Intermediate Accounting Reporting and Analysis 2nd Edition Wahlen Test Bank Download

CHAPTER 4: THE BALANCE SHEET AND THE STATEMENT OF
SHAREHOLDER’S EQUITY
Solution Manual for Intermediate Accounting Reporting and

Analysis 2nd Edition Wahlen Jones Pagach 1285453824
9781285453828
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1. The balance sheet reports the financial position of a company at a specific date in time whereas all other financial
statements report changes in the financial position of the company over a period of time.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ACCT.WHAL.16.4.1 - LO: 4.1
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling
KEYWORDS: Bloom’s: Remembering
2. The elements recognized on the balance sheet are assets, liabilities, revenues, and expenses.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
3. Equity is defined as a residual claim such that assets plus liabilities equals equity.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 4: The Balance Sheet and the Statement of Shareholders' Equity
KEYWORDS: Bloom’s: Understanding
4. Asset measurement methods that reflect historical values include acquisition cost and residual value.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
5. Asset measurement methods that reflect historical values include fair value, present value, replacement cost, and net
realizable value.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
6. Companies typically recognize monetary assets and liabilities using present values.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG - BUSPROG: Analytic
LOCAL STANDARDS: United States - OH - Default City - AICPA - FN-Decision Modeling
KEYWORDS: Bloom's: Understanding
7. Net realizable value is the amount a company would have to pay currently to acquire an asset it now holds.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
8. Adjusted present value is based on the present-day fair value adjusted to reflect the passage of time.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
9. FASB’s definition of fair value of an asset is characterized as a measure of market-based exit value, which is the
amount for which a company could sell the asset.
a. True
b. False
ANSWER: True
POINTS: 1
10. Current assets include cash, accounts receivable, inventory, and prepaid items.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
11. Long-term investments are listed on the balance sheet at historical cost.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
12. Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
13. All long-term investments are listed on the balance sheet at fair value.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
14. Equity of a wholly-owned company is comprised only of contributed capital and earned capital.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
15. The SEC requires listed companies to report changes in shareholder’s equity and ending balances as a separate
financial statement, but smaller companies may report this information in a supporting schedule or as a note.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
16. Distributions to owners increase equity and investments by owners decrease equity.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
17. Distributions to owners include paying dividends, repurchasing common shares, transferring assets, rendering
services, and incurring liabilities to owners.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
18. Typically, the first note to the financial statements is the Summary of Significant Accounting Policies.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
19. Derivative financial instruments must be reported as either assets or liabilities on the balance sheet and be measured at
their net realizable value.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's: Remembering
20. Gain contingencies must be accrued if they are probable and can reasonably be estimated.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
21. A company must make adjustments to the financial statements for certain events that occur after the end of the
accounting period.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
22. In common-size analysis, all balance sheet items and income statement items are presented as a percentage of total
assets.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's: Easy
23. Cross-sectional analysis involves intercompany comparisons.

a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
24. Time-series analysis is the same as rate of change analysis.

a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
25. Financial leverage is measured by the debt-to-assets ratio.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
26. Which financial statement is also called the statement of financial position?
a. The balance sheet
b. The income statement
c. The statement of cash flows
d. The statement of shareholders’ equity
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
27. 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.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
28. Which of the following financial statements reports changes in financial position of the company during the
accounting period?
a. Statement of cash flows
b. Balance sheet
c. Statement of financial position
d. All of the above report changes in financial position during the accounting period.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
29. Which of the following elements is not recognized on the balance sheet?
a. Equity
b. Expense
c. Liability
d. Asset
ANSWER: b
POINTS: 1
30. What element is a probable future economic benefit controlled and previously acquired by a company?
a. Equity
b. Gain
c. Revenue
d. Asset
ANSWER: d
POINTS: 1
31. The primary attribute of all assets is
a. service potential.
b. productive capacity.
c. historical cost.
d. service contribution.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
32. 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
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
33. All of the following are non-monetary assets except

a. goodwill.
b. patents
c. inventory.
d. accounts receivable.
ANSWER: d
POINTS: 1
34. Which is not a required characteristic for a liability to be recognized?
a. Transfer
b. Service potential
c. Nonavoidable
d. Incurred
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
35. Which of the following is a probable future sacrifice of economic benefits arising from present obligations as a result
of past events?
a. Expense
b. Liability
c. Loss
d. Asset
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
36. Which of the following statements about executory contracts is false?

a. Executory contracts are contracts in the process of begin filled.
b. A purchase order is an example of an executory contract.
c. Executory contracts are recognized as liabilities when the company receives the benefits
d. Executory contracts are contingent obligations.
ANSWER: a
POINTS: 1
37. The residual interest in a company's assets after deducting liabilities is
a. net income.
b. equity.
c. noncontrolling interest
d. earned capital
ANSWER: b
POINTS: 1
38. Which of the following is not a general category of shareholders’ equity?

a. Net income
b. Contributed capital
c. Noncontrolling interest
d. Earned capital
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
39. Which of the following assets is reported at net realizable value on the balance sheet?
a. Short-term investments
b. Merchandise inventory
c. Accounts receivable
d. Prepaid insurance
ANSWER: c
POINTS: 1
40. Which of the following is a measurement method that reflects historical value?
a. Fair value
b. Acquisition cost
c. Replacement cost
d. Net realizable value
ANSWER: b
POINTS: 1
41. An asset is valued by the price that would be received by selling it in an orderly transaction between market
participants on the date of measurement. Which measurement method is being used in this case?
a. Fair value
b. Historical cost
c. Present value
d. Reliable value
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
42. Which of the following statements about fair value is true?

a. Level 1 inputs should be used to determine fair value only when Level 2 and Level 3 inputs are not available.
b. Level 3 inputs are observable market prices for similar assets in active markets.
c. Fair value accounting is also known as “mark-to-market” accounting.
d. Fair value is a measure of market-based entry value.
ANSWER: c
POINTS: 1
43. The expected exit value is also referred to as the
a. fair value.
b. present value.
c. input value.
d. current replacement cost.
ANSWER: a
POINTS: 1
44. The amount a company would pay to acquire an asset it now holds is the asset’s
a. historical cost.
b. current replacement cost.
c. current exit value.
d. present value.
ANSWER: b
POINTS: 1
45. The measurement of an asset's value based on the discounted future cash flows relating to the asset is
a. net realizable value.
b. future value.
c. historical value.
d. present value.
ANSWER: d
POINTS: 1
46. Which balance sheet account is usually reported at net realizable value?
a. Investments
b. Land.
c. Accounts Receivable.
d. Inventory.
ANSWER: c
POINTS: 1
47. A balance sheet account that is usually reported at fair value is

a. Marketable Securities.
b. Land.
c. Accounts Payable.
d. Inventory.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
48. A balance sheet account that is usually reported at present value is

a. Land.
b. Note Payable.
c. Accounts Payable.
d. Inventory.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
49. Which of the following accounts is not classified as a current asset?
a. Receivables
b. Inventory
c. Patent
d. Prepaid Insurance
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
50. Cash equivalents are securities that

a. management intends to convert into cash within one year.
b. are denominated in a recognized national currency.
c. management intends to convert into cash within the normal operating cycle.
d. have maturity dates of three months or less.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
51. Long-term investments include all of the following except

a. sinking funds.
b. cash surrender value of life insurance policies.
c. a building held for rental activity.
d. bonds payable.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
52. Property, plant, and equipment section of the balance sheet includes all of the following except
a. construction in progress.
b. natural resources.
c. intangible assets
d. leasehold improvements.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
53. Intangible assets include all of the following except

a. natural resources.
b. licenses.
c. goodwill.
d. Trademarks
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
54. What is the term for the systematic allocation of the costs of intangible assets to expense?
a. Amortization
b. Depreciation
c. Impairment
d. Depletion
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
55. 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
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
56. Which of the following is not an intangible asset?

a. Computer software
b. Deferred tax asset
c. Brand name
d. Franchise
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
57. The systematic allocation of the costs of natural assets to expense is called
a. amortization.
b. depreciation.
c. impairment.
d. depletion.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
58. The adjusted historical cost of fixed assets, calculated as historical cost minus depreciation, is called
a. amortization.
b. net book value.
c. impairment.
d. depreciable cost.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
59. Which of the following is amortized over its useful life and reported at adjusted historical cost?
a. Intangible asset with finite useful lives
b. Intangible asset with indefinite useful lives
c. Goodwill
d. Property, plant, and equipment
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
60. 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
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
61. Current liabilities includes all of the following except
a. income tax payable.
b. mortgage due to be paid this year.
c. notes receivable.
d. advance payments from customers.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
62. Most long-term liabilities are reported on the balance sheet at their
a. net realizable value.
b. replacement value.
c. historical cost.
d. present value.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
63. Which of the following is not a component of shareholders’ equity?

a. Noncontrolling interest
b. Residual capital
c. Earned capital
d. Contributed capital
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
64. Which of the following is included in shareholders' equity?
a. Sinking funds
b. Deferred revenues
c. Accumulated other comprehensive income
d. Goodwill
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
65. Which of the following is not a component of contributed capital?

a. Preferred stock
b. Treasury stock
c. Earned capital
d. Additional paid-in capital
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
66. A negative balance for retained earnings due to cumulative net losses is called a(n)
a. deficit.
b. retained loss.
c. retained debit.
d. other comprehensive loss.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
67. On the balance sheet, treasury stock is presented as a
a. long-term investment account.
b. contra shareholders' equity account.
c. companion shareholders’ equity account.
d. contra asset account.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
68. 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.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
69. Other comprehensive income (loss) includes all of the following except
a. Extraordinary gains/losses
b. Certain pension plan gains/losses.
c. Foreign currency translation gains/losses.
d. Unrealized gains/losses on available-for-sale investments.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
70. Additional paid-in capital represents
a. the value of earnings not paid out as dividends.
b. the difference between contributed capital and earned capital.
c. the value of repurchased treasury stock.
d. the difference between par value and market value .
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
71. A component of equity that arises when a parent company owns a majority of the common shares of a subsidiary
company is known as
a. majority interest.
b. noncontrolling interest.
c. earned capital.
d. unearned capital.
ANSWER: b
POINTS: 1
72. Distributions to owners include all of the following except

a. paying dividends.
b. repurchasing treasury stock.
c. giving away fixed assets.
d. noncontrolling interests.
ANSWER: d
POINTS: 1
73. 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.
ANSWER: d
POINTS: 1
74. A reader of a set of financial statements would expect to be able to find in the statement of changes in shareholders'
equity
a. increases in total assets.
b. increases in total liabilities.
c. increases to net income.
d. increases from other comprehensive income.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
75. GAAP requires that all derivative financial instruments be reported at their
a. historical cost.
b. fair value.
c. present value.
d. par value.
ANSWER: b
POINTS: 1
76. 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.
ANSWER: d
POINTS: 1
77. 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.
ANSWER: c
POINTS: 1
78. 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 a significant uncollectible account.
ANSWER: d
POINTS: 1
79. 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.
ANSWER: c
POINTS: 1
80. The SEC requires disclosure of quarterly high and low market prices for
a. two years.
b. three years.
c. four years.
d. The SEC does not require disclosure of quarterly high and low market prices.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
81. Time-series analysis is most closely associated with

a. Common-size analysis
b. Cross-sectional analysis
c. Intracompany comparisons
d. Intercompany comparisons
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
82. Cross-sectional analysis is most closely associated with
a. Common-size analysis
b. Time-series analysis
c. Intracompany comparisons
d. Intercompany comparisons
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
83. 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.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
84. A comparison of a company's performance with that of its competitors is known as

a. common-size analysis.
b. intercompany comparison.
c. ratio analysis.
d. intracompany comparison.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
85. 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 .
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
86. The ease with which an asset can be converted into cash is termed
b. liquidity.
d. capital maintenance.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
87. Financial flexibility is assessed by evaluating

a. profitability.
b. leverage.
c. liquidity.
d. Efficiency
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
88. 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
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
89. 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
ANSWER: d
POINTS: 1
NATIONAL STANDARDS: United States - BUSPORG: Analytic
LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Measurement
KEYWORDS: Bloom’s: Analyzing
90. Efficiency ratios are measures of
b. liquidity.
d. leverage.
ANSWER: c
POINTS: 1
91. 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 uses its resources to generate revenue.
d. assessing a return of investment as well as a return on investment.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
Exhibit 4-1
Given the following information for Blue Bell Company for last year:
Net sales (all on account) $5,200,000

Cost of goods sold 2,080,000
Interest expense 240,000
Income tax expense 280,000
Net income 420,000
Income tax rate 40%
Total assets:
January 1 $1,800,000
December 31 2,400,000
Shareholders' equity (all common):
January 1 1,500,000
December 31 1,600,000
Current assets, December 31 700,000
Quick assets, December 31 400,000
Current liabilities, December 31 300,000
Net accounts receivable:
January 1 200,000
December 31 180,000
Inventory:
January 1 210,000
December 31 250,000
92. Refer to Exhibit 4-1. Blue Bell’s current ratio at December 31 was
a. 3.67 times
b. 2.33 times
c. 1.33 times
d. 0.43 times
ANSWER: b
POINTS: 1
93. Refer to Exhibit 4-1. Blue Bell's accounts receivable turnover for the year was
a. 2.2 times
b. 26.0 times
c. 27.4 times
d. 28.9 times
ANSWER: c
POINTS: 1
94. Refer to Exhibit 4-1. Blue Bell's return on assets for the year was
a. 17.5%
b. 20.0%
c. 26.9%
d. 31.4%
ANSWER: c
POINTS: 1
95. Refer to Exhibit 4-1. Blue Bell’s quick ratio at December 31was
a. 3.67 times
b. 2.33 times
c. 1.33 times
d. 0.43 times
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's: Applying
96. Refer to Exhibit 4-1. Blue Bell's return on common equity for the year was
a. 26.3%
b. 27.1%
c. 36.4%
d. 42.8%
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
97. Refer to Exhibit 4-1. Blue Bell's debt to assets ratio December 31was
a. 16.7% 2.2 times
b. 33.3% 26.0 times
c. 26.2% 27.4 times
d. 42.8% 28.9 times
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
98. Refer to Exhibit 4-1. Blue Bell's debt to equity ratio December 31 was
a. 1.33 2.2 times
b. 0.50 26.0 times
c. 0.35 27.4 times
d. 0.20 28.9 times
ANSWER: c
POINTS: 1
99. Refer to Exhibit 4-1. Blue Bell's inventory turnover for the year was
a. 9.0 times
b. 8.3 times
c. 12.0%
d. 11.1%
ANSWER: a
POINTS: 1
100. A company’s operating cycle might be measured as

a. Total asset turnover in days minus fixed asset turnover in days.
b. Total asset turnover in days minus fixed asset turnover in days minus inventory turnover in days minus
accounts receivable turnover in days.
c. Inventory turnover in days plus accounts receivable turnover in days plus accounts payable turnover in days.
d. Inventory turnover in days plus accounts receivable turnover in days minus accounts payable turnover in days.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
101. Which of the following is a measure of operating efficiency?

a. Debt to assets ratio
b. Asset turnover ratio
c. Return on assets
d. Return on equity
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
102. Under IFRS, liabilities and shareholders' equity on the balance sheet usually appear in which order?
a. Equity, noncurrent liabilities, and current liabilities
b. Current liabilities, noncurrent liabilities, and equity
c. Equity, current liabilities, and noncurrent liabilities
d. Noncurrent liabilities, current liabilities, and equity
ANSWER: a
POINTS: 1
103. Which of the following is not included under the heading “Capital and reserves” for IFRS financial statements?
a. Accumulated net profits or losses
b. Cumulative currency translation adjustments
c. Upward revaluations of land and buildings
d. Allowance for uncollectible accounts
ANSWER: d
POINTS: 1
104. 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.
ANSWER: c
POINTS: 1
105. Which of the following account titles are not allowed under GAAP?
a. Revaluation reserves
b. Provisions
c. Capital
d. Revaluation reserves and provisions
ANSWER: d
POINTS: 1
106. Listed below are ten terms followed by a list of descriptive phrases.
a. financial position f. operating capability

b. equity g. assets
c. net income 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 resource
____ 3. Ability of a company to use its financial resources to adapt to change
4. Economic resources, economic obligations, and their relationships 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. Residual interest of a company
____ 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 descriptive phrase with the best-related term by placing the appropriate letter in the space provided.
ANSWER: 1. j 6. i
2. g 7. b
3. e 8. f
4. a 9. c
5. d 10. h
POINTS: 1
DIFFICULTY: Challenging
ACCT.WHAL.16.4.2 - LO: 4.2
ACCT.WHAL.16.4.3 - LO: 4.1
ACCT.WHAL.16.4.9 - LO: 4.7
107. Five methods of measuring values of individual assets 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.
ANSWER: 1. d
2. b
3. e
4. c
5. a
POINTS: 1
KEYWORDS: Bloom’s: Applying
108. Five methods of measuring values of individual assets are listed below, followed by a series of balance sheet sheet
accounts.
a. historical cost
b. current replacement cost
c. fair value
d. net realizable 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 balance sheet account to appropriate method for measuring its value by placing the appropriate letter in
the space provided.
ANSWER: 1. d 6. e
2. a 7. c
3. c 8. a
4. a 9. e
5. b 10. c
POINTS: 1
109. Gerald Company’s balance sheet information at the end of 2016 and 2017 is as follows:
2016 2017
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 2016, additional paid-in capital was twice the amount of common stock. During 2017 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.
ANSWER:
2016 2017
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
Intangible assets 15,000 13,900
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)
Accumulated other comprehensive 14,800 5,000
income
Total shareholders’ equity 206,550 145,600
Total liabilities and shareholders’ $ 212,050 $ 248,500

equity
* 123,900 = Common stock (×) + Additional paid-in capital 2(×)

123,900 = 3×
41,300 = × Common stock, 2 × 41,300 = $82,600 Additional paid-in capital
POINTS: 1
110. Hardy’s bookkeeper provided the following balance sheet.
HARDY COMPANY
Balance Report for the year ended December 31, 2016
Current Assets: Current Liabilities:

Cash $ 58,000 Accounts payable $ 25,000
Accounts receivable Accumulated depreciation:
123,500 buildings 20,000
Inventory, at higher of cost Wages payable
or market (cost $29,850) 35,800 22,200
Sinking fund for bond Additional paid-in capital
retirement on common stock
115,000 100,000
Long-Term Investments: Long-Term Liabilities:
Treasury stock (at cost) 55,500 Bonds payable 100,000
Investments in bonds Preferred stock, $50 par
100,000 150,000
Marketable securities, Allowance for doubtful accounts
short term at fair value 25,000 15,000
Trademark 25,000 Premium on preferred stock 45,000
Accumulated depreciation:
Property, Plant, and Equipment: equipment 12,000
Land 75,000 Current taxes payable 10,000
Buildings 100,000 Shareholders’ Equity:
Equipment 45,000 Common Stock, $1 par 75,000
Intangibles: Unrealized gain on write
Employees 150,000 up of inventory to market
Copyrights 15,000 value
5,950
Patents 20,000 Retained earnings 362,650
Total Assets $ 942,800 Total Equities $ 942,800
Required:
Prepare the corrected asset section of a classified balance sheet.
ANSWER:
Current Assets:
Cash $ 58,000
Marketable securities,
short term at fair value
25,000
Accounts receivable 123,500
Allowance for doubtful
accounts (15,000)
108,500
Inventory, at cost
(market value $35,800) 29,850
Total current assets: $221,350
Long-Term Investments:
Investments in A company bonds $100,000
Sinking fund for bond retirement 115,000
Total long-term investments 215,000
Property, Plant, and Equipment:
Land $ 75,000
Buildings 100,000
buildings (20,000)
80,000
Equipment 45,000
equipment (12,000)
33,000
Total Property, Plant, and Equipment: 188,000
Intangibles:
Trademark $ 25,000
Copyrights 15,000
Patents 20,000
Total Intangibles 60,000
Total Assets $684,350
POINTS: 1
111. Listed below (in random order) are all of the December 31, 2016 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
Additional paid-in capital on common stock 3,500
Buildings 117,500
Bonds payable (due 2019) 113,000
Office supplies 1,750
Retained earnings 17,400
Inventory 18,900
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 1/1/19) 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, 2016.
ANSWER:
MCCRERY COMPANY
Balance Sheet
December 31, 2016
Assets
Current Assets
Cash $ 14,500
Accounts receivable $ 17,650
Less: Allowance for doubtful accounts <2,250> 15,400
Inventory 18,900
Prepaid items
Insurance 1,900
Office supplies 1,750
Total current assets $
Long-Term Investments
Investment in bonds held to maturity $ 24,500
Total long-term investments
Property, Plant, and Equipment

Land $70,500
Buildings $117,500
Less: Accumulated depreciation <5,500> 112,000
Equipment $24,000
Less: Accumulated depreciation <4,250> 19,750
Total property, plant, and equipment 2
Total Assets $2
Liabilities
Current Liabilities
Accounts payable $ 15,650
Accrued wages 3,950
Income taxes payable 6,000
Interest payable 1,500
Dividends payable 14,750
Total current liabilities
Long-Term Liabilities
Notes payable (due 1/1/19) $ 8,000
Bonds payable (due 2019) $113,000
Less: Unamortized bond discount <8,900> 104,100
Total long-term liabilities
Total Liabilities $
Shareholders' Equity
Contributed Capital
Preferred stock, $100 par $ 5,000
Additional paid-in capital on preferred stock 2,150
Total contributed capital $
Retained Earnings
Total contributed capital and retained
earnings $
Less: Treasury stock (at cost)
Total Shareholders' Equity $
Total Liabilities and Shareholders' Equity $
POINTS: 1
ACCT.WHAL.16.4.5 - LO: 4.4
LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting
112. The balance sheet contains the major sections (a-k) listed below. A listing of account titles (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
____ 4. Cash surrender value of life insurance policy
____ 5. Additional paid-in capital on common stock
____ 6. Deferred tax assets
____ 7. Accumulated depreciation
____ 8. Unrealized decrease in value in available for sale securities
____ 9. Allowance for uncollectible accounts receivable
____ 10. Interest payable
____ 11. Sinking fund for preferred stock retirement
____ 12. Bonds Payable (due in 10 years)
____ 13. Leased machinery under a capital lease
____ 14. Cost of goods sold
Required:
Using the letters (a-k), indicate in which section of the balance sheet each of the accounts (1-14) 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.
ANSWER:
1. a 8. k
2. d 9. (a)
3. X 10. f
4. b 11. b
5. i 12. g
6. e or a 13. c
7. (c) 14. X
POINTS: 1
ACCT.WHAL.16.4.5 - LO: 4.4
113. Below is an alphabetical listing of the accounts of Walkers, Inc. as of December 31, 2016.
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 2017)
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, 2016.
ANSWER:
WALKERS, INC.
Balance Sheet
December 31, 2016
Assets
Current Assets
Cash
Investment in securities available for sale
Accounts receivable
Less: Allowance for doubtful accounts
Inventory
Prepaid items
Insurance
Office supplies
Total current assets
Property, Plant, and Equipment
Land
Buildings and equipment
Less: Accumulated depreciation
Total property, plant, and equipment
Intangible Assets
Patents
Total Assets
Liabilities
Current Liabilities
Notes payable (due in 2017)
Accounts payable
Salaries payable
Taxes payable
Dividends payable
Unearned rent
Total current liabilities
Long-Term Liabilities
Bonds payable (due in 2018)
Less: Unamortized bond discount
Total long-term liabilities
Total liabilities
Contributed Capital
Common stock, $5 par
Additional paid-in capital on common stock
Total contributed capital
Retained Earnings
Total contributed capital and retained earnings
Less: Treasury stock (at cost)
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
POINTS: 1
ACCT.WHAL.16.4.5 - LO: 4.4
114. 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
____ 6. Additional paid-in capital on common 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.
ANSWER: 1. a 6. h
2. e 7. g
3. j 8. g
4. c 9. d
5. b 10. f
POINTS: 1
ACCT.WHAL.16.4.5 - LO: 4.4
115. A corporation's balance sheet is usually divided into three primary sections with various classifications reported
within each section 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.
ANSWER: 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
POINTS: 1
ACCT.WHAL.16.4.5 - LO: 4.4
116. The following information has been provided by Meyers Company as of December 31, 20XX:
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.
ANSWER:
MEYERS COMPANY
Balance Sheet
December 31, 20XX
Contributed Capital
Common stock, $5 par $150,000
Total contributed capital $205,000
Retained Earnings
Unrestricted $141,000
Restricted for plant expansion 17,000
Total retained earnings 158,000
Total contributed capital and retained earnings $363,000
Less: Treasury stock (at cost) (29,000)
Total Shareholders' Equity $334,000
POINTS: 1
117. On January 1, 2016 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 2016, the following transactions and events occurred and were recorded:
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 2016.
ANSWER:
Common Additional Retained Acc. Total
Stock, $ 1 Paid-In Earnings Other
par Capital, Comp.
Common Income
Balances, January 1, $ 150,000 $ 300,000 $ 758,000 $ 14,500 $ 1,222,500
2016
Unrealized loss in fair value (1,450)
of available-for-sale securities $ (1,450)
Net income 175,900 $ 175,900
Cash dividends paid (20,000) $ (20,000)
Common stock issued 50,000 100,000 $ 150,000
Balances, December $ 200,000 $ 400,000 $ 913,900 $ 13,050 $ 1,526,950
31, 2016
POINTS: 1
ACCT.WHAL.16.4.5 - LO: 4.4
118. On January 1, 2015, Marlow Corporation had the following shareholders' equity account balances:
Accumulated other comprehensive income $ 130,000

Common stock, $5 par (30,000 shares authorized) 150,000
Retained earnings 340,000
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.
ANSWER:
MARLOW CORPORATION
Statement of Changes in Shareholders' Equity
For Year Ended December 31, 2017
Additional Accumulated
Common Other
Stock, $5 Paid-In Retained Comprehen-
Capital
par On Earnings sive Income Total
Common
Balance,
January 1, $150,000 $280,000 $340,000 $130,000 $ 900,000
2017
Net income 126,300 126,300
Common
stock
issued 15,000 60,000 75,000
Cash dividends paid (39,600) (39,600)
Foreign currency
translation
adjustment (9,000) (9,000)
Balance,
December 31, $165,000 $340,000 $426,700 $121,000 $1,052,700
2017
POINTS: 1
LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting
119. A list of statements follows:
a. A balance sheet summarizes the ____________________ ____________________ of a

company.
b. ____________________ are the probable future economic benefits obtained or controlled

by a company as a result of ____________________ transactions or events.
c. Temporary investments in marketable securities are classified as either

__________________ securities or investment securities ________________ (3 words).
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 reasonably
_______________.
e. Unrealized fair value increases in available-for-sale securities is an example of

_________________ (4 words).
f. _____________ (2 words) of a company include affiliated entities such as subsidiaries,

trusts for the benefit of employees, its management, and its principal owners or their
immediate families.
g. A ____________________ (2 words) 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.
ANSWER:
a. financial position
b. assets, past
c. trading, available for sale
d. probable, estimated
e. accumulated other comprehensive income
f. related parties
g. subsequent event
POINTS: 1
ACCT.WHAL.16.4.2 - LO: 4.2
ACCT.WHAL.16.4.6 - LO: 4.5
120. The following data were taken from the Oxon Hill, Inc. balance sheet:
Accounts payable $ 1,150

Inventory 1,250
Retained earnings 40
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.
ANSWER: $17,880 = ($1,250 + $15,500 + $1,200 + $3,110 − $720 − $1,150 − 1,310)

POINTS: 1
121. The following information has been provided for Zero One Corp.:
Prepaid insurance $ 1,200

Accrued salaries 2,170
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 in the proper sequence
according to U.S. GAAP.
b. Calculate Zero One's working capital.
ANSWER: a. Current assets:

Cash $ 4,600
Petty cash 675
Total cash $ 5,275
Investment in trading securities 5,200
Accounts receivable $3,800
Less: Allowance for bad debts (850) 2,950
Inventory 2,100
Office supplies 910
Total current assets $17,635
b. $17,635 - $2,170 - $1,940 = $13,525

POINTS: 1
122. 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
ANSWER: 1.) b
2.) i
3.) h
4.) g
5.) f
6.) c
7.) d
8.) a
POINTS: 1
123. 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
ANSWER: 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
= Inventory Purchases ÷ Average Accounts Payable
Turnover
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
= Total Credit Sales ÷ Average Accounts Receivable
Turnover
5.000 = $1,250,000 ÷ $250,000
f.)
Accounts Receivable Turnover in Account Receivable
= 365 Days ÷
Days Turnover
73.000 = 365 Days ÷ 5.000
POINTS: 1
124. What is meant by liquidity? Rank the following items according to their liquidity (from most to least):
Goodwill
Inventory
Short-term investment
Building
Accounts receivable
ANSWER: Liquidity refers to a company’s ability to meet its currently maturing financial
obligations.
1. Short-term investment
2. Accounts receivable
3. Inventory
4. Building
5. Goodwill
POINTS: 1
125. List the financial statements that report changes in the financial position of a company during a period.
ANSWER:
1. Income statement
2. Comprehensive income statement
3. Statement of cash flows
4. Statement of shareholders’ equity
POINTS: 1
NATIONAL STANDARDS: United States - BUSPROG: Communication
126. What three characteristics must an economic resource have in order be considered an asset?
ANSWER:
1. Probable future economic benefit

2. Control
3. Previously acquired
POINTS: 1
DIFFICULTY: Easy
127. What is FASB’s definition of fair value?
ANSWER: 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.”
POINTS: 1
128. List the three primary elements recognized on the balance sheet and provide the primary classifications of accounts
within each element.
ANSWER: 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. Earned capital
1)Retained earnings
2) Accumulated other comprehensive income
POINTS: 1
129. What are the three categories of intangible assets?
ANSWER: 1) Intangible assets with finite useful lives.

2) Intangible assets with indefinite useful lives.
3) Goodwill
POINTS: 1
130. What is FASB’s Statement of Financial Accounting Concepts No. 6 definition of investments by owners and
distributions to owners?
ANSWER: 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.
POINTS: 1
131. ABC Company entered into some relatively large transactions with family members of the chairman of the board of
directors. List four types of disclosures required by GAAP about related party transactions.
ANSWER:
1. Nature of the relationship involved

2. Description of the transactions
3. Dollar amount of the transactions
4. Any amounts due to or from the related parties on the balance sheet date
POINTS: 1
NATIONAL STANDARDS: United States - NAT: - BUSPROG: Reflective Thinking
LOCAL STANDARDS: United States - OH - Default - AICPA - FN-Decision Modeling
132. List four measurement methods that reflect current values of accounts (or a combination of current values and
historical values)./
ANSWER:
1. Fair value
2. Present value
3. Current replacement cost
4. Net realizable value
POINTS: 1
133. When analyzing financial statement data across companies, users must take into account differences in business
strategies and accounting practices in order to draw correct inferences from common-size analysis, rate of change
analysis, and ratio analysis. List five categories of ratio analysis used to evaluate a company’s performance.
ANSWER:
Return on investment ratios
Risk ratios
Financial flexibility ratios
Liquidity ratios
Operating capability ratios
POINTS: 1
KEYWORDS: Bloom's Understanding
134. Briefly describe how the sequence of accounts presented on the balance sheet is different for IFRS and U.S. GAAP?
ANSWER: For IFRS, the assets are listed with noncurrent assets presented first followed by current
assets. Assets are presented in ascending order of liquidity, with the least liquid assets
first and the most liquid assets listed last, which is the opposite order in which they
would be presented under U.S. GAAP. After assets, equity is listed next followed by
noncurrent liabilities then current liabilities.
POINTS: 1
135. 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:
Briefly describe four limitations of the balance sheet.
ANSWER: 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
POINTS: 1
ACCT.WHAL.16.4.3 - LO: 4.1
KEYWORDS: Bloom’s: Evaluating
136. 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.
ANSWER: Assets are the probable future economic benefits obtained or controlled by a company as
a result of past transactions or events. To be considered to have probable future
economic benefits, an economic resource must be able to contribute directly or
indirectly to a company's net cash inflows. In addition, the company must be able to
exercise control in obtaining the item's future benefits and limiting others' access to it.
Finally, the transaction or event giving rise to the company's right to, or control over, the
benefits must have occurred in the past. While "human resources" may meet some of
these criteria, they are excluded from assets primarily because of the difficulty of
reliably measuring their future benefits and the company does not have the ability to
control others access to those future benefits , i.e., the employee can quit.
POINTS: 1
KEYWORDS: Bloom's: Evaluating
137. 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.
ANSWER: 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.
POINTS: 1
138. Discuss how intracompany and intercompany comparisons help fulfill the qualitative characteristics of consistency
and comparability.
ANSWER: 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.
POINTS: 1
KEYWORDS: Bloom's: Evaluating
139. What is working capital and how does it relate to the company’s operating cycle?
ANSWER: Working capital is the excess of total current assets over total current liabilities. This
excess is sometimes called net working capital. Working capital represents the net
amount of a company’s relatively liquid resources. That is, it is the liquidity buffer
available to meet the financial demands of the operating cycle, which is the length of
time it takes to produce (or purchase) and sell inventory and then collect the receivables
in cash, minus the number of days of it takes to pay for the purchase (or production) of
that inventory and related expenses.
POINTS: 1
140. 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.
ANSWER: 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.
POINTS: 1

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CHAPTER 4: THE BALANCE SHEET AND THE STATEMENT OF

Solution Manual for Intermediate Accounting Reporting and

23. Cross-sectional analysis involves intercompany comparisons.

24. Time-series analysis is the same as rate of change analysis.

27. A balance sheet shows the

33. All of the following are non-monetary assets except

36. Which of the following statements about executory contracts is false?

38. Which of the following is not a general category of shareholders’ equity?

42. Which of the following statements about fair value is true?

47. A balance sheet account that is usually reported at fair value is

48. A balance sheet account that is usually reported at present value is

50. Cash equivalents are securities that

51. Long-term investments include all of the following except

53. Intangible assets include all of the following except

56. Which of the following is not an intangible asset?

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

63. Which of the following is not a component of shareholders’ equity?

65. Which of the following is not a component of contributed capital?

68. A deficit occurs when a company's

72. Distributions to owners include all of the following except

77. A subsequent event is an event that occurs

81. Time-series analysis is most closely associated with

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

87. Financial flexibility is assessed by evaluating

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

Net sales (all on account) $5,200,000

100. A company’s operating cycle might be measured as

101. Which of the following is a measure of operating efficiency?

a. financial position f. operating capability

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

____ 2. Economic resource

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

4. Economic resources, economic obligations, and their relationships at a point in

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

____ 7. Residual interest of a company

____ 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

____ 1. Receivables net of allowance for doubtful accounts

____ 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

Current liabilities 1,500 (m) 24,900

Common stock, $5 par 41,300 (f)* 46,300 (c)

Total liabilities and shareholders’ $ 212,050 $ 248,500

* 123,900 = Common stock (×) + Additional paid-in capital 2(×)

Current Assets: Current Liabilities:

Property, Plant, and Equipment

a. Current assets g. Long-term liabilities

____ 1. Work in process inventory

____ 4. Cash surrender value of life insurance policy

____ 5. Additional paid-in capital on common stock

____ 6. Deferred tax assets

____ 7. Accumulated depreciation

____ 8. Unrealized decrease in value in available for sale securities

____ 9. Allowance for uncollectible accounts receivable

____ 10. Interest payable

____ 11. Sinking fund for preferred stock retirement

a. A balance sheet summarizes the of a