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Exam 1: Accounting and the Financial Statements

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Question 1

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Which of the following is NOT a characteristic of liquidity?

A) measures the ability of the firm to pay financial obligations as they become due
B) can be measured in terms of working capital
C) can be assessed by the current ratio
D) measures the ability of the company to pay its long-term debts

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Question 2

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Presented below are selected data from the balance sheet: $\begin{array} { l r } \text { Current assets } & \$ 250,000 \\\text { Property. plant, and equipment } & 700,000 \\\text { Other assets } & ? ? \text { ? } \\\text { Current liabilities } & 200,000 \\\text { Total long-term debt } & 500,000 \\\text { Tatal shareholders' equity } & 275,000\end{array}$ A) Determine the amount of "Other assets." (Hint: you must use the accounting equation concept to determine your answer.) B) How much of the company is financed by creditors? How much is financed by the owners?

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A) \( \$ 25,000 \) \( (\$ 200,000 \) Current liabilities \( +\$ 500,000 \) Long-term debt \( +\$ 275,000 \) Shareholders equity \( =\$ 975,000 \) Total Assets) B) Amount of financing by creditors: \( \$ 700,000 \) \( (\$ 200,000 \) Current liabilities \( +\$ 500,000 \) Long-term debt \( =\$ 700,000) \) Amount of financing by owners': \( \$ 275,000 \) (\$275.000 Shareholders' equitv)

Question 3

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Most annual reports contain the following list of basic elements.For each element,identify the person(s)who prepared the element and describe the information a user would expect to find in each element.Some information is verifiable while other information is subjectively chosen by management.Indicate whether the information in each element is verifiable. $\begin{array} { | l | c | c | c | } \hline \text { Elements } & \begin{array} { c } \text { Prepared } \\\text { By }\end{array} & \begin{array} { c } \text { Information } \\\text { Pravided }\end{array} & \begin{array} { c } \text { Verifiablel } \\\text { Yes ar No? }\end{array} \\\hline \begin{array} { l } \text { Management's Discussion } \\\text { and Analysis }\end{array} & & & \\\hline \text { Financial statements } & & & \\\hline \text { Notes to financial statements } & & & \\\hline \begin{array} { l } \text { Repart of the Independent } \\\text { Auditor }\end{array} & & & \\\hline\end{array}$

Classify the following items according to the financial statement on which each belongs,either the income statement (IS),statement of retained earnings (RE),or the balance sheet (BS).Also indicate whether each is a revenue (R),expense (E),asset (A),liability (L),or shareholders' equity (SE)item.

Match each statement to the item listed below. -resources that provide a benefit over a number of years but which lack physical substance

What is the term for a person who lends funds to a business entity and expects repayment with interest?

In which section of the annual report would you find the following: "The financial statements,in our opinion,present fairly the financial position,operating results,and cash flows,in conformity with generally accepted accounting principles"?

Condensed data from the company's Year 2 and Year 1 financial statements are presented below. The figures are expressed in thousands. -Refer to Baker's Pride Bakery.Which statement indicates the financial position of the company? What information is provided on that statement that indicates the financial position of the company? Explain.

The ability of a company to pay its debt as it comes due relates to ____________________.

Barnes Restaurant Barnes Restaurant reports the following amounts: $\begin{array} { l r l r } \text { Cash } & \$ 125,000 & \text { Inventory } & \$ 215,000 \\\text { Land } & 275,000 & \text { Unearned revenue } & 117,000 \\\text { Equipment } & 350,000 & \text { Common shares } & 300,000\end{array}$ -Refer to the figure Barnes Restaurant.How much are current assets?

The primary objective of internal auditors who are employees of the company is to provide assurance to the company's shareholders that the financial statements are fairly presented.

Bargain Spot Fabrics This company's end-of-year balance sheet consisted of the following amounts: $\begin{array}{lrlr}\text { Cash}&\$75,000&\text { Accounts receivable } & \$ 250,000 \\\text { Property, plant, and equipment }&350,000&\text { Long-term debt } & 200,000 \\\text { Common shares }&500,000&\text { Accounts payable } & 100,000 \\\text { Retained earning}&?&\text { Inventory } & 175,000\end{array}$ -Refer to the figure Bargain Spot Fabrics.What is the retained earnings balance at the end of the current year?

____________________ are cash and other assets that are reasonably expected to be converted into cash within one year or operating cycle,whichever is longer.

The three forms of business organizations are ____________________,____________________,and ____________________.

Complete the following table to compare and contrast sole proprietorships and corporations. $\begin{array} { | l | l | l | } \hline { \text { Itrm } } & \text { Proprietorship } & \text { Corporation } \\\hline \text { Ease of formation } & & \\\hline \text { Ability to raise large sums of capital } & & \\\hline \text { Taxable entity } & & \\\hline \text { Extent of owner liability } & & \\\hline \text { Double taxation of profits (Yes/No) } & & \\\hline\end{array}$

Which of the following describes the term "current assets"?

Which of the following best describes a company's operating activities?

Which of the following statements reports an entity's financial position at a specific date?

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.) -company's labour rate agreed to on the last contract

The first step in preparing the classified balance sheet is to list the assets in order of liquidity.