CHAPTER 5

BALANCE SHEET AND STATEMENT OF CASH FLOWS

IFRS questions are availa le at t!e en" o# t!is $!a%ter&

TR'E(FALSE)Con$e%tual
Ans*er
F T T T F F T F F T F F F F T T T F T F

No&
1. 2. 3. 4. !. ". $. &. '. 1(. 11. 12. 13. 14. 1!. 1". 1$. 1&. 1'. 2(.

Des$ri%tion
Liquidity and solvency. Limitations of the balance sheet. Definition of financial flexibility. Long-te m liability disclosu es. Definitions of the balance sheet. Land held fo s#eculation. %alance sheet fo mat. Disclosu e of fai values. Disclosu e of com#any o#e ations and estimates. Disclosu e of #e tinent info mation. )se of the te m ese ve. *d+unct account. ,u #ose of statement of cash flo-s. .tatement of cash flo-s e#o ting. Financial flexibility. /ollection of a loan. Dete mining cash # ovided by o#e ating activities. 0e#o ting significant financing and investing activities. /u ent cash debt cove age atio. 0e#o ting othe com# ehensive income.

M'LTIPLE CHOICE)Con$e%tual
Ans*er
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No&
21. 22. 23. 24. 2!. . 2". . 2$. , 2&. 2'. 3(. 31. 32. 33. 34. 3!. 3".

Des$ri%tion
Limitation of the balance sheet. )ses of the balance sheet. )se of balance sheet info mation. )se of balance sheet info mation. Limitation of the balance sheet. )ses of the balance sheet. / iticisms of the balance sheet. Definition of liquidity. Definition of net assets. /u ent assets # esentation. 1#e ating cycle. 1#e ating cycle. 2dentification of cu ent asset. 2dentification of cu ent asset. 2dentification of cu ent asset. /lassification of sho t-te m investments.

5(1 c

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 3$. /lassification of invento y #ledged as secu ity.

M'LTIPLE CHOICE)Con$e%tual /$ont&0

Ans*er
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No&
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Des$ri%tion
2dentification of long-te m investments. 2dentification of valuation methods. 2dentification of cu ent liabilities. Definition of -o 3ing ca#ital. 2dentification of -o 3ing ca#ital items. 2dentification of long-te m liabilities. 2dentification of long-te m liabilities. /lassification of t easu y stoc3. Disclosu es fo common stoc3. /lassification of investment in affiliate. /lassification of o-ne s4 equity. /lassification of assets. 2dentification of cont a account. %alance sheet su##lementa y disclosu e. Long-te m liabilities4 disclosu e. %alance sheet su##lementa y disclosu e. Disclosu e of cont actual situations. Disclosu e of accounting #olicies. /ontingency e#o ted in financial statement notes. 5ethods of disclosu e. Disclosu e of significant accounting #olicies. Disclosu e of de# eciation methods used. 0equi ed notes to the financial statements. 2dentification of gene ally acce#ted account titles. ,u #ose of the statement of cash flo-s. .tatement of cash flo-s ans-e s. .tatement of cash flo-s e#o ting. .tatement of cash flo-s ob+ective. 0e#o ting issuance of stoc3 fo machine. 2dentify a financing activity. /lassification of cash ecei#ts. 2dentify a financing activity. /ash flo- f om o#e ating activities. 2dentify an investing activity. , e#a ing the statement of cash flo-s. /ash debt cove age atio. /u ent cash debt cove age atio. Financial flexibility measu e. /alculation of f ee cash flo-. Desc i#tion of financial flexibility. /ash debt cove age atio.

6ote7 these questions also a##ea in the , oblem-.olving .u vival 8uide. 6ote7 these questions also a##ea in the .tudy 8uide.

%alance .heet and .tatement of /ash Flo-s

5(3

M'LTIPLE CHOICE)Co,%utational
Ans*er
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No&
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Des$ri%tion
/lassifying investments. 2dentifying intangible assets /alculate total stoc3holde s9 equity. /lassifying investments. 2dentifying intangible assets. /alculate total stoc3holde s9 equity. /alculate beginning stoc3holde s9 equity. /alculate ending stoc3holde s9 equity. /alculate net income. /alculate ending cash balance. /alculate ending cash balance. /alculate cash # ovided by o#e ating activities. /ash # ovided by o#e ating activities. /ash # ovided by o#e ating activities. /ash debt cove age atio. F ee cash flo-. /ash debt cove age atio. F ee cash flo-.

M'LTIPLE CHOICE)CPA A"a%te"

Ans*er
d d a c b c c a d b

No&
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Des$ri%tion
/alculate total cu ent assets. /alculate total cu ent assets. /alculate total cu ent liabilities. /alculate etained ea nings balance. /alculate cu ent and long-te m liabilities. .umma y of significant accounting #olicies. /lassification of investing activity. /lassification of o#e ating activity. /lassification of financing activity. /lassification of investing activity.

E2ERCISES
Ite,
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Des$ri%tion
Definitions. Te minology. /u ent assets. *ccount classification. ;aluation of balance sheet items. %alance sheet classifications. %alance sheet classifications. %alance sheet classifications. .tatement of cash flo-s. .tatement of cash flo-s atios.

5(7

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

PROBLEMS
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Des$ri%tion
%alance sheet fo mat. %alance sheet # e#a ation. %alance sheet # esentation. .tatement of cash flo-s # e#a ation. .tatement of cash flo-s # e#a ation.

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#a e a classified balance sheet using the e#o t and account fo mats. 4. Dete mine -hich balance sheet info mation equi es su##lemental disclosu e. !. Desc ibe the ma+o disclosu e 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#a e a basic statement of cash flo-s. '. )nde stand the usefulness of the statement of cash flo-s.

%alance .heet and .tatement of /ash Flo-s

5(5

S'MMAR8 OF LEARNIN4 OB5ECTI6ES B8 9'ESTIONS

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Type TF 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ TF 5/ TF 5/ 5/ 5/ TF 5/ 5/

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Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

TR'E FALSE)Con$e%tual
1. Liquidity efe s to the ability of an ente # ise to #ay its debts as they matu e. 2. The balance sheet omits many items that a e of financial value to the business but cannot be eco ded ob+ectively. 3. Financial flexibility measu es the ability of an ente # ise to ta3e effective actions to alte the amounts and timing of cash flo-s. 4. /om#anies f equently desc ibe the te ms of all long-te m liability ag eements in notes to the financial statements. !. *n asset -hich is ex#ected to be conve ted into cash= sold= o consumed -ithin one yea of the balance sheet date is al-ays e#o ted as a cu ent asset. ". Land held fo s#eculation is e#o ted in the # o#e ty= #lant= and equi#ment section of the balance sheet. $. The account fo m and the e#o t fo m of the balance sheet a e both acce#table unde 8**,. &. %ecause of the histo ical cost # inci#le= fai values may not be disclosed in the balance sheet. '. /om#anies have the o#tion of disclosing info mation about the natu e of thei o#e ations and the use of estimates in # e#a ing financial statements. 1(. /om#anies may use #a enthetical ex#lanations= notes= c oss efe ences= and su##o ting schedules to disclose #e tinent info mation. 11. The accounting # ofession has ecommended that com#anies use the -o d ese ve only to desc ibe amounts deducted f om assets. 12. 1n the balance sheet= an ad+unct account educes eithe an asset= a liability= o an o-ne s9 equity account. 13. The # ima y #u #ose of a statement of cash flo-s is to e#o t the cash effects of o#e ations du ing a #e iod. 14. The statement of cash flo-s e#o ts only the cash effects of o#e ations du ing a #e iod and financing t ansactions. 1!. Financial flexibility is a com#any9s ability to es#ond and ada#t to financial adve sity and unex#ected needs and o##o tunities. 1". /ollection of a loan is e#o ted as an investing activity in the statement of cash flo-s. 1$. /om#anies dete mine cash # ovided by o#e ating activities by conve ting net income on an acc ual basis to a cash basis.

%alance .heet and .tatement of /ash Flo-s

5(=

1&. .ignificant financing and investing activities that do not affect cash a e not e#o ted in the statement of cash flo-s o any othe #lace. 1'. Financial statement eade s often assess liquidity by using the cu ent cash debt cove age atio. 2(. F ee cash flo- is net income less ca#ital ex#enditu es and dividends.

True False Ans*ers)Con$e%tual

Ite, 1. 2. 3. 4. !. Ans& F T T T F Ite, ". $. &. '. 1(. Ans& F T F F T Ite, 11. 12. 13. 14. 1!. Ans& F F F F T Ite, 1". 1$. 1&. 1'. 2(. Ans& T T F T F

M'LTIPLE CHOICE)Con$e%tual
21. >hich of the follo-ing is a limitation of the balance sheet? a. 5any items that a e of financial value a e omitted. b. @udgments and estimates a e used. c. /u ent fai value is not e#o ted. d. *ll of these The balance sheet is useful fo analyAing all of the follo-ing exce#t a. liquidity. b. solvency. c. # ofitability. d. financial flexibility. %alance sheet info mation is useful fo all of the follo-ing exce#t to a. com#ute ates of etu n b. analyAe cash inflo-s and outflo-s fo the #e iod c. evaluate ca#ital st uctu e d. assess futu e cash flo-s %alance sheet info mation 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. dete mining f ee cash flo-s.

22.

23.

24.

5(> 2!.

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition * 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 numbe s a e affected by the accounting methods em#loyed d. valuation of items at histo ical cost The balance sheet cont ibutes to financial e#o ting by # oviding a basis fo all of the follo-ing except a. com#uting ates of etu n. b. evaluating the ca#ital st uctu e of the ente # ise. c. dete mining the inc ease in cash due to o#e ations. d. assessing the liquidity and financial flexibility of the ente # ise. 1ne c iticism not no mally aimed at a balance sheet # e#a ed using cu ent accounting and e#o ting standa ds is a. failu e to eflect cu ent value info mation. b. the extensive use of se#a ate classifications. c. an extensive use of estimates. d. failu e to include items of financial value that cannot be eco ded ob+ectively. The amount of time that is ex#ected to ela#se until an asset is ealiAed o othe -ise conve ted into cash is efe ed to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability. The net assets of a business a e equal to a. cu ent assets minus cu ent liabilities. b. total assets #lus total liabilities. c. total assets minus total stoc3holde s4 equity. d. none of these. The co ect o de to # esent cu ent assets is a. cash= accounts eceivable= # e#aid items= invento ies. b. cash= accounts eceivable= invento ies= # e#aid items. c. cash= invento ies= accounts eceivable= # e#aid items. d. cash= invento ies= # e#aid items= accounts eceivable. The basis fo classifying assets as cu ent o noncu ent is conve sion to cash -ithin a. the accounting cycle o one yea = -hicheve is sho te . b. the o#e ating cycle o one yea = -hicheve is longe . c. the accounting cycle o one yea = -hicheve is longe . d. the o#e ating cycle o one yea = -hicheve is sho te . The basis fo classifying assets as cu ent o noncu ent is the #e iod of time no mally equi ed by the accounting entity to conve t cash invested in a. invento y bac3 into cash= o 12 months= -hicheve is sho te . 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. invento y bac3 into cash= o 12 months= -hicheve is longe .

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%alance .heet and .tatement of /ash Flo-s 33. The cu ent assets section of the balance sheet should include a. machine y. b. #atents. c. good-ill. d. invento y.

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34.

>hich of the follo-ing is a cu ent asset? a. /ash su ende value of a life insu ance #olicy of -hich the com#any is the beneficia y. b. 2nvestment in equity secu ities fo the #u #ose of cont olling the issuing com#any. c. /ash designated fo the #u chase of tangible fixed assets. d. T ade installment eceivables no mally collectible in 1& months. >hich of the follo-ing should not be conside ed as a cu ent asset in the balance sheet? a. 2nstallment notes eceivable due ove 1& months in acco dance -ith no mal t ade # actice. b. , e#aid taxes -hich cove assessments of the follo-ing o#e ating cycle of the business. c. :quity o debt secu ities #u chased -ith cash available fo cu ent o#e ations. d. The cash su ende value of a life insu ance #olicy ca ied by a co #o ation= the beneficia y= on its # esident. :quity o debt secu ities held to finance futu e const uction of additional #lants should be classified on a balance sheet as a. cu ent assets. b. # o#e ty= #lant= and equi#ment. c. intangible assets. d. long-te m investments. >hen a #o tion of invento ies has been #ledged as secu ity on a loan= a. the value of the #o tion #ledged should be subt acted f om the debt. b. an equal amount of etained ea nings should be a## o# iated. c. the fact should be disclosed but the amount of cu ent assets should not be affected. d. the cost of the #ledged invento ies should be t ansfe ed f om cu ent assets to noncu ent assets. >hich of the follo-ing is not a long-te m investment? a. /ash su ende value of life insu ance b. F anchise c. Land held fo s#eculation d. * sin3ing fund * gene ally acce#ted method of valuation is 1. t ading secu ities at ma 3et value. 2. accounts eceivable at net ealiAable value. 3. invento ies at cu ent cost. a. 1 b. 2 c. 3 d. 1 and 2

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Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition >hich item belo- is not a cu ent liability? a. )nea ned evenue b. .toc3 dividends dist ibutable c. The cu ently matu ing #o tion of long-te m debt d. T ade accounts #ayable >o 3ing ca#ital is a. ca#ital -hich has been einvested in the business. b. una## o# iated etained ea nings. c. cash and eceivables less cu ent liabilities. d. none of these. *n exam#le of an item -hich is not an element of -o 3ing ca#ital is a. acc ued inte est on notes eceivable. b. good-ill. c. goods in # ocess. d. tem#o a y investments. Long-te m liabilities include a. obligations not ex#ected to be liquidated -ithin the o#e ating cycle. b. obligations #ayable at some date beyond the o#e ating cycle. c. defe ed income taxes and most lease obligations. d. all of these. >hich of the follo-ing should be excluded f om long-te m liabilities? a. 1bligations #ayable at some date beyond the o#e ating cycle b. 5ost #ension obligations c. Long-te m liabilities that matu e -ithin the o#e ating cycle and -ill be #aid f om a sin3ing fund d. 6one of these T easu y stoc3 should be e#o ted as aBnC a. cu ent asset. b. investment. c. othe asset. d. eduction of stoc3holde s4 equity. >hich of the follo-ing should be e#o ted fo ca#ital stoc3? a. The sha es autho iAed b. The sha es issued c. The sha es outstanding d. *ll of these >hich of the follo-ing -ould be classified in a diffe ent ma+o section of a balance sheet f om the othe s? a. /a#ital stoc3 b. /ommon stoc3 subsc ibed c. .toc3 dividend dist ibutable d. .toc3 investment in affiliate

41.

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%alance .heet and .tatement of /ash Flo-s 4&. The stoc3holde s4 equity section is usually divided into -hat th ee #a ts? a. , efe ed stoc3= common stoc3= t easu y stoc3 b. , efe ed stoc3= common stoc3= etained ea nings c. /a#ital stoc3= additional #aid-in ca#ital= etained ea nings d. /a#ital stoc3= a## o# iated etained ea nings= una## o# iated etained ea nings >hich of the follo-ing is not an acce#table ma+o asset classification? a. /u ent assets b. Long-te m investments c. , o#e ty= #lant= and equi#ment d. Defe ed cha ges >hich of the follo-ing is a cont a account? a. , emium on bonds #ayable b. )nea ned evenue c. ,atents d. *ccumulated de# eciation

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>hich of the follo-ing balance sheet classifications -ould no mally equi e the g eatest amount of su##lementa y disclosu e? a. /u ent assets b. /u ent liabilities c. ,lant assets d. Long-te m liabilities The # esentation of long-te m liabilities in the balance sheet should disclose a. matu ity dates. b. inte est ates. c. conve sion ights. d. *ll of the above. >hich of the follo-ing is not a equi ed su##lemental disclosu e fo the balance sheet? a. /ontingencies b. Financial fo ecasts c. *ccounting #olicies d. /ont actual situations Ty#ical cont actual situations that a e disclosed in the notes to the balance sheet include all of the follo-ing exce#t a. debt covenants b. lease obligations c. adve tising cont acts 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 invento y #u chasing #olicies

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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#o ted in the notes to the financial statements? a. Losses f om #otential futu e la-suits b. Loss f om a la-suit settled out of cou t # io to the end of the fiscal yea c. >a anty claims on futu e sales d. :stimated loss f om an ongoing la-suit >hich of the follo-ing is not a method of disclosing #e tinent info mation? a. .u##o ting schedules b. ,a enthetical ex#lanations c. / oss efe ence and cont a items d. *ll of these a e methods of disclosing #e tinent info mation. .ignificant accounting #olicies may not be a. selected on the basis of +udgment. b. selected f om existing acce#table alte natives. c. unusual o innovative in a##lication. d. omitted f om financial-statement disclosu e. * gene al desc i#tion of the de# eciation methods a##licable to ma+o classes of de# eciable assets a. is not a cu ent # actice in financial e#o ting. b. is not essential to a fai # esentation of financial #osition. c. is needed in financial e#o ting -hen com#any #olicy diffe s f om income tax #olicy. d. should be included in co #o ate financial statements o notes the eto. 2t is mandato y that the essential # ovisions of -hich of the follo-ing be clea ly stated in the notes to the financial statements? a. .toc3 o#tion #lans b. ,ension obligations c. Lease cont acts d. *ll of these * gene ally acce#ted account title is a. , e#aid 0evenue. b. *## o# iation fo /ontingencies. c :a ned .u #lus. d. 0ese ve fo Doubtful *ccounts. The financial statement -hich summa iAes o#e ating= investing= and financing activities of an entity fo a #e iod of time is the a. etained ea nings statement. b. income statement. c. statement of cash flo-s. d. statement of financial #osition. The statement of cash flo-s # ovides ans-e s to all of the follo-ing questions except a. -he e did the cash come f om du ing the #e iod? b. -hat -as the cash used fo du ing the #e iod? 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 du ing the #e iod?

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%alance .heet and .tatement of /ash Flo-s "4. The statement of cash flo-s e#o ts all of the follo-ing exce#t a. the net change in cash fo the #e iod. b. the cash effects of o#e ations du ing the #e iod. c. the f ee cash flo-s gene ated du ing the #e iod. d. investing t ansactions.

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The statement of cash flo-s hel#s meet one of the ob+ectives of financial e#o ting= -hich is to assess all of the follo-ing exce#t the a. amount of futu e cash flo-s. b. sou ce of futu e cash flo-s. c. timing of futu e cash flo-s. d. unce tainty of futu e cash flo-s. 2f common stoc3 -as issued to acqui e an D&=((( machine= ho- -ould the t ansaction a##ea on the statement of cash flo-s? a. 2t -ould de#end on -hethe you a e using the di ect o the indi ect 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 f om financing activities section of the statement of cash flo-s? a. /ash #u chases of equi#ment. b. /ash #u chases of bonds issued by anothe com#any. c. /ash eceived as e#ayment fo funds loaned. d. /ash #u chase of t easu y stoc3. 5a3ing and collecting loans and dis#osing of # o#e ty= #lant= and equi#ment a e a. o#e ating activities. b. investing activities. c. financing activities. d. liquidity activities. 2n # e#a ing a statement of cash flo-s= sale of t easu y stoc3 at an amount g eate than cost -ould be classified as aBnC a. o#e ating activity. b. financing activity. c. ext ao dina y activity. d. investing activity. 2n # e#a ing a statement of cash flo-s= cash flo-s f om o#e ating activities a. a e al-ays equal to acc ual accounting income. b. a e calculated as the diffe ence bet-een evenues and ex#enses. c. can be calculated by a## o# iately adding to o deducting f om 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 f om net income those items in the income statement that do affect cash.

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$(.

5 ( ;7 $1.

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 2n # e#a ing a statement of cash flo-s= -hich of the follo-ing t ansactions -ould be conside ed an investing activity? a. .ale of equi#ment at boo3 value b. .ale of me chandise on c edit c. Decla ation of a cash dividend d. 2ssuance of bonds #ayable at a discount , e#a ing the statement of cash flo-s involves all of the follo-ing exce#t dete mining the a. cash # ovided by o#e ations. b. cash # ovided by o used in investing and financing activities. c. change in cash du ing the #e iod. d. cash collections f om custome s du ing the #e iod. The cash debt cove age atio is com#uted by dividing net cash # ovided by o#e ating activities by a. ave age long-te m liabilities. b. ave age total liabilities. c. ending long-te m liabilities. d. ending total liabilities. The cu ent cash debt cove age atio is often used to assess a. financial flexibility. b. liquidity. c. # ofitability. d. solvency. * measu e of a com#any9s financial flexibility is the a. cash debt cove age atio. b. cu ent cash debt cove age atio. c. f ee cash flo-. d. cash debt cove age atio and f ee cash flo-. F ee cash flo- is calculated as net cash # ovided by o#e ating activities less a. ca#ital ex#enditu es. b. dividends. c. ca#ital ex#enditu es and dividends. d. ca#ital ex#enditu es and de# eciation. 1ne of the benefits of the statement of cash flo-s is that it hel#s use s evaluate financial flexibility. >hich of the follo-ing ex#lanations is a desc i#tion of financial flexibility? a. The nea ness to cash of assets and liabilities. b. The fi m4s ability to es#ond and ada#t to financial adve sity and unex#ected needs and o##o tunities. c. The fi m4s ability to #ay its debts as they matu e. d. The fi m4s ability to invest in a numbe of # o+ects -ith diffe ent ob+ectives and costs. 6et cash # ovided by o#e ating activities divided by ave age total liabilities equals the a. cu ent cash debt cove age atio. b. cash debt cove age atio. c. f ee cash flo-. d. cu ent atio.

$2.

$3.

$4.

$!.

$".

$$.

$&.

%alance .heet and .tatement of /ash Flo-s

5 ( ;5

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. 22. 23. 24. 2!. 2". 2$. 2&. 2'.

d c b d d c b c d

3(. 31. 32. 33. 34. 3!. 3". 3$. 3&.

b b d d d d d c b

3'. 4(. 41. 42. 43. 44. 4!. 4". 4$.

d b d b d d d d d

4&. 4'. !(. !1. !2. !3. !4. !!. !".

c d d d d b c d d

!$. !&. !'. "(. "1. "2. "3. "4. "!.

d d d d b c c c b

"". "$. "&. "'. $(. $1. $2. $3. $4.

d d b b c a d b b

$!. $". $$. $&.

d c b 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. /u ent assets less cu ent liabilities. 44. 5any ans-e s a e #ossible.

M'LTIPLE CHOICE)Co,%utational
$'. Fulton /om#any o-ns the follo-ing investments7 T ading secu ities Bfai valueC *vailable-fo -sale secu ities Bfai valueC Geld-to-matu ity secu ities Bamo tiAed costC D"(=((( 3!=((( 4$=(((

Fulton -ill e#o t investments in its cu ent assets section of a. D(. b. exactly D"(=(((. c. D"(=((( o an amount g eate than D"(=(((= de#ending on the ci cumstances. d. exactly D'!=(((. &(. Fo 8 immett /om#any= the follo-ing info mation is available7 /a#italiAed leases T adema 3s Long-te m eceivables D2((=((( "!=((( $!=(((

2n 8 immett9s balance sheet= intangible assets should be e#o ted at a. D"!=(((. b. D$!=(((. c. D2"!=(((. d. D2$!=(((. &1. Goughton /om#any has the follo-ing items7 common stoc3= D$2(=(((H t easu y stoc3= D&!=(((H defe ed taxes= D1((=((( and etained ea nings= D313=(((. >hat total amount should Goughton /om#any e#o t as stoc3holde s9 equity? a. D&4&=(((. b. D'4&=(((. c. D1=(4&=(((. d. D1=11&=(((.

5 ( ;< &2.

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Iohle /om#any o-ns the follo-ing investments7 T ading secu ities Bfai valueC *vailable-fo -sale secu ities Bfai valueC Geld-to-matu ity secu ities Bamo tiAed costC D "(=((( 3!=((( 4$=(((

Iohle -ill e#o t secu ities in its long-te m 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 ci cumstances. &3. Fo 0andol#h /om#any= the follo-ing info mation is available7 /a#italiAed leases T adema 3s Long-te m eceivables D2&(=((( '(=((( 1(!=(((

2n 0andol#h9s balance sheet= intangible assets should be e#o ted at a. D'(=(((. b. D1(!=(((. c. D3$(=(((. d. D3&!=(((. &4. 1lmsted /om#any has the follo-ing items7 common stoc3= D$2(=(((H t easu y stoc3= D&!=(((H defe ed taxes= D1((=((( and etained ea nings= D3"3=(((. >hat total amount should 1lmsted /om#any e#o t as stoc3holde s9 equity? a. D&'&=(((. b. D''&=(((. c. D1=('&=(((. d. D1=1'&=(((. , esented belo- a e data fo *nt-e # /o #. 2(1( *ssets= @anua y 1 Liabilities= @anua y 1 .toc3holde s4 :quity= @an. 1 Dividends /ommon .toc3 .toc3holde s4 :quity= Dec. 31 6et 2ncome .toc3holde s4 :quity at @anua y 1= 2(1( is a. D !(4. b. D !"(. c. D1=12(. d. D1="24. D2=&(( 1="&( ? !"( !(4 ? !"( 2(11 D3=3"( ? ? 42( 44& ? 44& 2(12 ? D2=(1" 2=1(( 4$" !(( 1=!'" ?

&!.

%alance .heet and .tatement of /ash Flo-s &". , esented belo- a e data fo %and3o3 /o #. 2(1( *ssets= @anua y 1 Liabilities= @anua y 1 .toc3holde s4 :quity= @an. 1 Dividends /ommon .toc3 .toc3holde s4 :quity= Dec. 31 6et 2ncome .toc3holde s4 :quity at @anua y 1= 2(11 is a. D1=&'(. b. D1=''&. c. D3=132. d. D3=1&". &$. , esented belo- a e data fo /a acas /o #. 2(1( *ssets= @anua y 1 Liabilities= @anua y 1 .toc3holde s4 :quity= @an. 1 Dividends /ommon .toc3 .toc3holde s4 :quity= Dec. 31 6et 2ncome 6et income fo 2(12 is a. D"&4 income. b. D"&4 loss. c. D3& income. d. D3& loss. &&. Lohmeye /o #o ation e#o ts7 /ash # ovided by o#e ating activities /ash used by investing activities /ash # ovided by financing activities %eginning cash balance >hat is Lohmeye 9s ending cash balance? a. D2&(=(((. b. D3!(=(((. c. D!((=(((. d. D!$(=(((. D2!(=((( 11(=((( 14(=((( $(=((( D3=&(( 2=2&( ? $"( "&4 ? $"( 2(11 D4=!"( ? ? !$( "(& ? "&4 2(12 ? D2=$3" 2=&!( "4" "!( 2=1"" ? D!=4(( 3=24( ? 1=(&( '$2 ? 1=(&( 2(11 D"=4&( ? ? &1( &"4 ? &"4 2(12 ? D3=&&& 4=(!( '1& '2( 3=($& ?

5 ( ;=

5 ( ;> &'.

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition Ieisle /o #o ation e#o ts7 /ash # ovided by o#e ating activities /ash used by investing activities /ash # ovided by financing activities %eginning cash balance >hat is Ieisle 9s ending cash balance? a. D23(=(((. b. D3((=(((. c. D4!(=(((. d. D!2(=(((. D2((=((( 11(=((( 14(=((( $(=(((

'(.

Du ing 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=((( inc ease *ccounts ,ayable 1=((( inc ease %uilding 4=((( dec ease De# eciation :x#ense 1=!(( inc ease %onds ,ayable &=((( inc ease >hat -as the amount of cash # ovided by o#e ating activities? a. D4'=!(( b. D!(=((( c. D!1=!(( d. D!'=!(( Ga ding /o #o ation e#o ts the follo-ing info mation7 6et income De# eciation ex#ense 2nc ease in accounts eceivable Ga a. b. c. d. D!((=((( 14(=((( "(=(((

'1.

ding should e#o t cash # ovided by o#e ating activities of D3((=(((. D42(=(((. D!&(=(((. D$((=(((.

'2.

.aude /o #o ation e#o ts the follo-ing info mation7 6et income De# eciation ex#ense 2nc ease in accounts eceivable D2!(=((( $(=((( 3(=(((

.aude should e#o t cash # ovided by o#e ating activities of a. D1!(=(((. b. D21(=(((. c. D2'(=(((. d. D3!(=(((.

%alance .heet and .tatement of /ash Flo-s '3. ,ac3a d /o #o ation e#o ts the follo-ing info mation7 6et cash # ovided by o#e ating activities *ve age cu ent liabilities *ve age long-te m liabilities Dividends decla ed /a#ital ex#enditu es ,ayments of debt ,ac3a d9s cash debt cove age atio is a. (.&". b. 1.43. c. 2.1!. d. 4.$&. '4. ,ac3a d /o #o ation e#o ts the follo-ing info mation7 6et cash # ovided by o#e ating activities *ve age cu ent liabilities *ve age long-te m liabilities Dividends #aid /a#ital ex#enditu es ,ayments of debt ,ac3a d9s f ee cash flo- is a. D1(=(((. b. D4!=(((. c. D1(!=(((. d. D1!!=(((. '!. ,edigo /o #o ation e#o ts the follo-ing info mation7 6et cash # ovided by o#e ating activities *ve age cu ent liabilities *ve age long-te m liabilities Dividends #aid /a#ital ex#enditu es ,ayments of debt ,edigo9s cash debt cove age atio is a. 1.(2. b. 1.$(. c. 2.!!. d. 3.((. D2!!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=((( D21!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=((( D21!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=(((

5 ( ;?

5 ( 1@ '".

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 6o ton /o #o ation e#o ts the follo-ing info mation7 6et cash # ovided by o#e ating activities *ve age cu ent liabilities *ve age long-te m liabilities Dividends #aid /a#ital ex#enditu es ,ayments of debt ton9s f ee cash flo- is D!(=(((. D&!=(((. D14!=(((. D1'!=(((. D2!!=((( 1!(=((( 1((=((( "(=((( 11(=((( 3!=(((

6o a. b. c. d.

Multi%le C!oi$e Ans*ers)Co,%utational

Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans&

$'. &(. &1. &2.

c a b d

&3. &4. &!. &".

a b c c

&$. &&. &'. '(.

d b b a

'1. '2. '3. '4.

c c a b

'!. '".

a b

M'LTIPLE CHOICE)CPA A"a%te"

'$. .tine /o #.4s t ial balance eflected the follo-ing account balances at Decembe 31= 2(1(7 *ccounts eceivable BnetC D24=((( T ading secu ities "=((( *ccumulated de# eciation on equi#ment and fu nitu e 1!=((( /ash 11=((( 2nvento y 3(=((( :qui#ment 2!=((( ,atent 4=((( , e#aid ex#enses 2=((( Land held fo futu e business site 1&=((( 2n .tine4s Decembe 31= 2(1( balance sheet= the cu ent assets total is a. D'(=(((. b. D&2=(((. c. D$$=(((. d. D$3=(((.

%alance .heet and .tatement of /ash Flo-s )se the follo-ing info mation fo questions '& th ough 1((.

5 ( 1;

The follo-ing t ial balance of 0eese /o #. at Decembe 31= 2(1( has been # o#e ly ad+usted exce#t fo the income tax ex#ense ad+ustment. 0eese /o #. T ial %alance Decembe 31= 2(1( D. /. /ash D $$!=((( *ccounts eceivable BnetC 2="'!=((( 2nvento y 2=(&!=((( , o#e ty= #lant= and equi#ment BnetC $=3""=((( *ccounts #ayable and acc ued liabilities D 1=$(1=((( 2ncome taxes #ayable "!4=((( Defe ed income tax liability &!=((( /ommon stoc3 2=3!(=((( *dditional #aid-in ca#ital 3="&(=((( 0etained ea nings= 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 f om a custome and #ayable in qua te ly installments of D1!(=(((. The last #ayment is due Decembe 2'= 2(12. The balance in the Defe ed 2ncome Tax Liability account #e tains to a tem#o a y diffe ence that a ose in a # io yea = of -hich D2(=((( is classified as a cu ent liability. Du ing the yea = estimated tax #ayments of D!2!=((( -e e cha ged to income tax ex#ense. The cu ent and futu e tax ate on all ty#es of income is 3(K.

2n 0eese4s Decembe 31= 2(1( balance sheet= '&. The cu ent assets total is a. D"=(&(=(((. b. D!=!!!=(((. c. D!=4(!=(((. d. D4='!!=(((. The cu ent liabilities total is a. D1=&!(=(((. b. D1='1!=(((. c. D2=3$!=(((. d. D2=44(=(((. The final etained ea nings balance is a. D4=4!1=(((. b. D4=!3"=(((. c. D4='$"=(((. d. D4='(!=(((.

''.

1((.

5 ( 11 1(1.

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition 1n @anua y 4= 2(1(= Iiley /o. leased a building to Dodd /o #. fo a ten-yea te m at an annual ental of D$!=(((. *t ince#tion of the lease= Dodd eceived D3((=((( cove ing the fi st t-o yea s4 ent of D1!(=((( and a secu ity de#osit of D1!(=(((. This de#osit -ill not be etu ned to Dodd u#on ex#i ation of the lease but -ill be a##lied to #ayment of ent fo the last t-o yea s of the lease. >hat #o tion of the D3((=((( should be sho-n as a cu ent and long-te m liability in Iiley4s Decembe 31= 2(1( balance sheet? a. b. c. d. /u ent Liability D( D$!=((( D1!(=((( D1!(=((( Long-te m Liability D3((=((( D1!(=((( D1!(=((( D$!=(((

1(2.

>hich of the follo-ing facts conce ning fixed assets should be included in the summa y of significant accounting #olicies? a. b. c. d. De# eciation 5ethod 6o Les Les 6o /om#osition Les Les 6o 6o

1(3.

2n a statement of cash flo-s= ecei#ts f om sales of # o#e ty= #lant= and equi#ment and othe # oductive assets should gene ally be classified as cash inflo-s f om a. o#e ating activities. b. financing activities. c. investing activities. d. selling activities. 2n a statement of cash flo-s= inte est #ayments to lende s and othe c edito s should be classified as cash outflo-s fo a. o#e ating activities. b. bo o-ing activities. c. lending activities. d. financing activities. 2n a statement of cash flo-s= # oceeds f om issuing equity inst uments should be classified as cash inflo-s f om a. lending activities. b. o#e ating activities. c. investing activities. d. financing activities. 2n a statement of cash flo-s= #ayments to acqui e debt inst uments of othe entities Bothe than cash equivalentsC should be classified as cash outflo-s fo a. o#e ating activities. b. investing activities. c. financing activities. d. lending activities.

1(4.

1(!.

1(".

%alance .heet and .tatement of /ash Flo-s

5 ( 13

Multi%le C!oi$e Ans*ers)CPA A"a%te"

Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans& Ite, Ans&

'$. '&.

d d

''. 1((.

a c

1(1. 1(2.

b c

1(3. 1(4.

c a

1(!. 1(".

d b

DERI6ATIONS ) Co,%utational
No& Ans*er
$'. &(. &1. &2. &3. &4. &!. &". &$. &&. &'. '(. '1. '2. '3. '4. '!. '". c a b d a b c c d b b a c c a b a b D$2(=((( M D&!=((( N D3"3=((( < D''&=(((. D2=&(( M D1="&( < D1=12(. BD!=4(( M D3=24(C N D1=(&( N D'$2 M D1=(&( < D3=132. D2=&!( M D"4" M D2=1"" < BD3&C. D$(=((( N D2!(=((( M D11(=((( N D14(=((( < D3!(=(((. D$(=((( N D2((=((( M D11(=((( N D14(=((( < D3((=(((. D!(=((( M D3=((( N D1=((( N D1=!(( < D4'=!((. D!((=((( N D14(=((( M D"(=((( < D!&(=(((. D2!(=((( N D$(=((( M D3(=((( < D2'(=(((. D21!=((( O BD1!(=((( N D1((=(((C < (.&". D21!=((( M D"(=((( M D11(=((( < D4!=(((. D2!!=((( O BD1!(=((( N D1((=(((C < 1.(2. D2!!=((( M D"(=((( M D11(=((( < D&!=(((. D$2(=((( M D&!=((( N D313=((( < D'4&=(((.

Derivation

DERI6ATIONS ) CPA A"a%te"

No& Ans*er
'$. '&. ''. 1((. 1(1. 1(2. d d a c b c

Derivation
D24=((( N D"=((( N D11=((( N D3(=((( N D2=((( < D$3=(((. D$$!=((( N PD2="'!=((( M BD1!(=((( Q 4CR N D2=(&!=((( < D4='!!=(((. D1=$(1=((( N BD"!4=((( M D!2!=(((C N D2(=((( < D1=&!(=(((. D3=4!(=((( N D13=3"(=((( M D11=1&(=((( M BD1=1$'=((( M D!2!=(((C < D4='$"=(((. /once#tual. /once#tual.

5 ( 17

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

No& Ans*er
1(3. 1(4. 1(!. 1(". c a d b

Derivation
/once#tual. /once#tual. /once#tual. /once#tual.

E2ERCISES
EA& 5(;@=SDefinitions. , ovide clea = concise ans-e s fo the follo-ing. 1. >hat a e assets? 2. >hat a e liabilities? 3. >hat is equity? 4. >hat a e cu ent liabilities? !. :x#lain -hat -o 3ing ca#ital is and ho- it is com#uted. ". >hat a e intangible assets? $. >hat a e cu ent assets?

Solution 5(;@= 1. *ssets a e # obable futu e economic benefits obtained o cont olled by an entity as a esult of #ast t ansactions o events. 2. Liabilities a e # obable futu e sac ifices of economic benefits a ising f om # esent obligations of an entity as a esult of #ast t ansactions o events. 3. :quity is the esidual inte est in the net assets of an entity. 4. /u ent liabilities a e obligations that a e ex#ected to be liquidated th ough the use of cu ent assets o the c eation of othe cu ent liabilities. !. >o 3ing ca#ital is the net amount of a com#any9s elatively liquid esou ces. 2t is the excess of total cu ent assets ove total cu ent liabilities. ". 2ntangible assets a e economic esou ces o com#etitive advantages. They lac3 #hysical substance and have a high deg ee of unce tainty about the futu e benefits to be eceived. $. /u ent assets a e esou ces Bfutu e economic benefitsC ex#ected to be conve ted to cash= sold= o consumed in one yea o the o#e ating cycle= -hicheve is longe .

%alance .heet and .tatement of /ash Flo-s EA& 5(;@>STe minology. 2n the s#ace # ovided at ight= - ite the -o d o #h ase that is defined o indicated. 1. 1bligations ex#ected to be liquidated th ough use of cu ent assets. 2. .tatement sho-ing financial condition at a #oint in time. 3. :vents that de#end u#on futu e outcomes. 4. , obable futu e sac ifices of economic benefits. !. 0esou ces ex#ected to be conve ted to cash in one yea o the o#e ating cycle= -hicheve is longe . ". 0esou ces of a du able natu e used in o#e ations. $. :conomic ights o com#etitive advantages -hich lac3 #hysical substance. &. , obable futu e economic benefits. '. 0esidual inte est in the net assets of an entity. Solution 5(;@> 1. 2. 3. 4. !. /u ent liabilities. %alance sheet. /ontingencies. Liabilities. /u ent assets. ". $. &. '. , o#e ty= #lant= and equi#ment. 2ntangible assets. *ssets. :quity.

5 ( 15

1.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 2.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 3.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 4.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT !.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT

".TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT $.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT &.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT '.TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT

EA& 5(;@?S/u ent assets. Define cu ent assets -ithout using the -o d Uasset.U Solution 5(;@? /u ent assets a e esou ces Bfutu e economic benefitsC ex#ected to be conve ted to cash= sold= o consumed in one yea o the o#e ating cycle= -hicheve is longe .

5 ( 1<

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

EA& 5(;;@S*ccount classification. a. b. c. d. e. *..:T. /u ent assets 2nvestments ,lant and equi#ment 2ntangibles 1the assets f. g. h. i. +. 3. l. L2*%2L2T2:. *6D /*,2T*L /u ent liabilities Long-te m liabilities , efe ed stoc3 /ommon stoc3 *dditional #aid-in ca#ital 0etained ea nings 2tems excluded f om balance sheet

)sing the lette s above= classify the follo-ing accounts acco ding to the # efe ed and o dina y balance sheet # esentation. TTTTT 1. %ond sin3ing fund TTTTT 2. /ommon stoc3 dist ibutable TTTTT 3. *## o# iation fo #lant ex#ansion TTTTT 4. %an3 ove d aft TTTTT !. %onds #ayable Bdue 2(13C TTTTT ". , emium on common stoc3 TTTTT $. .ecu ities o-ned by anothe com#any -hich a e collate al fo that com#any4s note TTTTT &. T ading secu ities TTTTT '. 2nvento y TTTTT 1(. )namo tiAed discount on bonds #ayable TTTTT 11. ,atents TTTTT 12. )nea ned evenue Solution 5(;;@ 1. 2. 3. 4. b i 3 f !. ". $. &. g + l a '. 1(. 11. 12. a g d f

%alance .heet and .tatement of /ash Flo-s EA& 5(;;;S;aluation of %alance .heet 2tems.

5 ( 1=

)se the code lette s listed belo- Ba M lC to indicate= fo each balance sheet item B1 M 13C listed belo- the usual valuation e#o ted on the balance sheet. TTTTTT 1. /ommon stoc3 TTTTTT 2. , e#aid ex#enses TTTTTT 3. 6atu al esou ces TTTTTT 4. , o#e ty= #lant= and equi#ment TTTTTT !. T ade accounts eceivable TTTTTT ". /o#y ights TTTTTT $. 5e chandise invento y a. ,a value b. /u ent cost of e#lacement c. *mount #ayable -hen due= less unamo tiAed discount o #lus unamo tiAed # emium d. *mount #ayable -hen due e. 5a 3et value at balance sheet date f. 6et ealiAable value g. Lo-e of cost o ma 3et h. 1 iginal cost less accumulated amo tiAation i. +. l. 1 iginal cost less accumulated de#letion 1 iginal cost less accumulated de# eciation )nex#i ed o unconsumed cost TTTTTT &. Long-te m bonds #ayable TTTTTT '. Land Bin useC TTTTTT 1(. Land Bfutu e #lant siteC TTTTTT 11. ,atents TTTTTT 12. T ading secu ities TTTTTT 13. T ade accounts #ayable

3. Gisto ical cost

Solution 5(;;; 1. 2. 3. 4. !. a l i + f ". $. &. '. 1(. h g c 3 3 11. 12. 13. h e d

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 a e as follo-s. a. /u ent *ssets g. b. 2nvestments h. c. ,lant *ssets i. d. 2ntangible *ssets +. e. 1the *ssets 3. f. /u ent Liabilities l. Long-Te m Liabilities /a#ital .toc3 *dditional ,aid-2n /a#ital 0etained :a nings 6otes to Financial .tatements 6ot 0e#o ted on %alance .heet

2ndicate by use of the above lette s ho- each of the follo-ing items -ould be classified on a balance sheet # e#a ed at Decembe 31= 2(1(. 2f a cont a account= o any amount that is negative o o##osite the no mal balance= #ut #a entheses a ound the lette selected. * lette may be used mo e than once o not at all. TTTTT 1. *cc ued sala ies and -ages TTTTT 2. 0ental evenues fo 3 months collected in advance TTTTT 3. Land used as #lant site TTTTT 4. :quity secu ities classified as t ading TTTTT !. /ash TTTTT ". *cc ued inte est #ayable due in 3( days TTTTT $. , emium on # efe ed stoc3 issued TTTTT &. Dividends in a ea s on # efe ed stoc3 TTTTT '. ,etty cash fund TTTTT 1(. )namo tiAed discount on bonds #ayable due 2(13 TTTTT 11. /ommon stoc3 at #a value TTTTT 12. %ond indentu e covenants TTTTT 13. )namo tiAed # emium on bonds #ayable due in 2(1" TTTTT 14. *llo-ance fo doubtful accounts TTTTT 1!. *ccumulated de# eciation TTTTTT 1". 6atu al esou ceStimbe lands TTTTTT 1$. Deficit Bno net income ea ned since beginning of com#anyC TTTTTT 1&. 8ood-ill TTTTTT 1'. '( day notes #ayable TTTTTT 2(. 2nvestment in bonds of anothe com#anyH -ill be held to 2(13 matu ity TTTTTT 21. Land held fo s#eculation TTTTTT 22. Death of com#any # esident TTTTTT 23. /u ent matu ity of bonds #ayable TTTTTT 24. 2nvestment in subsidia yH no #lans to sell in nea futu e TTTTTT 2!. T ade accounts #ayable TTTTTT2". TTTTTT2$. , efe ed stoc3 BD1( #a C , e#aid ent fo next 12 months

TTTTTT 2&. /o#y ight TTTTTT 2'. *ccumulated amo tiAation= #atents TTTTTT 3(. :a nings not dist ibuted to stoc3holde s

%alance .heet and .tatement of /ash Flo-s Solution 5(;;1 1. 2. 3. 4. !. f f c a a ". $. &. '. 1(. f i 3 a BgC 11. 12. 13. 14. 1!. h 3 g BaC BcC 1". 1$. 1&. 1'. 2(. c B+C d f b 21. 22. 23. 24. 2!. b l f b f 2". 2$. 2&. 2'. 3(.

5 ( 1?

h a d BdC +

EA& 5(;;3S%alance sheet classifications. The va ious classifications listed belo- have been used in the #ast by 5a is /om#any on its balance sheet. 2t as3s you # ofessional o#inion conce ning the a## o# iate classification of each of the items 1-14 belo-. a. b. c. d. e. /u ent *ssets 2nvestments ,lant and :qui#ment 2ntangible *ssets 1the *ssets f. g. h. i. /u ent Liabilities Long-Te m Liabilities /ommon .toc3 and ,aid-in /a#ital in :xcess of ,a 0etained :a nings

2ndicate by lette ho- each of the follo-ing items should be classified. 2f an item need not be e#o ted on the balance sheet= use the lette UV.U * lette may be used mo e than once o not at all. 2f an item can be classified in mo e than one catego y= choose the catego y most favo ed by the autho s of you textboo3. TTTTT 1. :m#loyees4 #ay oll deductions. TTTTT 2. /ash in sin3ing fund. TTTTT 3. 0ent evenue collected in advance. TTTTT 4. :qui#ment eti ed f om use and held fo sale. TTTTT !. ,atents. TTTTT ". ,ay oll cash fund. TTTTT $. 8oods held on consignment. TTTTT &. *cc ued evenue on tem#o a y investments. TTTTT '. *dvances to sales#e sons. TTTTT 1(. , emium on bonds #ayable due t-o yea s f om date. TTTTT 11. %an3 ove d aft. TTTTT 12. .ala ies -hich com#any budget sho-s -ill be #aid to em#loyees -ithin the next yea . TTTTT 13. >o 3 in # ocess. TTTTT 14. *## o# iation fo bonded indebtedness.

5 ( 3@

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

Solution 5(;;3 1. 2. 3. 4. f b f ao e !. ". $. &. d a x a '. 1(. 11. 12. a g f x 13. 14. a i

EA& 5(;;7S%alance sheet classifications. The va ious classifications listed belo- have been used in the #ast by Gale /om#any on its balance sheet. a. b. c. d. /u ent *ssets 2nvestments ,lant and :qui#ment 2ntangible *ssets e. f. g. h. /u ent Liabilities Long-te m Liabilities /ommon .toc3 and ,aid-in /a#ital in :xcess of ,a 0etained :a nings

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#o ted on the Decembe 31= 2(1( balance sheet= use the lette UVU fo you ans-e . 2f the item is a cont a account -ithin the #a ticula classification= #lace #a entheses a ound the lette . * lette may be used mo e than once o not at all. .am#le question and ans-e 7 BaC *llo-ance fo doubtful accounts.

TTTTT 1. /ustome s4 accounts -ith c edit balances. TTTTT 2. %ond sin3ing fund. TTTTT 3. .ala ies -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 ". *mo tiAation of #atents fo 2(1(. TTTTT $. 1n Decembe 31= 2(1(= Gale signed a #u chase commitment to buy all of its amate ials f om Delta /om#any fo the next 2 yea s. TTTTT &. Discount on bonds #ayable due 5a ch 31= 2(13. TTTTT '. Launching of Gale9s 2nte net etailing division in Feb ua y= 2(11. TTTTT 1(. /ash dividends decla ed on Decembe 1!= 2(1( #ayable to stoc3holde s on @anua y 1!= 2(11.

%alance .heet and .tatement of /ash Flo-s Solution 5(;;7 1. e 2. b 3. x 4. !. ". BcC h x $. &. '. x BfC x 1(. e

5 ( 3;

EA& 5(;;5S.tatement of cash flo-s. Fo each event listed belo-= select the a## o# iate catego y -hich desc ibes the effect of the event on a statement of cash flo-s7 a. /ash # ovidedJused by o#e ating activities. b. /ash # ovidedJused by investing activities. c. /ash # ovidedJused by financing activities. d. 6ot a cash flo-. TTTTT 1. ,ayment on long-te m debt TTTTT 2. 2ssuance of bonds at a # emium TTTTT 3. /ollection of accounts eceivable TTTTT 4. /ash dividends decla ed TTTTT !. 2ssuance of stoc3 to acqui e land TTTTT ". .ale of available-fo -sale secu ities Blong-te mC TTTTT $. ,ayment of em#loyees4 -ages TTTTT &. 2ssuance of common stoc3 fo cash TTTTT '. ,ayment of income taxes #ayable TTTTT 1(. ,u chase of equi#ment TTTTT 11. ,u chase of t easu y stoc3 BcommonC TTTTT 12. .ale of eal estate held as a long-te m investment

Solution 5(;;5 1. c 2. c 3. a 4. !. ". d d b $. &. '. a c a 1(. 11. 12. b c b

5 ( 31

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 a e # esented belo-7 Gilton /om#any %alance .heet Decembe 31= 2(1( *ssets /ash *ccounts eceivable %uildings and equi#ment *ccumulated de# eciationS buildings and equi#ment ,atents D 4(=((( 3!=((( 1!(=((( B!(=(((C 2(=((( D1'!=((( Liabilities W .toc3holde s9 :quity *ccounts #ayable D 2(=((( %onds #ayable !(=((( /ommon stoc3 0etained ea nings "!=((( "(=((( D1'!=(((

Gilton /om#any .tatement of /ash Flo-s Fo the Lea :nded Decembe 31= 2(1( /ash flo-s f om o#e ating activities 6et income *d+ustments to econcile net income to net cash # ovided by o#e ating activities7 2nc ease in accounts eceivable 2nc ease in accounts #ayable De# eciationSbuildings and equi#ment 8ain on sale of equi#ment *mo tiAation of #atents 6et cash # ovided by o#e ating activities /ash flo-s f om investing activities .ale of equi#ment ,u chase of land ,u chase of buildings and equi#ment 6et cash used by investing activities /ash flo-s f om financing activities ,ayment of cash dividend .ale of bonds 6et cash # ovided by financing activities 6et inc ease in cash /ash= @anua y 1= 2(1( /ash= Decembe 31= 2(1( D!(=((( DB1"=(((C &=((( 1!=((( B"=(((C 2=(((

3=((( !3=(((

12=((( B2!=(((C B4&=(((C B"1=(((C B1!=(((C 4(=((( 2!=((( 1$=((( 23=((( 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. /u ent cash debt cove age atio b. /ash debt cove age atio c. F ee cash flo-

%alance .heet and .tatement of /ash Flo-s Solution 5(;;< 6et cash # ovided by o#e ating activities a. /u ent cash debt cove age atio < SSSSSSSSSSSSSSSSSS *ve age cu ent liabilities D!3=((( D!3=((( < SSSSSSSSSSS < SSSS < 3.3 7 1 BD12=((( N D2(=(((C O 2 D1"=((( 6et cash # ovided by o#e ating activities b. /ash debt cove age atio < SSSSSSSSSSSSSSSSSS *ve age total liabilities D!3=((( D!3=((( < SSSSSSSSSSS < SSSS < 1.2 7 1 BD22=((( N D$(=(((C O 2 D4"=((( c. F ee cash flo- < 6et cash # ovided by o#e ating activities M ca#ital ex#enditu es and dividends < D!3=((( M XD$3=((( M D1!=((( < DB3!=(((C XD2!=((( N D4&=(((

5 ( 33

5 ( 37

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

PROBLEMS
Pr& 5(;;=S%alance sheet fo mat. The follo-ing balance sheet has been submitted to you by an inex#e ienced boo33ee#e . List you suggestions fo im# ovements in the fo mat of the balance sheet. /onside both te minology deficiencies as -ell as classification inaccu acies. @as#e 2ndust ies= 2nc. %alance .heet Fo the ,e iod :nded 12J31J1( *ssets Fixed *ssetsSTangible :qui#ment D11(=((( Less7 ese ve fo de# eciation B4(=(((C D $(=((( Facto y su##lies 22=((( Land and buildings 4((=((( Less7 ese ve fo de# eciation B1!(=(((C 2!(=((( ,lant site held fo futu e use '(=((( D 432=((( /u ent *ssets *ccounts eceivable 1$!=((( /ash &(=((( 2nvento y 22(=((( T easu y stoc3 Bat costC 2(=((( 4'!=((( Fixed *ssets--2ntangible 8ood-ill &(=((( 6otes eceivable 4(=((( ,atents 2"=((( 14"=((( Defe ed /ha ges *dvances to sales#e sons "(=((( , e#aid ent 2$=((( 0etu nable containe s $!=((( 1"2=((( T1T*L *..:T. D1=23!=((( Liabilities /u ent Liabilities *ccounts #ayable D14(=((( *llo-ance fo doubtful accounts &=((( /ommon stoc3 dividend dist ibutable 3!=((( 2ncome taxes #ayable 42=((( .ales taxes #ayable 1$=((( D 242=((( Long-Te m Liabilities= !K debentu e bonds= due 2(13 !((=((( 0ese ve fo contingencies 1!(=((( "!(=((( T1T*L L2*%2L2T2:. &'2=((( :quity /a#ital stoc3= D1(.(( #a value= issued 12=((( sha es -ith "( sha es held as t easu y stoc3 D1!(=((( /a#ital su #lus '(=((( Dividends #aid B2(=(((C :a ned su #lus 123=((( T1T*L :Y)2TL 343=((( T1T*L L2*%2L2T2:. *6D :Y)2TL D1=23!=(((

%alance .heet and .tatement of /ash Flo-s

5 ( 35

6ote 1. The ese ve fo contingencies has been c eated by cha ges to ea ned su #lus and has been established to # ovide a cushion fo futu e unce tainties. 6ote 2. The invento y account includes only items #hysically # esent at the main #lant and -a ehouse. 2tems located at the com#any4s b anch sales office amounting to D4(=((( a e excluded since the com#any has consistently follo-ed this # ocedu e fo many yea s. Solution 5(;;= 1. The heading should be as of a s#ecific date athe than fo a #e iod of time. 2. 0ese ve fo De# eciation is #oo te minologyH the title *ccumulated De# eciation is mo e a## o# iate. 3. Land and buildings should be seg egated into t-o accounts. The *ccumulated De# eciation account should only be e#o ted fo the buildings. 4. ,lant site held fo futu e use should be sho-n in the 2nvestments section. !. /u ent assets should be sho-n on the balance sheet fi st in most situationsH cu ent assets a e listed usually in o de of liquidityH facto y su##lies should be sho-n as a cu ent asset. ". T easu y stoc3 is not an asset= but a cont a account to stoc3holde s4 equity in most situations. $. 6otes eceivable should be e#o ted as a cu ent asset o an investment. &. The defe ed cha ge items should be eclassified as follo-s in most situations7 *dvances to sales#e sonsScu ent asset , e#aid entScu ent asset 0etu nable containe sScu ent asset '. *llo-ance fo doubtful accounts should be sho-n as a cont a account to accounts eceivable. 1(. /ommon stoc3 dividend dist ibutable should be sho-n in stoc3holde s4 equity. 11. !K debentu e bonds should be sho-n on a se#a ate line. 12. 0ese ve fo /ontingencies should be sho-n as an a## o# iation of etained ea nings. The autho s # efe the te m Ua## o# iationU to the te m U ese ve.U 13. /a#ital stoc3 should be sho-n at the #a value of the sha es issued= D12(=(((. *ny excess should be included in a #aid-in ca#ital account. 14. /a#ital su #lus and ea ned su #lus a e #oo te minology. The te ms Uadditional #aid-in ca#italU and U etained ea ningsU a e mo e a## o# iate. 1!. The dividends #aid title is a misnome . 2t # obably is a dividends decla ed item that should be closed to etained ea nings. 1". 6o efe ence in the body of the statement is made to the notes. The o de of the notes is - ong. 1$. 6ote 2 indicates that the invento y account is unde stated by D4(=(((. 1&. .#ecific identification and desc i#tion of all significant accounting # inci#les and methods that involve selection f om among alte natives andJo those that a e #eculia to a given indust y should be disclosed in the annual e#o t.

5 ( 3<

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#a ed by the boo33ee#e fo I aus /om#any as of Decembe 31= 2(1(. I aus /om#any %alance .heet as of Decembe 31= 2(1( /ash *ccounts eceivable BnetC 2nvento ies 2nvestments :qui#ment BnetC ,atents D &(=((( !2=2(( !$=((( $"=3(( '"=((( 32=((( D3'3=!(( *ccounts #ayable Long-te m liabilities .toc3holde s4 equity D $!=((( 1((=((( 21&=!((

D3'3=!((

The follo-ing additional info mation is # ovided7 1. /ash includes the cash su ende value of a life insu ance #olicy D'=4((= and a ban3 ove d aft of D2=!(( has been deducted. 2. The net accounts eceivable balance includes7 BaC accounts eceivableSdebit balances D"(=(((H BbC accounts eceivableSc edit balances D4=(((H BcC allo-ance fo doubtful accounts D3=&((. 3. 2nvento ies do not include goods costing D3=((( shi##ed out on consignment. 0eceivables of D3=((( -e e eco ded on these goods. 4. 2nvestments include investments in common stoc3= t ading D1'=((( and available-fo -sale D4&=3((= and f anchises 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#a e a balance sheet in good fo m Bstoc3holde s4 equity details can be omitted.C

%alance .heet and .tatement of /ash Flo-s Solution 5(;;> I aus /om#any %alance .heet *s of Decembe 31= 2(1( *ssets /u ent assets /ash T ading secu ities *ccounts eceivable Less7 *llo-ance fo doubtful accounts 2nvento ies X:qui#ment held fo sale Total cu ent assets 2nvestments *vailable-fo -sale secu ities /ash su ende value , o#e ty= #lant= and equi#ment :qui#ment Less accumulated de# eciation 2ntangible assets ,atents F anchises Total assets /u ent liabilities *ccounts #ayable %an3 ove d aft Total cu ent liabilities Long-te m liabilities Total liabilities .toc3holde s4 equity Total liabilities and stoc3holde s4 equity B1C B2C B3C B4C B!C B"C BD&(=((( M D'=4(( N D2=!((C BD"(=((( M D3=(((C BD!$=((( N D3=(((C BD!=((( M D4=(((C BD'"=((( N D4(=((( M D!=((( N D4=(((C BD$!=((( N D4=(((C D $3=1(( 1'=((( D !$=((( 3=&(( B2C !3=2(( "(=((( 1=((( 2("=3((

5 ( 3=

B1C

B3C B4C

4&=3(( '=4(( 13!=((( 4(=((( 32=((( '=((( Liabilities and .toc3holde s4 :quity B!C

!$=$((

'!=(((

41=((( D4((=(((

D $'=((( 2=!(( &1=!(( 1((=((( 1&1=!(( 21&=!(( D4((=(((

B"C

X*n alte native 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 info mation fo Leong /o #o ation= # e#a e a balance sheet in e#o t fo m fo the com#any as of Decembe 31= 2(1(. *ll accounts have no mal balances. :qui#ment 2nte est :x#ense 2nte est ,ayable 0etained :a nings Dividends Land 2nvento y %onds ,ayable 6otes ,ayable Bdue in " monthsC /ommon .toc3 *ccumulated De# eciation - :q. , e#aid *dve tising 0evenue %uildings .u##lies Taxes ,ayable )tilities :x#ense *dve tising :x#ense .ala y :x#ense .ala ies ,ayable *ccumulated De# . - %ld. /ash De# eciation :x#ense= %uilding W :qui#ment 4(=((( 2=4(( "(( ? !(=4(( 13$=32( 1(2=((( $&=((( 14=4(( "(=((( 1(=((( !=((( 331=4(( &(=4(( 1=&"( 3=((( 1=32( 1=!"( !3=(4( '(( 1!=((( 3(=((( &=(((

%alance .heet and .tatement of /ash Flo-s Solution 5(;;? Leong /o #o ation %alance .heet Decembe 31= 2(1( *ssets /ash 2nvento y .u##lies , e#aid adve tising Total cu ent assets Land %uilding *ccumulated de# eciation - bld :qui#ment *ccumulated de# eciation -eq Total assets Liabilities W .toc3holde s4 :quity 6otes #ayable Taxes #ayable .ala ies #ayable 2nte est #ayable Total cu ent liabilities Long-te m liabilities %ond #ayable Total liabilities /ommon stoc3 0etained ea nings BD2"!=(&(X- D!(=4((C Total stoc3holde s4 equity Total liabilities W stoc3holde s4 equity D 3(=((( 1(2=((( 1=&"( !=(((

5 ( 3?

D 13&=&"( 13$=32( D &(=4(( B1!=(((C 4(=((( B1(=(((C "!=4(( 3(=((( 232=$2( D 3$1=!&(

D 14=4(( 3=((( '(( "(( D 1&='(( $&=((( '"='(( "(=((( 214="&( 2$4="&( D 3$1=!&(

XD331=4(( - D!3=(4( - D&=((( - D2=4(( - D1=!"( - D1=32(

5 ( 7@

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

Pr& 5(;1@S.tatement of cash flo-s # e#a ation. .elected financial statement info mation and additional data fo .tanislaus /o. is # esented belo-. , e#a e a statement of cash flo-s fo the yea ending Decembe 31= 2(1( Decembe 31 2((' /ash....................................................... D42=((( *ccounts eceivable BnetC....................... &4=((( 2nvento y................................................. 1"&=((( Land....................................................... !&=&(( :qui#ment.............................................. !(4=((( T1T*L........................................D&!"=&(( *ccumulated de# eciation....................... D&4=((( *ccounts #ayable................................... !(=4(( 6otes #ayable - .ho t-te m..................... "$=2(( 6otes #ayable - Long-te m..................... 1"&=((( /ommon stoc3........................................ 42(=((( 0etained ea nings................................... "$=2(( T1T*L........................................D&!"=&(( 2(1( D"3=((( 1!1=2(( 2(1="(( 21=((( $&'="(( D1=22"=4(( D11!="(( &"=((( 2'=4(( 3(2=4(( 4&$=2(( 2(!=&(( 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 o iginal cost. 4. Dividends of D'"="(( -e e #aid. !. :qui#ment -as #u chased fo D&4=((( cash. ". * long-te m note fo D2(1="(( -as used to #ay fo an equi#ment #u chase. $. /ommon stoc3 -as issued to #ay a D"$=2(( long-te m note #ayable.

%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 /ash flo- f om o#e ating activities De# eciation ex#ense 2nc ease in accounts eceivable 2nc ease in invento y 2nc ease in accounts #ayable Dec ease in sho t-te m notes #ayable 6et cash # ovided by o#e ating activities /ash flo- f om investing activities ,u chase equi#ment .ale of land 6et cash used by investing activities /ash flo- f om financing activities ,ayment of cash dividend 6et cash used by financing activities 6et inc ease in cash /ash at beginning of yea /ash at end of the yea 6oncash investing and financing activities ,ayment of long-te m note #ayable -ith issuance of D"$=2(( of common stoc3 D23!=2(( 31="(( B"$=2((C B33="((C 3!="(( B3$=&((C

5 ( 7;

B$1=4((C 1"3=&((

B&4=(((C 3$=&(( B4"=2((C B'"="((C B'"="((C 21=((( 42=((( "3=(((

5 ( 71

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

Pr& 5(;1;S.tatement of cash flo-s # e#a ation. .elected financial statement info mation and additional data fo @ohnston :nte # ises is # esented belo-. , e#a e 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= 2(1( /u ent *ssets7 /ash *ccounts 0eceivable 2nvento y Total /u ent *ssets , o#e ty= ,lant= and :qui#ment Less7 *ccumulated De# eciation Total *ssets /u ent Liabilities7 *ccounts ,ayable 6otes ,ayable 2ncome Tax ,ayable Total /u ent Liabilities %onds ,ayable Total Liabilities .toc3holde s4 :quity7 /ommon .toc3 0etained :a nings Total .toc3holde s4 :quity Total Liabilities W .toc3holde s4 :quity .ales Less /ost of 8oods .old 8 oss , ofit :x#enses7 De# eciation :x#ense .ala y :x#ense 2nte est :x#ense Loss on .ale of :qui#ment 2ncome %efo e Taxes Less 2ncome Tax :x#ense 6et 2ncome D1!3=((( 23&=((( 3'1=((( $&2=((( 1=241=((( B4$"=(((C D1=!4$=((( D1&$=((( !1=((( &!=((( 323=((( 34(=((( ""3=((( !1(=((( 3$4=((( &&4=((( D1=!4$=((( 1="1!=((( $31=((( &&4=((( 1!3=((( 3'1=((( 34=((( 1$=((( 2&'=((( 11'=((( D1$(=(((

Decembe 31= 2(('TTT D11'=((( 3("=((( 34(=((( $"!=((( 1=122=((( B442=(((C D1=44!=((( D1(2=((( "&=((( $"=!(( 24"=!(( 3'1=((( "3$=!(( 4"$=!(( 34(=((( &($=!(( D1=44!=((( D1=!13=((( $31=((( $&2=((( 13"=((( 3!$=((( 34=((( ( 2!!=((( 1(2=((( D1!3=(((

*dditional 2nfo mation7 Du ing the yea = @ohnston sold equi#ment -ith an o iginal cost of D1!3=((( and accumulated de# eciation of D11'=((( and #u chased ne- equi#ment fo D2$2=(((.

%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 /ash flo- f om o#e ating activities De# eciation ex#ense Loss on sale of equi#ment Dec ease in accounts eceivable 2nc ease in invento y 2nc ease in accounts #ayable Dec ease in notes #ayable 2nc ease in tax #ayable 6et cash # ovided by o#e ating activities /ash flo- f om investing activities .ale of equi#ment ,u chase of equi#ment 6et cash used by investing activities /ash flo- f om financing activities 0eti ement of bonds #ayable 2ssuance of common stoc3 ,ayment of dividends 6et cash used by financing activities 6et inc ease in cash %eginning cash /ash at end of yea XX%eginning 0J: + 6et income Dividends = :nding 0J: D34(=((( + D1$(=((( Dividends = D3$4=((( Dividends = D13"=((( 1!3=((( 1$=((( "&=((( B!1=(((C &!=((( B1$=(((C &=!(( D 1$(=(((

5 ( 73

2"3=!(( 433=!((

1$=((( B2$2=(((C B2!!=(((C B!1=(((C 42=!(( B13"=(((CXX B144=!((C 34=((( 11'=((( D1!3=(((

5 ( 77

Test Ban+ #or Inter,e"iate A$$ountin-. T!irteent! E"ition

IFRS 9'ESTIONS
TrueBFalseC 1. *lthough the # esentation fo mats fo the balance sheet and statement of cash flo-s a e simila unde i8**, and )... 8**,= i8**, equi es fa mo e extensive disclosu e. 2. 1ne significant diffe ence bet-een a balance sheet # e#a ed using i8**, athe than )... 8**, is that long-te m tangible assets -ill be e#o ted at fai value athe than histo ical cost. 3. %oth i8**, and )... 8**, equi e that s#ecific items be e#o ted on the balance sheet. 4. %oth i8**, and )... 8**, equi e cu ent assets to be listed fi st on the balance sheet. Ans*ers to TrueBFalseC 1. False 2. T ue 3. False 4. False Multi%le C!oi$e 9uestionsC 1. >hich of the follo-ing statements about i8**, and )... 8**, accounting and e#o ting equi ements fo the balance sheet is not co ect? a. The # esentation fo mats equi ed by i8**, and )... 8**, fo the balance sheet a e simila . b. 1ne diffe ence bet-een the e#o ting equi ements unde i8**, and those of )... 8**, balance sheet is that an i8**, balance sheet may list long-te m assets fi st. c. %oth i8**, and )... 8**, equi e that # o#e ty= #lant and equi#ment be e#o ted at histo ical cost on the balance sheet. d. %oth i8**, and )... 8**, equi e that com#a ative info mation be e#o ted. Use the following information to answer the next two questions. F anco /om#any uses i8**, and o-ns # o#e ty= #lant and equi#ment -ith a histo ical cost of !=(((=((( eu os. *t Decembe 31= 2(('= the com#any e#o ted a valuation ese ve of &=3"!=((( eu os. *t Decembe 31= 2(1(= the # o#e ty= #lant and equi#ment -as a## aised at !=32!=((( eu os. 2. The # o#e ty= #lant and equi#ment -ill be e#o ted on the Decembe 31= 2(1( balance sheet at a. !=(((=((( eu os. b. !=32!=((( eu os. c. &=3"!=((( eu os. d. &="'(=((( eu os. 3. The valuation ese ve at Decembe 31= 2(1( -ill be e#o ted at a. &=(4(=((( eu os on the .tatement of .toc3holde s4 :quity. b. &=3"!=((( eu os in the *ssets section of the %alance .heet c. &="'(=((( eu os in the stoc3holde s4 equity section of the %alance .heet. d. 32!=((( eu os on the 2ncome .tatement.

%alance .heet and .tatement of /ash Flo-s

5 ( 75

4. .imila ities bet-een i8**, and )... 8**, equi ements fo balance sheet # esentation include all of the follo-ing exce#t7 a. %oth equi e that changes to the valuation ese ve be disclosed in the notes to the financial statements. b. %oth equi e disclosu e of significant accounting #olicies. c. %oth equi e the # e#a ation of financial statements annually. d. %oth gene ally equi e the use of the cu entJ non-cu ent classification fo both assets and liabilities. Ans*ers to Multi%le C!oi$eC 1. c 2. b 3. c 4. a 2F0. .ho t *ns-e 7 1. % iefly desc ibe some of the simila ities and diffe ences bet-een )... 8**, and i8**, -ith es#ect to balance sheet e#o ting. 1. *mong the simila ities bet-een )... and i8**, elated to balance sheet # esentation a e as follo-s7 2*. 1 s#ecifies minimum note disclosu es. These must include info mation 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 unce tainty that could esult in a mate ial ad+ustment to the ca ying amounts of assets and liabilities -ithin the next financial yea . /om#a ative # io -#e iod info mation must be # esented and financial statements must be # e#a ed annually. /u entJnon-cu ent classification fo assets and liabilities is no mally equi ed. 2n gene al= #ost-balance sheet events a e not conside ed in classifying items as cu ent o non-cu ent.

Diffe ences include B1C i8**, statements may e#o t # o#e ty= #lant= and equi#ment fi st in the balance sheet. .ome com#anies e#o t the sub-total Enet assetsF= -hich equals total assets minus total liabilities. B2C >hile the use of the te m E ese veF is discou aged in )... 8**,= the e is no such # ohibition in i8**,. 2. % iefly desc ibe the conve gence effo ts elated to financial statement # esentation. 2. The 2*.% and the F*.% a e -o 3ing on a # o+ect to conve ge thei standa ds elated to financial statement # esentation. This +oint # o+ect -ill establish a common= high-quality standa d fo # esentation of info mation in the financial statements= including the classification and dis#lay of line items. * 3ey featu e of the # o#osed f ame-o 3 fo financial statement # esentation is that each of the statements -ill be o ganiAed in the same fo mat to se#a ate an entity9s financing activities f om its o#e ating and othe activities BinvestingC and fu the se#a ates financing activities into t ansactions -ith o-ne s and c edito s. Thus= the same classifications used in the balance sheet -ould also be used in the income statement and the statement of cash flo-s.