expansion.Hondo 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 Hondo will be able to borrow after the common stock is issued?

A) $639,000
B) $852,000
C) $1,236,000
D) $1,548,000

Question 22

The following changes in American Corporation's account balances occurred during 2014: American paid dividends of $39,000 during the year.There were no changes in Retained Earnings for 2014 except dividends and net income.What was American's net income for 2014?

A) $12,000
B) $27,000
C) $39,000
D) $51,000

Question 23

Which of the following statements best describes a subsequent event?

A) A subsequent event affects only subsequent reporting periods.
B) A subsequent event is,in some cases,reflected in the statements of the preceding period.
C) A subsequent event may occur any time after financial statements are issued.
D) A subsequent event is not covered by the independent auditor's report.

Question 24

Barron Co.'s current ratio is 2:1.Which of the following transactions would normally increase Barney's current ratio?

A) Purchasing inventory on account
B) Borrowing money by signing a long-term note
C) Collecting an account receivable
D) Purchasing land for cash

Question 25

Goddard Corporation's trial balance contained the following account balances at December 31,2014: On Goddard's December 31,2014,balance sheet,the current assets total should be

A) $189,000.
B) $201,000.
C) $219,000.
D) $243,000.

Question 26

The following data were taken from the financial statements of Howard Corporation for the year ended December 31,2014: What was Howard's rate of return on assets for 2014?

A) 5 percent
B) 6 percent
C) 20 percent
D) 24 percent

Question 27

Helena Co.began operations on January 1,2014,with $100,000 from the issuance of stock and borrowed funds of $15,000.Net income for 2014 was $5,000 and Helena paid a $400 cash dividend on December 15.No additional activities affected owners' equity in 2014.At December 31,2014,Helena's liabilities had increased to $18,800.In Helena's December 31,2014,balance sheet,total assets should be reported at

A) $119,600.
B) $120,000.
C) $123,400.
D) $138,400.

Question 28

Songbird Corporation's trial balance included the following account balances at December 31,2014: What amount should be included in the current liability section of Songbird's December 31,2014,balance sheet?

A) $135,000
B) $153,000
C) $195,000
D) $234,000

Question 29

The December 31,2014,balance sheet of Giorgio Inc. ,reported total assets of $1,050,000 and total liabilities of $680,000.The following information relates to the year 2015: The stockholders' equity section of the December 31,2015,balance sheet would report a balance of

A) $400,000.
B) $685,000.
C) $525,000.
D) $835,000.

Question 30

The accounts and balances shown below were gathered from Pastel Corporation's trial balance on December 31,2014.All adjusting entries have been made.

See information for Pastel Corporation above.Pastel Corporation's working capital is

A) $77,700.
B) $73,100.
C) $62,500.
D) $125,700.

Question 31

The accounts and balances shown below were gathered from Pastel Corporation's trial balance on December 31,2014.All adjusting entries have been made.

See information for Pastel Corporation above.The amount that should be reported as current liabilities on Pastel Corporation's balance sheet is

A) $73,200.
B) $91,800.
C) $87,200.
D) $238,800.

Question 32

Which of the following generally is considered a limitation of the balance sheet?

A) The balance sheet reflects the current value of a business.
B) The balance sheet reflects the instability of the dollar.
C) Balance sheet formats and classifications do not vary to reflect industry differences.
D) Due to measurement s,some enterprise resources and obligations are not reported on the balance sheet.

Question 33

Wolfe Co.was incorporated on July 1,2014,with $200,000 from the issuance of stock and borrowed funds of $30,000.During the first year of operations,net income was $10,000.On December 15,Wolfe paid an $800 cash dividend.No additional activities affected owners' equity in 2014.At December 31,2014,Wolfe's liabilities had increased to $37,600.In Wolfe's December 31,2014,balance sheet,total assets should be reported at

A) $239,200.
B) $240,000.
C) $246,800.
D) $276,800.

Question 34

The accounts and balances shown below were gathered from Primer Corporation's trial balance on December 31,2014.All adjusting entries have been made. The amount that should be reported as current assets on Primer Corporation's balance sheet is

A) $151,300.
B) $164,900.
C) $217,300.
D) $267,300.

Question 35

Volta Electronics Inc.reported the following items on its December 31,2014,trial balance: The amount that should be recorded on Volta's balance sheet as total liabilities is

A) $696,000.
B) $700,500.
C) $703,500.
D) $741,000.

Question 36

Sonar Company prepared a draft of its 2014 balance sheet.The draft statement reported total assets of $437,500.Included in this total assets figure were the following items: At which amount should Sonar' total assets be correctly reported in the December 31,2014,balance sheet?

A) $420,850
B) $421,300
C) $425,050
D) $425,500

Question 37

Hawk Corp.prepared a draft of its 2014 balance sheet.The draft statement reported current liabilities totaling $200,000.However,none of the following items were included in this preliminary total at December 31,2014: At which amount should Hawk's current liabilities be correctly reported in the December 31,2014,balance sheet?

A) $230,000
B) $290,000
C) $296,000
D) $302,000

Question 38

The operating cycle

A) measures the time elapsed between cash disbursement for inventory and cash collection of the sales price.
B) refers to the seasonal variations experienced by business enterprises.
C) should be used to classify assets and liabilities as current if it is less than one year.
D) cannot exceed one year.

Question 39

Major Co.'s adjusted trial balance at December 31,2014,includes the following account balances: What amount should Major report as total stockholders' equity in its December 31,2014,balance sheet?

A) $1,008,000
B) $1,032,000
C) $1,068,000
D) $1,092,000

Question 40

Southeast Company's adjusted trial balance at December 31,2015,includes the following account balances: What amount should Southeast report as total owners' equity in its December 31,2015,balance sheet?

A) $840,000
B) $860,000
C) $890,000
D) $910,000

Question 41

Account balances and supplemental information for the Alain Corporation as of December 31,2015,are given below:
Prepare a properly classified balance sheet in report form for Alain Corporation as of December 31,2015.

Question 42

McCallister,Inc. ,a nonpublic enterprise,is negotiating a loan for expansion purposes and the bank requires audited financial statements.Before closing the accounting records for the year ended December 31,2015,McCallister' controller prepared the following comparative financial statements for 2015 and 2014:
During the audit,the following additional information was obtained:

Question 43

Which item describes whether the following accounts would be included in the calculation of the acid-test (quick)ratio? Accounts Receivable Inventories

A) No No
B) No Yes
C) Yes No
D) Yes Yes

Question 44

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?

A) Only I above.
B) Both II and III above.
C) Both I and III above.
D) Only III above.

Question 45

Laramie Corporation was organized on January 3,2015.Laramie was authorized to issue 50,000 shares of common stock with a par value of $10 per share.On January 4,Laramie issued 30,000 shares of common stock at $25 per share.On July 15,Laramie issued an additional 10,000 shares at $20 per share.Laramie reported income of $33,000 during 2015.In addition,Laramie declared a dividend of $.50 per share on December 31,2015.
See Laramie Corporation information above.The amount reported on Laramie Corporation's December 31,2015,balance sheet as additional paid-in capital was

A) $400,000.
B) $550,000.
C) $563,000.
D) $950,000.

Question 46

In relation to a set of 2015 basic financial statements,a subsequent event is one that

A) occurs before the 2015 financial statements are issued.
B) involves uncertainty as to possible gain or loss that will ultimately be resolved in 2016 or later.
C) occurs after the 2015 financial statements are issued.
D) requires an appropriate adjusting entry to be made as of the end of 2015.

Question 47

Laramie Corporation was organized on January 3,2015.Laramie was authorized to issue 50,000 shares of common stock with a par value of $10 per share.On January 4,Laramie issued 30,000 shares of common stock at $25 per share.On July 15,Laramie issued an additional 10,000 shares at $20 per share.Laramie reported income of $33,000 during 2015.In addition,Laramie declared a dividend of $.50 per share on December 31,2015.
See Laramie Corporation information above.The amount reported on Laramie Corporation's December 31,2015,balance sheet as stockholders' equity was

A) $400,000.
B) $550,000.
C) $950,000.
D) $963,000.

Question 48

Which of the following statements regarding intangible assets is NOT correct?

A) Intangible assets represent long-term rights and privileges of a nonphysical nature.
B) Intangible assets should be amortized over a period not to exceed 40 years.
C) Intangible assets must be tested regularly to determine if their value has been impaired.
D) A trademark is an example of an intangible asset.

Question 49

Below are selected accounts and their balances for the Beehive Company as of December 31,2015:
Based on the above information,determine the amount of working capital at December 31,2015.

Question 50

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?

A) Both result in the valuation of their related asset account at net realizable value.
B) Accumulated depreciation deducted from the related asset account shows the unallocated portion of the historical cost of the related asset.
C) Accumulated depreciation deducted from the related asset account shows the net realizable value of the related asset.
D) Accumulated depreciation deducted from the related asset account shows the current replacement cost of the related asset.

Question 51

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

A) Net income divided by sales
B) Net income divided by total assets
C) Sales divided by total assets
D) Sales divided by stockholders' equity

Question 52

An operating cycle

A) is twelve months or less in length.
B) is the average time required for a company to collect its receivables.
C) is used to determine current assets when the operating cycle is longer than one year.
D) starts with inventory and ends with cash.

Question 53

The disclosure of accounting policies

A) may describe policies that are peculiar to the reporting company's industry.
B) should not appear in the notes to the financial statements.
C) should not describe unusual or innovative applications of GAAP.
D) is encouraged but not required.

Question 54

Treasury stock should be reported

A) as a current asset only if it will be sold within the next year or the operating cycle,whichever is longer.
B) as a current asset only if it will be sold within the next year or the operating cycle,whichever is shorter.
C) in the Investments and Funds section of the balance sheet.
D) as a deduction from total stockholders' equity on the balance sheet.

Question 55

What is the effect of the collection of accounts receivable on the current ratio and net working capital,respectively? Current Ratio Net Working Capital

A) No effect No effect
B) Increase Increase
C) Increase No effect
D) No effect Increase

Question 56

The term "deficit" refers to

A) an excess of current assets over current liabilities.
B) an excess of current liabilities over current assets.
C) a debit balance in Retained Earnings.
D) a loss that is reported as a prior period adjustment.

Question 57

Which of the following items would normally be excluded from the computation of working capital?

A) Advances from customers for goods that will be shipped three months after the balance sheet date
B) The portion of long-term debt that matures six months after the balance sheet date and will be paid from the regular cash account
C) Prepaid insurance
D) Cash surrender value of life insurance

Question 58

In a consolidated balance sheet,the minority interest is reported

A) as part of long-term liabilities.
B) between liabilities and stockholders' equity
C) as part of stockholders' equity.
D) as part of long-term assets.

Question 59

Which of the following items is usually classified as a noncurrent asset?

A) Prepaid rent
B) Plant expansion fund
C) Supplies
D) Goods that are in the process of being completed for another company

Question 60

Which of the following is not true regarding reserves that appear in the equity section of the balance sheet of foreign companies?

A) Reserves represent cash set aside to fund capital projects.
B) Reserves are different categories found in the equity section of the balance sheet.
C) The balances in reserve accounts can affect an entity's legal ability to pay cash dividends.
D) An extensive description of each reserve shown on the balance sheet is provided.

Question 61

The following information pertains to Sensei Company on December 31,2014:
Required:
Prepare the property,plant,and equipment section of Sensei Company's balance sheet on December 31,2014.

Question 62

The following information pertains to Tanya Company on December 31,2014:
Required:
Prepare the stockholders' equity section of Tanya Company's balance sheet on December 31,2014.

Question 63

The following totals are taken from the December 31,2014,balance sheet of Roanoke Company:
Additional information:
After making any necessary changes,what are the totals for Roanoke's long-term assets and long-term liabilities?

Question 64

The following balance sheet was prepared by the accountant for Lawnwood Farms Corp.:
Additional information:
(c)
Using the balance sheet and the additional information,prepare a properly classified and corrected balance sheet.

Question 65

Bowman Company reported assets totaling $870,000 as of December 31,2014.The following information relates to those assets:
After considering the items above,what should be the total of Bowman's reported assets?

Question 66

Heartland Company reported liabilities totaling $1,230,000 as of December 31,2014.The following information relates to those liabilities:
After considering these items,what should be the total of Heartland' reported liabilities?

Question 67

The following totals are taken from the December 31,2015,balance sheet of Mentor Company:
Additional information:
After making any necessary changes,what are the totals for Mentor's current assets and current liabilities?