TRUE-FALSEConceptual Anse! No" Desc!#pt#on 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. MULT$PLE CHO$CEConceptual Anse! No" Desc!#pt#on d 21. Limitation of the balance sheet. c 22. )ses of the balance sheet. c . 23. )ses of the balance sheet. b . 24. /iticisms of the balance sheet. c , 2!. Definition of liquidity. d 2". Definition of net assets. b 2$. /uent assets #esentation. b 2&. 1#eating cycle. d 2'. 1#eating cycle. d 3(. 2dentification of cuent asset. d 31. 2dentification of cuent asset. d 32. 2dentification of cuent asset. d 33. /lassification of shot-tem investments. c 34. /lassification of inventoy #ledged as secuity. b 3!. 2dentification of long-tem investments. d 3". 2dentification of valuation methods. Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on b 3$. 2dentification of cuent liabilities. Anse! No" Desc!#pt#on d 3&. Definition of -o3ing ca#ital. b 3'. 2dentification of -o3ing ca#ital items. d 4(. 2dentification of long-tem liabilities. d 41. 2dentification of long-tem liabilities. d 42. /lassification of teasuy stoc3. d 43. Disclosues fo common stoc3. d 44. /lassification of investment in affiliate. c 4!. /lassification of o-nes4 equity. d 4". /lassification of assets. d , 4$. 2dentification of conta account. d . 4&. %alance sheet su##lementay disclosue. d 4'. 5ethods of disclosue. d !(. Disclosue of significant accounting #olicies. d !1. Disclosue of de#eciation methods used. d !2. 0equied notes to the financial statements. b !3. 2dentification of geneally acce#ted account titles. c !4. ,u#ose of the statement of cash flo-s. c . !!. .tatement of cash flo-s ans-es. b !". /lassification of cash ecei#ts. b !$. 2dentify a financing activity. c !&. /ash flo- fom o#eating activities. a !'. 2dentify an investing activity. d "(. ,e#aing the statement of cash flo-s. b "1. /ash debt coveage atio. b "2. /uent cash debt coveage atio. d "3. Financial flexibility measue. c "4. /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. MULT$PLE CHO$CECo'putat#onal Anse! No" Desc!#pt#on c "$. /lassifying investments. a "&. 2dentifying intangible assets b "'. /alculate total stoc3holdes9 equity. d $(. /lassifying investments. a $1. 2dentifying intangible assets. b $2. /alculate total stoc3holdes9 equity. b $3. /alculate ending cash balance. b $4. /alculate ending cash balance. c $!. /ash #ovided by o#eating activities. c $". /ash #ovided by o#eating activities. a $$. /ash debt coveage atio. b $&. Fee cash flo-. a $'. /ash debt coveage atio. 5 - , %alance .heet and .tatement of /ash Flo-s b &(. Fee cash flo-. MULT$PLE CHO$CECPA A(apte( Anse! No" Desc!#pt#on d &1. /alculate total cuent assets. d &2. /alculate total cuent assets. a &3. /alculate total cuent liabilities. c &4. /alculate etained eanings balance. b &!. /alculate cuent and long-tem liabilities. c &". .ummay of significant accounting #olicies. c &$. /lassification of investing activity. a &&. /lassification of o#eating activity. d &'. /lassification of financing activity. b '(. /lassification of investing activity. E-ERC$SES $te' Desc!#pt#on :!-'1 Definitions. :!-'2 Teminology. :!-'3 /uent assets. :!-'4 *ccount classification. :!-'! ;aluation of balance sheet items. :!-'" %alance sheet classifications. :!-'$ %alance sheet classifications. :!-'& %alance sheet classifications. :!-'' .tatement of cash flo-s. :!-1(( .tatement of cash flo-s atios. PROBLEMS $te' Desc!#pt#on ,!-1(1 %alance sheet fomat. ,!-1(2 %alance sheet #e#aation. CHAPTER LEARN$N. OB/ECT$0ES 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. !. Detemine 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 statement of cash flo-s. 5 - 1 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on '. )ndestand the usefulness of the statement of cash flo-s. SUMMAR2 OF LEARN$N. OB/ECT$0ES B2 3UEST$ONS Item Type Item Type Item Type Item Type Item Type Item Type Item Type Lea!n#n) O45ect#6e 7 1. TF 3. TF 22. 5/ . 24. 5/ 2. TF 21. 5/ . 23. 5/ , 2!. 5/ Lea!n#n) O45ect#6e , 4. TF 3(. 5/ 3$. 5/ 44. 5/ $1. 5/ '1. : '&. : !. TF 31. 5/ 3&. 5/ 4!. 5/ $2. 5/ '2. : 1(1. , ". TF 32. 5/ 3'. 5/ 4". 5/ &1. 5/ '3. : 1(2. , 2". 5/ 33. 5/ 4(. 5/ "$. 5/ &2. 5/ '4. : 2$. 5/ 34. 5/ 41. 5/ "&. 5/ &3. 5/ '!. : 2&. 5/ 3!. 5/ 42. 5/ "'. 5/ &4. 5/ '". : 2'. 5/ 3". 5/ 43. 5/ $(. 5/ &!. 5/ '$. : Lea!n#n) O45ect#6e 1 $. TF , 4$. 5/ Lea!n#n) O45ect#6e 8 &. TF . 4&. 5/ '1. : '4. : '&. : '. TF &". 5/ '2. : '". : 1(1. , Lea!n#n) O45ect#6e 5 1( TF 12. TF !(. 5/ !2. 5/ 11. TF 4'. 5/ !1. 5/ !3. 5/ Lea!n#n) O45ect#6e 9 13. TF 14. TF !4. 5/ . !!. 5/ Lea!n#n) O45ect#6e : 1!. TF !". 5/ !&. 5/ $3. 5/ &$. 5/ &'. 5/ ''. : 1". TF !$. 5/ !'. 5/ $4. 5/ &&. 5/ '(. 5/ Lea!n#n) O45ect#6e ; 1$. TF 1&. TF "(. 5/ $!. 5/ $". 5/ Lea!n#n) O45ect#6e < 1'. TF "1. 5/ "3. 5/ . "!. 5/ $$. 5/ $'. 5/ 1((. : 2(. TF "2. 5/ "4. 5/ , "". 5/ $&. 5/ &(. 5/ 6ote7 TF < Tue-False : < :xecise 5/ < 5ulti#le /hoice , < ,oblem 5 - 8 %alance .heet and .tatement of /ash Flo-s TRUE FALSEConceptual 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 - 5 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on 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. T!ue False Anse!sConceptual $te' Ans" $te' Ans" $te' Ans" $te' 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 MULT$PLE CHO$CEConceptual 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. 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. . 24. 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. 5 - 9 %alance .heet and .tatement of /ash Flo-s , 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. 2$. The coect ode to #esent cuent assets is a. /ash= accounts eceivable= #e#aid items= inventoies. b. /ash= accounts eceivable= inventoies= #e#aid items. c. /ash= inventoies= accounts eceivable= #e#aid items. d. /ash= inventoies= #e#aid items= accounts eceivable. 2&. 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. 2'. 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. 3(. The cuent assets section of the balance sheet should include a. machiney. b. #atents. c. good-ill. d. inventoy. 31. >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. 5 - : Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on 32. >hich of the follo-ing should not be consideed as a cuent asset in the balance sheet? a. 2nstallment notes eceivable due ove 1& months in accodance -ith nomal tade #actice. b. ,e#aid taxes -hich cove assessments of the follo-ing o#eating cycle of the business. c. :quity o debt secuities #uchased -ith cash available fo cuent o#eations. d. The cash suende value of a life insuance #olicy caied by a co#oation= the beneficiay= on its #esident. 33. :quity o debt secuities held to finance futue constuction of additional #lants should be classified on a balance sheet as a. cuent assets. b. #o#ety= #lant= and equi#ment. c. intangible assets. d. long-tem investments. 34. >hen a #otion of inventoies has been #ledged as secuity on a loan= a. the value of the #otion #ledged should be subtacted fom the debt. b. an equal amount of etained eanings should be a##o#iated. c. the fact should be disclosed but the amount of cuent assets should not be affected. d. the cost of the #ledged inventoies should be tansfeed fom cuent assets to noncuent assets. 3!. >hich of the follo-ing is not a long-tem investment? a. /ash suende value of life insuance b. Fanchise c. Land held fo s#eculation d. * sin3ing fund 3". * geneally acce#ted method of valuation is 1. tading secuities at ma3et value. 2. accounts eceivable at net ealiAable value. 3. inventoies at cuent cost. a. 1 b. 2 c. 3 d. 1 and 2 3$. >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 3&. >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. 5 - ; %alance .heet and .tatement of /ash Flo-s 3'. *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. 4(. 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. 41. >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 42. Teasuy stoc3 should be e#oted as aBnC a. cuent asset. b. investment. c. othe asset. d. eduction of stoc3holdes4 equity. 43. >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 44. >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 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 5 - < Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on , 4$. >hich of the follo-ing is a conta account? a. ,emium on bonds #ayable b. )neaned evenue c. ,atents d. *ccumulated de#eciation . 4&. >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 4'. >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. !1. * 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. !2. 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 !3. * geneally acce#ted account title is a. ,e#aid 0evenue. b. *##o#iation fo /ontingencies. c :aned .u#lus. d. 0eseve fo Doubtful *ccounts. !4. 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. 5 - 7= %alance .heet and .tatement of /ash Flo-s . !!. 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? !". 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. !'. 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 "(. ,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. "1. 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. "2. The cuent cash debt coveage atio is often used to assess a. financial flexibility. b. liquidity. c. #ofitability. d. solvency. 5 - 77 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on "3. * 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-. "4. 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. Mult#ple C+o#ce Anse!sConceptual $te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans" 21. d 2&. b 3!. b 42. d 4'. d !". b "3. d 22. c 2'. d 3". d 43. d !(. d !$. b "4. c 23. c 3(. d 3$. b 44. d !1. d !&. c "!. b 24. b 31. d 3&. d 4!. c !2. d !'. a "". b 2!. c 32. d 3'. b 4". d !3. b "(. d 2". d 33. d 4(. d 4$. d !4. c "1. b 2$. b 34. c 41. d 4&. d !!. c "2. b .olutions to those 5ulti#le /hoice questions fo -hich the ans-e is Dnone of these.E 2". Total assets minus total liabilities. 3&. /uent assets less cuent liabilities. 41. 5any ans-es ae #ossible. 5 - 7, %alance .heet and .tatement of /ash Flo-s MULT$PLE CHO$CECo'putat#onal "$. 8aet /om#any o-ns the follo-ing investments7 Tading secuities Bfai valueC F"(=((( *vailable-fo-sale secuities Bfai valueC 3!=((( Geld-to-matuity secuities BamotiAed costC 4$=((( 8aet -ill e#ot investments in its cuent assets section of a. F(. b. exactly F"(=(((. c. F"(=((( o an amount geate than F"(=(((= de#ending on the cicumstances. d. exactly F'!=(((. "&. Fo 6icholson /om#any= the follo-ing infomation is available7 /a#italiAed leases F2((=((( Tadema3s "!=((( Long-tem eceivables $!=((( 2n 6icholson9s balance sheet= intangible assets should be e#oted at a. F"!=(((. b. F$!=(((. c. F2"!=(((. d. F2$!=(((. "'. .am Gud /om#any has the follo-ing items7 common stoc3= F$2(=(((H teasuy stoc3= F&!=(((H defeed taxes= F1((=((( and etained eanings= F313=(((. >hat total amount should .am Gud /om#any e#ot as stoc3holdes9 equity? a. F&4&=(((. b. F'4&=(((. c. F1=(4&=(((. d. F1=11&=(((. $(. Goton /om#any o-ns the follo-ing investments7 Tading secuities Bfai valueC F "(=((( *vailable-fo-sale secuities Bfai valueC 3!=((( Geld-to-matuity secuities BamotiAed costC 4$=((( Goton -ill e#ot secuities in its long-tem investments section of a. exactly F'!=(((. b. exactly F1($=(((. c. exactly F142=(((. d. F&2=((( o an amount less than F&2=(((= de#ending on the cicumstances. $1. Fo 5itchell /om#any= the follo-ing infomation is available7 /a#italiAed leases F2&(=((( Tadema3s '(=((( Long-tem eceivables 1(!=((( 2n 5itchell9s balance sheet= intangible assets should be e#oted at a. F'(=(((. b. F1(!=(((. c. F3$(=(((. d. F3&!=(((. 5 - 71 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on $2. .tanton /om#any has the follo-ing items7 common stoc3= F$2(=(((H teasuy stoc3= F&!=(((H defeed taxes= F1((=((( and etained eanings= F3"3=(((. >hat total amount should .tanton /om#any e#ot as stoc3holdes9 equity? a. F&'&=(((. b. F''&=(((. c. F1=('&=(((. d. F1=1'&=(((. $3. Iuince Golman /o#oation e#ots7 /ash #ovided by o#eating activities F2!(=((( /ash used by investing activities 11(=((( /ash #ovided by financing activities 14(=((( %eginning cash balance $(=((( >hat is Golman9s ending cash balance? a. F2&(=(((. b. F3!(=(((. c. F!((=(((. d. F!$(=(((. $4. 8odman /o#oation e#ots7 /ash #ovided by o#eating activities F2((=((( /ash used by investing activities 11(=((( /ash #ovided by financing activities 14(=((( %eginning cash balance $(=((( >hat is 8odman9s ending cash balance? a. F23(=(((. b. F3((=(((. c. F4!(=(((. d. F!2(=(((. $!. /aig 0usch /o#oation e#ots the follo-ing infomation7 6et income F!((=((( De#eciation ex#ense 14(=((( 2ncease in accounts eceivable "(=((( 0usch should e#ot cash #ovided by o#eating activities of a. F3((=(((. b. F42(=(((. c. F!&(=(((. d. F$((=(((. $". ,ote /o#oation e#ots the follo-ing infomation7 6et income F2!(=((( De#eciation ex#ense $(=((( 2ncease in accounts eceivable 3(=((( ,ote should e#ot cash #ovided by o#eating activities of a. F1!(=(((. b. F21(=(((. c. F2'(=(((. d. F3!(=(((. 5 - 78 %alance .heet and .tatement of /ash Flo-s $$. @oe 6ova3 /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities F21!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends declaed "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( @oe 6ova39s cash debt coveage atio is a. (.&". b. 1.43. c. 2.1!. d. 4.$&. $&. @oe 6ova3 /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities F21!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( @oe 6ova39s fee cash flo- is a. F1(=(((. b. F4!=(((. c. F1(!=(((. d. F1!!=(((. $'. Lincoln /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities F2!!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( Lincoln9s cash debt coveage atio is a. 1.(2. b. 1.$(. c. 2.!!. d. 3.((. &(. 5ogan /o#oation e#ots the follo-ing infomation7 6et cash #ovided by o#eating activities F2!!=((( *veage cuent liabilities 1!(=((( *veage long-tem liabilities 1((=((( Dividends #aid "(=((( /a#ital ex#enditues 11(=((( ,ayments of debt 3!=((( 5 - 75 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on 5ogan9s fee cash flo- is a. F!(=(((. b. F&!=(((. c. F14!=(((. d. F1'!=(((. Mult#ple C+o#ce Anse!sCo'putat#onal $te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans" "$. c $(. d $3. b $". c $'. a "&. a $1. a $4. b $$. a &(. b "'. b $2. b $!. c $&. b MULT$PLE CHO$CECPA A(apte( &1. 0eese /o#.4s tial balance eflected the follo-ing account balances at Decembe 31= 2(($7 *ccounts eceivable BnetC F24=((( Tading secuities "=((( *ccumulated de#eciation on equi#ment and funitue 1!=((( /ash 11=((( 2nventoy 3(=((( :qui#ment 2!=((( ,atent 4=((( ,e#aid ex#enses 2=((( Land held fo futue business site 1&=((( 2n 0eese4s Decembe 31= 2(($ balance sheet= the cuent assets total is a. F'(=(((. b. F&2=(((. c. F$$=(((. d. F$3=(((. )se the follo-ing infomation fo questions &2 though &4. The follo-ing tial balance of .cott /o#. at Decembe 31= 2(($ has been #o#ely ad+usted exce#t fo the income tax ex#ense ad+ustment. 5 - 79 %alance .heet and .tatement of /ash Flo-s .cott /o#. Tial %alance Decembe 31= 2(($ D. /. /ash F $$!=((( *ccounts eceivable BnetC 2="'!=((( 2nventoy 2=(&!=((( ,o#ety= #lant= and equi#ment BnetC $=3""=((( *ccounts #ayable and accued liabilities F 1=$(1=((( 2ncome taxes #ayable "!4=((( Defeed income tax liability &!=((( /ommon stoc3 2=3!(=((( *dditional #aid-in ca#ital 3="&(=((( 0etained eanings= 1J1J(4 3=4!(=((( 6et sales and othe evenues 13=3"(=((( /osts and ex#enses 11=1&(=((( 2ncome tax ex#enses 1=1$'=((( F2!=2&(=((( F2!=2&(=((( 1the financial data fo the yea ended Decembe 31= 2(($7 2ncluded in accounts eceivable is F1=2((=((( due fom a custome and #ayable in quately installments of F1!(=(((. The last #ayment is due Decembe 2'= 2(('. The balance in the Defeed 2ncome Tax Liability account #etains to a tem#oay diffeence that aose in a #io yea= of -hich F2(=((( is classified as a cuent liability. Duing the yea= estimated tax #ayments of F!2!=((( -ee chaged to income tax ex#ense. The cuent and futue tax ate on all ty#es of income is 3(K. 2n .cott4s Decembe 31= 2(($ balance sheet= &2. The cuent assets total is a. F"=(&(=(((. b. F!=!!!=(((. c. F!=4(!=(((. d. F4='!!=(((. &3. The cuent liabilities total is a. F1=&!(=(((. b. F1='1!=(((. c. F2=3$!=(((. d. F2=44(=(((. &4. The final etained eanings balance is a. F4=4!1=(((. b. F4=!3"=(((. c. F4='$"=(((. d. F4='(!=(((. 5 - 7: Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on &!. 1n @anuay 4= 2(($= 8egg /o. leased a building to /ole /o#. fo a ten-yea tem at an annual ental of F$!=(((. *t ince#tion of the lease= 8egg eceived F3((=((( coveing the fist t-o yeas4 ent of F1!(=((( and a secuity de#osit of F1!(=(((. This de#osit -ill not be etuned to /ole u#on ex#iation of the lease but -ill be a##lied to #ayment of ent fo the last t-o yeas of the lease. >hat #otion of the F3((=((( should be sho-n as a cuent and long-tem liability in 8egg4s Decembe 31= 2(($ balance sheet? /uent Liability Long-tem Liability a. F( F3((=((( b. F$!=((( F1!(=((( c. F1!(=((( F1!(=((( d. F1!(=((( F$!=((( &". >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 &$. 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. &&. 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. &'. 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. '(. 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 - 7; %alance .heet and .tatement of /ash Flo-s Mult#ple C+o#ce Anse!sCPA A(apte( $te' Ans" $te' Ans" $te' Ans" $te' Ans" $te' Ans" &1. d &3. a &!. b &$. c &'. d &2. d &4. c &". c &&. a '(. b DER$0AT$ONS Co'putat#onal No" Anse! De!#6at#on "$. c "&. a "'. b F$2(=((( M F&!=((( N F313=((( < F'4&=(((. $(. d $1. a $2. b F$2(=((( M F&!=((( N F3"3=((( < F''&=(((. $3. b F$(=((( N F2!(=((( M F11(=((( N F14(=((( < F3!(=(((. $4. b F$(=((( N F2((=((( M F11(=((( N F14(=((( < F3((=(((. $!. b F!((=((( N F14(=((( M F"(=((( < F!&(=(((. $". c F2!(=((( N F$(=((( M F3(=((( < F2'(=(((. $$. a F21!=((( O BF1!(=((( N F1((=(((C < (.&". $&. b F21!=((( M F"(=((( M F11(=((( < F4!=(((. $'. a F2!!=((( O BF1!(=((( N F1((=(((C < 1.(2. &(. b F2!!=((( M F"(=((( M F11(=((( < F&!=(((. DER$0AT$ONS CPA A(apte( No" Anse! De!#6at#on &1. d F24=((( N F"=((( N F11=((( N F3(=((( N F2=((( < F$3=(((. &2. d F$$!=((( N PF2="'!=((( M BF1!(=((( Q 4CR N F2=(&!=((( < F4='!!=(((. &3. a F1=$(1=((( N BF"!4=((( M F!2!=(((C N F2(=((( < F1=&!(=(((. &4. c F3=4!(=((( N F13=3"(=((( M F11=1&(=((( M BF1=1$'=((( M F!2!=(((C < F4='$"=(((. &!. b /once#tual. &". c /once#tual. &$. c /once#tual. &&. a /once#tual. &'. d /once#tual. '(. b /once#tual. 5 - 7< Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on E-ERC$SES E>" 5-<7SDefinitions. ,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? Solut#on 5-<7 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 - ,= %alance .heet and .tatement of /ash Flo-s E>" 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. Solut#on 5-<, 1. /uent liabilities. ". ,o#ety= #lant= and equi#ment. 2. %alance sheet. $. 2ntangible assets. 3. /ontingencies. &. *ssets. 4. Liabilities. '. :quity. !. /uent assets. E>" 5-<1S/uent assets. Define cuent assets -ithout using the -od Uasset.U Solut#on 5-<1 /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 - ,7 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on E>" 5-<8S*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(1(C 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 TTTTT11. ,atents TTTTT12. )neaned evenue Solut#on 5-<8 1. b !. g '. a 2. i ". + 1(. g 3. 3 $. l 11. d 4. f &. a 12. f 5 - ,, %alance .heet and .tatement of /ash Flo-s E>" 5-<5S;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 TTTTTT11. ,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 Solut#on 5-<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% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on E>" 5-<9S%alance sheet classifications. Ty#ical balance sheet classifications ae as follo-s. a. /uent *ssets g. Long-Tem Liabilities b. 2nvestments h. /a#ital .toc3 c. ,lant *ssets i. *dditional ,aid-2n /a#ital d. 2ntangible *ssets +. 0etained :anings e. 1the *ssets 3. 6otes to Financial .tatements f. /uent Liabilities l. 6ot 0e#oted on %alance .heet 2ndicate by use of the above lettes ho- each of the follo-ing items -ould be classified on a balance sheet #e#aed at Decembe 31= 2(($. 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 $. ,emium on #efeed stoc3 issued TTTTT &. Dividends in aeas on #efeed stoc3 TTTTT '. ,etty cash fund TTTTT1(. )namotiAed discount on bonds #ayable due 2(1( TTTTT11. /ommon stoc3 at #a value TTTTT12. %ond indentue covenants TTTTT13. )namotiAed #emium on bonds #ayable due in 2(13 TTTTT14. *llo-ance fo doubtful accounts TTTTT1!. *ccumulated de#eciation 5 - ,8 TTTTTT1". 6atual esouceStimbelands TTTTTT1$. 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(1( 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 BF1( #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 Solut#on 5-<9 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(. + E>" 5-<:S%alance sheet classifications. The vaious classifications listed belo- have been used in the #ast by ,yle /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. TTTTT11. %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 - ,5 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on Solut#on 5-<: 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 E>" 5-<;S%alance sheet classifications. The vaious classifications listed belo- have been used in the #ast by Lo-e /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 $nst!uct#ons 2ndicate by lette ho- each of the items belo- should be classified at Decembe 31= 2(($. 2f an item is not e#oted on the Decembe 31= 2(($ 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((&. TTTTT 4. *ccumulated de#eciation. TTTTT !. *##o#iation fo #lant ex#ansion. TTTTT ". *motiAation of #atents fo 2(($. TTTTT $. 1n Decembe 31= 2(($= Lo-e 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(1(. TTTTT '. Launching of Lo-e9s 2ntenet etailing division in Febuay= 2((&. TTTTT1(. /ash dividends declaed on Decembe 1!= 2(($ #ayable to stoc3holdes on @anuay 1!= 2((&. 5 - ,9 %alance .heet and .tatement of /ash Flo-s Solut#on 5-<; 1. e 4. BcC $. x 1(. e 2. b !. h &. BfC 3. x ". x '. x E>" 5-<<S.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 TTTTT11. ,uchase of teasuy stoc3 BcommonC TTTTT12. .ale of eal estate held as a long-tem investment Solut#on 5-<< 1. c 4. d $. a 1(. b 2. c !. d &. c 11. c 3. a ". b '. a 12. b 5 - ,: Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on E>" 5-7==S.tatement of cash flo-s atios. Financial statements fo 1lson /om#any ae #esented belo-7 1lson /om#any %alance .heet Decembe 31= 2(($ *ssets Liabilities W .toc3holdes9 :quity /ash F 4(=((( *ccounts #ayable F 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 "(=((( F1'!=((( F1'!=((( 1lson /om#any .tatement of /ash Flo-s Fo the Lea :nded Decembe 31= 2(($ /ash flo-s fom o#eating activities 6et income F!(=((( *d+ustments to econcile net income to net cash #ovided by o#eating activities7 2ncease in accounts eceivable FB1"=(((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$=((( /ash= @anuay 1= 2(($ 23=((( /ash= Decembe 31= 2(($ F4(=((( *t the beginning of 2(($= *ccounts ,ayable amounted to F12=((( and %onds ,ayable -as F1(=(((. $nst!uct#ons /alculate the follo-ing fo 1lson /om#any7 a. /uent cash debt coveage atio b. /ash debt coveage atio c. Fee cash flo- 5 - ,; %alance .heet and .tatement of /ash Flo-s Solut#on 5-7== 6et cash #ovided by o#eating activities a. /uent cash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage cuent liabilities F!3=((( F!3=((( < SSSSSSSSSSS < SSSS < 3.3 7 1 BF12=((( N F2(=(((C O 2 F1"=((( 6et cash #ovided by o#eating activities b. /ash debt coveage atio < SSSSSSSSSSSSSSSSSS *veage total liabilities F!3=((( F!3=((( < SSSSSSSSSSS < SSSS < 1.2 7 1 BF22=((( N F$(=(((C O 2 F4"=((( c. Fee cash flo- < 6et cash #ovided by o#eating activities M ca#ital ex#enditues and dividends < F!3=((( M XF$3=((( M F1!=((( < FB3!=(((C XF2!=((( N F4&=((( 5 - ,< Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on PROBLEMS P!" 5-7=7S%alance sheet fomat. The follo-ing balance sheet has been submitted to you by an inex#eienced boo33ee#e. List you suggestions fo im#ovements in the fomat of the balance sheet. /onside both teminology deficiencies as -ell as classification inaccuacies. Densen 2ndusties= 2nc. %alance .heet Fo the ,eiod :nded 12J31J($ *ssets Fixed *ssetsSTangible :qui#ment F11(=((( Less7 eseve fo de#eciation B4(=(((C F $(=((( Factoy su##lies 22=((( Land and buildings 4((=((( Less7 eseve fo de#eciation B1!(=(((C 2!(=((( ,lant site held fo futue use '(=((( F 432=((( /uent *ssets *ccounts eceivable 1$!=((( /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 $!=((( 1"2=((( T1T*L *..:T. F1=23!=((( Liabilities /uent Liabilities *ccounts #ayable F14(=((( *llo-ance fo doubtful accounts &=((( /ommon stoc3 dividend distibutable 3!=((( 2ncome taxes #ayable 42=((( .ales taxes #ayable 1$=((( F 242=((( Long-Tem Liabilities= !K debentue bonds= due 2(1( !((=((( 0eseve fo contingencies 1!(=((( "!(=((( T1T*L L2*%2L2T2:. &'2=((( :quity /a#ital stoc3= F1(.(( #a value= issued 12=((( shaes -ith "( shaes held as teasuy stoc3 F1!(=((( /a#ital su#lus '(=((( Dividends #aid B2(=(((C :aned su#lus 123=((( T1T*L :I)2TL 343=((( T1T*L L2*%2L2T2:. *6D :I)2TL F1=23!=((( 5 - 1= %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 F4(=((( ae excluded since the com#any has consistently follo-ed this #ocedue fo many yeas. Solut#on 5-7=7 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. $. 6otes eceivable should be e#oted as a cuent asset o an investment. &. The defeed chage items should be eclassified as follo-s in most situations7 *dvances to sales#esonsScuent asset ,e#aid entScuent asset 0etunable containesScuent asset '. *llo-ance fo doubtful accounts should be sho-n as a conta account to accounts eceivable. 1(. /ommon stoc3 dividend distibutable should be sho-n in stoc3holdes4 equity. 11. !K debentue bonds should be sho-n on a se#aate line. 12. 0eseve fo /ontingencies should be sho-n as an a##o#iation of etained eanings. The authos #efe the tem Ua##o#iationU to the tem Ueseve.U 13. /a#ital stoc3 should be sho-n at the #a value of the shaes issued= F12(=(((. *ny excess should be included in a #aid-in ca#ital account. 14. /a#ital su#lus and eaned su#lus ae #oo teminology. The tems Uadditional #aid-in ca#italU and Uetained eaningsU ae moe a##o#iate. 1!. The dividends #aid title is a misnome. 2t #obably is a dividends declaed item that should be closed to etained eanings. 1". 6o efeence in the body of the statement is made to the notes. The ode of the notes is -ong. 1$. 6ote 2 indicates that the inventoy account is undestated by F4(=(((. 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 - 17 Test Ban% &o! $nte!'e(#ate Account#n)* Tel&t+ E(#t#on P!" 5-7=,S%alance sheet #esentation. The follo-ing balance sheet -as #e#aed by the boo33ee#e fo ,ey /om#any as of Decembe 31= 2(($. ,ey /om#any %alance .heet as of Decembe 31= 2(($ /ash F &(=((( *ccounts #ayable F $!=((( *ccounts eceivable BnetC !2=2(( Long-tem liabilities 1((=((( 2nventoies !$=((( .toc3holdes4 equity 21&=!(( 2nvestments $"=3(( :qui#ment BnetC '"=((( ,atents 32=((( F3'3=!(( F3'3=!(( The follo-ing additional infomation is #ovided7 1. /ash includes the cash suende value of a life insuance #olicy F'=4((= and a ban3 ovedaft of F2=!(( has been deducted. 2. The net accounts eceivable balance includes7 BaC accounts eceivableSdebit balances F"(=(((H BbC accounts eceivableScedit balances F4=(((H BcC allo-ance fo doubtful accounts F3=&((. 3. 2nventoies do not include goods costing F3=((( shi##ed out on consignment. 0eceivables of F3=((( -ee ecoded on these goods. 4. 2nvestments include investments in common stoc3= tading F1'=((( and available-fo-sale F4&=3((= and fanchises F'=(((. !. :qui#ment costing F!=((( -ith accumulated de#eciation F4=((( is no longe used and is held fo sale. *ccumulated de#eciation on the othe equi#ment is F4(=(((. $nst!uct#ons ,e#ae a balance sheet in good fom Bstoc3holdes4 equity details can be omitted.C 5 - 1, %alance .heet and .tatement of /ash Flo-s Solut#on 5-7=, ,ey /om#any %alance .heet *s of Decembe 31= 2(($ *ssets /uent assets /ash F $3=1(( B1C Tading secuities 1'=((( *ccounts eceivable F !$=((( 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 F4((=((( Liabilities and .toc3holdes4 :quity /uent liabilities *ccounts #ayable F $'=((( B"C %an3 ovedaft 2=!(( Total cuent liabilities &1=!(( Long-tem liabilities 1((=((( Total liabilities 1&1=!(( .toc3holdes4 equity 21&=!(( Total liabilities and stoc3holdes4 equity F4((=((( B1C BF&(=((( M F'=4(( N F2=!((C B2C BF"(=((( M F3=(((C B3C BF!$=((( N F3=(((C B4C BF!=((( M F4=(((C B!C BF'"=((( N F4(=((( M F!=((( N F4=(((C B"C BF$!=((( N F4=(((C X*n altenative is to sho- it as an othe asset. 5 - 11