Accounting 201: Intermediate Financial Accounting I Ch 3. Preparing a Balance Sheet

Assets

the things that he owns and that have value

Liabilities

the things a person owns

Owner’s Equity

the amount of personal investment a person has in something

Assets, liabilities and owner's equity are reported on which financial statement report?

1. Statement of Cash Flow

2. Income Statement

3. Balance Sheet

4. Statement of Retained Earnings

Balance Sheet

Which of the following are things that you own?

1. Balance Sheet

2. Income Statement

3. Owner's Equity

4. Liabilities

5. Assets

Assets

What are the standards that all financial reports are created by?

1. IASB

2. IRS

3. GAAP

4. BASH

5. CAAP

GAAP

What is the balance sheet equation?

1. Assets= Liabilities + Owner's Equity

2. Liabilities= Assets + Owner's Equity

3. Assets + Owner's Equity= Liabilities

4. Assets + Liabilities= Owner's Equity

5. Assets = Liabilities - Owner's Equity

Assets = Liabilities + Owner's Equity

Which of these can be found on the balance sheet?

1. A company's expenses

2. How much cash came in to the company this year

3. A company's owners' equity

4. A company's revenues

A company's owners' equity

Assets

what a company owns

Liabilities

what a company owes

Owner’s Equity

how much money the company owner’s have invested in the business

Operating activities

cash that came in or went out of a company as a result of normal, day-to-day operations of the company

Investigating activities

income that came in or went out of a business as a result of transactions that involved the purchase or sale of items, such as plant, property, or equipment

Financing activities

income that came in or went out of a business as a result of agreements with shareholders and/or investors

Bill's Pets has $14,400 in equipment, $12,730 in supplies, $7,500 in accounts payable and owes $6,300 in taxes. What is Bill's owners equity?

1. $40,930

2. $25,930

3. $13,330

4. $28,330

$13,330

Which of these financial statements shows assets, liabilities, and shareholder equity?

1. Income statement

2. Statement of retained earnings

3. Balance sheet

4. Statement of cash flows

Balance sheet

A financial statement which shows how cash flows in and out of a company during a given time period is known as a(n)

1. statement of retained earnings

2. statement of cash flows

3. income statement

4. balance sheet

statement of cash flows

Susie Pet Groomers has $73,400 in cash collected from customers, $5,200 in employee payments, $1,200 in interest received, and has $110,650 in total assets. What is her cash flow from operations using the direct method?

1. $69,400

2. $73,400

3. $70,600

4. $68,200

$69,400

The term GAAP stands for_____.

1. generally accredited accounting principles

2. generally accepted accounting principles

3. generally accepted accounting protocol

4. generally accredited accounting protocol

generally accepted accounting principles

business assets

property or equipment that a company owns that are primarily used for running the business

tangible assets

things that you can usually see and touch

intangible assets

a company’s reputation and brand awareness

Which of the following is not a business asset?

1. Rent

2. Inventory

3. Vehicles

4. Manufacturing plant

Rent

Patents and trademarks are:

1. Keep others from copying and selling your work or inventions

2. All the answers are correct

3. Can be worth a lot of money to companies

4. Types of legal business assets that protects a company's work

All the answers are correct

Which of these statements is NOT true about business assets?

1. Companies often take out loans for them.

2. They can be tangible or intangible.

3. They are usually expensed fully in the year when they're purchased.

4. They usually have a useful life and incur depreciation.

They are usually expensed fully in the year when they're purchased.

Business assets are:

1. Computers

2. Inventory

3. Buildings

4. All the answers are correct

All the answers are correct

Intangible assets are:

1. Assets such as buildings

2. Assets such as a company's reputation or brand awareness

3. Assets such as cash

4. Assets that you can touch and feel

Assets such as a company's reputation or brand awareness

Total assets

sum of all current and concurrent assets and must equal the sum of total liabilities and stockholder’s equity combined

order of Liquidity

• how quickly an asset can be turned into cash

• the most liquid asset is cash

• located at the very top of the balance sheet under the current assets classification

• cash is followed closely by: account receivables, short-term investments, prepaid expenses, inventory

Total assets are reported on which of the following financial statements?

1. Income Statement

2. Statement of Cash Flows

3. Statement of Retained Earnings

4. Balance Sheet

Balance Sheet

Total assets are the sum of noncurrent assets and __________.

1. owner's equity

2. current assets

3. long-term liabilities

4. current liabilities

current assets

Total assets are reported on the balance sheet in what order?

1. Order of liquidity

2. None of the answers are correct

3. Any order

4. Order in which they were purchased

Order of liquidity

How are the assets that are used in the calculation of total assets valued?

1. Blue Book Value

2. There is no specific way to value the assets

3. Purchase price

4. Fair market value

Purchase price

Brady's Plumbing has the following assets listed on the balance sheet:

Cash $1000

Accounts Receivable $5000

Inventory $1500

Equipment $15,000

What are the total assets for Brady's Plumbing?

1. $15,000

2. $8500

3. $22,500

4. $2500

$22,500

liabilities

financial obligations a business owes to other persons, businesses and governments

short-term liabilities

financial obligations that become due within a year

long-term liabilities

due in a year or longer

assets

value of the property owned by a company

equity

owner’s capital in the economy

liabilities

financial obligations of the business

short-term liabilities

• short-term notes payable

• accounts payable

• dividends payable

• sales taxes

• federal income taxes

• state income taxes

• wages and salaries

• payroll taxes

• retirement benefits

long-term liabilities

• credit line

• long-term note payable

• bonds

Which one of the following is the correct formula to determine liabilities?

1. There is no such formula

2. Liabilities = Assets - Equity

3. Liabilities = Equity + Assets

4. Liabilities = Equity - Assets

Liabilities = Assets - Equity

Which one of the following is the best explanation of liabilities?

1. Debts

2. Debts owed by the company

3. Financial obligations owed by the company

4. Financial obligations that are over a year old

Financial obligations owed by the company

Which of the following is not a liability?

1. Notes payable

2. Sales taxes

3. Accounts payable

4. Accounts receivable

Accounts receivable

On which financial statement are all liabilities reported?

1. Balance sheet

2. Cash flow statement

3. Income statement

4. Statement of equity

Balance sheet

What's the difference between short-term and long-term liabilities?

1. Short-term liabilities are due in 30 days and long-term liabilities are due in more than 30 days

2. Short-term liabilities are less than 30 days old; long-term liabilities are older than 30 days

3. Short-term liabilities are less than a year old; long-term liabilities are older than a year

4. Short-term liabilities are due within a year; long-term liabilities are due in a year or longer

Short-term liabilities are due within a year; long-term liabilities are due in a year or longer

contingent liabilities

possible obligations the company may owe

Jenna's law firm is evaluating a possible change in legislation that would force them to increase the salaries for all their paralegals. Does the firm have to include this potential legislation as a footnote on their balance sheet?

1. No, changes in legislation that cause cost changes are never included on the balance sheet.

2. No, it only needs to be included if it actually happens.

3. Yes, if it has a high probability of passing, it must be included as a footnote.

4. Yes, no matter the probability, it must be included as a footnote.

Yes, if it has a high probability of passing, it must be included as a footnote.

How can product recalls be a contingent liability?

1. They can be a contingent liability if there is a low probability of the products being recalled.

2. They can be a contingent liability if there is a high probability of the products working to the satisfaction of the customer.

3. They can be a contingent liability if there is a tax benefit to the company recalling the product.

4. They can be a contingent liability if there is a high probability of the products being recalled.

They can be a contingent liability if there is a high probability of the products being recalled.

Which of the following statements offers the BEST explanation of contingent liabilities?

1. Contingent liabilities are obligations that are included on the income statement.

2. Contingent liabilities are obligations that have already occurred but do not need to be included on the balance sheet.

3. Contingent liabilities are obligations that have a low probability of occurring and must be listed on the income statement.

4. Contingent liabilities are obligations that have a high probability of occurring and must be listed on the balance sheet.

Contingent liabilities are obligations that have a high probability of occurring and must be listed on the balance sheet.

Which of the following statements about liabilities is TRUE?

1. Liabilities refer to obligations as the cost of doing business.

2. Liabilities are valued obligations that are distributed.

3. Liabilities are obligations owed.

4. Liabilities are also called obligatory revenue.

Liabilities are obligations owed.

How can product recalls be a contingent liability?

1. They can be a contingent liability if there is a low probability of the products being recalled.

2. They can be a contingent liability if there is a tax benefit to the company recalling the product.

3. They can be a contingent liability if there is a high probability of the products working to the satisfaction of the customer.

4. They can be a contingent liability if there is a high probability of the products being recalled.

They can be a contingent liability if there is a high probability of the products being recalled.

Pending lawsuits can be a contingent liability if:

1. The lawsuit has already been lost and paid.

2. There is a high probability of the company losing the lawsuit.

3. There is a low probability of the company losing the lawsuit.

4. The lawsuit has been won.

There is a high probability of the company losing the lawsuit.

Jenna's law firm is evaluating a possible change in legislation that would force them to increase the salaries for all their paralegals. Does the firm have to include this potential legislation as a footnote on their balance sheet?

1. Yes, if it has a high probability of passing, it must be included as a footnote.

2. No, changes in legislation that cause cost changes are never included on the balance sheet.

3. Yes, no matter the probability, it must be included as a footnote.

4. No, it only needs to be included if it actually happens.

Yes, if it has a high probability of passing, it must be included as a footnote.

total liabilities

the aggregate debt and financial obligations owed by a business to individuals and organizations at any specific period of time

short-term liabilities

• liabilities that come due within a year

• short-term obligations include: wages and salaries, sales taxes, federal income taxes, state income taxes, payroll taxes, retirement benefits

accounts payable

money that is owed to suppliers for goods and services

short-term notes payable

the financing obligations that you have to pay in a year, usually with interests; the term ‘note’ refers to a promissory note, which is a special type of loan agreement

accrued expenses

the expenses that you owe but you have yet to have received an invoice for payment

unearned revenues

revenue you have received but have yet to deliver the goods or perform the services to earn the revenue

dividends payable

the dividends owed to shareholders but not yet paid

advances

the money received on a contract for services you have not have yet to provide

deposits

the money received to you by customers to guarantee that rental property is returned in good condition

long-term liabilities

aren’t due for over a year

credit lines

the money loaned by a financial institution that you can draw upon as needed as opposed to a lump sum loan

long-term notes payable

a promissory note with a maturity date that is more than a year

bonds

negotiable (transferable) debt securities that a company may issue to raise money

Which of the following is usually a long-term liability?

1. Account payable

2. Bonds issued

3. Unearned revenue

4. Payroll taxes

Bonds issued

On which financial statement is total liabilities reported?

1. Balance sheet

2. Cash flow statement

3. Annual shareholder report

4. Income statement

Balance sheet

What is the difference between a long-term and short-term liability?

1. Long-term liabilities are older than one year and short-term liabilities have been around for less than a year

2. Long-term obligations include debts, short-term obligations do not

3. Long-term obligations impose interest, while short-term obligations do not

4. Long-term liabilities are due in more than a year, while a short-term liabilities are due within a year

Long-term liabilities are due in more than a year, while a short-term liabilities are due within a year

Which one of the following is not a long-term liability?

1. Bonds issued

2. Long-term notes payable

3. Dividends payable

4. Credit lines

Dividends payable

What's the best explanation of liabilities?

1. Long-term and short-term debts owed by a company

2. Long-term and short-term financial obligations owed by a company

3. Debts owed by a company

4. Long-term debts owed by a company

Long-term and short-term financial obligations owed by a company

Company Assets

equipment that is used in business

Depreciation

drop in value

Straight-line depreciation method

• divides the cost of your track by the number of years it is expected to be used (life expectancy)

• Annual Depreciation: cost/life expectancy

Balance Sheet

the statement of what the company owns and owes

Income statement

a report of the income and expense of the company during a certain period

You are a professional food photographer. The camera you use for your work cost you $10,000. It has a life expectancy of 20 years. What is your annual depreciation?

1. $800

2. $500

3. $50

4. $200

$500

What does the balance sheet tell you about a business?

1. It tells you how well the business did last year.

2. It tells you how much the business is worth and how much debt the business is in.

3. It tells you the about the business' trustworthiness and reliability.

4. It tells you how many creditors are after the company.

It tells you how much the business is worth and how much debt the business is in.

Which report gives you the depreciation for just one month?

1. Monthly income statement

2. Loss statement

3. Balance sheet

4. Profit sheet

Monthly income statement

A hybrid car used for work was bought for $30,000 with a life expectancy of 10 years. What is the depreciation amount you put in your monthly income statement?

1. $250

2. $3,000

3. $500

4. $1,000

$250

The camera you use for work cost you $10,000 to purchase. With a life expectancy of 20 years, what is the depreciation amount on the balance sheet after 4 years?

1. $1500

2. $500

3. $2000

4. $1000

$2000

stockholder’s equity

• includes things like what the investors gave the company to start it in exchange for stock (paid-in capital)

• any donated money or other assets, and the earnings the company has kept for itself and not paid back to its investors as a dividend (retained earnings)

The difference between a corporation's assets and liabilities is called _____.

1. stockholders' black box

2. stockholders' debts

3. stockholders' equity

4. stockholders' liveries

5. stockholders' short-term or current assets

stockholders' equity

A corporation reports $3 million in stockholders' equity and $2 million in liabilities. Using the stockholders' equity formula, assets are what?

1. $1 million

2. $32 million

3. $3 million

4. $5 million

5. $2 million

$5 million

The difference between what a company owns and what is owed is called _____.

1. dividend

2. assets

3. liabilities

4. none of the answers listed are correct

5. stockholders' equity

$4,900,000

Earnings the company has kept for itself and not paid back to its investors as a dividend are called _____.

1. dividend earnings

2. paid-in capital

3. stock

4. retained earnings

5. assets

retained earnings

equity interest

ownership interest in a company

stockholder equity

net worth of a company to its shareholders

aggregate value

the value all shareholders have in the company

common stock

the ownership interest of shareholders representing their investment in the corporation

preferred stock

• an ownership interest in the corporation

• shareholders have priority over holders of common stock in terms dividends

contributed capital

aggregate value of stock that was directly purchased from the company

retained earnings

• net income or loss

• minus any distribution of dividends

treasury stock

stock that the company has purchased back from its stockholders

balance sheet

a statement of the company’s assets, liability and owner’s equity

stockholder’s equity statement

shows the changes to each component of stockholder equity through the period covered in the report and the total current value as of the reporting date

David purchases 100 shares of common stock from a closely held corporation for $1,000 per share with a par value of $1. How much has been added to the company's contributed capital?

1. $1,000

2. There's not enough information to perform the calculations.

3. $100,000

4. $99,900

$99,900

Stockholder equity can be found on which one of the following financial statements?

1. Revenue & Loss statement

2. Balance sheet

3. Income statement

4. Cash flow statement

Balance sheet