Podcast
Questions and Answers
Which of the following is the correct order for listing assets on the balance sheet?
Which of the following is the correct order for listing assets on the balance sheet?
- Patents, cash, short term investments, land
- Land, patents, short term investments, cash
- Short term investments, cash, land, patents
- Cash, short term investments, land, and patents (correct)
In what order are the following accounts and their balances listed on a classified balance sheet?
In what order are the following accounts and their balances listed on a classified balance sheet?
- Accounts receivable, cash, inventories, equipment
- Equipment, inventories, accounts receivable, cash
- Cash, accounts receivable, inventories, equipment (correct)
- Inventories, equipment, cash, accounts receivable
What is a current asset?
What is a current asset?
Expected to be converted to cash or used in the business within a year or operating cycle.
How are current assets arranged on a classified balance sheet?
How are current assets arranged on a classified balance sheet?
How are current assets listed on a classified balance sheet?
How are current assets listed on a classified balance sheet?
Which of the following is NOT classified as a current asset?
Which of the following is NOT classified as a current asset?
Which of the following is NOT a current asset?
Which of the following is NOT a current asset?
Where would trademarks appear on a classified balance sheet?
Where would trademarks appear on a classified balance sheet?
Where are intangible assets listed on a classified balance sheet?
Where are intangible assets listed on a classified balance sheet?
Which of the following is an example of an intangible asset?
Which of the following is an example of an intangible asset?
Which of the following is NOT an example of an intangible asset?
Which of the following is NOT an example of an intangible asset?
How is equipment classified on the balance sheet?
How is equipment classified on the balance sheet?
How are liabilities classified on a balance sheet?
How are liabilities classified on a balance sheet?
Which of the following is considered property, plant, and equipment on a classified balance sheet?
Which of the following is considered property, plant, and equipment on a classified balance sheet?
Which of the following would NOT be reported among property, plant, and equipment on a classified balance sheet?
Which of the following would NOT be reported among property, plant, and equipment on a classified balance sheet?
What account and its balance is not reported on the balance sheet or income statement?
What account and its balance is not reported on the balance sheet or income statement?
How should Hans Company report the Zimmer Corporation bonds on its classified balance sheet?
How should Hans Company report the Zimmer Corporation bonds on its classified balance sheet?
In what classification should land be reported if it will be idle for 5 years?
In what classification should land be reported if it will be idle for 5 years?
What is earnings available to common stockholders equal to?
What is earnings available to common stockholders equal to?
What are the three most common financial ratio classifications used by businesses?
What are the three most common financial ratio classifications used by businesses?
Which financial ratio classification measures the ability of the company to survive over a long period of time?
Which financial ratio classification measures the ability of the company to survive over a long period of time?
Which financial ratio classification measures the income or operating success of a company for a given period?
Which financial ratio classification measures the income or operating success of a company for a given period?
What will reporting new income of $95,000 do?
What will reporting new income of $95,000 do?
Which of the following does not affect retained earnings?
Which of the following does not affect retained earnings?
What is working capital?
What is working capital?
What is measured by current assets minus current liabilities?
What is measured by current assets minus current liabilities?
How is working capital calculated?
How is working capital calculated?
What do current assets minus current liabilities measure?
What do current assets minus current liabilities measure?
How is earnings per share calculated?
How is earnings per share calculated?
What is earnings per share an indicator of?
What is earnings per share an indicator of?
How is free cash flow computed?
How is free cash flow computed?
Which financial statement is typically used to compute year-end retained earnings?
Which financial statement is typically used to compute year-end retained earnings?
What happens when new shares of common stock are issued?
What happens when new shares of common stock are issued?
What does declaring and paying a cash dividend do?
What does declaring and paying a cash dividend do?
Which one of the following does NOT affect retained earnings?
Which one of the following does NOT affect retained earnings?
What best identifies a company's ability to pay its obligations due within a year?
What best identifies a company's ability to pay its obligations due within a year?
Long-term creditors are usually most interested in evaluating what aspect of a company?
Long-term creditors are usually most interested in evaluating what aspect of a company?
What is a short-term creditor primarily interested in?
What is a short-term creditor primarily interested in?
How does liquidity relate to a company's obligations?
How does liquidity relate to a company's obligations?
What does liquidity refer to?
What does liquidity refer to?
What is the current ratio?
What is the current ratio?
Which measures a company's ability to pay current liabilities?
Which measures a company's ability to pay current liabilities?
What is the importance of the current ratio?
What is the importance of the current ratio?
Which of the following would increase a company's current ratio?
Which of the following would increase a company's current ratio?
Which of the following would decrease the company's current ratio?
Which of the following would decrease the company's current ratio?
Which of the following ratios measures the ability of the company to survive over a long period of time?
Which of the following ratios measures the ability of the company to survive over a long period of time?
When can a company change to a new accounting method?
When can a company change to a new accounting method?
Which statement is true?
Which statement is true?
What are generally accepted accounting principles (GAAP)?
What are generally accepted accounting principles (GAAP)?
What is the primary accounting standard-setting body in the United States?
What is the primary accounting standard-setting body in the United States?
Which organization issues the majority of generally accepted accounting standards in the U.S.?
Which organization issues the majority of generally accepted accounting standards in the U.S.?
What are generally accepted accounting principles?
What are generally accepted accounting principles?
What is the agency of the United States Government that oversees the U.S. financial markets?
What is the agency of the United States Government that oversees the U.S. financial markets?
What is a characteristic of relevance as per FASB?
What is a characteristic of relevance as per FASB?
What is a characteristic of faithful representation?
What is a characteristic of faithful representation?
All of the following are qualities of useful financial information except:
All of the following are qualities of useful financial information except:
What is the primary criterion for judging accounting information?
What is the primary criterion for judging accounting information?
What defines verifiable information?
What defines verifiable information?
What does faithful representation mean?
What does faithful representation mean?
Which of the following is NOT a quality associated with faithful representation?
Which of the following is NOT a quality associated with faithful representation?
What is materiality in accounting?
What is materiality in accounting?
Which of the following is not a characteristic of relevance?
Which of the following is not a characteristic of relevance?
Accounting information has relevance if it:
Accounting information has relevance if it:
Which of the following statements is false?
Which of the following statements is false?
Different companies using the same accounting principles is an example of:
Different companies using the same accounting principles is an example of:
Why should accounting information be neutral?
Why should accounting information be neutral?
Which of the following does NOT affect the company's current ratio?
Which of the following does NOT affect the company's current ratio?
Which of the following is considered a constraint in accounting?
Which of the following is considered a constraint in accounting?
Which accounting assumption assumes that an enterprise will continue to operate long enough to fulfill its commitments?
Which accounting assumption assumes that an enterprise will continue to operate long enough to fulfill its commitments?
What denotes the concept of going concern assumption?
What denotes the concept of going concern assumption?
What does the going concern assumption imply?
What does the going concern assumption imply?
What defines relevant accounting information?
What defines relevant accounting information?
Why is accounting information relevant to business decisions?
Why is accounting information relevant to business decisions?
What is consistency an ingredient of?
What is consistency an ingredient of?
What assumption states that only monetary values are recorded in accounting?
What assumption states that only monetary values are recorded in accounting?
Which accounting assumption states that a business's life can be divided into periods for financial reporting?
Which accounting assumption states that a business's life can be divided into periods for financial reporting?
What does the periodicity assumption state?
What does the periodicity assumption state?
What does the periodicity assumption imply?
What does the periodicity assumption imply?
What does the economic entity assumption state?
What does the economic entity assumption state?
What does the economic entity assumption imply?
What does the economic entity assumption imply?
What principle indicates that assets should be reported at the price received to sell an asset?
What principle indicates that assets should be reported at the price received to sell an asset?
What accounting concept suggests that assets and liabilities should be reported at fair values?
What accounting concept suggests that assets and liabilities should be reported at fair values?
Based on the following accounts, determine the amount of property, plant, and equipment to be reported on its classified balance sheet:
Based on the following accounts, determine the amount of property, plant, and equipment to be reported on its classified balance sheet:
Based on the accounts, determine the amount of current assets to be reported on its classified balance sheet:
Based on the accounts, determine the amount of current assets to be reported on its classified balance sheet:
If a corporation has current assets of $3,210,000 and current liabilities of $2,350,000, what will its new current ratio be after paying $200,000 of accounts payable?
If a corporation has current assets of $3,210,000 and current liabilities of $2,350,000, what will its new current ratio be after paying $200,000 of accounts payable?
What is the current ratio?
What is the current ratio?
How do you determine the company's earnings per share?
How do you determine the company's earnings per share?
How much is working capital?
How much is working capital?
What is the company's free cash flow?
What is the company's free cash flow?
Study Notes
Balance Sheet & Asset Classification
- Assets are listed on a balance sheet in the order of liquidity: cash, short-term investments, land, patents.
- Current assets are expected to be converted to cash or used within a year or operating cycle, whichever is longer.
- Current assets on a classified balance sheet are listed based on the order of expected cash conversion.
- Current assets include cash, accounts receivable, inventories, and equipment; intangible assets like trademarks and patents are listed after property, plant, and equipment.
Intangible Assets
- Intangible assets include trademarks, goodwill, patents, copyrights, and trade names.
- Accounts receivable is not classified as an intangible asset.
Property, Plant & Equipment (PPE)
- Equipment is categorized under PPE (property, plant, and equipment).
- Land, buildings, and equipment are part of PPE, but cash and inventory are not.
Liabilities Classifications
- Liabilities are divided into current liabilities and long-term liabilities.
- Current liabilities must be settled within a year; long-term liabilities extend beyond that.
Investment Reporting
- Long-term investments include bonds and stocks expected to be held for more than one year.
- Land held for future construction is classified as a long-term investment.
Financial Ratios
- Common financial ratios include profitability ratios, liquidity ratios, and solvency ratios.
- The current ratio, calculated as current assets divided by current liabilities, assesses a company's short-term liquidity.
- Working capital is current assets minus current liabilities, essential for evaluating short-term debt-paying ability.
- Earnings per share (EPS) is derived from net income minus preferred dividends divided by the average number of common shares outstanding; it indicates profitability.
Cash Flow Analysis
- Free cash flow is computed as net cash provided by operating activities minus capital expenditures and cash dividends.
- This metric provides insight into the financial health and operational efficiency of a company.
Financial Reporting Concepts
- The primary goal of financial reporting is to provide useful financial information for decision-making, emphasizing relevance and faithful representation.
- Generally Accepted Accounting Principles (GAAP) guide financial reporting, ensuring consistency and comparability across financial statements.
- The Financial Accounting Standards Board (FASB) establishes most accounting standards in the U.S.
Assumptions in Accounting
- Key assumptions include the going concern assumption, which estimates ongoing business operations; the monetary unit assumption, which quantifies transactions in currency; and the periodicity assumption, which divides a company's life into time periods for reporting.
Characteristics of Relevant Information
- Relevant accounting information must be capable of influencing decisions, characterized by materiality and predictive value.
- Faithful representation requires information to be complete, neutral, and free from error.
Constraints in Accounting
- Cost is considered a constraint in accounting, impacting information that is provided.
Summary of Key Financial Principles
- Comparability demands consistency in accounting principles across different firms and over time.
- Neutrality of information enhances faithful representation, avoiding bias in financial reports.
Conclusion
- Understanding balance sheets, liabilities, assets classifications, financial ratios, cash flow dynamics, and the principles of financial reporting is crucial for evaluating a company's financial health and operational performance.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your understanding of balance sheets and asset classifications with this quiz. Topics covered include current and intangible assets, as well as the classification of liabilities. Challenge yourself to identify key components related to Property, Plant, and Equipment (PPE).
