IFRS questions are availale at t!e en" o# t!is $!a%ter& TR'E(FALSE)Con$e%tual Ans*er No& Des$ri%tion F 1. Liquidity and solvency. T 2. Limitations of the balance sheet. T 3. Definition of financial flexibility. T 4. Long-tem liability disclosues. F !. Definitions of the balance sheet. F ". Land held fo s#eculation. T $. %alance sheet fomat. F &. Disclosue of fai values. F '. Disclosue of com#any o#eations and estimates. T 1(. Disclosue of #etinent infomation. F 11. )se of the tem eseve. F 12. *d+unct account. F 13. ,u#ose of statement of cash flo-s. F 14. .tatement of cash flo-s e#oting. T 1!. Financial flexibility. T 1". /ollection of a loan. T 1$. Detemining cash #ovided by o#eating activities. F 1&. 0e#oting significant financing and investing activities. T 1'. /uent cash debt coveage atio. F 2(. 0e#oting othe com#ehensive income. M'LTIPLE CHOICE)Con$e%tual Ans*er No& Des$ri%tion d 21. Limitation of the balance sheet. c 22. )ses of the balance sheet. b 23. )se of balance sheet infomation. d 24. )se of balance sheet infomation. d 2!. Limitation of the balance sheet. c . 2". )ses of the balance sheet. b . 2$. /iticisms of the balance sheet. c , 2&. Definition of liquidity. d 2'. Definition of net assets. b 3(. /uent assets #esentation. b 31. 1#eating cycle. d 32. 1#eating cycle. d 33. 2dentification of cuent asset. d 34. 2dentification of cuent asset. d 3!. 2dentification of cuent asset. d 3". /lassification of shot-tem investments. c 3$. /lassification of inventoy #ledged as secuity. Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition M'LTIPLE CHOICE)Con$e%tual /$ont&0 Ans*er No& Des$ri%tion b 3&. 2dentification of long-tem investments. d 3'. 2dentification of valuation methods. b 4(. 2dentification of cuent liabilities. d 41. Definition of -o3ing ca#ital. b 42. 2dentification of -o3ing ca#ital items. d 43. 2dentification of long-tem liabilities. d 44. 2dentification of long-tem liabilities. d 4!. /lassification of teasuy stoc3. d 4". Disclosues fo common stoc3. d 4$. /lassification of investment in affiliate. c 4&. /lassification of o-nes4 equity. d 4'. /lassification of assets. d , !(. 2dentification of conta account. d . !1. %alance sheet su##lementay disclosue. d !2. Long-tem liabilities4 disclosue. b !3. %alance sheet su##lementay disclosue. c !4. Disclosue of contactual situations. d !!. Disclosue of accounting #olicies. d !". /ontingency e#oted in financial statement notes. d !$. 5ethods of disclosue. d !&. Disclosue of significant accounting #olicies. d !'. Disclosue of de#eciation methods used. d "(. 0equied notes to the financial statements. b "1. 2dentification of geneally acce#ted account titles. c "2. ,u#ose of the statement of cash flo-s. c . "3. .tatement of cash flo-s ans-es. c "4. .tatement of cash flo-s e#oting. b "!. .tatement of cash flo-s ob+ective. d "". 0e#oting issuance of stoc3 fo machine. d "$. 2dentify a financing activity. b "&. /lassification of cash ecei#ts. b "'. 2dentify a financing activity. c $(. /ash flo- fom o#eating activities. a $1. 2dentify an investing activity. d $2. ,e#aing the statement of cash flo-s. b $3. /ash debt coveage atio. b $4. /uent cash debt coveage atio. d $!. Financial flexibility measue. c $". /alculation of fee cash flo-. b . $$. Desci#tion of financial flexibility. b , $&. /ash debt coveage atio. , 6ote7 these questions also a##ea in the ,oblem-.olving .uvival 8uide. . 6ote7 these questions also a##ea in the .tudy 8uide. 5 ( 1 %alance .heet and .tatement of /ash Flo-s M'LTIPLE CHOICE)Co,%utational Ans*er No& Des$ri%tion c $'. /lassifying investments. a &(. 2dentifying intangible assets b &1. /alculate total stoc3holdes9 equity. d &2. /lassifying investments. a &3. 2dentifying intangible assets. b &4. /alculate total stoc3holdes9 equity. c &!. /alculate beginning stoc3holdes9 equity. c &". /alculate ending stoc3holdes9 equity. d &$. /alculate net income. b &&. /alculate ending cash balance. b &'. /alculate ending cash balance. a '(. /alculate cash #ovided by o#eating activities. c '1. /ash #ovided by o#eating activities. c '2. /ash #ovided by o#eating activities. a '3. /ash debt coveage atio. b '4. Fee cash flo-. a '!. /ash debt coveage atio. b '". Fee cash flo-. M'LTIPLE CHOICE)CPA A"a%te" Ans*er No& Des$ri%tion d '$. /alculate total cuent assets. d '&. /alculate total cuent assets. a ''. /alculate total cuent liabilities. c 1((. /alculate etained eanings balance. b 1(1. /alculate cuent and long-tem liabilities. c 1(2. .ummay of significant accounting #olicies. c 1(3. /lassification of investing activity. a 1(4. /lassification of o#eating activity. d 1(!. /lassification of financing activity. b 1(". /lassification of investing activity. E2ERCISES Ite, Des$ri%tion :!-1($ Definitions. :!-1(& Teminology. :!-1(' /uent assets. :!-11( *ccount classification. :!-111 ;aluation of balance sheet items. :!-112 %alance sheet classifications. :!-113 %alance sheet classifications. :!-114 %alance sheet classifications. :!-11! .tatement of cash flo-s. :!-11" .tatement of cash flo-s atios. 5 ( 3 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition PROBLEMS Ite, Des$ri%tion ,!-11$ %alance sheet fomat. ,!-11& %alance sheet #e#aation. ,!-11' %alance sheet #esentation. ,!-12( .tatement of cash flo-s #e#aation. ,!-121 .tatement of cash flo-s #e#aation. CHAPTER LEARNIN4 OB5ECTI6ES 1. :x#lain the uses and limitations of a balance sheet. 2. 2dentify the ma+o classifications of the balance sheet. 3. ,e#ae a classified balance sheet using the e#ot and account fomats. 4. Detemine -hich balance sheet infomation equies su##lemental disclosue. !. Descibe the ma+o disclosue techniques fo the balance sheet. ". 2ndicate the #u#ose of the statement of cash flo-s. $. 2dentify the content of the statement of cash flo-s. &. ,e#ae a basic statement of cash flo-s. '. )ndestand the usefulness of the statement of cash flo-s. 5 ( 7 %alance .heet and .tatement of /ash Flo-s S'MMAR8 OF LEARNIN4 OB5ECTI6ES B8 9'ESTIONS Item Type Item Type Item Type Item Type Item Type Item Type Item Type Learnin- O:e$tive ; 1. TF 3. TF 22. 5/ 24. 5/ . 2". 5/ , 2&. 5/ 2. TF 21. 5/ 23. 5/ 2!. 5/ . 2$. 5/ Learnin- O:e$tive 1 4. TF 33. 5/ 4(. 5/ 4$. 5/ &3. 5/ 1($. : 114. : !. TF 34. 5/ 41. 5/ 4&. 5/ &4. 5/ 1(&. : 11$. , ". TF 3!. 5/ 42. 5/ 4'. 5/ '$. 5/ 1('. : 11&. , 2'. 5/ 3". 5/ 43. 5/ $'. 5/ '&. 5/ 11(. : 3(. 5/ 3$. 5/ 44. 5/ &(. 5/ ''. 5/ 111. : 31. 5/ 3&. 5/ 4!. 5/ &1. 5/ 1((. 5/ 112. : 32. 5/ 3'. 5/ 4". 5/ &2. 5/ 1(1. 5/ 113. : Learnin- O:e$tive 3 $. TF , !(. 5/ &!. 5/ &". 5/ &$. 5/ Learnin- O:e$tive 7 &. TF !2. 5/ !!. 5/ 1($. : 112. : '. TF !3. 5/ !". 5/ 1(&. : 114. : . !1. 5/ !4. 5/ 1(2. 5/ 11(. : 11$. , Learnin- O:e$tive 5 1(. TF 12. TF !&. 5/ "(. 5/ 11. TF !$. 5/ !'. 5/ "1. 5/ Learnin- O:e$tive < 13. TF 14. TF "2. 5/ . "3. 5/ "4. 5/ "!. 5/ Learnin- O:e$tive = 1!. TF "$. 5/ $(. 5/ &'. 5/ 1(4. 5/ 11!. : 1". TF "&. 5/ $1. 5/ '(. 5/ 1(!. 5/ "". 5/ "'. 5/ &&. 5/ 1(3. 5/ 1(". 5/ Learnin- O:e$tive > 1$. TF 1&. TF $2. 5/ '1. 5/ '2. 5/ Learnin- O:e$tive ? 1'. TF $3. 5/ $!. 5/ . $$. 5/ '3. 5/ '!. 5/ 11". : 2(. TF $4. 5/ $". 5/ , $&. 5/ '4. 5/ '". 5/ 6ote7 TF < Tue-False : < :xecise 5/ < 5ulti#le /hoice , < ,oblem 5 ( 5 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition TR'E FALSE)Con$e%tual 1. Liquidity efes to the ability of an ente#ise to #ay its debts as they matue. 2. The balance sheet omits many items that ae of financial value to the business but cannot be ecoded ob+ectively. 3. Financial flexibility measues the ability of an ente#ise to ta3e effective actions to alte the amounts and timing of cash flo-s. 4. /om#anies fequently descibe the tems of all long-tem liability ageements in notes to the financial statements. !. *n asset -hich is ex#ected to be conveted into cash= sold= o consumed -ithin one yea of the balance sheet date is al-ays e#oted as a cuent asset. ". Land held fo s#eculation is e#oted in the #o#ety= #lant= and equi#ment section of the balance sheet. $. The account fom and the e#ot fom of the balance sheet ae both acce#table unde 8**,. &. %ecause of the histoical cost #inci#le= fai values may not be disclosed in the balance sheet. '. /om#anies have the o#tion of disclosing infomation about the natue of thei o#eations and the use of estimates in #e#aing financial statements. 1(. /om#anies may use #aenthetical ex#lanations= notes= coss efeences= and su##oting schedules to disclose #etinent infomation. 11. The accounting #ofession has ecommended that com#anies use the -od eseve only to descibe amounts deducted fom assets. 12. 1n the balance sheet= an ad+unct account educes eithe an asset= a liability= o an o-nes9 equity account. 13. The #imay #u#ose of a statement of cash flo-s is to e#ot the cash effects of o#eations duing a #eiod. 14. The statement of cash flo-s e#ots only the cash effects of o#eations duing a #eiod and financing tansactions. 1!. Financial flexibility is a com#any9s ability to es#ond and ada#t to financial advesity and unex#ected needs and o##otunities. 1". /ollection of a loan is e#oted as an investing activity in the statement of cash flo-s. 1$. /om#anies detemine cash #ovided by o#eating activities by conveting net income on an accual basis to a cash basis. 5 ( < %alance .heet and .tatement of /ash Flo-s 1&. .ignificant financing and investing activities that do not affect cash ae not e#oted in the statement of cash flo-s o any othe #lace. 1'. Financial statement eades often assess liquidity by using the cuent cash debt coveage atio. 2(. Fee cash flo- is net income less ca#ital ex#enditues and dividends. True False Ans*ers)Con$e%tual Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& 1. F ". F 11. F 1". T 2. T $. T 12. F 1$. T 3. T &. F 13. F 1&. F 4. T '. F 14. F 1'. T !. F 1(. T 1!. T 2(. F M'LTIPLE CHOICE)Con$e%tual 21. >hich of the follo-ing is a limitation of the balance sheet? a. 5any items that ae of financial value ae omitted. b. @udgments and estimates ae used. c. /uent fai value is not e#oted. d. *ll of these 22. The balance sheet is useful fo analyAing all of the follo-ing exce#t a. liquidity. b. solvency. c. #ofitability. d. financial flexibility. 23. %alance sheet infomation is useful fo all of the follo-ing exce#t to a. com#ute ates of etun b. analyAe cash inflo-s and outflo-s fo the #eiod c. evaluate ca#ital stuctue d. assess futue cash flo-s 24. %alance sheet infomation is useful fo all of the follo-ing exce#t a. assessing a com#any4s is3 b. evaluating a com#any4s liquidity c. evaluating a com#any4s financial flexibility d. detemining fee cash flo-s. 5 ( = Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 2!. * limitation of the balance sheet that is not also a limitation of the income statement is a. the use of +udgments and estimates b. omitted items c. the numbes ae affected by the accounting methods em#loyed d. valuation of items at histoical cost . 2". The balance sheet contibutes to financial e#oting by #oviding a basis fo all of the follo-ing except a. com#uting ates of etun. b. evaluating the ca#ital stuctue of the ente#ise. c. detemining the incease in cash due to o#eations. d. assessing the liquidity and financial flexibility of the ente#ise. . 2$. 1ne citicism not nomally aimed at a balance sheet #e#aed using cuent accounting and e#oting standads is a. failue to eflect cuent value infomation. b. the extensive use of se#aate classifications. c. an extensive use of estimates. d. failue to include items of financial value that cannot be ecoded ob+ectively. , 2&. The amount of time that is ex#ected to ela#se until an asset is ealiAed o othe-ise conveted into cash is efeed to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability. 2'. The net assets of a business ae equal to a. cuent assets minus cuent liabilities. b. total assets #lus total liabilities. c. total assets minus total stoc3holdes4 equity. d. none of these. 3(. The coect ode to #esent cuent assets is a. cash= accounts eceivable= #e#aid items= inventoies. b. cash= accounts eceivable= inventoies= #e#aid items. c. cash= inventoies= accounts eceivable= #e#aid items. d. cash= inventoies= #e#aid items= accounts eceivable. 31. The basis fo classifying assets as cuent o noncuent is convesion to cash -ithin a. the accounting cycle o one yea= -hicheve is shote. b. the o#eating cycle o one yea= -hicheve is longe. c. the accounting cycle o one yea= -hicheve is longe. d. the o#eating cycle o one yea= -hicheve is shote. 32. The basis fo classifying assets as cuent o noncuent is the #eiod of time nomally equied by the accounting entity to convet cash invested in a. inventoy bac3 into cash= o 12 months= -hicheve is shote. b. eceivables bac3 into cash= o 12 months= -hicheve is longe. c. tangible fixed assets bac3 into cash= o 12 months= -hicheve is longe. d. inventoy bac3 into cash= o 12 months= -hicheve is longe. 5 ( > %alance .heet and .tatement of /ash Flo-s 33. The cuent assets section of the balance sheet should include a. machiney. b. #atents. c. good-ill. d. inventoy. 34. >hich of the follo-ing is a cuent asset? a. /ash suende value of a life insuance #olicy of -hich the com#any is the bene- ficiay. b. 2nvestment in equity secuities fo the #u#ose of contolling the issuing com#any. c. /ash designated fo the #uchase of tangible fixed assets. d. Tade installment eceivables nomally collectible in 1& months. 3!. >hich of the follo-ing should not be consideed as a cuent asset in the balance sheet? a. 2nstallment notes eceivable due ove 1& months in accodance -ith nomal tade #actice. b. ,e#aid taxes -hich cove assessments of the follo-ing o#eating cycle of the business. c. :quity o debt secuities #uchased -ith cash available fo cuent o#eations. d. The cash suende value of a life insuance #olicy caied by a co#oation= the beneficiay= on its #esident. 3". :quity o debt secuities held to finance futue constuction of additional #lants should be classified on a balance sheet as a. cuent assets. b. #o#ety= #lant= and equi#ment. c. intangible assets. d. long-tem investments. 3$. >hen a #otion of inventoies has been #ledged as secuity on a loan= a. the value of the #otion #ledged should be subtacted fom the debt. b. an equal amount of etained eanings should be a##o#iated. c. the fact should be disclosed but the amount of cuent assets should not be affected. d. the cost of the #ledged inventoies should be tansfeed fom cuent assets to noncuent assets. 3&. >hich of the follo-ing is not a long-tem investment? a. /ash suende value of life insuance b. Fanchise c. Land held fo s#eculation d. * sin3ing fund 3'. * geneally acce#ted method of valuation is 1. tading secuities at ma3et value. 2. accounts eceivable at net ealiAable value. 3. inventoies at cuent cost. a. 1 b. 2 c. 3 d. 1 and 2 5 ( ? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 4(. >hich item belo- is not a cuent liability? a. )neaned evenue b. .toc3 dividends distibutable c. The cuently matuing #otion of long-tem debt d. Tade accounts #ayable 41. >o3ing ca#ital is a. ca#ital -hich has been einvested in the business. b. una##o#iated etained eanings. c. cash and eceivables less cuent liabilities. d. none of these. 42. *n exam#le of an item -hich is not an element of -o3ing ca#ital is a. accued inteest on notes eceivable. b. good-ill. c. goods in #ocess. d. tem#oay investments. 43. Long-tem liabilities include a. obligations not ex#ected to be liquidated -ithin the o#eating cycle. b. obligations #ayable at some date beyond the o#eating cycle. c. defeed income taxes and most lease obligations. d. all of these. 44. >hich of the follo-ing should be excluded fom long-tem liabilities? a. 1bligations #ayable at some date beyond the o#eating cycle b. 5ost #ension obligations c. Long-tem liabilities that matue -ithin the o#eating cycle and -ill be #aid fom a sin3ing fund d. 6one of these 4!. Teasuy stoc3 should be e#oted as aBnC a. cuent asset. b. investment. c. othe asset. d. eduction of stoc3holdes4 equity. 4". >hich of the follo-ing should be e#oted fo ca#ital stoc3? a. The shaes authoiAed b. The shaes issued c. The shaes outstanding d. *ll of these 4$. >hich of the follo-ing -ould be classified in a diffeent ma+o section of a balance sheet fom the othes? a. /a#ital stoc3 b. /ommon stoc3 subscibed c. .toc3 dividend distibutable d. .toc3 investment in affiliate 5 ( ;@ %alance .heet and .tatement of /ash Flo-s 4&. The stoc3holdes4 equity section is usually divided into -hat thee #ats? a. ,efeed stoc3= common stoc3= teasuy stoc3 b. ,efeed stoc3= common stoc3= etained eanings c. /a#ital stoc3= additional #aid-in ca#ital= etained eanings d. /a#ital stoc3= a##o#iated etained eanings= una##o#iated etained eanings 4'. >hich of the follo-ing is not an acce#table ma+o asset classification? a. /uent assets b. Long-tem investments c. ,o#ety= #lant= and equi#ment d. Defeed chages , !(. >hich of the follo-ing is a conta account? a. ,emium on bonds #ayable b. )neaned evenue c. ,atents d. *ccumulated de#eciation . !1. >hich of the follo-ing balance sheet classifications -ould nomally equie the geatest amount of su##lementay disclosue? a. /uent assets b. /uent liabilities c. ,lant assets d. Long-tem liabilities !2. The #esentation of long-tem liabilities in the balance sheet should disclose a. matuity dates. b. inteest ates. c. convesion ights. d. *ll of the above. !3. >hich of the follo-ing is not a equied su##lemental disclosue fo the balance sheet? a. /ontingencies b. Financial foecasts c. *ccounting #olicies d. /ontactual situations !4. Ty#ical contactual situations that ae disclosed in the notes to the balance sheet include all of the follo-ing exce#t a. debt covenants b. lease obligations c. advetising contacts d. #ension obligations !!. *ccounting #olicies disclosed in the notes to the financial statements ty#ically include all of the follo-ing exce#t a. the cost flo- assum#tion used b. the de#eciation methods used c. significant estimates made d. significant inventoy #uchasing #olicies 5 ( ;; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition !". >hich of the follo-ing best exem#lifies a contingency that is e#oted in the notes to the financial statements? a. Losses fom #otential futue la-suits b. Loss fom a la-suit settled out of cout #io to the end of the fiscal yea c. >aanty claims on futue sales d. :stimated loss fom an ongoing la-suit !$. >hich of the follo-ing is not a method of disclosing #etinent infomation? a. .u##oting schedules b. ,aenthetical ex#lanations c. /oss efeence and conta items d. *ll of these ae methods of disclosing #etinent infomation. !&. .ignificant accounting #olicies may not be a. selected on the basis of +udgment. b. selected fom existing acce#table altenatives. c. unusual o innovative in a##lication. d. omitted fom financial-statement disclosue. !'. * geneal desci#tion of the de#eciation methods a##licable to ma+o classes of de#eci- able assets a. is not a cuent #actice in financial e#oting. b. is not essential to a fai #esentation of financial #osition. c. is needed in financial e#oting -hen com#any #olicy diffes fom income tax #olicy. d. should be included in co#oate financial statements o notes theeto. "(. 2t is mandatoy that the essential #ovisions of -hich of the follo-ing be clealy stated in the notes to the financial statements? a. .toc3 o#tion #lans b. ,ension obligations c. Lease contacts d. *ll of these "1. * geneally acce#ted account title is a. ,e#aid 0evenue. b. *##o#iation fo /ontingencies. c :aned .u#lus. d. 0eseve fo Doubtful *ccounts. "2. The financial statement -hich summaiAes o#eating= investing= and financing activities of an entity fo a #eiod of time is the a. etained eanings statement. b. income statement. c. statement of cash flo-s. d. statement of financial #osition. . "3. The statement of cash flo-s #ovides ans-es to all of the follo-ing questions except a. -hee did the cash come fom duing the #eiod? b. -hat -as the cash used fo duing the #eiod? c. -hat is the im#act of inflation on the cash balance at the end of the yea? d. -hat -as the change in the cash balance duing the #eiod? 5 ( ;1 %alance .heet and .tatement of /ash Flo-s "4. The statement of cash flo-s e#ots all of the follo-ing exce#t a. the net change in cash fo the #eiod. b. the cash effects of o#eations duing the #eiod. c. the fee cash flo-s geneated duing the #eiod. d. investing tansactions. "!. The statement of cash flo-s hel#s meet one of the ob+ectives of financial e#oting= -hich is to assess all of the follo-ing exce#t the a. amount of futue cash flo-s. b. souce of futue cash flo-s. c. timing of futue cash flo-s. d. uncetainty of futue cash flo-s. "". 2f common stoc3 -as issued to acquie an D&=((( machine= ho- -ould the tansaction a##ea on the statement of cash flo-s? a. 2t -ould de#end on -hethe you ae using the diect o the indiect method. b. 2t -ould be a #ositive D&=((( in the financing section and a negative D&=((( in the investing section. c. 2t -ould be a negative D&=((( in the financing section and a #ositive D&=((( in the investing section. d. 2t -ould not a##ea on the statement of cash flo-s but athe on a schedule of noncash investing and financing activities. "$. >hich of the follo-ing events -ill a##ea in the cash flo-s fom financing activities section of the statement of cash flo-s? a. /ash #uchases of equi#ment. b. /ash #uchases of bonds issued by anothe com#any. c. /ash eceived as e#ayment fo funds loaned. d. /ash #uchase of teasuy stoc3. "&. 5a3ing and collecting loans and dis#osing of #o#ety= #lant= and equi#ment ae a. o#eating activities. b. investing activities. c. financing activities. d. liquidity activities. "'. 2n #e#aing a statement of cash flo-s= sale of teasuy stoc3 at an amount geate than cost -ould be classified as aBnC a. o#eating activity. b. financing activity. c. extaodinay activity. d. investing activity. $(. 2n #e#aing a statement of cash flo-s= cash flo-s fom o#eating activities a. ae al-ays equal to accual accounting income. b. ae calculated as the diffeence bet-een evenues and ex#enses. c. can be calculated by a##o#iately adding to o deducting fom net income those items in the income statement that do not affect cash. d. can be calculated by a##o#iately adding to o deducting fom net income those items in the income statement that do affect cash. 5 ( ;3 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition $1. 2n #e#aing a statement of cash flo-s= -hich of the follo-ing tansactions -ould be consideed an investing activity? a. .ale of equi#ment at boo3 value b. .ale of mechandise on cedit c. Declaation of a cash dividend d. 2ssuance of bonds #ayable at a discount $2. ,e#aing the statement of cash flo-s involves all of the follo-ing exce#t detemining the a. cash #ovided by o#eations. b. cash #ovided by o used in investing and financing activities. c. change in cash duing the #eiod. d. cash collections fom customes duing the #eiod. $3. The cash debt coveage atio is com#uted by dividing net cash #ovided by o#eating activities by a. aveage long-tem liabilities. b. aveage total liabilities. c. ending long-tem liabilities. d. ending total liabilities. $4. The cuent cash debt coveage atio is often used to assess a. financial flexibility. b. liquidity. c. #ofitability. d. solvency. $!. * measue of a com#any9s financial flexibility is the a. cash debt coveage atio. b. cuent cash debt coveage atio. c. fee cash flo-. d. cash debt coveage atio and fee cash flo-. $". Fee cash flo- is calculated as net cash #ovided by o#eating activities less a. ca#ital ex#enditues. b. dividends. c. ca#ital ex#enditues and dividends. d. ca#ital ex#enditues and de#eciation. . $$. 1ne of the benefits of the statement of cash flo-s is that it hel#s uses evaluate financial flexibility. >hich of the follo-ing ex#lanations is a desci#tion of financial flexibility? a. The neaness to cash of assets and liabilities. b. The fim4s ability to es#ond and ada#t to financial advesity and unex#ected needs and o##otunities. c. The fim4s ability to #ay its debts as they matue. d. The fim4s ability to invest in a numbe of #o+ects -ith diffeent ob+ectives and costs. , $&. 6et cash #ovided by o#eating activities divided by aveage total liabilities equals the a. cuent cash debt coveage atio. b. cash debt coveage atio. c. fee cash flo-. d. cuent atio. 5 ( ;7 %alance .heet and .tatement of /ash Flo-s Multi%le C!oi$e Ans*ers)Con$e%tual Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& 21. d 3(. b 3'. d 4&. c !$. d "". d $!. d 22. c 31. b 4(. b 4'. d !&. d "$. d $". c 23. b 32. d 41. d !(. d !'. d "&. b $$. b 24. d 33. d 42. b !1. d "(. d "'. b $&. b 2!. d 34. d 43. d !2. d "1. b $(. c 2". c 3!. d 44. d !3. b "2. c $1. a 2$. b 3". d 4!. d !4. c "3. c $2. d 2&. c 3$. c 4". d !!. d "4. c $3. b 2'. d 3&. b 4$. d !". d "!. b $4. b .olutions to those 5ulti#le /hoice questions fo -hich the ans-e is Enone of these.F 2'. Total assets minus total liabilities. 41. /uent assets less cuent liabilities. 44. 5any ans-es ae #ossible. M'LTIPLE CHOICE)Co,%utational $'. Fulton /om#any o-ns the follo-ing investments7 Tading secuities Bfai valueC D"(=((( *vailable-fo-sale secuities Bfai valueC 3!=((( Geld-to-matuity secuities BamotiAed costC 4$=((( Fulton -ill e#ot investments in its cuent assets section of a. D(. b. exactly D"(=(((. c. D"(=((( o an amount geate than D"(=(((= de#ending on the cicumstances. d. exactly D'!=(((. &(. Fo 8immett /om#any= the follo-ing infomation is available7 /a#italiAed leases D2((=((( Tadema3s "!=((( Long-tem eceivables $!=((( 2n 8immett9s balance sheet= intangible assets should be e#oted at a. D"!=(((. b. D$!=(((. c. D2"!=(((. d. D2$!=(((. &1. Goughton /om#any has the follo-ing items7 common stoc3= D$2(=(((H teasuy stoc3= D&!=(((H defeed taxes= D1((=((( and etained eanings= D313=(((. >hat total amount should Goughton /om#any e#ot as stoc3holdes9 equity? a. D&4&=(((. b. D'4&=(((. c. D1=(4&=(((. d. D1=11&=(((. 5 ( ;5 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition &2. Iohle /om#any o-ns the follo-ing investments7 Tading secuities Bfai valueC D "(=((( *vailable-fo-sale secuities Bfai valueC 3!=((( Geld-to-matuity secuities BamotiAed costC 4$=((( Iohle -ill e#ot secuities in its long-tem investments section of a. exactly D'!=(((. b. exactly D1($=(((. c. exactly D142=(((. d. D&2=((( o an amount less than D&2=(((= de#ending on the cicumstances. &3. Fo 0andol#h /om#any= the follo-ing infomation is available7 /a#italiAed leases D2&(=((( Tadema3s '(=((( Long-tem eceivables 1(!=((( 2n 0andol#h9s balance sheet= intangible assets should be e#oted at a. D'(=(((. b. D1(!=(((. c. D3$(=(((. d. D3&!=(((. &4. 1lmsted /om#any has the follo-ing items7 common stoc3= D$2(=(((H teasuy stoc3= D&!=(((H defeed taxes= D1((=((( and etained eanings= D3"3=(((. >hat total amount should 1lmsted /om#any e#ot as stoc3holdes9 equity? a. D&'&=(((. b. D''&=(((. c. D1=('&=(((. d. D1=1'&=(((. &!. ,esented belo- ae data fo *nt-e# /o#. 2(1( 2(11 2(12 *ssets= @anuay 1 D2=&(( D3=3"( ? Liabilities= @anuay 1 1="&( ? D2=(1" .toc3holdes4 :quity= @an. 1 ? ? 2=1(( Dividends !"( 42( 4$" /ommon .toc3 !(4 44& !(( .toc3holdes4 :quity= Dec. 31 ? ? 1=!'" 6et 2ncome !"( 44& ? .toc3holdes4 :quity at @anuay 1= 2(1( is a. D !(4. b. D !"(. c. D1=12(. d. D1="24. 5 ( ;< %alance .heet and .tatement of /ash Flo-s &". ,esented belo- ae data fo %and3o3 /o#. 2(1( 2(11 2(12 *ssets= @anuay 1 D!=4(( D"=4&( ? Liabilities= @anuay 1 3=24( ? D3=&&& .toc3holdes4 :quity= @an. 1 ? ? 4=(!( Dividends 1=(&( &1( '1& /ommon .toc3 '$2 &"4 '2( .toc3holdes4 :quity= Dec. 31 ? ? 3=($& 6et 2ncome 1=(&( &"4 ? .toc3holdes4 :quity at @anuay 1= 2(11 is a. D1=&'(. b. D1=''&. c. D3=132. d. D3=1&". &$. ,esented belo- ae data fo /aacas /o#. 2(1( 2(11 2(12 *ssets= @anuay 1 D3=&(( D4=!"( ? Liabilities= @anuay 1 2=2&( ? D2=$3" .toc3holdes4 :quity= @an. 1 ? ? 2=&!( Dividends $"( !$( "4" /ommon .toc3 "&4 "(& "!( .toc3holdes4 :quity= Dec. 31 ? ? 2=1"" 6et 2ncome $"( "&4 ? 6et income fo 2(12 is a. D"&4 income. b. D"&4 loss. c. D3& income. d. D3& loss. &&. Lohmeye /o#oation e#ots7 /ash #ovided by o#eating activities D2!(=((( /ash used by investing activities 11(=((( /ash #ovided by financing activities 14(=((( %eginning cash balance $(=((( >hat is Lohmeye9s ending cash balance? a. D2&(=(((. b. D3!(=(((. c. D!((=(((. d. D!$(=(((. 5 ( ;= Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition &'. Ieisle /o#oation e#ots7 /ash #ovided by o#eating activities D2((=((( /ash used by investing activities 11(=((( /ash #ovided by financing activities 14(=((( %eginning cash balance $(=((( >hat is Ieisle9s ending cash balance? a. D23(=(((. b. D3((=(((. c. D4!(=(((. d. D!2(=(((. '(. Duing 2(1( the DLD /om#any had a net income of D!(=(((. 2n addition= selected accounts sho-ed the follo-ing changes7 *ccounts 0eceivable D3=((( incease *ccounts ,ayable 1=((( incease %uilding 4=((( decease De#eciation :x#ense 1=!(( incease %onds ,ayable &=((( incease >hat -as the amount of cash #ovided by o#eating activities? a. D4'=!(( b. D!(=((( c. D!1=!(( d. D!'=!(( '1. Gading /o#oation e#ots the follo-ing infomation7 6et income D!((=((( De#eciation ex#ense 14(=((( 2ncease in accounts eceivable "(=((( Gading should e#ot cash #ovided by o#eating activities of a. D3((=(((. b. D42(=(((. c. D!&(=(((. d. D$((=(((. '2. .aude /o#oation e#ots the follo-ing infomation7 6et income D2!(=((( De#eciation ex#ense $(=((( 2ncease in accounts eceivable 3(=((( .aude should e#ot cash #ovided by o#eating activities of a. D1!(=(((. b. D21(=(((. c. D2'(=(((. d. D3!(=(((. 5 ( ;> %alance .heet and .tatement of /ash Flo-s '3. ,ac3ad /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D21!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends declaed "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( ,ac3ad9s cash debt coveage atio is a. (.&". b. 1.43. c. 2.1!. d. 4.$&. '4. ,ac3ad /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D21!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( ,ac3ad9s fee cash flo- is a. D1(=(((. b. D4!=(((. c. D1(!=(((. d. D1!!=(((. '!. ,edigo /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D2!!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( ,edigo9s cash debt coveage atio is a. 1.(2. b. 1.$(. c. 2.!!. d. 3.((. 5 ( ;? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition '". 6oton /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities D2!!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( 6oton9s fee cash flo- is a. D!(=(((. b. D&!=(((. c. D14!=(((. d. D1'!=(((. Multi%le C!oi$e Ans*ers)Co,%utational Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& $'. c &3. a &$. d '1. c '!. a &(. a &4. b &&. b '2. c '". b &1. b &!. c &'. b '3. a &2. d &". c '(. a '4. b M'LTIPLE CHOICE)CPA A"a%te" '$. .tine /o#.4s tial balance eflected the follo-ing account balances at Decembe 31= 2(1(7 *ccounts eceivable BnetC D24=((( Tading secuities "=((( *ccumulated de#eciation on equi#ment and funitue 1!=((( /ash 11=((( 2nventoy 3(=((( :qui#ment 2!=((( ,atent 4=((( ,e#aid ex#enses 2=((( Land held fo futue business site 1&=((( 2n .tine4s Decembe 31= 2(1( balance sheet= the cuent assets total is a. D'(=(((. b. D&2=(((. c. D$$=(((. d. D$3=(((. 5 ( 1@ %alance .heet and .tatement of /ash Flo-s )se the follo-ing infomation fo questions '& though 1((. The follo-ing tial balance of 0eese /o#. at Decembe 31= 2(1( has been #o#ely ad+usted exce#t fo the income tax ex#ense ad+ustment. 0eese /o#. Tial %alance Decembe 31= 2(1( D. /. /ash D $$!=((( *ccounts eceivable BnetC 2="'!=((( 2nventoy 2=(&!=((( ,o#ety= #lant= and equi#ment BnetC $=3""=((( *ccounts #ayable and accued liabilities D 1=$(1=((( 2ncome taxes #ayable "!4=((( Defeed income tax liability &!=((( /ommon stoc3 2=3!(=((( *dditional #aid-in ca#ital 3="&(=((( 0etained eanings= 1J1J1( 3=4!(=((( 6et sales and othe evenues 13=3"(=((( /osts and ex#enses 11=1&(=((( 2ncome tax ex#enses 1=1$'=((( D2!=2&(=((( D2!=2&(=((( 1the financial data fo the yea ended Decembe 31= 2(1(7 2ncluded in accounts eceivable is D1=2((=((( due fom a custome and #ayable in quately installments of D1!(=(((. The last #ayment is due Decembe 2'= 2(12. The balance in the Defeed 2ncome Tax Liability account #etains to a tem#oay diffeence that aose in a #io yea= of -hich D2(=((( is classified as a cuent liability. Duing the yea= estimated tax #ayments of D!2!=((( -ee chaged to income tax ex#ense. The cuent and futue tax ate on all ty#es of income is 3(K. 2n 0eese4s Decembe 31= 2(1( balance sheet= '&. The cuent assets total is a. D"=(&(=(((. b. D!=!!!=(((. c. D!=4(!=(((. d. D4='!!=(((. ''. The cuent liabilities total is a. D1=&!(=(((. b. D1='1!=(((. c. D2=3$!=(((. d. D2=44(=(((. 1((. The final etained eanings balance is a. D4=4!1=(((. b. D4=!3"=(((. c. D4='$"=(((. d. D4='(!=(((. 5 ( 1; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 1(1. 1n @anuay 4= 2(1(= Iiley /o. leased a building to Dodd /o#. fo a ten-yea tem at an annual ental of D$!=(((. *t ince#tion of the lease= Dodd eceived D3((=((( coveing the fist t-o yeas4 ent of D1!(=((( and a secuity de#osit of D1!(=(((. This de#osit -ill not be etuned to Dodd u#on ex#iation of the lease but -ill be a##lied to #ayment of ent fo the last t-o yeas of the lease. >hat #otion of the D3((=((( should be sho-n as a cuent and long-tem liability in Iiley4s Decembe 31= 2(1( balance sheet? /uent Liability Long-tem Liability a. D( D3((=((( b. D$!=((( D1!(=((( c. D1!(=((( D1!(=((( d. D1!(=((( D$!=((( 1(2. >hich of the follo-ing facts concening fixed assets should be included in the summay of significant accounting #olicies? De#eciation 5ethod /om#osition a. 6o Les b. Les Les c. Les 6o d. 6o 6o 1(3. 2n a statement of cash flo-s= ecei#ts fom sales of #o#ety= #lant= and equi#ment and othe #oductive assets should geneally be classified as cash inflo-s fom a. o#eating activities. b. financing activities. c. investing activities. d. selling activities. 1(4. 2n a statement of cash flo-s= inteest #ayments to lendes and othe ceditos should be classified as cash outflo-s fo a. o#eating activities. b. boo-ing activities. c. lending activities. d. financing activities. 1(!. 2n a statement of cash flo-s= #oceeds fom issuing equity instuments should be classified as cash inflo-s fom a. lending activities. b. o#eating activities. c. investing activities. d. financing activities. 1(". 2n a statement of cash flo-s= #ayments to acquie debt instuments of othe entities Bothe than cash equivalentsC should be classified as cash outflo-s fo a. o#eating activities. b. investing activities. c. financing activities. d. lending activities. 5 ( 11 %alance .heet and .tatement of /ash Flo-s Multi%le C!oi$e Ans*ers)CPA A"a%te" Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& '$. d ''. a 1(1. b 1(3. c 1(!. d '&. d 1((. c 1(2. c 1(4. a 1(". b DERI6ATIONS ) Co,%utational No& Ans*er Derivation $'. c &(. a &1. b D$2(=((( M D&!=((( N D313=((( < D'4&=(((. &2. d &3. a &4. b D$2(=((( M D&!=((( N D3"3=((( < D''&=(((. &!. c D2=&(( M D1="&( < D1=12(. &". c BD!=4(( M D3=24(C N D1=(&( N D'$2 M D1=(&( < D3=132. &$. d D2=&!( M D"4" M D2=1"" < BD3&C. &&. b D$(=((( N D2!(=((( M D11(=((( N D14(=((( < D3!(=(((. &'. b D$(=((( N D2((=((( M D11(=((( N D14(=((( < D3((=(((. '(. a D!(=((( M D3=((( N D1=((( N D1=!(( < D4'=!((. '1. c D!((=((( N D14(=((( M D"(=((( < D!&(=(((. '2. c D2!(=((( N D$(=((( M D3(=((( < D2'(=(((. '3. a D21!=((( O BD1!(=((( N D1((=(((C < (.&". '4. b D21!=((( M D"(=((( M D11(=((( < D4!=(((. '!. a D2!!=((( O BD1!(=((( N D1((=(((C < 1.(2. '". b D2!!=((( M D"(=((( M D11(=((( < D&!=(((. DERI6ATIONS ) CPA A"a%te" No& Ans*er Derivation '$. d D24=((( N D"=((( N D11=((( N D3(=((( N D2=((( < D$3=(((. '&. d D$$!=((( N PD2="'!=((( M BD1!(=((( Q 4CR N D2=(&!=((( < D4='!!=(((. ''. a D1=$(1=((( N BD"!4=((( M D!2!=(((C N D2(=((( < D1=&!(=(((. 1((. c D3=4!(=((( N D13=3"(=((( M D11=1&(=((( M BD1=1$'=((( M D!2!=(((C < D4='$"=(((. 1(1. b /once#tual. 1(2. c /once#tual. 5 ( 13 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition No& Ans*er Derivation 1(3. c /once#tual. 1(4. a /once#tual. 1(!. d /once#tual. 1(". b /once#tual. E2ERCISES EA& 5(;@=SDefinitions. ,ovide clea= concise ans-es fo the follo-ing. 1. >hat ae assets? 2. >hat ae liabilities? 3. >hat is equity? 4. >hat ae cuent liabilities? !. :x#lain -hat -o3ing ca#ital is and ho- it is com#uted. ". >hat ae intangible assets? $. >hat ae cuent assets? Solution 5(;@= 1. *ssets ae #obable futue economic benefits obtained o contolled by an entity as a esult of #ast tansactions o events. 2. Liabilities ae #obable futue sacifices of economic benefits aising fom #esent obligations of an entity as a esult of #ast tansactions o events. 3. :quity is the esidual inteest in the net assets of an entity. 4. /uent liabilities ae obligations that ae ex#ected to be liquidated though the use of cuent assets o the ceation of othe cuent liabilities. !. >o3ing ca#ital is the net amount of a com#any9s elatively liquid esouces. 2t is the excess of total cuent assets ove total cuent liabilities. ". 2ntangible assets ae economic esouces o com#etitive advantages. They lac3 #hysical substance and have a high degee of uncetainty about the futue benefits to be eceived. $. /uent assets ae esouces Bfutue economic benefitsC ex#ected to be conveted to cash= sold= o consumed in one yea o the o#eating cycle= -hicheve is longe. 5 ( 17 %alance .heet and .tatement of /ash Flo-s EA& 5(;@>STeminology. 2n the s#ace #ovided at ight= -ite the -od o #hase that is defined o indicated. 1. 1bligations ex#ected to be liquidated 1.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT though use of cuent assets. 2. .tatement sho-ing financial condition at a 2.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT #oint in time. 3. :vents that de#end u#on futue outcomes. 3.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 4. ,obable futue sacifices of economic 4.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT benefits. !. 0esouces ex#ected to be conveted to !.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT cash in one yea o the o#eating cycle= -hicheve is longe. ". 0esouces of a duable natue used in ".TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT o#eations. $. :conomic ights o com#etitive advantages $.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT -hich lac3 #hysical substance. &. ,obable futue economic benefits. &.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT '. 0esidual inteest in the net assets of an '.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT entity. Solution 5(;@> 1. /uent liabilities. ". ,o#ety= #lant= and equi#ment. 2. %alance sheet. $. 2ntangible assets. 3. /ontingencies. &. *ssets. 4. Liabilities. '. :quity. !. /uent assets. EA& 5(;@?S/uent assets. Define cuent assets -ithout using the -od Uasset.U Solution 5(;@? /uent assets ae esouces Bfutue economic benefitsC ex#ected to be conveted to cash= sold= o consumed in one yea o the o#eating cycle= -hicheve is longe. 5 ( 15 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition EA& 5(;;@S*ccount classification. *..:T. L2*%2L2T2:. *6D /*,2T*L a. /uent assets f. /uent liabilities b. 2nvestments g. Long-tem liabilities c. ,lant and equi#ment h. ,efeed stoc3 d. 2ntangibles i. /ommon stoc3 e. 1the assets +. *dditional #aid-in ca#ital 3. 0etained eanings l. 2tems excluded fom balance sheet )sing the lettes above= classify the follo-ing accounts accoding to the #efeed and odinay balance sheet #esentation. TTTTT 1. %ond sin3ing fund TTTTT 2. /ommon stoc3 distibutable TTTTT 3. *##o#iation fo #lant ex#ansion TTTTT 4. %an3 ovedaft TTTTT !. %onds #ayable Bdue 2(13C TTTTT ". ,emium on common stoc3 TTTTT $. .ecuities o-ned by anothe com#any -hich ae collateal fo that com#any4s note TTTTT &. Tading secuities TTTTT '. 2nventoy TTTTT1(. )namotiAed discount on bonds #ayable TTTTT 11. ,atents TTTTT12. )neaned evenue Solution 5(;;@ 1. b !. g '. a 2. i ". + 1(. g 3. 3 $. l 11. d 4. f &. a 12. f 5 ( 1< %alance .heet and .tatement of /ash Flo-s EA& 5(;;;S;aluation of %alance .heet 2tems. )se the code lettes listed belo- Ba M lC to indicate= fo each balance sheet item B1 M 13C listed belo- the usual valuation e#oted on the balance sheet. TTTTTT 1. /ommon stoc3 TTTTTT &. Long-tem bonds #ayable TTTTTT 2. ,e#aid ex#enses TTTTTT '. Land Bin useC TTTTTT 3. 6atual esouces TTTTTT1(. Land Bfutue #lant siteC TTTTTT 4. ,o#ety= #lant= and equi#ment TTTTTT 11. ,atents TTTTTT !. Tade accounts eceivable TTTTTT12. Tading secuities TTTTTT ". /o#yights TTTTTT13. Tade accounts #ayable TTTTTT $. 5echandise inventoy a. ,a value b. /uent cost of e#lacement c. *mount #ayable -hen due= less unamotiAed discount o #lus unamotiAed #emium d. *mount #ayable -hen due e. 5a3et value at balance sheet date f. 6et ealiAable value g. Lo-e of cost o ma3et h. 1iginal cost less accumulated amotiAation i. 1iginal cost less accumulated de#letion +. 1iginal cost less accumulated de#eciation 3. Gistoical cost l. )nex#ied o unconsumed cost Solution 5(;;; 1. a ". h 11. h 2. l $. g 12. e 3. i &. c 13. d 4. + '. 3 !. f 1(. 3 5 ( 1= Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition EA& 5(;;1S%alance sheet classifications. Ty#ical balance sheet classifications ae as follo-s. a. /uent *ssets g. Long-Tem Liabilities b. 2nvestments h. /a#ital .toc3 c. ,lant *ssets i. *dditional ,aid-2n /a#ital d. 2ntangible *ssets +. 0etained :anings e. 1the *ssets 3. 6otes to Financial .tatements f. /uent Liabilities l. 6ot 0e#oted on %alance .heet 2ndicate by use of the above lettes ho- each of the follo-ing items -ould be classified on a balance sheet #e#aed at Decembe 31= 2(1(. 2f a conta account= o any amount that is negative o o##osite the nomal balance= #ut #aentheses aound the lette selected. * lette may be used moe than once o not at all. TTTTT 1. *ccued salaies and -ages TTTTT 2. 0ental evenues fo 3 months collected in advance TTTTT 3. Land used as #lant site TTTTT 4. :quity secuities classified as tading TTTTT !. /ash TTTTT ". *ccued inteest #ayable due in 3( days TTTTT $. ,emium on #efeed stoc3 issued TTTTT &. Dividends in aeas on #efeed stoc3 TTTTT '. ,etty cash fund TTTTT1(. )namotiAed discount on bonds #ayable due 2(13 TTTTT 11. /ommon stoc3 at #a value TTTTT12. %ond indentue covenants TTTTT13. )namotiAed #emium on bonds #ayable due in 2(1" TTTTT14. *llo-ance fo doubtful accounts TTTTT1!. *ccumulated de#eciation 5 ( 1> TTTTTT1". 6atual esouceStimbelands TTTTTT1$. Deficit Bno net income eaned since beginning of com#anyC TTTTTT1&. 8ood-ill TTTTTT1'. '( day notes #ayable TTTTTT2(. 2nvestment in bonds of anothe com#anyH -ill be held to 2(13 matuity TTTTTT21. Land held fo s#eculation TTTTTT22. Death of com#any #esident TTTTTT23. /uent matuity of bonds #ayable TTTTTT24. 2nvestment in subsidiayH no #lans to sell in nea futue TTTTTT2!. Tade accounts #ayable TTTTTT2". ,efeed stoc3 BD1( #aC TTTTTT2$. ,e#aid ent fo next 12 months TTTTTT2&. /o#yight TTTTTT2'. *ccumulated amotiAation= #atents TTTTTT3(. :anings not distibuted to stoc3holdes %alance .heet and .tatement of /ash Flo-s Solution 5(;;1 1. f ". f 11. h 1". c 21. b 2". h 2. f $. i 12. 3 1$. B+C 22. l 2$. a 3. c &. 3 13. g 1&. d 23. f 2&. d 4. a '. a 14. BaC 1'. f 24. b 2'. BdC !. a 1(. BgC 1!. BcC 2(. b 2!. f 3(. + EA& 5(;;3S%alance sheet classifications. The vaious classifications listed belo- have been used in the #ast by 5ais /om#any on its balance sheet. 2t as3s you #ofessional o#inion concening the a##o#iate classification of each of the items 1-14 belo-. a. /uent *ssets f. /uent Liabilities b. 2nvestments g. Long-Tem Liabilities c. ,lant and :qui#ment h. /ommon .toc3 and ,aid-in /a#ital in :xcess of ,a d. 2ntangible *ssets i. 0etained :anings e. 1the *ssets 2ndicate by lette ho- each of the follo-ing items should be classified. 2f an item need not be e#oted on the balance sheet= use the lette UV.U * lette may be used moe than once o not at all. 2f an item can be classified in moe than one categoy= choose the categoy most favoed by the authos of you textboo3. TTTTT 1. :m#loyees4 #ayoll deductions. TTTTT 2. /ash in sin3ing fund. TTTTT 3. 0ent evenue collected in advance. TTTTT 4. :qui#ment etied fom use and held fo sale. TTTTT !. ,atents. TTTTT ". ,ayoll cash fund. TTTTT $. 8oods held on consignment. TTTTT &. *ccued evenue on tem#oay investments. TTTTT '. *dvances to sales#esons. TTTTT1(. ,emium on bonds #ayable due t-o yeas fom date. TTTTT 11. %an3 ovedaft. TTTTT12. .alaies -hich com#any budget sho-s -ill be #aid to em#loyees -ithin the next yea. TTTTT13. >o3 in #ocess. TTTTT14. *##o#iation fo bonded indebtedness. 5 ( 1? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Solution 5(;;3 1. f !. d '. a 13. a 2. b ". a 1(. g 14. i 3. f $. x 11. f 4. a o e &. a 12. x EA& 5(;;7S%alance sheet classifications. The vaious classifications listed belo- have been used in the #ast by Gale /om#any on its balance sheet. a. /uent *ssets e. /uent Liabilities b. 2nvestments f. Long-tem Liabilities c. ,lant and :qui#ment g. /ommon .toc3 and ,aid-in /a#ital in :xcess of ,a d. 2ntangible *ssets h. 0etained :anings Instru$tions 2ndicate by lette ho- each of the items belo- should be classified at Decembe 31= 2(1(. 2f an item is not e#oted on the Decembe 31= 2(1( balance sheet= use the lette UVU fo you ans-e. 2f the item is a conta account -ithin the #aticula classification= #lace #aentheses aound the lette. * lette may be used moe than once o not at all. .am#le question and ans-e7 BaC *llo-ance fo doubtful accounts. TTTTT 1. /ustomes4 accounts -ith cedit balances. TTTTT 2. %ond sin3ing fund. TTTTT 3. .alaies -hich the com#any4s cash budget sho-s -ill be #aid to em#loyees in 2(11. TTTTT 4. *ccumulated de#eciation. TTTTT !. *##o#iation fo #lant ex#ansion. TTTTT ". *motiAation of #atents fo 2(1(. TTTTT $. 1n Decembe 31= 2(1(= Gale signed a #uchase commitment to buy all of its a- mateials fom Delta /om#any fo the next 2 yeas. TTTTT &. Discount on bonds #ayable due 5ach 31= 2(13. TTTTT '. Launching of Gale9s 2ntenet etailing division in Febuay= 2(11. TTTTT1(. /ash dividends declaed on Decembe 1!= 2(1( #ayable to stoc3holdes on @anuay 1!= 2(11. 5 ( 3@ %alance .heet and .tatement of /ash Flo-s Solution 5(;;7 1. e 4. BcC $. x 1(. e 2. b !. h &. BfC 3. x ". x '. x EA& 5(;;5S.tatement of cash flo-s. Fo each event listed belo-= select the a##o#iate categoy -hich descibes the effect of the event on a statement of cash flo-s7 a. /ash #ovidedJused by o#eating activities. b. /ash #ovidedJused by investing activities. c. /ash #ovidedJused by financing activities. d. 6ot a cash flo-. TTTTT 1. ,ayment on long-tem debt TTTTT 2. 2ssuance of bonds at a #emium TTTTT 3. /ollection of accounts eceivable TTTTT 4. /ash dividends declaed TTTTT !. 2ssuance of stoc3 to acquie land TTTTT ". .ale of available-fo-sale secuities Blong-temC TTTTT $. ,ayment of em#loyees4 -ages TTTTT &. 2ssuance of common stoc3 fo cash TTTTT '. ,ayment of income taxes #ayable TTTTT1(. ,uchase of equi#ment TTTTT 11. ,uchase of teasuy stoc3 BcommonC TTTTT12. .ale of eal estate held as a long-tem investment Solution 5(;;5 1. c 4. d $. a 1(. b 2. c !. d &. c 11. c 3. a ". b '. a 12. b 5 ( 3; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition EA& 5(;;<S.tatement of cash flo-s atios. Financial statements fo Gilton /om#any ae #esented belo-7 Gilton /om#any %alance .heet Decembe 31= 2(1( *ssets Liabilities W .toc3holdes9 :quity /ash D 4(=((( *ccounts #ayable D 2(=((( *ccounts eceivable 3!=((( %onds #ayable !(=((( %uildings and equi#ment 1!(=((( *ccumulated de#eciationS buildings and equi#ment B!(=(((C /ommon stoc3 "!=((( ,atents 2(=((( 0etained eanings "(=((( D1'!=((( D1'!=((( Gilton /om#any .tatement of /ash Flo-s Fo the Lea :nded Decembe 31= 2(1( /ash flo-s fom o#eating activities 6et income D!(=((( *d+ustments to econcile net income to net cash #ovided by o#eating activities7 2ncease in accounts eceivable DB1"=(((C 2ncease in accounts #ayable &=((( De#eciationSbuildings and equi#ment 1!=((( 8ain on sale of equi#ment B"=(((C *motiAation of #atents 2=((( 3=((( 6et cash #ovided by o#eating activities !3=((( /ash flo-s fom investing activities .ale of equi#ment 12=((( ,uchase of land B2!=(((C ,uchase of buildings and equi#ment B4&=(((C 6et cash used by investing activities B"1=(((C /ash flo-s fom financing activities ,ayment of cash dividend B1!=(((C .ale of bonds 4(=((( 6et cash #ovided by financing activities 2!=((( 6et incease in cash 1$=((( /ash= @anuay 1= 2(1( 23=((( /ash= Decembe 31= 2(1( D4(=((( *t the beginning of 2(1(= *ccounts ,ayable amounted to D12=((( and %onds ,ayable -as D1(=(((. Instru$tions /alculate the follo-ing fo Gilton /om#any7 a. /uent cash debt coveage atio b. /ash debt coveage atio c. Fee cash flo- 5 ( 31 %alance .heet and .tatement of /ash Flo-s Solution 5(;;< 6et cash #ovided by o#eating activities a. /uent cash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage cuent liabilities D!3=((( D!3=((( < SSSSSSSSSSS < SSSS < 3.3 7 1 BD12=((( N D2(=(((C O 2 D1"=((( 6et cash #ovided by o#eating activities b. /ash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage total liabilities D!3=((( D!3=((( < SSSSSSSSSSS < SSSS < 1.2 7 1 BD22=((( N D$(=(((C O 2 D4"=((( c. Fee cash flo- < 6et cash #ovided by o#eating activities M ca#ital ex#enditues and dividends < D!3=((( M XD$3=((( M D1!=((( < DB3!=(((C XD2!=((( N D4&=((( 5 ( 33 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition PROBLEMS Pr& 5(;;=S%alance sheet fomat. The follo-ing balance sheet has been submitted to you by an inex#eienced boo33ee#e. List you suggestions fo im#ovements in the fomat of the balance sheet. /onside both teminology deficiencies as -ell as classification inaccuacies. @as#e 2ndusties= 2nc. %alance .heet Fo the ,eiod :nded 12J31J1( *ssets Fixed *ssetsSTangible :qui#ment D11(=((( Less7 eseve fo de#eciation B4(=(((C D $(=((( Factoy su##lies 22=((( Land and buildings 4((=((( Less7 eseve fo de#eciation B1!(=(((C 2!(=((( ,lant site held fo futue use '(=((( D 432=((( /uent *ssets *ccounts eceivable 1$!=((( /ash &(=((( 2nventoy 22(=((( Teasuy stoc3 Bat costC 2(=((( 4'!=((( Fixed *ssets--2ntangible 8ood-ill &(=((( 6otes eceivable 4(=((( ,atents 2"=((( 14"=((( Defeed /hages *dvances to sales#esons "(=((( ,e#aid ent 2$=((( 0etunable containes $!=((( 1"2=((( T1T*L *..:T. D1=23!=((( Liabilities /uent Liabilities *ccounts #ayable D14(=((( *llo-ance fo doubtful accounts &=((( /ommon stoc3 dividend distibutable 3!=((( 2ncome taxes #ayable 42=((( .ales taxes #ayable 1$=((( D 242=((( Long-Tem Liabilities= !K debentue bonds= due 2(13 !((=((( 0eseve fo contingencies 1!(=((( "!(=((( T1T*L L2*%2L2T2:. &'2=((( :quity /a#ital stoc3= D1(.(( #a value= issued 12=((( shaes -ith "( shaes held as teasuy stoc3 D1!(=((( /a#ital su#lus '(=((( Dividends #aid B2(=(((C :aned su#lus 123=((( T1T*L :Y)2TL 343=((( T1T*L L2*%2L2T2:. *6D :Y)2TL D1=23!=((( 5 ( 37 %alance .heet and .tatement of /ash Flo-s 6ote 1. The eseve fo contingencies has been ceated by chages to eaned su#lus and has been established to #ovide a cushion fo futue uncetainties. 6ote 2. The inventoy account includes only items #hysically #esent at the main #lant and -aehouse. 2tems located at the com#any4s banch sales office amounting to D4(=((( ae excluded since the com#any has consistently follo-ed this #ocedue fo many yeas. Solution 5(;;= 1. The heading should be as of a s#ecific date athe than fo a #eiod of time. 2. 0eseve fo De#eciation is #oo teminologyH the title *ccumulated De#eciation is moe a##o#iate. 3. Land and buildings should be segegated into t-o accounts. The *ccumulated De#eciation account should only be e#oted fo the buildings. 4. ,lant site held fo futue use should be sho-n in the 2nvestments section. !. /uent assets should be sho-n on the balance sheet fist in most situationsH cuent assets ae listed usually in ode of liquidityH factoy su##lies should be sho-n as a cuent asset. ". Teasuy stoc3 is not an asset= but a conta account to stoc3holdes4 equity in most situations. $. 6otes eceivable should be e#oted as a cuent asset o an investment. &. The defeed chage items should be eclassified as follo-s in most situations7 *dvances to sales#esonsScuent asset ,e#aid entScuent asset 0etunable containesScuent asset '. *llo-ance fo doubtful accounts should be sho-n as a conta account to accounts eceivable. 1(. /ommon stoc3 dividend distibutable should be sho-n in stoc3holdes4 equity. 11. !K debentue bonds should be sho-n on a se#aate line. 12. 0eseve fo /ontingencies should be sho-n as an a##o#iation of etained eanings. The authos #efe the tem Ua##o#iationU to the tem Ueseve.U 13. /a#ital stoc3 should be sho-n at the #a value of the shaes issued= D12(=(((. *ny excess should be included in a #aid-in ca#ital account. 14. /a#ital su#lus and eaned su#lus ae #oo teminology. The tems Uadditional #aid-in ca#italU and Uetained eaningsU ae moe a##o#iate. 1!. The dividends #aid title is a misnome. 2t #obably is a dividends declaed item that should be closed to etained eanings. 1". 6o efeence in the body of the statement is made to the notes. The ode of the notes is -ong. 1$. 6ote 2 indicates that the inventoy account is undestated by D4(=(((. 1&. .#ecific identification and desci#tion of all significant accounting #inci#les and methods that involve selection fom among altenatives andJo those that ae #eculia to a given industy should be disclosed in the annual e#ot. 5 ( 35 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;;>S%alance sheet #esentation. The follo-ing balance sheet -as #e#aed by the boo33ee#e fo Iaus /om#any as of Decembe 31= 2(1(. Iaus /om#any %alance .heet as of Decembe 31= 2(1( /ash D &(=((( *ccounts #ayable D $!=((( *ccounts eceivable BnetC !2=2(( Long-tem liabilities 1((=((( 2nventoies !$=((( .toc3holdes4 equity 21&=!(( 2nvestments $"=3(( :qui#ment BnetC '"=((( ,atents 32=((( D3'3=!(( D3'3=!(( The follo-ing additional infomation is #ovided7 1. /ash includes the cash suende value of a life insuance #olicy D'=4((= and a ban3 ovedaft of D2=!(( has been deducted. 2. The net accounts eceivable balance includes7 BaC accounts eceivableSdebit balances D"(=(((H BbC accounts eceivableScedit balances D4=(((H BcC allo-ance fo doubtful accounts D3=&((. 3. 2nventoies do not include goods costing D3=((( shi##ed out on consignment. 0eceivables of D3=((( -ee ecoded on these goods. 4. 2nvestments include investments in common stoc3= tading D1'=((( and available-fo-sale D4&=3((= and fanchises D'=(((. !. :qui#ment costing D!=((( -ith accumulated de#eciation D4=((( is no longe used and is held fo sale. *ccumulated de#eciation on the othe equi#ment is D4(=(((. Instru$tions ,e#ae a balance sheet in good fom Bstoc3holdes4 equity details can be omitted.C 5 ( 3< %alance .heet and .tatement of /ash Flo-s Solution 5(;;> Iaus /om#any %alance .heet *s of Decembe 31= 2(1( *ssets /uent assets /ash D $3=1(( B1C Tading secuities 1'=((( *ccounts eceivable D !$=((( B2C Less7 *llo-ance fo doubtful accounts 3=&(( !3=2(( 2nventoies "(=((( B3C X:qui#ment held fo sale 1=((( B4C Total cuent assets 2("=3(( 2nvestments *vailable-fo-sale secuities 4&=3(( /ash suende value '=4(( !$=$(( ,o#ety= #lant= and equi#ment :qui#ment 13!=((( B!C Less accumulated de#eciation 4(=((( '!=((( 2ntangible assets ,atents 32=((( Fanchises '=((( 41=((( Total assets D4((=((( Liabilities and .toc3holdes4 :quity /uent liabilities *ccounts #ayable D $'=((( B"C %an3 ovedaft 2=!(( Total cuent liabilities &1=!(( Long-tem liabilities 1((=((( Total liabilities 1&1=!(( .toc3holdes4 equity 21&=!(( Total liabilities and stoc3holdes4 equity D4((=((( B1C BD&(=((( M D'=4(( N D2=!((C B2C BD"(=((( M D3=(((C B3C BD!$=((( N D3=(((C B4C BD!=((( M D4=(((C B!C BD'"=((( N D4(=((( M D!=((( N D4=(((C B"C BD$!=((( N D4=(((C X*n altenative is to sho- it as an othe asset. 5 ( 3= Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;;?S%alance sheet #esentation. 8iven the follo-ing account infomation fo Leong /o#oation= #e#ae a balance sheet in e#ot fom fo the com#any as of Decembe 31= 2(1(. *ll accounts have nomal balances. :qui#ment 4(=((( 2nteest :x#ense 2=4(( 2nteest ,ayable "(( 0etained :anings ? Dividends !(=4(( Land 13$=32( 2nventoy 1(2=((( %onds ,ayable $&=((( 6otes ,ayable Bdue in " monthsC 14=4(( /ommon .toc3 "(=((( *ccumulated De#eciation - :q. 1(=((( ,e#aid *dvetising !=((( 0evenue 331=4(( %uildings &(=4(( .u##lies 1=&"( Taxes ,ayable 3=((( )tilities :x#ense 1=32( *dvetising :x#ense 1=!"( .alay :x#ense !3=(4( .alaies ,ayable '(( *ccumulated De#. - %ld. 1!=((( /ash 3(=((( De#eciation :x#ense= %uilding W :qui#ment &=((( 5 ( 3> %alance .heet and .tatement of /ash Flo-s Solution 5(;;? Leong /o#oation %alance .heet Decembe 31= 2(1( *ssets /ash D 3(=((( 2nventoy 1(2=((( .u##lies 1=&"( ,e#aid advetising !=((( Total cuent assets D 13&=&"( Land 13$=32( %uilding D &(=4(( *ccumulated de#eciation - bld B1!=(((C "!=4(( :qui#ment 4(=((( *ccumulated de#eciation -eq B1(=(((C 3(=((( 232=$2( Total assets D 3$1=!&( Liabilities W .toc3holdes4 :quity 6otes #ayable D 14=4(( Taxes #ayable 3=((( .alaies #ayable '(( 2nteest #ayable "(( Total cuent liabilities D 1&='(( Long-tem liabilities %ond #ayable $&=((( Total liabilities '"='(( /ommon stoc3 "(=((( 0etained eanings BD2"!=(&(X- D!(=4((C 214="&( Total stoc3holdes4 equity 2$4="&( Total liabilities W stoc3holdes4 equity D 3$1=!&( XD331=4(( - D!3=(4( - D&=((( - D2=4(( - D1=!"( - D1=32( 5 ( 3? Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;1@S.tatement of cash flo-s #e#aation. .elected financial statement infomation and additional data fo .tanislaus /o. is #esented belo-. ,e#ae a statement of cash flo-s fo the yea ending Decembe 31= 2(1( Decembe 31 2((' 2(1( /ash....................................................... D42=((( D"3=((( *ccounts eceivable BnetC....................... &4=((( 1!1=2(( 2nventoy................................................. 1"&=((( 2(1="(( Land....................................................... !&=&(( 21=((( :qui#ment.............................................. !(4=((( $&'="(( T1T*L.........................................D&!"=&(( D1=22"=4(( *ccumulated de#eciation....................... D&4=((( D11!="(( *ccounts #ayable................................... !(=4(( &"=((( 6otes #ayable - .hot-tem..................... "$=2(( 2'=4(( 6otes #ayable - Long-tem..................... 1"&=((( 3(2=4(( /ommon stoc3........................................ 42(=((( 4&$=2(( 0etained eanings................................... "$=2(( 2(!=&(( T1T*L.........................................D&!"=&(( D1=22"=4(( *dditional data fo 2(1(7 1. 6et income -as D23!=2((. 2. De#eciation -as D31="((. 3. Land -as sold at its oiginal cost. 4. Dividends of D'"="(( -ee #aid. !. :qui#ment -as #uchased fo D&4=((( cash. ". * long-tem note fo D2(1="(( -as used to #ay fo an equi#ment #uchase. $. /ommon stoc3 -as issued to #ay a D"$=2(( long-tem note #ayable. 5 ( 7@ %alance .heet and .tatement of /ash Flo-s Solution 5(;1@ .tanislaus /o. .tatement of /ash Flo-s Fo the yea ended Decembe 31= 2(1( 6et 2ncome D23!=2(( /ash flo- fom o#eating activities De#eciation ex#ense 31="(( 2ncease in accounts eceivable B"$=2((C 2ncease in inventoy B33="((C 2ncease in accounts #ayable 3!="(( Decease in shot-tem notes #ayable B3$=&((C B$1=4((C 6et cash #ovided by o#eating activities 1"3=&(( /ash flo- fom investing activities ,uchase equi#ment B&4=(((C .ale of land 3$=&(( 6et cash used by investing activities B4"=2((C /ash flo- fom financing activities ,ayment of cash dividend B'"="((C 6et cash used by financing activities B'"="((C 6et incease in cash 21=((( /ash at beginning of yea 42=((( /ash at end of the yea "3=((( 6oncash investing and financing activities ,ayment of long-tem note #ayable -ith issuance of D"$=2(( of common stoc3 5 ( 7; Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Pr& 5(;1;S.tatement of cash flo-s #e#aation. .elected financial statement infomation and additional data fo @ohnston :nte#ises is #esented belo-. ,e#ae a statement of cash flo-s fo the yea ending Decembe 31= 2(1( @ohnston :nte#ises %alance .heet and 2ncome .tatement Data Decembe 31= Decembe 31= 2(1( 2(('TTT /uent *ssets7 /ash D1!3=((( D11'=((( *ccounts 0eceivable 23&=((( 3("=((( 2nventoy 3'1=((( 34(=((( Total /uent *ssets $&2=((( $"!=((( ,o#ety= ,lant= and :qui#ment 1=241=((( 1=122=((( Less7 *ccumulated De#eciation B4$"=(((C B442=(((C Total *ssets D1=!4$=((( D1=44!=((( /uent Liabilities7 *ccounts ,ayable D1&$=((( D1(2=((( 6otes ,ayable !1=((( "&=((( 2ncome Tax ,ayable &!=((( $"=!(( Total /uent Liabilities 323=((( 24"=!(( %onds ,ayable 34(=((( 3'1=((( Total Liabilities ""3=((( "3$=!(( .toc3holdes4 :quity7 /ommon .toc3 !1(=((( 4"$=!(( 0etained :anings 3$4=((( 34(=((( Total .toc3holdes4 :quity &&4=((( &($=!(( Total Liabilities W .toc3holdes4 :quity D1=!4$=((( D1=44!=((( .ales 1="1!=((( D1=!13=((( Less /ost of 8oods .old $31=((( $31=((( 8oss ,ofit &&4=((( $&2=((( :x#enses7 De#eciation :x#ense 1!3=((( 13"=((( .alay :x#ense 3'1=((( 3!$=((( 2nteest :x#ense 34=((( 34=((( Loss on .ale of :qui#ment 1$=((( ( 2ncome %efoe Taxes 2&'=((( 2!!=((( Less 2ncome Tax :x#ense 11'=((( 1(2=((( 6et 2ncome D1$(=((( D1!3=((( *dditional 2nfomation7 Duing the yea= @ohnston sold equi#ment -ith an oiginal cost of D1!3=((( and accumulated de#eciation of D11'=((( and #uchased ne- equi#ment fo D2$2=(((. 5 ( 71 %alance .heet and .tatement of /ash Flo-s Solution 5(;1; @ohnston :nte#ises .tatement of /ash Flo-s Fo the Lea :nded Decembe 31= 2(1( 6et 2ncome D 1$(=((( /ash flo- fom o#eating activities De#eciation ex#ense 1!3=((( Loss on sale of equi#ment 1$=((( Decease in accounts eceivable "&=((( 2ncease in inventoy B!1=(((C 2ncease in accounts #ayable &!=((( Decease in notes #ayable B1$=(((C 2ncease in tax #ayable &=!(( 2"3=!(( 6et cash #ovided by o#eating activities 433=!(( /ash flo- fom investing activities .ale of equi#ment 1$=((( ,uchase of equi#ment B2$2=(((C 6et cash used by investing activities B2!!=(((C /ash flo- fom financing activities 0etiement of bonds #ayable B!1=(((C 2ssuance of common stoc3 42=!(( ,ayment of dividends B13"=(((CXX 6et cash used by financing activities B144=!((C 6et incease in cash 34=((( %eginning cash 11'=((( /ash at end of yea D1!3=((( XX%eginning 0J: + 6et income Dividends = :nding 0J: D34(=((( + D1$(=((( Dividends = D3$4=((( Dividends = D13"=((( 5 ( 73 Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition IFRS 9'ESTIONS TrueBFalseC 1. *lthough the #esentation fomats fo the balance sheet and statement of cash flo-s ae simila unde i8**, and )... 8**,= i8**, equies fa moe extensive disclosue. 2. 1ne significant diffeence bet-een a balance sheet #e#aed using i8**, athe than )... 8**, is that long-tem tangible assets -ill be e#oted at fai value athe than histoical cost. 3. %oth i8**, and )... 8**, equie that s#ecific items be e#oted on the balance sheet. 4. %oth i8**, and )... 8**, equie cuent assets to be listed fist on the balance sheet. Ans*ers to TrueBFalseC 1. False 2. Tue 3. False 4. False Multi%le C!oi$e 9uestionsC 1. >hich of the follo-ing statements about i8**, and )... 8**, accounting and e#oting equiements fo the balance sheet is not coect? a. The #esentation fomats equied by i8**, and )... 8**, fo the balance sheet ae simila. b. 1ne diffeence bet-een the e#oting equiements unde i8**, and those of )... 8**, balance sheet is that an i8**, balance sheet may list long-tem assets fist. c. %oth i8**, and )... 8**, equie that #o#ety= #lant and equi#ment be e#oted at histoical cost on the balance sheet. d. %oth i8**, and )... 8**, equie that com#aative infomation be e#oted. Use the following information to answer the next two questions. Fanco /om#any uses i8**, and o-ns #o#ety= #lant and equi#ment -ith a histoical cost of !=(((=((( euos. *t Decembe 31= 2(('= the com#any e#oted a valuation eseve of &=3"!=((( euos. *t Decembe 31= 2(1(= the #o#ety= #lant and equi#ment -as a##aised at !=32!=((( euos. 2. The #o#ety= #lant and equi#ment -ill be e#oted on the Decembe 31= 2(1( balance sheet at a. !=(((=((( euos. b. !=32!=((( euos. c. &=3"!=((( euos. d. &="'(=((( euos. 3. The valuation eseve at Decembe 31= 2(1( -ill be e#oted at a. &=(4(=((( euos on the .tatement of .toc3holdes4 :quity. b. &=3"!=((( euos in the *ssets section of the %alance .heet c. &="'(=((( euos in the stoc3holdes4 equity section of the %alance .heet. d. 32!=((( euos on the 2ncome .tatement. 5 ( 77 %alance .heet and .tatement of /ash Flo-s 4. .imilaities bet-een i8**, and )... 8**, equiements fo balance sheet #esentation include all of the follo-ing exce#t7 a. %oth equie that changes to the valuation eseve be disclosed in the notes to the financial statements. b. %oth equie disclosue of significant accounting #olicies. c. %oth equie the #e#aation of financial statements annually. d. %oth geneally equie the use of the cuentJ non-cuent classification fo both assets and liabilities. Ans*ers to Multi%le C!oi$eC 1. c 2. b 3. c 4. a 2F0. .hot *ns-e7 1. %iefly descibe some of the similaities and diffeences bet-een )... 8**, and i8**, -ith es#ect to balance sheet e#oting. 1. *mong the similaities bet-een )... and i8**, elated to balance sheet #esentation ae as follo-s7 2*. 1 s#ecifies minimum note disclosues. These must include infomation about B1C accounting #olicies follo-ed= B2C +udgments that management has made in the #ocess of a##lying the entity9s accounting #olicies= and B3C the 3ey assum#tions and estimation uncetainty that could esult in a mateial ad+ustment to the caying amounts of assets and liabilities -ithin the next financial yea. /om#aative #io-#eiod infomation must be #esented and financial statements must be #e#aed annually. /uentJnon-cuent classification fo assets and liabilities is nomally equied. 2n geneal= #ost-balance sheet events ae not consideed in classifying items as cuent o non-cuent. Diffeences include B1C i8**, statements may e#ot #o#ety= #lant= and equi#ment fist in the balance sheet. .ome com#anies e#ot the sub-total Enet assetsF= -hich equals total assets minus total liabilities. B2C >hile the use of the tem EeseveF is discouaged in )... 8**,= thee is no such #ohibition in i8**,. 2. %iefly descibe the convegence effots elated to financial statement #esentation. 2. The 2*.% and the F*.% ae -o3ing on a #o+ect to convege thei standads elated to financial statement #esentation. This +oint #o+ect -ill establish a common= high-quality standad fo #esentation of infomation in the financial statements= including the classification and dis#lay of line items. * 3ey featue of the #o#osed fame-o3 fo financial statement #esentation is that each of the statements -ill be oganiAed in the same fomat to se#aate an entity9s financing activities fom its o#eating and othe activities BinvestingC and futhe se#aates financing activities into tansactions -ith o-nes and ceditos. Thus= the same classifications used in the balance sheet -ould also be used in the income statement and the statement of cash flo-s. 5 ( 75