Multiple Choice (22, 25, 26, 32, 37, 40, 42, 48, 45, 43) (c, c, d, d, b, d, d, d, c, d) 1.

The balance sheet is useful for analyzing all of the following except
a. b. c. d. liquidity. solvency. profitability. financial flexibility

2. The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as
a. b. c. d. solvency. financial flexibility. liquidity. exchangeability.

3. The net assets of a business are equal to

a. b. c. d. current assets minus current liabilities. total assets plus total liabilities. total assets minus total stockholders' equity. none of these.

4. Which of the following should not be considered as a current asset in the balance sheet?
a. Installment notes receivable due over 18 months in accordance with normal trade practice. b. Prepaid taxes which cover assessments of the following operating cycle of the business. c. Equity or debt securities purchased with cash available for current operations. d. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.

5. Which item below is not a current liability?

a. b. c. d. Unearned revenue Stock dividends distributable The currently maturing portion of long-term debt Trade accounts payable

6. Long-term liabilities include

a. b. c. d. obligations not expected to be liquidated within the operating cycle. obligations payable at some date beyond the operating cycle. deferred income taxes and most lease obligations. all of these.

7. Treasury stock should be reported as a(n)

a. current asset.

b. investment. c. other asset. d. reduction of stockholders' equity.

8. Which of the following is a contra account?

a. b. c. d. Premium on bonds payable Unearned revenue Patents Accumulated depreciation

9. The stockholders' equity section is usually divided into what three parts?
a. b. c. d. Preferred stock, common stock, treasury stock Preferred stock, common stock, retained earnings Capital stock, additional paid-in capital, retained earnings Capital stock, appropriated retained earnings, unappropriated retained earnings

10. Which of the following should be reported for capital stock?

a. b. c. d. The shares authorized The shares issued The shares outstanding All of these

Essay (question 7, 11, E5-3, P5-2) 1. What are the major limitations of the statement of financial position as a source of information? 2. Should non-trading equity securities be reported as a current asset? Explain. 3. Classify how each of these accounts should be put in the financial statement. a. Unexpired insurance (1,3,4,8, 11, 14, 16, 7) b. Unearned booking revenue c. Advances to suppliers. d. Copyrights e. Interest on notes payable f. Unrealized gain on non-trading equity securities g. Salaries that company budget shows will be paid to employees within the next year h. Share premium preference 4. Presented below are a number of statement of financial position items for Montoya, Inc., for the current year, 2010. Goodwill Payroll taxes payable Bonds payable Cash Land Notes receivable Notes payable to banks Accounts payable Retained earnings Income taxes payable $125,000 177,591 285,000 360,000 480,000 445,700 265,000 490,000 ? 97,360

Unsecured notes payable (long-term) 1,600,000 Accumulated depreciationEquipment 292,000 Inventories 239,800 Rent payable short-term 45,000 Taxes payable 98,362 Long-term rental obligations 480,000 Share capital ordinary, $1 Par value 200,000 Share capital preference, $10 par value 150,000 Prepaid expenses 87,920 Equipment 1,470,000 Trading securities 121,000 Accumulated depreciation - building 270,200 Building 1,640,000 Prepare a classified statement of financial position in good form. Share capital ordinary authorized was 400,000 shares, and share capital preference authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair value of trading securities are the same.