Intermediate Accounting Reporting and Analysis 1st Edition Wahlen Test Bank 1

Solution Manual for Intermediate Accounting Reporting and
Analysis 1st Edition Wahlen Jones Pagach 1111822360

9781111822361
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Chapter 4--The Balance Sheet and the Statement of

Shareholders' Equity
Student: ___________________________________________________________________________
1. The balance sheet reports the financial position of a company at a specific date in time whereas the other
three financial statements report changes in the financial position of the company.
True False
2. The elements of the income statement, revenues, expenses, gains and losses are measured by changes in cash
inflows and outflows.
True False
3. The elements of the financial statements are defined in FASB Statement of Financial Accounting Concepts
No. 8.
True False
4. In order for an asset to be capitalized it must meet one of these three criteria: control, acquisition, and future
benefit.
True False
5. Mark to Market is another name for fair value accounting which has becoming increasingly popular with U.S.
GAAP for the valuation of gains and losses associated with assets and liabilities.
True False
6. FASB’s definition of fair value is characterized as a measure of market-based entry value, which would be
the amount a company paid to acquire the asset.
True False
7. Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.
True False
8. The cash surrender value of a life insurance policy would be considered a long-term investment.
True False
9. The SEC requires listed companies to report changes in shareholder’s equity as a separate disclosure, whereas
smaller companies can report changes in a supporting schedule or as note in the financial statements.
True False
10. A distribution to owners includes paying dividends, repurchasing common shares, transferring assets to the
company, rendering services, and incurring liabilities.
True False
11. GAAP requires disclosures relating to asset allocation and revenue recognition, any deviations from the
acceptable norm must be disclosed.
True False
12. Derivative financial instruments must be reported as either assets or liabilities on the balance sheet and be
measured at their net realizable value.
True False
13. The ordering of the financial statements are similar under U.S. GAAP and IFRS, assets are listed based
upon liquidity, current and then long term.
True False
14. Under IFRS “capital and reserves” includes capital stock, additional paid-in capital, and retained earnings.
True False
15. Intercompany comparison is used to evaluate a company’s performance against key competitors within
related industries or fields.
True False
16. Accounts Payable Turnover in Days and Inventory Turnover in Days are considered liquidity capability
ratios.
True False
17. Which statement is false?

A. The balance sheet of an entity purports to show the true value of the entity.
B. The balance sheet should show a company's liquidity.
C. The balance sheet reflects the financial capital of a company.
D. The balance sheet summarizes the financial position of an entity at a point in time.
18. A balance sheet shows the

A. fair value of a company at a particular date
B. results of the company's income-producing activities
C. financial position of a company at a particular date
D. cash inflows and outflows of a company for the accounting period
19. What statement does not report the changes in financial position of the company?
A. income statement
B. balance sheet
C. statement of cash flows
D. statement of shareholders’ equity
20. What is the three step process necessary to report the elements of the balance sheet?
A. identify, measure, and record
B. record, measure, and report
C. identify, measure, and report
D. review, record, and report
21. To be recognized in the financial statements, an item must meet the definition of an element and be
A. measurable, understandable, and relevant
B. reliable, measurable, and realized
C. realized, relevant, and reliable
D. relevant, measurable, and faithfully represented
22. The primary attribute of all assets is service

A. potential
B. production
C. capacity
D. contribution
23. All of the following items would appear on the balance sheet except
A. an investment in another company's bonds
B. an investment in marketable securities
C. a realized gain on the sale of a equipment
D. the premium related to a bond liability that is still two years from maturity
24. Which of the following characteristics must an economic resource have in order to be classified as an asset?
A. acquired as a result of a past transaction
B. future economic benefit potential
C. under the control of the business entity
D. all of these choices
25. Which is not a characteristic of an asset?

A. The resource must be useful only in the entity's activities and have been acquired by purchase, production, or
stockholder investment.
B. The entity must be able to obtain the future benefit and control others' access to it.
C. The transaction or event giving rise to the entity's right to or control over the benefit must have already
occurred.
D. The resource must singly, or in combination with other resources, have the capacity to contribute directly, or
indirectly, to the entity's future net cash inflows.

A. To be a liability, the transaction or event obligating the entity must already have occurred.
B. The net worth of an entity is equal to its assets.
C. The specific identity of the "creditor" need not be known with certainty for a liability to exist.
D. Shareholders' equity may not exist apart from the corporate assets and liabilities.
27. Probable future sacrifices of economic benefits arising from past transactions or events are
A. liabilities
B. revenues
C. assets
D. retained earnings
28. Which of the following is not a characteristic of a liability?

A. It involves a responsibility to another entity.
B. The company has little or no discretion to avoid the future sacrifice.
C. The sacrifice contributes directly or indirectly to the company's future cash inflows.
D. The transaction obligating the company has already occurred.
29. The residual interest in a company's assets is represented by its

A. net assets
B. shareholders' equity
C. ownership interest
30. Which of the following assets is most likely reported at its historical cost on the balance sheet?
A. short-term investments
B. merchandise inventory
C. net accounts receivable
D. prepaid insurance
31. GAAP disclosures for fair value measurements now require that fair value measurements using Level 3
inputs include all of the following except
A. the valuation technique used to measure the fair value
B. a reconciliation of the Level 3 values to each of the corresponding Level 1 and Level 2 values that were not
chosen
C. a reconciliation of the changes in fair value during the period
D. a related discussion
32. Assume an asset is measured by the amount of cash (or its equivalent) into which it is expected to be
converted in an orderly transaction between market participants on the date of measurement. Which
measurement alternative is in use in this case?
A. fair value
B. historical cost
C. present value
D. reliable value
33. The valuation method primarily used in the balance sheets of business entities is
A. current exit value
B. historical cost
C. present value
D. net realizable value
34. The expected exit value is also referred to as the

A. fair value
B. present value
C. input value
D. current market value
35. The amount of cash (or equivalent) that currently would be required to replace the service capacity of the
asset is called the asset’s
A. historical cost
B. current replacement cost
C. current exit value
D. present value
36. The measurement of an asset's value that considers the discounted future cash inflows (and outflows)
relating to the asset is called the
A. net realizable value
B. future value
C. historical value
D. present value
37. Which of the following statements is false regarding the hierarchy of fair value measurements now provided
in GAAP?
A. The hierarchy clarified the inputs a company is to use to measure fair value.
B. The valuation method selected must be consistent with the market approach, the income approach, or the cost
approach.
C. The three levels of inputs provide defined priorities for sources of available inputs for valuation.
D. The hierarchy eliminates all subjectivity and estimation from the valuation process.
38. The balance sheet account that is usually reported at its fair market value is
A. short-term marketable securities
B. land
C. current liabilities
D. inventory
39. If the shareholders' equity at the end of the accounting period is greater than the shareholders' equity at the
beginning of the accounting period, the firm's
A. capital has increased
B. assets have increased
C. cash has increased
D. capital has been maintained
40. Current assets are cash or other assets that are reasonably expected to be converted into cash, sold, or
consumed within one year or a normal operating cycle. An operating cycle is defined as the company's ability to
spend cash
A. to pay off the company's liabilities
B. to acquire inventory, which is sold and returned to cash
C. to acquire inventory, which is sold to customers in the normal course of business
D. in the generation of services, which can result in an increase in revenue and net income from operations
41. Current liabilities would include all of the following except

A. wages payable
B. obligations under capital lease contracts
C. current portion of long-term debt
D. unearned rent revenue
42. Cash equivalents are securities that

A. management intends to convert into cash within one year
B. have maturity dates of at least six months
C. management intends to convert into cash within the normal operating cycle
D. have maturity dates of three months or less
43. Current liabilities are defined as obligations that will be paid

A. by refinancing through issuing new long-term liabilities
B. by using existing resources properly classified as current assets
C. out of a fund classified as a long-term investment
D. by using existing resources, regardless of their classification
44. Which of the following liabilities is properly classified as a current liability?

A. currently maturing bonds payable that will be paid out of a fund accumulated for that purpose
B. short-term notes payable being refinanced with long-term notes
C. obligations that will be paid outside the operating cycle
D. obligations for goods and services that have entered the operating cycle
45. Which is classified as a long-term investment?
A. bond premium
B. cash surrender value of life insurance
C. operating lease
D. three-year prepaid rental
46. Which of the following would typically be recorded as an intangible asset with a finite useful life?
A. franchises
B. trademarks
C. brand name
D. goodwill
47. Justification for having both intangible assets and other assets listed on a balance sheet include that
A. intangible assets have no physical existence and other assets are deferred charges
B. having more items listed on the balance sheet improves the users' understanding of the company
C. the intangible assets are more important than the tangible assets
D. the other asset classification is important because goodwill cannot be amortized, so it needs to be recorded
on the balance sheet
48. A leased asset under capital lease is disclosed on the balance sheet at its
A. present value
B. historical cost
C. current replacement cost
49. Obligations that are not expected to require the use of current assets or the creation of other current
liabilities within one year or the normal operating cycle, if longer than a year, are called
A. other liabilities
B. current liabilities
C. long-term liabilities
D. contingent liabilities
50. Which of the following is least likely to be included in long-term liabilities?

A. obligations for future pension payments
B. capital leases payable
C. liabilities on options to sell stock
D. unearned revenues
51. Which of the following is typically recorded at its present value?
A. long-term investments
B. long-term liabilities
C. intangible assets
52. The FASB has suggested guidelines for developing homogenous classes of assets and liabilities. For assets,
this can be accomplished by following guidelines that include reporting
A. assets according to their outside use for the corporation
B. all assets the same, regardless of the implications on a company's financial flexibility
C. the valuation of assets at their net realizable value
D. assets at their fair value
53. Which is a component of shareholders' equity?

A. sinking funds
B. deferred charges
C. accumulated other comprehensive income
D. goodwill
54. Which of the following would not be classified as contributed capital?

A. additional paid-in capital
B. unrealized capital
C. common stock
D. preferred stock
55. State law may require that capital stock have which of the following values?
A. stated value
B. market value
C. no-par value
D. present value
56. On the balance sheet, treasury stock is classified as a

A. long-term investment account
B. contra shareholders' equity account
C. companion shareholders’ equity account
D. contra asset account
57. A deficit occurs when a company's
A. retained earnings are less than its common stock
B. dividends distributed are greater than comprehensive income
C. dividends and cumulative losses are greater than cumulative net income
D. retained earnings are less than assets minus liabilities
58. Which of the following is not included in comprehensive income?

A. net income
B. unrealized gains in the fair market value of equipment
C. foreign currency translation adjustments
D. certain pension plan gains (losses) and prior service cost adjustments
59. Changes in the separate shareholders' equity accounts can be disclosed in all of the following ways, except
a
A. financial statement
B. note to the financial statements
C. parenthetical remark
D. supporting schedule
60. In preparing a statement of changes in shareholders' equity, the company includes land given to a
shareholder as a dividend. This transaction is included in the statement because it represents
A. an investment by a shareholder that increases equity
B. an investment by a shareholder that decreases equity
C. a distribution to a shareholder that increases equity
D. a distribution to a shareholder that decreases equity
61. A reader of a set of financial statements would expect to be able to find in the statement of changes in
shareholders' equity increases
A. in total assets
B. in total liabilities
C. to net income
D. from comprehensive income
62. A reader might find information about gain contingencies in an annual report by examining
A. a contingent account receivable
B. an accrued revenue
C. a deferred revenue
D. footnote disclosures
63. GAAP requires that all derivative financial instruments be reported at their
A. historical cost
B. fair value
C. present value
D. par value
64. A subsequent event is an event that occurs

A. after the annual report is issued
B. anytime after the end of the accounting period
C. between the end of the accounting period and the date the annual report is issued
D. anytime before the annual report is issued
65. All of the following are examples of subsequent events that would be disclosed in the footnotes to the
financial statements except
A. fire or flood loss
B. a litigation settlement
C. a bond issuance after the balance sheet date
D. the write off of an uncollectible account
66. Activities between affiliated entities such as subsidiaries must be disclosed in the financial statements of a
corporation as
A. segment analysis
B. significant events
C. related party transactions
D. contingent activities
67. The SEC requires comparative income statements and statements of cash flows for
A. two years
B. three years
C. four years
D. the SEC does not require comparative income statements and statements of cash flows
68. Under IFRS, liabilities and shareholders' equity on the balance sheet usually appear in which order?
A. capital, noncurrent liabilities, and current liabilities
B. current liabilities, noncurrent liabilities, and capital
C. capital, current liabilities, and noncurrent liabilities
D. noncurrent liabilities, current liabilities, and capital
69. Which of the following is included under the heading “Capital and reserves” for IFRS financial statements?
A. accumulated net profits or losses
B. common stock
C. additional paid-in capital
70. Certain differences exist between IFRS and U.S. GAAP financial statement reporting. Which of the
following is false?
A. IFRS presents a different ordering of the liabilities and shareholders' equity sections.
B. IFRS allows the upward revaluation of property, plant, and equipment.
C. IFRS does not require a statement of cash flows.
D. IFRS financial statements are similar to U.S. GAAP.
71. Which of the following account titles are not allowed under GAAP?
A. Revaluation reserves
B. Provisions
C. Capital
D. Revaluation reserves and provisions
72. A comparison of a company's performance with that of its own past results is known as
A. common-size analysis
B. intercompany analysis
C. ratio analysis
D. intracompany analysis
73. The ability of a company to adapt its resources to create change and react to change is called
A. financial flexibility
B. return on investment
C. operating capability
D. risk
74. A comparison of a company's performance with that of its competitors is known as

B. intercompany comparison
C. ratio analysis
D. intracompany comparison
75. The ease with which an asset can be converted into cash is termed
B. liquidity
D. capital maintenance
76. Which of the following formulas represents working capital?

A. current assets - current liabilities
B. quick assets - current liabilities
C. current assets ¸ current liabilities
D. quick assets ¸ current liabilities
77. Selected information from a company's balance sheet follows:
Long-term debt $ 140

Retained earnings 130
Current assets 275
Property, plant, and equipment 160
Common stock 530
Current liabilities 75
Working capital is
A. $250
B. $230
C. $220
D. $200
78. The quantity of goods or services produced in a given period or the physical capacity of the operating assets
used to produce goods or services are measures of
B. liquidity
D. leverage
79. Which statement is not true?

A. Not all obligations that become due and will be paid within the next accounting period are classified as
current liabilities.
B. The components of working capital are disclosed on the balance sheet.
C. An increasing current ratio could result from decreasing liquidity.
D. An operating cycle is the average time taken by a company to convert receivables back into cash.
80. Information about a company's operating capability may be helpful to external users in
A. assessing the uncertainty of its future cash flows
B. evaluating the timing of cash flows in the near future
C. evaluating the efficiency with which the company company uses its resources to generate revenue
D. assessing a return of investment as well as a return on investment
81. Exhibit 4-1

Given the following information for Blue Bell Company:
Net $5,200,000
sales
(all on
account
)
Interest 240,000
expens
e
Income 280,000
tax
expens
e
Net 420,000
income
Income 40%
tax rate
Total
assets:
January 1, 2014 $1,800,000
December 31, 2014 2,400,000
Shareh
olders'
equity:
January 1, 2014 1,500,000
December 31, 2014 1,600,000
Current 700,000
assets,
Decem
ber 31,
2014
Quick 400,000
assets,
Decem
ber 31,
2014
Current 300,000
liabiliti
es,
Decem
ber 31,
2014
Net
account
s
receiva
ble:
January 1, 2014 200,000
December 31, 2014 180,000
Refer to Exhibit 4-1. Blue Bell’s current ratio at December 31, 2014 was
A. 3.67 times
B. 2.33 times
C. 1.33 times
D. 0.43 times
82. Exhibit 4-1

Net $5,200,000
sales
(all on
account
)
Interest 240,000
expens
e
Income 280,000
tax
expens
e
Net 420,000
income
Income 40%
tax rate
Total
assets:
January 1, 2014 $1,800,000
December 31, 2014 2,400,000
Shareh
olders'
equity:
January 1, 2014 1,500,000
December 31, 2014 1,600,000
Current 700,000
assets,
Decem
ber 31,
2014
Quick 400,000
assets,
Decem
ber 31,
2014
Current 300,000
liabiliti
es,
Decem
ber 31,
2014
Net
account
s
receiva
ble:
January 1, 2014 200,000
December 31, 2014 180,000
Refer to Exhibit 4-1. Blue Bell’s quick ratio at December 31, 2014 was
A. 3.67 times
B. 2.33 times
C. 1.33 times
D. 0.43 times
83. Exhibit 4-1

Net $5,200,000
sales
(all on
account
)
Interest 240,000
expens
e
Income 280,000
tax
expens
e
Net 420,000
income
Income 40%
tax rate
Total
assets:
January 1, 2014 $1,800,000
December 31, 2014 2,400,000
Shareh
olders'
equity:
January 1, 2014 1,500,000
December 31, 2014 1,600,000
Current 700,000
assets,
Decem
ber 31,
2014
Quick 400,000
assets,
Decem
ber 31,
2014
Current 300,000
liabiliti
es,
Decem
ber 31,
2014
Net
account
s
receiva
ble:
January 1, 2014 200,000
December 31, 2014 180,000
Refer to Exhibit 4-1. Blue Bell's accounts receivable turnover for 2014 was
A. 2.2 times
B. 26.0 times
C. 27.4 times
D. 28.9 times
84. Listed below are ten terms describing the purposes of the balance sheet. Following the list is a series of
descriptive phrases.
a. financial position f. operating capability

b. balance sheet g. assets
c. income statement h. acquisition cost
d. liquidity i. control
e. financial flexibility j. recognition
____ 1. Process of recording and reporting an element in the financial statements
____ 2. Economic resources
____ 3. Ability of a company to use its financial resources to adapt to change
____ 4. Economic resources, economic obligations, equity, and their relationship to each other at a point in time
____ 5. Amount of time until an asset is converted into cash or a liability is paid
____ 6. The ability to deny or regulate the use of an asset
____ 7. The financial position of the company as reported on a specific date
____ 8. Ability of a company to maintain a given physical level of operations
____ 9. Is measured in terms of changes in assets and liabilities
____ 10. Historical cost of an asset
Required:
Match each term with its descriptive phrase by placing the appropriate letter in the space provided.
85. Individual assets are measured using one of five alternative methods. These methods are listed below,
followed by a series of descriptive statements.
a. historical cost
b. current replacement cost
c. fair value
d. net realizable value
e. present value
____ 1. The amount of cash into which an asset is expected to be converted, less any expected conversion costs.
____ 2. The amount of cash that would be required to obtain the same asset on the date of the balance sheet.
____ 3. The net amount of discounted expected cash flows relating to the asset.
____ 4. The amount of cash that could be obtained on the balance sheet date if the asset were sold in its present condition in an
orderly liquidation.
____ 5. The amount of cash paid for the asset when it was originally acquired.
Required:
Match each measurement alternative with its descriptive statement by placing the appropriate letter in the space provided.
86. Listed below are the five alternatives identified by the FASB for measuring balance sheet elements.
Following the list is a series of balance sheet elements.
a. historical cost
c. fair value
e. present value
____ 1. Receivables net of allowance for doubtful accounts
____ 2. Prepaid expenses
____ 3. Investment securities available for sale
____ 4. Patents
____ 5. Raw materials inventory adjusted downward to lower of cost or market
____ 6. Capital lease obligations
____ 7. Financial instruments
____ 8. Property, plant, and equipment
____ 9. Bonds payable
____ 10. Trading securities
Required:
Match each measurement alternative to its balance sheet element by placing the appropriate letter in the space provided.
87. Gerald Company’s balance sheet information at the end of 2104 and 2015 is as follows:
2014 2015
Total shareholders’ equity $ (n) $ 145,600
Accumulated other comprehensive income 14,800 5,000
Current liabilities (m) 24,900
Intangible assets 15,000 13,900
Property, plant, and equipment (net) (l) 96,700
Current assets 25,000 (j)
Total contributed capital 123,900 (i)
Long-term liabilities (k) 78,000
Retained earnings 67,850 (h)
Total assets (e) (d)
Common stock, $5 par (f) (c)
Working capital 23,500 33,800
Additional paid-in capital (g) 45,000
Long-term investments 28,900 (b)
Total liabilities 5,500 (a)
At the end of 2014, additional paid-in capital was twice the amount of common stock. In 2015, the company issued 1,000 shares of common stock.
Required:
Fill in the blanks lettered a through n. It is not necessary to calculate the information in alphabetical order.
88. Hardy’s bookkeeper prepared the following balance sheet.
HARDY COMPANY
Balance Report for the year ended December 31, 2014
Curren Current
t Liabilities:
Assets:
Cash $ 58,000 Accounts payable $ 25,000
Accounts receivable 123,500 Accumulated depreciation:
buildings 20,000
Inventory, at higher of cost 35,800 Wages payable 22,200
or market (cost $29,850)
Sinking fund for bond Additional paid-in capital
retirement 115,000 on common stock 100,000
Long- Long-Term
Term Liabilities:
Invest
ments:
Treasury stock (at cost) 55,500 Bonds payable 100,000
Investments in A company Preferred stock, $50 par 150,000
bonds 100,000
Marketable securities, 25,000 Allowance for doubtful
short term at fair value accounts 15,000
Trademark 25,000 Premium on preferred
stock 45,000
Propert Accumulated
y, depreciation: 12,000
Plant, equipment
and
Equip
ment:
Land 75,000 Current taxes payable 10,000
Buildings 100,000
Sharehol
ders’
Equity:
Equipment 45,000 Common Stock, $1 par 75,000
Intangi Unrealiz
bles: 150,000 ed gain
E 15,000 on write 5,950
mploye up of
es inventor
Co y to
pyright market
s value
Patents 20,000 Retained earnings 362,650
Total $ 942,800 Total Equities $ 942,8
Assets 00
Required:
Prepare the corrected asset section of a classified balance sheet.
89. Listed below (in random order) are all of the December 31, 2014 balance sheet accounts of McCrery
Company.
Land $70,500
Sinking fund for bond retirement 8,400
Discount on bonds payable 8,900
Equipment 24,000
Preferred stock, $100 par 5,000
Accumulated depreciation, buildings 5,500
Investment in bonds held to maturity 24,500
Accrued wages 3,950
Additional paid-in capital on common stock 3,500
Buildings 117,500
Bonds payable (due 2017) 113,000
Office supplies 1,750
Retained earnings 17,400
Inventory 18,900
Accounts receivable 17,650
Accounts payable 15,650
Prepaid insurance 1,900
Common stock, $10 par 106,750
Allowance for doubtful accounts 2,250
Interest payable 1,500
Cash 14,500
Treasury stock (at cost) 1,150
Dividends payable 14,750
Additional paid-in capital on preferred stock 2,150
Notes payable (due 1/1/17) 8,000
Income taxes payable (current) 6,000
Accumulated depreciation, equipment 4,250
Required:
Prepare a properly classified balance sheet for McCrery Company on December 31, 2014.
90. The balance sheet contains the major sections (a-k) listed below. A listing of balance sheet accounts (1-12)
follows.
a. Current assets g. Long-term liabilities

b. Long-term investments h. Other liabilities
c. Property, plant, and equipment i. Contributed capital
d. Intangible assets j. Retained earnings
e. Other assets k. Accumulated other comprehensive
f. Current liabilities income
____ 1. Work in process inventory
____ 2. Trademarks
____ 3. Sales revenue
____ 4. Cash surrender value of life insurance policy
____ 5. Additional paid-in capital on common stock
____ 6. Deferred tax assets
____ 7. Unrealized decrease in value in available for sale securities
____ 8. Allowance for uncollectible accounts receivable
____ 9. Interest payable
____ 10. Sinking fund for preferred stock retirement
____ 11. Bonds Payable (due in 10 years)
____ 12. Leased machinery under a capital lease
Required:
Using the letters (a-k), indicate in which section of the balance sheet each of the accounts (1-12) would be classified. Put parentheses around the
letter used if it represents a contra account. If the account does not appear on the balance sheet, place an "X" in the space provided.
91. Below is an alphabetical listing of the accounts of Walkers, Inc. as of December 31, 2014.
Accounts payable
Accounts receivable
Accumulated depreciation: buildings and equipment
Additional paid-in capital on common stock
Allowance for doubtful accounts
Bonds payable (due 2018)
Buildings and equipment
Cash
Common stock, $5 par
Discount on bonds payable
Dividends payable
Inventory
Investment in securities available for sale
Land
Notes payable (due 2015)
Office supplies
Patents
Prepaid insurance
Retained earnings
Salaries payable
Taxes payable
Treasury stock
Unearned rent
Required:
Prepare a properly classified balance sheet (without amounts) for Walkers, Inc. on December 31, 2014.
92. The balance sheet contains the major sections (a-j) listed below. A listing of balance sheet accounts (1-10)
follows.
a. Current assets f. Current liabilities

b. Long-term investments g. Long-term liabilities
c. Property, plant, and equipment h. Contributed capital
d. Intangible assets i. Retained earnings
e. Other assets j. Accumulated other comprehensive income
____ 1. Unexpired insurance
____ 2. Idle machinery
____ 3. Unrealized gain on available-for-sale securities
____ 4. Land
____ 5. Fund to retire preferred stock
____ 7. Deferred income tax payable-noncurrent
____ 8. Obligation for future pension payments
____ 9. Trademark
____ 10. Unearned ticket sales
Required:
Using the letters (a-j), indicate in which section of the balance sheet the accounts (1-10) would most likely be classified.
93. A corporation's balance sheet is usually divided into three sections with various classifications reported
within each group in an informative manner. Listed below are some typical classifications within a section.
Contributed capital Other assets

Current assets Other liabilities
Current liabilities Property, plant, and equipment
Intangible assets Retained earnings
Long-term investments Accumulated other comprehensive income
Long-term liabilities
Required:
Identify each of the three balance sheet sections and list the classifications within each section in the appropriate order.
94. The following information has been provided by Meyers Company:
Unearned rent $ 4,500

Retained earnings (unrestricted) 141,000
Premium on bonds payable 1,800
Bonds payable 28,000
Treasury stock, at cost 29,000
Retained earnings restricted for plant expansion 17,000
Required:
Prepare the shareholders' equity section of the balance sheet for Meyers.
95. On January 1, 2014 Hammer Company listed the following shareholders’ equity section of its balance sheet:
Contributed Capital:
Common stock, $1 par $ 150,000
Additional paid-in capital on common stock $ 300,000
Total Contributed Capital $ 450,000
Retained Earnings $ 758,000
Accumulated other comprehensive income $ 14,500
Total Shareholders' Equity $ 1,222,500
During
2014,
the
followi
ng
transact
ions
and
events
occurre
d and
were
recorde
d:
1.) Hammer issued 50,000 shares of common stock at $3 per share.
2.) Hammer earned net income of $175,900.
3.) Hammer paid a cash dividend of $.10 per share of common stock
4.) Hammer had an unrealized loss associated with some available-for-sale securities in the amount of $1,450.
Required:
Prepare Hammer’s statement of shareholders’ equity for 2014.
96. On January 1, 2015, Marlow Corporation had the following shareholders' equity account balances:

Common stock, $5 par (30,000 shares authorized) 150,000
During 2015, the following events occurred in the order listed and were properly recorded:
· The company issued 3,000 shares of common stock at $25 per share.
· The company earned net income of $126,300.
· The company paid a $1.20 per share dividend on its common stock.
· The company experienced an unrealized decrease in the value of its investment in available-for-sale securities of $9,000.
Required:
Prepare a statement of changes in shareholders' equity for 2015.

97. A list of statements follows:
a. A balance sheet summarizes the ____________________ ____________________ of a company.
b. GAAP defines the ____________________ of a corporate balance sheet.
c. Temporary investments in marketable securities are classified as ____________________ ____________________ and investment
securities available for sale.
d. A company must accrue a loss and a liability from a contingency if it is ____________ that a liability has been incurred and the amount
of the loss can be ______________ _______________.
e. Unrealized fair value increases in available-for-sale securities is an example of ____________________ ____________________

____________________ ____________________.
f. _____________ ______________ of a company include affiliated entities such as subsidiaries, trusts for the benefit of employees, its
management, and its principal owners or immediate families.
g. A(n) ____________________ ____________________ is one that occurs between the balance sheet date and the date the annual report
is issued.
Required:
Fill in the words necessary to complete the statements.
98. The following data were taken from the Oxon Hill, Inc. balance sheet:
Accounts payable $ 1,150

Inventory 1,250
Accumulated depreciation 300
Cash 15,500
Serial bonds payable ($1,200 matures each year) 10,800
Allowance for doubtful accounts 720
Capital stock 440
Property, plant, and equipment 1,000
Accounts receivable (gross) 3,110
Accrued salaries 1,310
Required:
Compute working capital.
99. The following information has been provided for Zero One Corp.:
Prepaid insurance $ 1,200

Petty cash 675
Investment in trading securities 5,200
Cash 4,600
Inventory, at sales value (cost = $2,100) 4,500
Unearned rent 1,940
Allowance for bad debts 850
Office supplies 910
Required:
a. Prepare the current asset section of Zero One's balance sheet.

b. Calculate Zero One's working capital.
100. Below is a list of common ratios necessary for financial statement analysis.
a.) Debt-to-Assets
b.) Return on Common Equity
c.) Fixed Asset Turnover
d.) Total Asset Turnover
f.) Debt-to-Equity Ratio
g.) Inventory Turnover
h.) Current Ratio
i.) Quick Ratio
Required:
Match the ratio with the appropriate formula.
______ 1.) Net Income  Average Total Common Equity
______ 2.) Quick Assets  Current Liabilities
______ 3.) Current Assets  Current Liabilities
______ 4.) Cost of Goods Sold  Average Inventory
______ 5.) Total Liabilities  Total Common Equity
______ 6.) Total Revenues  Average Net Fixed Assets
______ 7.) Total Revenues  Average Total Assets
______ 8.) Total Liabilities  Total Assets
101. The following is from the financial reports of Sledge Company:
Credit Sales $ 1,250,000

Average Accounts Receivable 250,000
Inventory Purchases 450,000
Costs of Goods Sold 550,000
Change in Inventory (145,000)
Average Accounts Payable 123,500
Total Revenues 1,500,000
Average Net Fixed Assets 275,000
Average Total Assets 385,000
Required:
Calculate the following to three decimal places:
a.) Fixed Asset Turnover

b.) Total Asset Turnover
c.) Accounts Payable Turnover
d.) Accounts Payable Turnover in Days
e.) Accounts Receivable Turnover
f.) Accounts Receivable Turnover in Days
102. From what two perspectives does the balance sheet report the financial position of a company?
103. What three processes must be completed in order for the elements of the balance sheet to be reported by a
specific company?
104. What three characteristics must an economic resource have in order be considered an asset?
105. What is FASB’s definition of fair value?
106. How would a common classification of a balance sheet look?
107. What are the three categories of intangible assets?
108. What is FASB’s Statement of Financial Accounting Concepts No. 6 definition of investments by owners
and distributions to owners?
109. In order for an external user of a company’s financial statements to fully understand the in workings of the
company, their accounting policies, practices, and methods must be disclosed. The disclosure of revenue
recognition and asset allocations is important. When is it particularly important for this information to be
disclosed?
110. What differences exist between IFRS and U.S. GAAP balance sheet presentation?
111. Name five analyses or ratios used to evaluate a company’s performance.

112. A client of your accounting firm is impressed with the precision and detail in the financial statements that
you have just prepared for his company. However, he wants to know if there are any limitations to the
information contained in them.
Required:
Describe four limitations of the balance sheet.
113. A friend of the family has just received her first set of financial statements from her accountant. When she
finds out that you are an accounting major, she asks you, "Why aren't my employees listed as an asset on my
company's balance sheet?"
Required:
Write an explanation describing the characteristics that an economic resource must possess in order to be
considered an asset. Include in your discussion the primary reason why "human resources" are not recognized as
assets.
114. With all of the turmoil in the financial markets in 2008, one of your friends has emailed you because she
has been wondering about the financial disclosure requirements for the banks and brokerage firms affected by
the market turbulence. Explain the general accounting requirements for financial instruments to your friend.
115. A friend comes to you with a set of financial statements that he thinks contains an error. The footnotes
contain a note on a bond issue sold after the end of the reporting period. Your friend is sure this is an error
because the transaction occurred after the cutoff date for the financial statements.
Required:
Explain to your friend why certain items that occur after the end of an accounting period are included in the
financial statements and the manner in which they can be disclosed.
116. Discuss how intracompany and intercompany comparisons help fulfill the qualitative characteristics of
consistency and comparability.
Chapter 4--The Balance Sheet and the Statement of Shareholders'
Equity Key
1. The balance sheet reports the financial position of a company at a specific date in time whereas the other
three financial statements report changes in the financial position of the company.
TRUE
2. The elements of the income statement, revenues, expenses, gains and losses are measured by changes in cash
inflows and outflows.
FALSE
3. The elements of the financial statements are defined in FASB Statement of Financial Accounting Concepts
No. 8.
FALSE
4. In order for an asset to be capitalized it must meet one of these three criteria: control, acquisition, and future
benefit.
FALSE
5. Mark to Market is another name for fair value accounting which has becoming increasingly popular with U.S.
GAAP for the valuation of gains and losses associated with assets and liabilities.
FALSE
6. FASB’s definition of fair value is characterized as a measure of market-based entry value, which would be
the amount a company paid to acquire the asset.
FALSE
7. Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.
TRUE
8. The cash surrender value of a life insurance policy would be considered a long-term investment.
TRUE
9. The SEC requires listed companies to report changes in shareholder’s equity as a separate disclosure, whereas
smaller companies can report changes in a supporting schedule or as note in the financial statements.
TRUE
10. A distribution to owners includes paying dividends, repurchasing common shares, transferring assets to the
company, rendering services, and incurring liabilities.
FALSE
11. GAAP requires disclosures relating to asset allocation and revenue recognition, any deviations from the
acceptable norm must be disclosed.
TRUE
12. Derivative financial instruments must be reported as either assets or liabilities on the balance sheet and be
measured at their net realizable value.
FALSE
13. The ordering of the financial statements are similar under U.S. GAAP and IFRS, assets are listed based
upon liquidity, current and then long term.
FALSE
14. Under IFRS “capital and reserves” includes capital stock, additional paid-in capital, and retained earnings.
TRUE
15. Intercompany comparison is used to evaluate a company’s performance against key competitors within
related industries or fields.
TRUE
16. Accounts Payable Turnover in Days and Inventory Turnover in Days are considered liquidity capability
ratios.
FALSE
A. The balance sheet of an entity purports to show the true value of the entity.
B. The balance sheet should show a company's liquidity.
C. The balance sheet reflects the financial capital of a company.
D. The balance sheet summarizes the financial position of an entity at a point in time.
18. A balance sheet shows the

A. fair value of a company at a particular date
B. results of the company's income-producing activities
C. financial position of a company at a particular date
D. cash inflows and outflows of a company for the accounting period
19. What statement does not report the changes in financial position of the company?
A. income statement
B. balance sheet
C. statement of cash flows
D. statement of shareholders’ equity
20. What is the three step process necessary to report the elements of the balance sheet?
A. identify, measure, and record
B. record, measure, and report
C. identify, measure, and report
D. review, record, and report
21. To be recognized in the financial statements, an item must meet the definition of an element and be
A. measurable, understandable, and relevant
B. reliable, measurable, and realized
C. realized, relevant, and reliable
D. relevant, measurable, and faithfully represented
22. The primary attribute of all assets is service

A. potential
B. production
C. capacity
D. contribution
23. All of the following items would appear on the balance sheet except
A. an investment in another company's bonds
B. an investment in marketable securities
C. a realized gain on the sale of a equipment
D. the premium related to a bond liability that is still two years from maturity
24. Which of the following characteristics must an economic resource have in order to be classified as an asset?
A. acquired as a result of a past transaction
B. future economic benefit potential
C. under the control of the business entity
25. Which is not a characteristic of an asset?

A. The resource must be useful only in the entity's activities and have been acquired by purchase, production, or
stockholder investment.
B. The entity must be able to obtain the future benefit and control others' access to it.
C. The transaction or event giving rise to the entity's right to or control over the benefit must have already
occurred.
D. The resource must singly, or in combination with other resources, have the capacity to contribute directly, or
indirectly, to the entity's future net cash inflows.

A. To be a liability, the transaction or event obligating the entity must already have occurred.
B. The net worth of an entity is equal to its assets.
C. The specific identity of the "creditor" need not be known with certainty for a liability to exist.
D. Shareholders' equity may not exist apart from the corporate assets and liabilities.
27. Probable future sacrifices of economic benefits arising from past transactions or events are
A. liabilities
B. revenues
C. assets
D. retained earnings
28. Which of the following is not a characteristic of a liability?

A. It involves a responsibility to another entity.
B. The company has little or no discretion to avoid the future sacrifice.
C. The sacrifice contributes directly or indirectly to the company's future cash inflows.
D. The transaction obligating the company has already occurred.
29. The residual interest in a company's assets is represented by its
A. net assets
B. shareholders' equity
C. ownership interest
30. Which of the following assets is most likely reported at its historical cost on the balance sheet?
A. short-term investments
B. merchandise inventory
C. net accounts receivable
D. prepaid insurance
31. GAAP disclosures for fair value measurements now require that fair value measurements using Level 3
inputs include all of the following except
A. the valuation technique used to measure the fair value
B. a reconciliation of the Level 3 values to each of the corresponding Level 1 and Level 2 values that were not
chosen
C. a reconciliation of the changes in fair value during the period
D. a related discussion
32. Assume an asset is measured by the amount of cash (or its equivalent) into which it is expected to be
converted in an orderly transaction between market participants on the date of measurement. Which
measurement alternative is in use in this case?
A. fair value
B. historical cost
C. present value
D. reliable value
33. The valuation method primarily used in the balance sheets of business entities is
A. current exit value
B. historical cost
C. present value
34. The expected exit value is also referred to as the

A. fair value
B. present value
C. input value
D. current market value
35. The amount of cash (or equivalent) that currently would be required to replace the service capacity of the
asset is called the asset’s
A. historical cost
B. current replacement cost
C. current exit value
D. present value
36. The measurement of an asset's value that considers the discounted future cash inflows (and outflows)
relating to the asset is called the
A. net realizable value
B. future value
C. historical value
D. present value
37. Which of the following statements is false regarding the hierarchy of fair value measurements now provided
in GAAP?
A. The hierarchy clarified the inputs a company is to use to measure fair value.
B. The valuation method selected must be consistent with the market approach, the income approach, or the cost
approach.
C. The three levels of inputs provide defined priorities for sources of available inputs for valuation.
D. The hierarchy eliminates all subjectivity and estimation from the valuation process.
38. The balance sheet account that is usually reported at its fair market value is
A. short-term marketable securities
B. land
C. current liabilities
D. inventory
39. If the shareholders' equity at the end of the accounting period is greater than the shareholders' equity at the
beginning of the accounting period, the firm's
A. capital has increased
B. assets have increased
C. cash has increased
D. capital has been maintained
40. Current assets are cash or other assets that are reasonably expected to be converted into cash, sold, or
consumed within one year or a normal operating cycle. An operating cycle is defined as the company's ability to
spend cash
A. to pay off the company's liabilities
B. to acquire inventory, which is sold and returned to cash
C. to acquire inventory, which is sold to customers in the normal course of business
D. in the generation of services, which can result in an increase in revenue and net income from operations
41. Current liabilities would include all of the following except

A. wages payable
B. obligations under capital lease contracts
C. current portion of long-term debt
D. unearned rent revenue
42. Cash equivalents are securities that

A. management intends to convert into cash within one year
B. have maturity dates of at least six months
C. management intends to convert into cash within the normal operating cycle
D. have maturity dates of three months or less
43. Current liabilities are defined as obligations that will be paid

A. by refinancing through issuing new long-term liabilities
B. by using existing resources properly classified as current assets
C. out of a fund classified as a long-term investment
D. by using existing resources, regardless of their classification
44. Which of the following liabilities is properly classified as a current liability?

A. currently maturing bonds payable that will be paid out of a fund accumulated for that purpose
B. short-term notes payable being refinanced with long-term notes
C. obligations that will be paid outside the operating cycle
D. obligations for goods and services that have entered the operating cycle
45. Which is classified as a long-term investment?

A. bond premium
B. cash surrender value of life insurance
C. operating lease
D. three-year prepaid rental
46. Which of the following would typically be recorded as an intangible asset with a finite useful life?
A. franchises
B. trademarks
C. brand name
D. goodwill
47. Justification for having both intangible assets and other assets listed on a balance sheet include that
A. intangible assets have no physical existence and other assets are deferred charges
B. having more items listed on the balance sheet improves the users' understanding of the company
C. the intangible assets are more important than the tangible assets
D. the other asset classification is important because goodwill cannot be amortized, so it needs to be recorded
on the balance sheet
48. A leased asset under capital lease is disclosed on the balance sheet at its
A. present value
B. historical cost
C. current replacement cost
49. Obligations that are not expected to require the use of current assets or the creation of other current
liabilities within one year or the normal operating cycle, if longer than a year, are called
A. other liabilities
B. current liabilities
C. long-term liabilities
50. Which of the following is least likely to be included in long-term liabilities?

A. obligations for future pension payments
B. capital leases payable
C. liabilities on options to sell stock
D. unearned revenues
51. Which of the following is typically recorded at its present value?

A. long-term investments
B. long-term liabilities
C. intangible assets
52. The FASB has suggested guidelines for developing homogenous classes of assets and liabilities. For assets,
this can be accomplished by following guidelines that include reporting
A. assets according to their outside use for the corporation
B. all assets the same, regardless of the implications on a company's financial flexibility
C. the valuation of assets at their net realizable value
D. assets at their fair value
53. Which is a component of shareholders' equity?

A. sinking funds
B. deferred charges
C. accumulated other comprehensive income
D. goodwill
54. Which of the following would not be classified as contributed capital?

A. additional paid-in capital
B. unrealized capital
C. common stock
D. preferred stock
55. State law may require that capital stock have which of the following values?
A. stated value
B. market value
C. no-par value
D. present value
56. On the balance sheet, treasury stock is classified as a

A. long-term investment account
B. contra shareholders' equity account
C. companion shareholders’ equity account
D. contra asset account
57. A deficit occurs when a company's

A. retained earnings are less than its common stock
B. dividends distributed are greater than comprehensive income
C. dividends and cumulative losses are greater than cumulative net income
D. retained earnings are less than assets minus liabilities
58. Which of the following is not included in comprehensive income?
A. net income
B. unrealized gains in the fair market value of equipment
C. foreign currency translation adjustments
D. certain pension plan gains (losses) and prior service cost adjustments
59. Changes in the separate shareholders' equity accounts can be disclosed in all of the following ways, except
a
A. financial statement
B. note to the financial statements
C. parenthetical remark
D. supporting schedule
60. In preparing a statement of changes in shareholders' equity, the company includes land given to a
shareholder as a dividend. This transaction is included in the statement because it represents
A. an investment by a shareholder that increases equity
B. an investment by a shareholder that decreases equity
C. a distribution to a shareholder that increases equity
D. a distribution to a shareholder that decreases equity
61. A reader of a set of financial statements would expect to be able to find in the statement of changes in
shareholders' equity increases
A. in total assets
B. in total liabilities
C. to net income
D. from comprehensive income
62. A reader might find information about gain contingencies in an annual report by examining
A. a contingent account receivable
B. an accrued revenue
C. a deferred revenue
D. footnote disclosures
63. GAAP requires that all derivative financial instruments be reported at their
A. historical cost
B. fair value
C. present value
D. par value
64. A subsequent event is an event that occurs
A. after the annual report is issued
B. anytime after the end of the accounting period
C. between the end of the accounting period and the date the annual report is issued
D. anytime before the annual report is issued
65. All of the following are examples of subsequent events that would be disclosed in the footnotes to the
financial statements except
A. fire or flood loss
B. a litigation settlement
C. a bond issuance after the balance sheet date
D. the write off of an uncollectible account
66. Activities between affiliated entities such as subsidiaries must be disclosed in the financial statements of a
corporation as
A. segment analysis
B. significant events
C. related party transactions
D. contingent activities
67. The SEC requires comparative income statements and statements of cash flows for
A. two years
B. three years
C. four years
D. the SEC does not require comparative income statements and statements of cash flows
68. Under IFRS, liabilities and shareholders' equity on the balance sheet usually appear in which order?
A. capital, noncurrent liabilities, and current liabilities
B. current liabilities, noncurrent liabilities, and capital
C. capital, current liabilities, and noncurrent liabilities
D. noncurrent liabilities, current liabilities, and capital
69. Which of the following is included under the heading “Capital and reserves” for IFRS financial statements?
A. accumulated net profits or losses
B. common stock
C. additional paid-in capital
70. Certain differences exist between IFRS and U.S. GAAP financial statement reporting. Which of the
following is false?
A. IFRS presents a different ordering of the liabilities and shareholders' equity sections.
B. IFRS allows the upward revaluation of property, plant, and equipment.
C. IFRS does not require a statement of cash flows.
D. IFRS financial statements are similar to U.S. GAAP.
71. Which of the following account titles are not allowed under GAAP?
A. Revaluation reserves
B. Provisions
C. Capital
D. Revaluation reserves and provisions
72. A comparison of a company's performance with that of its own past results is known as
B. intercompany analysis
C. ratio analysis
D. intracompany analysis
73. The ability of a company to adapt its resources to create change and react to change is called
B. return on investment
D. risk
74. A comparison of a company's performance with that of its competitors is known as

B. intercompany comparison
C. ratio analysis
D. intracompany comparison
75. The ease with which an asset can be converted into cash is termed
B. liquidity
D. capital maintenance
76. Which of the following formulas represents working capital?
A. current assets - current liabilities
B. quick assets - current liabilities
C. current assets ¸ current liabilities
D. quick assets ¸ current liabilities
77. Selected information from a company's balance sheet follows:
Long-term debt $ 140

Current assets 275
Property, plant, and equipment 160
Common stock 530
Current liabilities 75
Working capital is
A. $250
B. $230
C. $220
D. $200
78. The quantity of goods or services produced in a given period or the physical capacity of the operating assets
used to produce goods or services are measures of
B. liquidity
D. leverage
79. Which statement is not true?

A. Not all obligations that become due and will be paid within the next accounting period are classified as
current liabilities.
B. The components of working capital are disclosed on the balance sheet.
C. An increasing current ratio could result from decreasing liquidity.
D. An operating cycle is the average time taken by a company to convert receivables back into cash.
80. Information about a company's operating capability may be helpful to external users in
A. assessing the uncertainty of its future cash flows
B. evaluating the timing of cash flows in the near future
C. evaluating the efficiency with which the company company uses its resources to generate revenue
D. assessing a return of investment as well as a return on investment
81. Exhibit 4-1
Net $5,200,000
sales
(all on
account
)
Interest 240,000
expens
e
Income 280,000
tax
expens
e
Net 420,000
income
Income 40%
tax rate
Total
assets:
January 1, 2014 $1,800,000
December 31, 2014 2,400,000
Shareh
olders'
equity:
January 1, 2014 1,500,000
December 31, 2014 1,600,000
Current 700,000
assets,
Decem
ber 31,
2014
Quick 400,000
assets,
Decem
ber 31,
2014
Current 300,000
liabiliti
es,
Decem
ber 31,
2014
Net
account
s
receiva
ble:
January 1, 2014 200,000
December 31, 2014 180,000
Refer to Exhibit 4-1. Blue Bell’s current ratio at December 31, 2014 was
A. 3.67 times
B. 2.33 times
C. 1.33 times
D. 0.43 times
82. Exhibit 4-1
Net $5,200,000
sales
(all on
account
)
Interest 240,000
expens
e
Income 280,000
tax
expens
e
Net 420,000
income
Income 40%
tax rate
Total
assets:
January 1, 2014 $1,800,000
December 31, 2014 2,400,000
Shareh
olders'
equity:
January 1, 2014 1,500,000
December 31, 2014 1,600,000
Current 700,000
assets,
Decem
ber 31,
2014
Quick 400,000
assets,
Decem
ber 31,
2014
Current 300,000
liabiliti
es,
Decem
ber 31,
2014
Net
account
s
receiva
ble:
January 1, 2014 200,000
December 31, 2014 180,000
Refer to Exhibit 4-1. Blue Bell’s quick ratio at December 31, 2014 was
A. 3.67 times
B. 2.33 times
C. 1.33 times
D. 0.43 times
83. Exhibit 4-1
Net $5,200,000
sales
(all on
account
)
Interest 240,000
expens
e
Income 280,000
tax
expens
e
Net 420,000
income
Income 40%
tax rate
Total
assets:
January 1, 2014 $1,800,000
December 31, 2014 2,400,000
Shareh
olders'
equity:
January 1, 2014 1,500,000
December 31, 2014 1,600,000
Current 700,000
assets,
Decem
ber 31,
2014
Quick 400,000
assets,
Decem
ber 31,
2014
Current 300,000
liabiliti
es,
Decem
ber 31,
2014
Net
account
s
receiva
ble:
January 1, 2014 200,000
December 31, 2014 180,000
Refer to Exhibit 4-1. Blue Bell's accounts receivable turnover for 2014 was
A. 2.2 times
B. 26.0 times
C. 27.4 times
D. 28.9 times
84. Listed below are ten terms describing the purposes of the balance sheet. Following the list is a series of
descriptive phrases.
a. financial position f. operating capability

b. balance sheet g. assets
c. income statement h. acquisition cost
d. liquidity i. control
e. financial flexibility j. recognition
____ 1. Process of recording and reporting an element in the financial statements
____ 2. Economic resources
____ 3. Ability of a company to use its financial resources to adapt to change
____ 4. Economic resources, economic obligations, equity, and their relationship to each other at a point in time
____ 5. Amount of time until an asset is converted into cash or a liability is paid
____ 6. The ability to deny or regulate the use of an asset
____ 7. The financial position of the company as reported on a specific date
____ 8. Ability of a company to maintain a given physical level of operations
____ 9. Is measured in terms of changes in assets and liabilities
____ 10. Historical cost of an asset
Required:
Match each term with its descriptive phrase by placing the appropriate letter in the space provided.
1. j 6. i
2. g 7. b
3. e 8. f
4. a or b 9. c
5. d 10. h
85. Individual assets are measured using one of five alternative methods. These methods are listed below,
followed by a series of descriptive statements.
a. historical cost
c. fair value
e. present value
____ 1. The amount of cash into which an asset is expected to be converted, less any expected conversion costs.
____ 2. The amount of cash that would be required to obtain the same asset on the date of the balance sheet.
____ 3. The net amount of discounted expected cash flows relating to the asset.
____ 4. The amount of cash that could be obtained on the balance sheet date if the asset were sold in its present condition in an
orderly liquidation.
____ 5. The amount of cash paid for the asset when it was originally acquired.
Required:
Match each measurement alternative with its descriptive statement by placing the appropriate letter in the space provided.
1. d
2. b
3. e
4. c
5. a
86. Listed below are the five alternatives identified by the FASB for measuring balance sheet elements.
Following the list is a series of balance sheet elements.
a. historical cost
c. fair value
e. present value
____ 1. Receivables net of allowance for doubtful accounts
____ 2. Prepaid expenses
____ 3. Investment securities available for sale
____ 4. Patents
____ 5. Raw materials inventory adjusted downward to lower of cost or market
____ 6. Capital lease obligations
____ 7. Financial instruments
____ 8. Property, plant, and equipment
____ 9. Bonds payable
____ 10. Trading securities

Required:
Match each measurement alternative to its balance sheet element by placing the appropriate letter in the space provided.
1. d 6. e
2. a 7. c
3. c 8. a
4. a 9. a
5. b 10. c
87. Gerald Company’s balance sheet information at the end of 2104 and 2015 is as follows:
2014 2015
Total shareholders’ equity $ (n) $ 145,600
Current liabilities (m) 24,900
Property, plant, and equipment (net) (l) 96,700
Current assets 25,000 (j)
Total contributed capital 123,900 (i)
Long-term liabilities (k) 78,000
Retained earnings 67,850 (h)
Total assets (e) (d)
Common stock, $5 par (f) (c)
Working capital 23,500 33,800
Additional paid-in capital (g) 45,000
Long-term investments 28,900 (b)
Total liabilities 5,500 (a)
At the end of 2014, additional paid-in capital was twice the amount of common stock. In 2015, the company issued 1,000 shares of common stock.
Required:
Fill in the blanks lettered a through n. It is not necessary to calculate the information in alphabetical order.
2014 2015
Current assets $ 25,000 $ 58,700 (j)
Long-term investments 28,900 79,200 (b)
Property, plant, and equipment (net) 143,150 (l) 96,700
Total assets 212,050 (e) 248,500 (d)
Current liabilities 1,500 (m) 24,900

Long-term liabilities 4,000 (k) 78,000
Total liabilities 5,500 102,900 (a)
Common stock, $5 par 41,300 (f)* 46,300 (c)

Additional paid-in capital 82,600 (g) 45,000
Total contributed capital 123,900 91,300
Retained earnings 67,850 49,300 (h)
Total shareholders’ equity 206,550 145,600
Total liabilities and shareholders’ equity $ 212,050 $ 248,500
* 123,900 = Common stock (x) + Additional paid-in capital 2(x)

123,900 = 3x
41,300 = x Common stock, 2 ´ 41,300 = $82,600 Additional paid-in capital
88. Hardy’s bookkeeper prepared the following balance sheet.
HARDY COMPANY
Balance Report for the year ended December 31, 2014
Curren Current
t Liabilities:
Assets:
Cash $ 58,000 Accounts payable $ 25,000
Accounts receivable 123,500 Accumulated depreciation:
buildings 20,000
Inventory, at higher of cost 35,800 Wages payable 22,200
or market (cost $29,850)
Sinking fund for bond Additional paid-in capital
retirement 115,000 on common stock 100,000
Long- Long-Term
Term Liabilities:
Invest
ments:
Treasury stock (at cost) 55,500 Bonds payable 100,000
Investments in A company Preferred stock, $50 par 150,000
bonds 100,000
Marketable securities, 25,000 Allowance for doubtful
short term at fair value accounts 15,000
Trademark 25,000 Premium on preferred
stock 45,000
Propert Accumulated
y, depreciation: 12,000
Plant, equipment
and
Equip
ment:
Land 75,000 Current taxes payable 10,000
Buildings 100,000
Sharehol
ders’
Equity:
Equipment 45,000 Common Stock, $1 par 75,000
Intangi Unrealiz
bles: 150,000 ed gain
E 15,000 on write 5,950
mploye up of
es inventor
Co y to
pyright market
s value
Patents 20,000 Retained earnings 362,650
Total $ 942,800 Total Equities $ 942,8
Assets 00
Required:
Prepare the corrected asset section of a classified balance sheet.
Curre
nt
Asset
s:
Cash $ 58,000
Marketable securities,
short term at fair value 25,000
Allowance for doubtful
accounts (15,000) 108,500
Inventory, at cost (market value $35,800) 29,850
Total current assets: $221,350
Long-
Term
Invest
ments
:
Investments in A company bonds $100,000
Total long-term investments 215,000
Prope
rty,
Plant,
and
Equip
ment:
Land $ 75,000
Buildings 100,000
Accumulated depreciation:
buildings (20,000) 80,000
Equipment 45,000
Accumulated depreciation:
equipment (12,000) 33,000
Total Property, Plant, and Equipment: 188,000
Intan
gibles
:
Trademark $ 25,000
Copyrights 15,000
Patents 20,000
Total Intangibles 60,000
Total $684,350
Asset
s
89. Listed below (in random order) are all of the December 31, 2014 balance sheet accounts of McCrery
Company.
Land $70,500
Discount on bonds payable 8,900
Equipment 24,000
Preferred stock, $100 par 5,000
Accumulated depreciation, buildings 5,500
Investment in bonds held to maturity 24,500
Accrued wages 3,950
Buildings 117,500
Bonds payable (due 2017) 113,000
Office supplies 1,750
Inventory 18,900
Accounts payable 15,650
Allowance for doubtful accounts 2,250
Interest payable 1,500
Cash 14,500
Treasury stock (at cost) 1,150
Dividends payable 14,750
Additional paid-in capital on preferred stock 2,150
Notes payable (due 1/1/17) 8,000
Income taxes payable (current) 6,000
Accumulated depreciation, equipment 4,250
Required:
Prepare a properly classified balance sheet for McCrery Company on December 31, 2014.
MCCR
ERY
COMP
ANY
Balanc
e Sheet
Decem
ber 31,
2014
Assets
Current
Assets
Cash $ 14,500
Accoun $ 17,6
ts 50
receiva
ble
Less: 2,2 15,400
Allowa 50
nce for
doubtfu
l
account
s
Invento 18,900
ry
Prepaid
items
Insuran 1,900
ce
Office 1,750
supplie
s
Total current assets $52,450
Long-
Term
Invest
ments
Invest $ 24,500
ment in
bonds
held to
maturit
y
Sinking 8,400
fund
for
bond
retirem
ent
Total 32,900
long-
term
invest
ments
Propert
y,
Plant,
and
Equip
ment
Land $70,500
Buildin $117,5
gs 00
Less: 5,5 112,000
Accum 00
ulated
depreci
ation
Equip $24,00
ment 0
Less: 4,25 19,750
Accum 0
ulated
depreci
ation
Total 202,250
propert
y,
plant,
and
equipm
ent
Total $287,600
Assets
Liabili
ties
Current
Liabilit
ies
Accoun $ 15,650
ts
payable
Accrue 3,950
d
wages
Income 6,000
taxes
payable
Interest 1,500
payable
Divide 14,750
nds
payable
Total current liabilities $41,850
Long-
Term
Liabilit
ies
Notes $ 8,000
payable
(due
1/1/17)
Bonds $113,000
payable
(due
2017)
Less: 8,900 104,100
Unamo
rtized
bond
discoun
t
Total long-term liabilities 112,100
Total $153,950
Liabilit
ies
Shareh
olders'
Equity
Contrib
uted
Capital
Preferr $ 5,000
ed
stock,
$100
par
Comm 106,750
on
stock,
$10 par
Additio 2,150
nal
paid-in
capital
on
preferr
ed
stock
Additio 3,500
nal
paid-in
capital
on
commo
n stock
Total contributed capital $117,400
Retaine 17,400
d
Earnin
gs
Total
contrib
uted
capital
and
retaine
d
earni $134,800
ngs
Less: (1,150)
Treasur
y stock
(at
cost)
Total $133,650
Shareh
olders'
Equity
Total $287,600
Liabilit
ies and
Shareh
olders'
Equity
90. The balance sheet contains the major sections (a-k) listed below. A listing of balance sheet accounts (1-12)
follows.
a. Current assets g. Long-term liabilities

b. Long-term investments h. Other liabilities
c. Property, plant, and equipment i. Contributed capital
d. Intangible assets j. Retained earnings
e. Other assets k. Accumulated other comprehensive
f. Current liabilities income
____ 1. Work in process inventory
____ 2. Trademarks
____ 3. Sales revenue
____ 4. Cash surrender value of life insurance policy
____ 6. Deferred tax assets
____ 7. Unrealized decrease in value in available for sale securities
____ 8. Allowance for uncollectible accounts receivable
____ 9. Interest payable
____ 10. Sinking fund for preferred stock retirement
____ 11. Bonds Payable (due in 10 years)
____ 12. Leased machinery under a capital lease
Required:
Using the letters (a-k), indicate in which section of the balance sheet each of the accounts (1-12) would be classified. Put parentheses around the
letter used if it represents a contra account. If the account does not appear on the balance sheet, place an "X" in the space provided.
1. a 7. k
2. d 8. (a)
3. X 9. f
4. b 10. b
5. i 11. g
6. e or a 12. c
91. Below is an alphabetical listing of the accounts of Walkers, Inc. as of December 31, 2014.
Accounts payable
Accounts receivable
Accumulated depreciation: buildings and equipment
Additional paid-in capital on common stock
Allowance for doubtful accounts
Bonds payable (due 2018)
Buildings and equipment
Cash
Common stock, $5 par
Discount on bonds payable
Dividends payable
Inventory
Investment in securities available for sale
Land
Notes payable (due 2015)
Office supplies
Patents
Prepaid insurance
Retained earnings
Salaries payable
Taxes payable
Treasury stock
Unearned rent
Required:
Prepare a properly classified balance sheet (without amounts) for Walkers, Inc. on December 31, 2014.
WALK
ERS,
INC.
Balanc
e Sheet
Decem
ber 31,
2014
Assets
Current
Assets
Cash
Invest
ment in
securiti
es
availab
le for
sale
Accoun
ts
receiva
ble
Less:
Allowa
nce for
doubtfu
l
account
s
Invento
ry
Prepaid
items
Insuran
ce
Office
supplie
s
Total current assets
Propert
y,
Plant,
and
Equip
ment
Land
Buildin
gs and
equipm
ent
Less:
Accum
ulated
depreci
ation
Total
propert
y,
plant,
and
equipm
ent
Intangi
ble
Assets
Patents
Total
Assets
Liabili
ties
Current
Liabilit
ies
Notes
payable
(due in
2015)
Accoun
ts
payable
Salarie
s
payable
Taxes
payable
Divide
nds
payable
Unearn
ed rent
Total current liabilities
Long-
Term
Liabilit
ies
Bonds
payable
(due in
2018)
Less:
Unamo
rtized
bond
discoun
t
Total long-term liabilities
Total
liabiliti
es
Shareh
olders'
Equity
Contrib
uted
Capital
Comm
on
stock,
$5 par
Additio
nal
paid-in
capital
on
commo
n stock
Total contributed capital
Retaine
d
Earnin
gs
Total
contrib
uted
capital
and
retaine
d
earning
s
Less:
Treasur
y stock
(at
cost)
Total
Shareh
olders'
Equity
Total
Liabilit
ies and
Shareh
olders'
Equity
92. The balance sheet contains the major sections (a-j) listed below. A listing of balance sheet accounts (1-10)
follows.
a. Current assets f. Current liabilities

b. Long-term investments g. Long-term liabilities
c. Property, plant, and equipment h. Contributed capital
d. Intangible assets i. Retained earnings
e. Other assets j. Accumulated other comprehensive income
____ 1. Unexpired insurance
____ 2. Idle machinery
____ 3. Unrealized gain on available-for-sale securities
____ 4. Land
____ 5. Fund to retire preferred stock
____ 7. Deferred income tax payable-noncurrent
____ 8. Obligation for future pension payments
____ 9. Trademark
____ 10. Unearned ticket sales
Required:
Using the letters (a-j), indicate in which section of the balance sheet the accounts (1-10) would most likely be classified.
1. a 6. h
2. e 7. g
3. j 8. g
4. c 9. d
5. b 10. f
93. A corporation's balance sheet is usually divided into three sections with various classifications reported
within each group in an informative manner. Listed below are some typical classifications within a section.
Contributed capital Other assets

Current assets Other liabilities
Current liabilities Property, plant, and equipment
Intangible assets Retained earnings
Long-term investments Accumulated other comprehensive income
Long-term liabilities
Required:
Identify each of the three balance sheet sections and list the classifications within each section in the appropriate order.
Assets Liabilities Shareholders' Equity

Current assets Current liabilities Contributed capital
Long-term investments Long-term liabilities Retained earnings
Property, plant, and equipment Other liabilities Accumulated other
Intangible assets comprehensive income
Other assets
94. The following information has been provided by Meyers Company:
Unearned rent $ 4,500

Retained earnings (unrestricted) 141,000
Premium on bonds payable 1,800
Bonds payable 28,000
Treasury stock, at cost 29,000
Retained earnings restricted for plant expansion 17,000
Required:
Prepare the shareholders' equity section of the balance sheet for Meyers.
MEYER
S
COMPA
NY
Balance
Sheet
Decemb
er 31,
20XX
Shareho
lders'
Equity
Contribu
ted
Capital
Common$150,000
stock, $5
par
Addition 55,000
al paid-
in capital
on
common
stock
Total contributed capital $205,000
Retained
Earnings
Unrestric$141,000
ted
Restricte 17,000
d for
plant
expansio
n
Total retained earnings 158,000
Total $363,000
contribut
ed
capital
and
retained
earnings
Less: (29,000)
Treasury
stock (at
cost)
Total $334,000
Sharehol
ders'
Equity
95. On January 1, 2014 Hammer Company listed the following shareholders’ equity section of its balance sheet:
Contributed Capital:
Common stock, $1 par $ 150,000
Additional paid-in capital on common stock $ 300,000
Total Contributed Capital $ 450,000
Retained Earnings $ 758,000
Total Shareholders' Equity $ 1,222,500
During
2014,
the
followi
ng
transact
ions
and
events
occurre
d and
were
recorde
d:
1.) Hammer issued 50,000 shares of common stock at $3 per share.
2.) Hammer earned net income of $175,900.
3.) Hammer paid a cash dividend of $.10 per share of common stock
4.) Hammer had an unrealized loss associated with some available-for-sale securities in the amount of $1,450.
Required:
Prepare Hammer’s statement of shareholders’ equity for 2014.
Common Stock, $ 1 Additional Paid-In Retained Acc. Other Total

par Capital, Common Earnings Comp. Income
Balances, January 1, 2014 $ 150,000 $ 300,000 $ 758,000 $ 14,500 $ 1,222,500
Unrealized loss in fair value (1,450) $ (1,450)
of available-for-sale securities
Net income 175,900 $ 175,900
Cash dividends paid (20,000) $ (20,000)
Common stock issued 50,000 100,000 $ 150,000
Balances, December 31, 2014 $ 200,000 $ 400,000 $ 913,900 $ 13,050 $ 1,526,950
96. On January 1, 2015, Marlow Corporation had the following shareholders' equity account balances:

Common stock, $5 par (30,000 shares authorized) 150,000
During 2015, the following events occurred in the order listed and were properly recorded:
· The company issued 3,000 shares of common stock at $25 per share.
· The company earned net income of $126,300.
· The company paid a $1.20 per share dividend on its common stock.
· The company experienced an unrealized decrease in the value of its investment in available-for-sale securities of $9,000.
Required:
Prepare a statement of changes in shareholders' equity for 2015.
MARLOW CORPORATION
Statement of Changes in
Shareholders' Equity
For Year Ended December 31, 2015
Additional Accumulated
Common Paid-In Capital Other
Stock, $5 Retained Comprehen-
par On Common Earnings sive Income Total
Balance,
January 1, 2015 $150,000 $ 280,000 $340,000 $130,000 $900,000
Net income 126,300 126,300
Common stock
issued 15,000 60,000 75,000
Cash dividends paid (39,600) (39,600)
Unrealized decr. in value
AFSS (9,000) (9,000)
Balance,
December 31, 2015 $165,000 $340,000 $426,700 $121,000 $1,052,700
97. A list of statements follows:
a. A balance sheet summarizes the ____________________ ____________________ of a company.
b. GAAP defines the ____________________ of a corporate balance sheet.
c. Temporary investments in marketable securities are classified as ____________________ ____________________ and investment
securities available for sale.
d. A company must accrue a loss and a liability from a contingency if it is ____________ that a liability has been incurred and the amount
of the loss can be ______________ _______________.
e. Unrealized fair value increases in available-for-sale securities is an example of ____________________ ____________________

____________________ ____________________.
f. _____________ ______________ of a company include affiliated entities such as subsidiaries, trusts for the benefit of employees, its
management, and its principal owners or immediate families.
g. A(n) ____________________ ____________________ is one that occurs between the balance sheet date and the date the annual report
is issued.
Required:
Fill in the words necessary to complete the statements.
a. financial position
b. elements
c. trading securities
d. probable, reasonably estimated
e. accumulated other comprehensive income
f. related parties
g. subsequent event
98. The following data were taken from the Oxon Hill, Inc. balance sheet:
Accounts payable $ 1,150

Inventory 1,250
Accumulated depreciation 300
Cash 15,500
Serial bonds payable ($1,200 matures each year) 10,800
Allowance for doubtful accounts 720
Capital stock 440
Property, plant, and equipment 1,000
Accounts receivable (gross) 3,110
Required:
Compute working capital.
$17,880 = ($1,250 + $15,500 + $1,200 + $3,110 - $720 - $1,150 - 1,310)
99. The following information has been provided for Zero One Corp.:
Prepaid insurance $ 1,200

Petty cash 675
Investment in trading securities 5,200
Cash 4,600
Inventory, at sales value (cost = $2,100) 4,500
Unearned rent 1,940
Allowance for bad debts 850
Office supplies 910
Required:
a. Prepare the current asset section of Zero One's balance sheet.

b. Calculate Zero One's working capital.
a. Current
assets:
Cash $ 4,600
Petty 675
cash
Total cash $ 5,275
Investme 5,200
nt in
trading
securitie
s
Account $3,800
s
receivabl
e
Less: (850) 2,950
Allowan
ce for
bad
debts
Inventor 2,100
y
Office 910
supplies
Prepaid 1,200
insuranc
e
Total current assets $17,635
b. $17,635
- $2,170
- $1,940
=
$13,525
100. Below is a list of common ratios necessary for financial statement analysis.
a.) Debt-to-Assets
b.) Return on Common Equity
c.) Fixed Asset Turnover
d.) Total Asset Turnover
f.) Debt-to-Equity Ratio
g.) Inventory Turnover
h.) Current Ratio
i.) Quick Ratio
Required:
Match the ratio with the appropriate formula.
______ 1.) Net Income  Average Total Common Equity
______ 2.) Quick Assets  Current Liabilities
______ 3.) Current Assets  Current Liabilities
______ 4.) Cost of Goods Sold  Average Inventory
______ 5.) Total Liabilities  Total Common Equity
______ 6.) Total Revenues  Average Net Fixed Assets
______ 7.) Total Revenues  Average Total Assets
______ 8.) Total Liabilities  Total Assets
1.) b
2.) i
3.) h
4.) g
5.) f
6.) c
7.) d
8.) a
101. The following is from the financial reports of Sledge Company:
Credit Sales $ 1,250,000

Average Accounts Receivable 250,000
Inventory Purchases 450,000
Costs of Goods Sold 550,000
Change in Inventory (145,000)
Average Accounts Payable 123,500
Total Revenues 1,500,000
Average Net Fixed Assets 275,000
Average Total Assets 385,000
Required:
Calculate the following to three decimal places:
a.) Fixed Asset Turnover

b.) Total Asset Turnover
c.) Accounts Payable Turnover
d.) Accounts Payable Turnover in Days
e.) Accounts Receivable Turnover
f.) Accounts Receivable Turnover in Days
a.)
Fixed Asset Turnover = Total Revenues  Average Net Fixed Assets
5.455 = $1,500,000  $275,000
b.)
Total Asset Turnover = Total Revenues  Average Total Assets
3.896 = $1,500,000  $385,000
c.)
Accounts Payable Turnover = Inventory Purchases  Average Accounts Payable
3.279 = $405,000  $123,500
d.)
Accounts Payable Turnover in Days = 365 Days  Accounts Payable Turnover
111.314 = 365 Days  3.279
e.)
Account Receivable Turnover = Total Credit Sales  Average Accounts Receivable
5.000 = $1,250,000  $250,000
f.)
Accounts Receivable Turnover in Days = 365 Days  Account Receivable Turnover
73.000 = 365 Days  5.000
102. From what two perspectives does the balance sheet report the financial position of a company?
1) The specific resources the company controls.
2) The claims to the resources owned by the company by creditors, lenders, and investors.
103. What three processes must be completed in order for the elements of the balance sheet to be reported by a
specific company?
1) The what: the elements must be identified in order for them to be recognized on the balance sheet.
2) The how: the elements must be measured or valued for the balance sheet.
3) The where: the elements must be classified in the balance sheet.

104. What three characteristics must an economic resource have in order be considered an asset?
1) Future economic benefit
2) Control
3) Acquisition
105. What is FASB’s definition of fair value?
FASB defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.”
106. How would a common classification of a balance sheet look?
1) Assets
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Intangible assets
e. Other assets
2) Liabilities
a. Current Liabilities
b. Long-term liabilities
c. Other liabilities
3) Shareholders
' Equity
a. Contributed Capital
1) Common stock
2) Additional paid-in capital
b. Retained earnings
c. Accumulated other comprehensive income
107. What are the three categories of intangible assets?
1) Intangible assets with finite useful lives.
2) Intangible assets with indefinite useful lives.
3) Goodwill
108. What is FASB’s Statement of Financial Accounting Concepts No. 6 definition of investments by owners
and distributions to owners?
Investment by owners: the transfer of something valuable to the company from other entities to obtain or
increase ownership interest in the company.
Distribution to owners: the transfer of assets, rendering services, or incurring liabilities to owners.
109. In order for an external user of a company’s financial statements to fully understand the in workings of the
company, their accounting policies, practices, and methods must be disclosed. The disclosure of revenue
recognition and asset allocations is important. When is it particularly important for this information to be
disclosed?
Disclosure is important when there are choices of accounting policies from acceptable alternatives.
When the company’s practices are peculiar to the industry in which the company operates.
When the company decides to use an innovative or unusual application of GAAP.
110. What differences exist between IFRS and U.S. GAAP balance sheet presentation?
IFRS:
The assets have only two categories, noncurrent and current, and are listed with noncurrent assets presented first
followed by current assets.
Assets are presented in ascending order of liquidity, with the least liquid assests first and the most liquid assets
listed last, which is the opposite oder in which they would be presented under U.S. GAAP.
After assts, equity is listed next followed by noncurrent liabilities.
There are a number of differences in account titles such as “revaluation reserves” and “provisions” which are
not allowed under U.S. GAAP.
Reserves result from upward revaluations of property and investments.
Accumulated profits or losses is used to describe the U.S. GAAP term, retained earnings.
111. Name five analyses or ratios used to evaluate a company’s performance.
Common-size analysis
Rate of change analysis
Return on investment ratios
Risk ratios
Financial flexibility ratios
Liquidity ratios
Operating capability ratios
112. A client of your accounting firm is impressed with the precision and detail in the financial statements that
you have just prepared for his company. However, he wants to know if there are any limitations to the
information contained in them.
Required:
Describe four limitations of the balance sheet.
Limitations of the balance sheet include: (1) it contains historical costs to value assets and liabilities, which do
not help users assess the likely amounts of future cash flows relating to these items; (2) it doesn't include all of a
company's economic resources or obligations (e.g., human resources and possible legal obligations); (3) it
reports many amounts that are based on estimates, which are subject to change; and (4) during periods of
inflation, the balance sheet does not reflect the purchasing power of its assets and liabilities.
113. A friend of the family has just received her first set of financial statements from her accountant. When she
finds out that you are an accounting major, she asks you, "Why aren't my employees listed as an asset on my
company's balance sheet?"
Required:
Write an explanation describing the characteristics that an economic resource must possess in order to be
considered an asset. Include in your discussion the primary reason why "human resources" are not recognized as
assets.
To be considered an asset, an economic resource must be able to contribute directly or indirectly to a company's
net cash inflows; the company must be able to obtain the item's future benefits and control others' access to it;
and the transaction or event giving rise to the company's right to, or control over, the benefits must have
occurred. While "human resources" may meet these criteria, they are excluded from assets primarily because of
the difficulty of reliably measuring their benefits and the company does not have the ability to control others
access to “human resources,” i.e. the employee can quit.
114. With all of the turmoil in the financial markets in 2008, one of your friends has emailed you because she
has been wondering about the financial disclosure requirements for the banks and brokerage firms affected by
the market turbulence. Explain the general accounting requirements for financial instruments to your friend.
Generally, GAAP requires the disclosure of the fair values and risks associated with financial instruments held
by companies in the financial sector (both assets and liabilities) whether or not the instruments must be reported
on the balance sheet. Significant concentrations of credit risk must also be disclosed.
GAAP also requires that all derivative financial instruments be reported on the balance sheet as assets or
liabilities at fair value. Footnote descriptions of the objectives for holding the instruments, as well as strategies
for achieving those objectives, must be provided.
115. A friend comes to you with a set of financial statements that he thinks contains an error. The footnotes
contain a note on a bond issue sold after the end of the reporting period. Your friend is sure this is an error
because the transaction occurred after the cutoff date for the financial statements.
Required:
Explain to your friend why certain items that occur after the end of an accounting period are included in the
financial statements and the manner in which they can be disclosed.
Significant transactions or events that occur between the balance sheet date and the date of issuance of the
annual report which, if not disclosed would cause the report to be misleading, are known as subsequent events.
If the event provides additional evidence concerning conditions that existed on the balance sheet date and
significantly affects estimates used in the preparation of the report, an adjustment is made. If the event provides
evidence concerning conditions that did not exist on the report date, the information is disclosed in a note, a pro
forma statement, or an explanatory paragraph in the auditor's report.
116. Discuss how intracompany and intercompany comparisons help fulfill the qualitative characteristics of
consistency and comparability.
Intracompany comparisons stress consistency over time. That is, intracompany comparisons evaluate a
company's current financial performance and condition in comparison to the company's past results. Without
consistency, these trends would have little meaning.
Intercompany comparisons are concerned with both consistency and comparability. Intercompany comparisons
compare a company's performance with that of competitors, with the industry as a whole, or with the results of
related industries. Both consistency across years and comparability of methods among firms are important for
relevant comparisons to be made.

Intermediate Accounting Reporting and Analysis 1st Edition Wahlen Test Bank 1

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Solution Manual for Intermediate Accounting Reporting and

Analysis 1st Edition Wahlen Jones Pagach 1111822360

Solution manual: https://testbankpack.com/p/solution-manual-for-intermediate-accounting-reporting-and-analysis-1st-

Test bank: https://testbankpack.com/p/test-bank-for-intermediate-accounting-reporting-and-analysis-1st-edition-

Chapter 4--The Balance Sheet and the Statement of

17. Which statement is false?

18. A balance sheet shows the

22. The primary attribute of all assets is service

25. Which is not a characteristic of an asset?

26. Which statement is false?

28. Which of the following is not a characteristic of a liability?

29. The residual interest in a company's assets is represented by its

34. The expected exit value is also referred to as the

41. Current liabilities would include all of the following except

42. Cash equivalents are securities that

43. Current liabilities are defined as obligations that will be paid

44. Which of the following liabilities is properly classified as a current liability?

50. Which of the following is least likely to be included in long-term liabilities?

53. Which is a component of shareholders' equity?

54. Which of the following would not be classified as contributed capital?

56. On the balance sheet, treasury stock is classified as a

58. Which of the following is not included in comprehensive income?

64. A subsequent event is an event that occurs

74. A comparison of a company's performance with that of its competitors is known as

76. Which of the following formulas represents working capital?

77. Selected information from a company's balance sheet follows:

Long-term debt $ 140

79. Which statement is not true?

81. Exhibit 4-1

82. Exhibit 4-1

83. Exhibit 4-1

a. financial position f. operating capability

____ 1. Process of recording and reporting an element in the financial statements

____ 2. Economic resources

____ 3. Ability of a company to use its financial resources to adapt to change

____ 6. The ability to deny or regulate the use of an asset

____ 7. The financial position of the company as reported on a specific date

____ 8. Ability of a company to maintain a given physical level of operations

____ 9. Is measured in terms of changes in assets and liabilities

____ 10. Historical cost of an asset

____ 2. Prepaid expenses

____ 3. Investment securities available for sale

____ 5. Raw materials inventory adjusted downward to lower of cost or market

____ 6. Capital lease obligations

____ 7. Financial instruments

____ 8. Property, plant, and equipment

____ 9. Bonds payable

____ 10. Trading securities

a. Current assets g. Long-term liabilities

____ 3. Sales revenue

____ 4. Cash surrender value of life insurance policy

____ 5. Additional paid-in capital on common stock

____ 6. Deferred tax assets

____ 7. Unrealized decrease in value in available for sale securities

____ 8. Allowance for uncollectible accounts receivable

____ 9. Interest payable

____ 10. Sinking fund for preferred stock retirement

____ 11. Bonds Payable (due in 10 years)

____ 12. Leased machinery under a capital lease

a. Current assets f. Current liabilities

____ 2. Idle machinery

____ 3. Unrealized gain on available-for-sale securities

____ 5. Fund to retire preferred stock

____ 6. Additional paid-in capital on common stock

a. A balance sheet summarizes the of a company.

e. Unrealized fair value increases in available-for-sale securities is an example of