CHAPTER 5

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