Solution Manual for Intermediate Accounting Reporting and Analysis 1st Edition Wahlen Jones Pagach 1111822360
9781111822361
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Chapter 4--The Balance Sheet and the Statement of Shareholders' Equity
Student: ___________________________________________________________________________
1. The balance sheet reports the financial position of a company at a specific date in time whereas the other three financial statements report changes in the financial position of the company.
True False 2. The elements of the income statement, revenues, expenses, gains and losses are measured by changes in cash inflows and outflows.
True False 3. The elements of the financial statements are defined in FASB Statement of Financial Accounting Concepts No. 8.
True False 4. In order for an asset to be capitalized it must meet one of these three criteria: control, acquisition, and future benefit.
True False
5. Mark to Market is another name for fair value accounting which has becoming increasingly popular with U.S. GAAP for the valuation of gains and losses associated with assets and liabilities.
True False
6. FASB’s definition of fair value is characterized as a measure of market-based entry value, which would be the amount a company paid to acquire the asset.
True False
7. Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.
True False
8. The cash surrender value of a life insurance policy would be considered a long-term investment.
True False
9. The SEC requires listed companies to report changes in shareholder’s equity as a separate disclosure, whereas smaller companies can report changes in a supporting schedule or as note in the financial statements.
True False 10. A distribution to owners includes paying dividends, repurchasing common shares, transferring assets to the company, rendering services, and incurring liabilities.
True False 11. GAAP requires disclosures relating to asset allocation and revenue recognition, any deviations from the acceptable norm must be disclosed.
True False 12. Derivative financial instruments must be reported as either assets or liabilities on the balance sheet and be measured at their net realizable value.
True False 13. The ordering of the financial statements are similar under U.S. GAAP and IFRS, assets are listed based upon liquidity, current and then long term.
True False
14. Under IFRS “capital and reserves” includes capital stock, additional paid-in capital, and retained earnings.
True False
15. Intercompany comparison is used to evaluate a company’s performance against key competitors within related industries or fields.
True False
16. Accounts Payable Turnover in Days and Inventory Turnover in Days are considered liquidity capability ratios.
True False
17. Which statement is false?
A. The balance sheet of an entity purports to show the true value of the entity.
B. The balance sheet should show a company's liquidity.
C. The balance sheet reflects the financial capital of a company.
D. The balance sheet summarizes the financial position of an entity at a point in time.
18. A balance sheet shows the
A. fair value of a company at a particular date
B. results of the company's income-producing activities
C. financial position of a company at a particular date
D. cash inflows and outflows of a company for the accounting period
19. What statement does not report the changes in financial position of the company?
A. income statement
B. balance sheet
C. statement of cash flows
D. statement of shareholders’ equity
20. What is the three step process necessary to report the elements of the balance sheet?
A. identify, measure, and record
B. record, measure, and report
C. identify, measure, and report
D. review, record, and report
21. To be recognized in the financial statements, an item must meet the definition of an element and be
A. measurable, understandable, and relevant
B. reliable, measurable, and realized
C. realized, relevant, and reliable
D. relevant, measurable, and faithfully represented
22. The primary attribute of all assets is service
A. potential
B. production
C. capacity
D. contribution
23. All of the following items would appear on the balance sheet except
A. an investment in another company's bonds
B. an investment in marketable securities
C. a realized gain on the sale of a equipment
D. the premium related to a bond liability that is still two years from maturity
24. Which of the following characteristics must an economic resource have in order to be classified as an asset?
A. acquired as a result of a past transaction
B. future economic benefit potential
C. under the control of the business entity
D. all of these choices
25. Which is not a characteristic of an asset?
A. The resource must be useful only in the entity's activities and have been acquired by purchase, production, or stockholder investment.
B. The entity must be able to obtain the future benefit and control others' access to it.
C. The transaction or event giving rise to the entity's right to or control over the benefit must have already occurred.
D. The resource must singly, or in combination with other resources, have the capacity to contribute directly, or indirectly, to the entity's future net cash inflows.
26. Which statement is false?
A. To be a liability, the transaction or event obligating the entity must already have occurred.
B. The net worth of an entity is equal to its assets.
C. The specific identity of the "creditor" need not be known with certainty for a liability to exist.
D. Shareholders' equity may not exist apart from the corporate assets and liabilities.
27. Probable future sacrifices of economic benefits arising from past transactions or events are
A. liabilities
B. revenues
C. assets
D. retained earnings
28. Which of the following is not a characteristic of a liability?
A. It involves a responsibility to another entity.
B. The company has little or no discretion to avoid the future sacrifice.
C. The sacrifice contributes directly or indirectly to the company's future cash inflows.
D. The transaction obligating the company has already occurred.
29. The residual interest in a company's assets is represented by its
A. net assets
B. shareholders' equity
C. ownership interest
D. all of these choices
30. Which of the following assets is most likely reported at its historical cost on the balance sheet?
A. short-term investments
B. merchandise inventory
C. net accounts receivable
D. prepaid insurance
31. GAAP disclosures for fair value measurements now require that fair value measurements using Level 3 inputs include all of the following except
A. the valuation technique used to measure the fair value
B. a reconciliation of the Level 3 values to each of the corresponding Level 1 and Level 2 values that were not chosen
C. a reconciliation of the changes in fair value during the period
D. a related discussion
32. Assume an asset is measured by the amount of cash (or its equivalent) into which it is expected to be converted in an orderly transaction between market participants on the date of measurement. Which measurement alternative is in use in this case?
A. fair value
B. historical cost
C. present value
D. reliable value
33. The valuation method primarily used in the balance sheets of business entities is
A. current exit value
B. historical cost
C. present value
D. net realizable value
34. The expected exit value is also referred to as the
A. fair value
B. present value
C. input value
D. current market value
35. The amount of cash (or equivalent) that currently would be required to replace the service capacity of the asset is called the asset’s
A. historical cost
B. current replacement cost
C. current exit value
D. present value
36. The measurement of an asset's value that considers the discounted future cash inflows (and outflows) relating to the asset is called the
A. net realizable value
B. future value
C. historical value
D. present value
37. Which of the following statements is false regarding the hierarchy of fair value measurements now provided in GAAP?
A. The hierarchy clarified the inputs a company is to use to measure fair value.
B. The valuation method selected must be consistent with the market approach, the income approach, or the cost approach.
C. The three levels of inputs provide defined priorities for sources of available inputs for valuation.
D. The hierarchy eliminates all subjectivity and estimation from the valuation process.
38. The balance sheet account that is usually reported at its fair market value is
A. short-term marketable securities
B. land
C. current liabilities
D. inventory
39. If the shareholders' equity at the end of the accounting period is greater than the shareholders' equity at the beginning of the accounting period, the firm's
A. capital has increased
B. assets have increased
C. cash has increased
D. capital has been maintained
40. Current assets are cash or other assets that are reasonably expected to be converted into cash, sold, or consumed within one year or a normal operating cycle. An operating cycle is defined as the company's ability to spend cash
A. to pay off the company's liabilities
B. to acquire inventory, which is sold and returned to cash
C. to acquire inventory, which is sold to customers in the normal course of business
D. in the generation of services, which can result in an increase in revenue and net income from operations
41. Current liabilities would include all of the following except
A. wages payable
B. obligations under capital lease contracts
C. current portion of long-term debt
D. unearned rent revenue
42. Cash equivalents are securities that
A. management intends to convert into cash within one year
B. have maturity dates of at least six months
C. management intends to convert into cash within the normal operating cycle
D. have maturity dates of three months or less
43. Current liabilities are defined as obligations that will be paid
A. by refinancing through issuing new long-term liabilities
B. by using existing resources properly classified as current assets
C. out of a fund classified as a long-term investment
D. by using existing resources, regardless of their classification
44. Which of the following liabilities is properly classified as a current liability?
A. currently maturing bonds payable that will be paid out of a fund accumulated for that purpose
B. short-term notes payable being refinanced with long-term notes
C. obligations that will be paid outside the operating cycle
D. obligations for goods and services that have entered the operating cycle
45. Which is classified as a long-term investment?
A. bond premium
B. cash surrender value of life insurance
C. operating lease
D. three-year prepaid rental
46. Which of the following would typically be recorded as an intangible asset with a finite useful life?
A. franchises
B. trademarks
C. brand name
D. goodwill
47. Justification for having both intangible assets and other assets listed on a balance sheet include that
A. intangible assets have no physical existence and other assets are deferred charges
B. having more items listed on the balance sheet improves the users' understanding of the company
C. the intangible assets are more important than the tangible assets
D. the other asset classification is important because goodwill cannot be amortized, so it needs to be recorded on the balance sheet
48. A leased asset under capital lease is disclosed on the balance sheet at its
A. present value
B. historical cost
C. current replacement cost
D. net realizable value
49. Obligations that are not expected to require the use of current assets or the creation of other current liabilities within one year or the normal operating cycle, if longer than a year, are called
A. other liabilities
B. current liabilities
C. long-term liabilities
D. contingent liabilities
50. Which of the following is least likely to be included in long-term liabilities?
A. obligations for future pension payments
B. capital leases payable
C. liabilities on options to sell stock
D. unearned revenues
51. Which of the following is typically recorded at its present value?
A. long-term investments
B. long-term liabilities
C. intangible assets
D. contingent liabilities
52. The FASB has suggested guidelines for developing homogenous classes of assets and liabilities. For assets, this can be accomplished by following guidelines that include reporting
A. assets according to their outside use for the corporation
B. all assets the same, regardless of the implications on a company's financial flexibility
C. the valuation of assets at their net realizable value
D. assets at their fair value
53. Which is a component of shareholders' equity?
A. sinking funds
B. deferred charges
C. accumulated other comprehensive income
D. goodwill
54. Which of the following would not be classified as contributed capital?
A. additional paid-in capital
B. unrealized capital
C. common stock
D. preferred stock
55. State law may require that capital stock have which of the following values?
A. stated value
B. market value
C. no-par value
D. present value
56. On the balance sheet, treasury stock is classified as a
A. long-term investment account
B. contra shareholders' equity account
C. companion shareholders’ equity account
D. contra asset account
57. A deficit occurs when a company's
A. retained earnings are less than its common stock
B. dividends distributed are greater than comprehensive income
C. dividends and cumulative losses are greater than cumulative net income
D. retained earnings are less than assets minus liabilities
58. Which of the following is not included in comprehensive income?
A. net income
B. unrealized gains in the fair market value of equipment
C. foreign currency translation adjustments
D. certain pension plan gains (losses) and prior service cost adjustments
59. Changes in the separate shareholders' equity accounts can be disclosed in all of the following ways, except a
A. financial statement
B. note to the financial statements
C. parenthetical remark
D. supporting schedule
60. In preparing a statement of changes in shareholders' equity, the company includes land given to a shareholder as a dividend. This transaction is included in the statement because it represents
A. an investment by a shareholder that increases equity
B. an investment by a shareholder that decreases equity
C. a distribution to a shareholder that increases equity
D. a distribution to a shareholder that decreases equity
61. A reader of a set of financial statements would expect to be able to find in the statement of changes in shareholders' equity increases
A. in total assets
B. in total liabilities
C. to net income
D. from comprehensive income
62. A reader might find information about gain contingencies in an annual report by examining
A. a contingent account receivable
B. an accrued revenue
C. a deferred revenue
D. footnote disclosures
63. GAAP requires that all derivative financial instruments be reported at their
A. historical cost
B. fair value
C. present value
D. par value
64. A subsequent event is an event that occurs
A. after the annual report is issued
B. anytime after the end of the accounting period
C. between the end of the accounting period and the date the annual report is issued
D. anytime before the annual report is issued
65. All of the following are examples of subsequent events that would be disclosed in the footnotes to the financial statements except
A. fire or flood loss
B. a litigation settlement
C. a bond issuance after the balance sheet date
D. the write off of an uncollectible account
66. Activities between affiliated entities such as subsidiaries must be disclosed in the financial statements of a corporation as
A. segment analysis
B. significant events
C. related party transactions
D. contingent activities
67. The SEC requires comparative income statements and statements of cash flows for
A. two years
B. three years
C. four years
D. the SEC does not require comparative income statements and statements of cash flows
68. Under IFRS, liabilities and shareholders' equity on the balance sheet usually appear in which order?
A. capital, noncurrent liabilities, and current liabilities
B. current liabilities, noncurrent liabilities, and capital
C. capital, current liabilities, and noncurrent liabilities
D. noncurrent liabilities, current liabilities, and capital
69. Which of the following is included under the heading “Capital and reserves” for IFRS financial statements?
A. accumulated net profits or losses
B. common stock
C. additional paid-in capital
D. all of these choices
70. Certain differences exist between IFRS and U.S. GAAP financial statement reporting. Which of the following is false?
A. IFRS presents a different ordering of the liabilities and shareholders' equity sections.
B. IFRS allows the upward revaluation of property, plant, and equipment.
C. IFRS does not require a statement of cash flows.
D. IFRS financial statements are similar to U.S. GAAP.
71. Which of the following account titles are not allowed under GAAP?
A. Revaluation reserves
B. Provisions
C. Capital
D. Revaluation reserves and provisions
72. A comparison of a company's performance with that of its own past results is known as
A. common-size analysis
B. intercompany analysis
C. ratio analysis
D. intracompany analysis
73. The ability of a company to adapt its resources to create change and react to change is called
A. financial flexibility
B. return on investment
C. operating capability
D. risk
74. A comparison of a company's performance with that of its competitors is known as
A. common-size analysis
B. intercompany comparison
C. ratio analysis
D. intracompany comparison
75. The ease with which an asset can be converted into cash is termed
A. financial flexibility
B. liquidity
C. operating capability
D. capital maintenance
76. Which of the following formulas represents working capital?
A. current assets - current liabilities
B. quick assets - current liabilities
C. current assets ¸ current liabilities
D. quick assets ¸ current liabilities
77. Selected information from a company's balance sheet follows:
A. $250
B. $230
C. $220
D. $200
78. The quantity of goods or services produced in a given period or the physical capacity of the operating assets used to produce goods or services are measures of
A. financial flexibility
B. liquidity
C. operating capability
D. leverage
79. Which statement is not true?
A. Not all obligations that become due and will be paid within the next accounting period are classified as current liabilities.
B. The components of working capital are disclosed on the balance sheet.
C. An increasing current ratio could result from decreasing liquidity.
D. An operating cycle is the average time taken by a company to convert receivables back into cash.
80. Information about a company's operating capability may be helpful to external users in
A. assessing the uncertainty of its future cash flows
B. evaluating the timing of cash flows in the near future
C. evaluating the efficiency with which the company company uses its resources to generate revenue
D. assessing a return of investment as well as a return on investment
81. Exhibit 4-1
Given the following information for Blue Bell Company:
Refer to Exhibit 4-1. Blue Bell’s current ratio at December 31, 2014 was
A. 3.67 times
B. 2.33 times
C. 1.33 times
D. 0.43 times
82. Exhibit 4-1
Given the following information for Blue Bell Company:
Refer to Exhibit 4-1. Blue Bell’s quick ratio at December 31, 2014 was
A. 3.67 times
B. 2.33 times
C. 1.33 times
D. 0.43 times
83. Exhibit 4-1
Given the following information for Blue Bell Company:
Refer to Exhibit 4-1. Blue Bell's accounts receivable turnover for 2014 was
A. 2.2 times
B. 26.0 times
C. 27.4 times
D. 28.9 times
84. Listed below are ten terms describing the purposes of the balance sheet. Following the list is a series of descriptive phrases.
a. financial position
b. balance sheet
c. income statement
d. liquidity
e. financial flexibility
f. operating capability
g. assets
h. acquisition cost
i. control
j. recognition
1. Process of recording and reporting an element in the financial statements
2. Economic resources
3. Ability of a company to use its financial resources to adapt to change
4. Economic resources, economic obligations, equity, and their relationship to each other at a point in time
5. Amount of time until an asset is converted into cash or a liability is paid
6. The ability to deny or regulate the use of an asset
7. The financial position of the company as reported on a specific date
8. Ability of a company to maintain a given physical level of operations
9. Is measured in terms of changes in assets and liabilities
10. Historical cost of an asset
Required:
Match each term with its descriptive phrase by placing the appropriate letter in the space provided.
85. Individual assets are measured using one of five alternative methods. These methods are listed below, followed by a series of descriptive statements.
a. historical cost
b. current replacement cost
c. fair value
d. net realizable value
e. present value
1. The amount of cash into which an asset is expected to be converted, less any expected conversion costs.
2. The amount of cash that would be required to obtain the same asset on the date of the balance sheet.
3. The net amount of discounted expected cash flows relating to the asset.
4. The amount of cash that could be obtained on the balance sheet date if the asset were sold in its present condition in an orderly liquidation.
5. The amount of cash paid for the asset when it was originally acquired.
Required:
Match each measurement alternative with its descriptive statement by placing the appropriate letter in the space provided.
86. Listed below are the five alternatives identified by the FASB for measuring balance sheet elements. Following the list is a series of balance sheet elements.
a. historical cost
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 measurement alternative to its balance sheet element by placing the appropriate letter in the space provided.
87. Gerald Company’s balance sheet information at the end of 2104 and 2015 is as follows:
At the end of 2014, additional paid-in capital was twice the amount of common stock. In 2015, the company issued 1,000 shares of common stock.
Required:
Fill in the blanks lettered a through n. It is not necessary to calculate the information in alphabetical order.
88. Hardy’s bookkeeper prepared the following balance sheet.
HARDY COMPANY
Balance Report for the year ended December 31, 2014
Required: Prepare the corrected asset section of a classified balance sheet.
89. Listed below (in random order) are all of the December 31, 2014 balance sheet accounts of McCrery Company.
Prepare a properly classified balance sheet for McCrery Company on December 31, 2014.
90. The balance sheet contains the major sections (a-k) listed below. A listing of balance sheet accounts (1-12) follows.
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Intangible assets
e. Other assets
g. Long-term liabilities
h. Other liabilities
i. Contributed capital
j. Retained earnings
k. Accumulated other comprehensive
f. Current liabilities income
1. Work in process inventory
2. Trademarks
3. Sales revenue
4. Cash surrender value of life insurance policy
5. Additional paid-in capital on common stock
6. Deferred tax assets
7. Unrealized decrease in value in available for sale securities
8. Allowance for uncollectible accounts receivable
9. Interest payable
10. Sinking fund for preferred stock retirement
11. Bonds Payable (due in 10 years)
12. Leased machinery under a capital lease
Required:
Using the letters (a-k), indicate in which section of the balance sheet each of the accounts (1-12) would be classified. Put parentheses around the letter used if it represents a contra account. If the account does not appear on the balance sheet, place an "X" in the space provided.
91. Below is an alphabetical listing of the accounts of Walkers, Inc. as of December 31, 2014.
Accounts payable
Accounts receivable
Accumulated depreciation: buildings and equipment
Additional paid-in capital on common stock
Allowance for doubtful accounts
Bonds payable (due 2018)
Buildings and equipment
Cash
Common stock, $5 par
Discount on bonds payable
Dividends payable
Inventory
Investment in securities available for sale
Land
Notes payable (due 2015)
Office supplies
Patents
Prepaid insurance
Retained earnings
Salaries payable
Taxes payable
Treasury stock
Unearned rent
Required:
Prepare a properly classified balance sheet (without amounts) for Walkers, Inc. on December 31, 2014.
92. The
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Intangible assets
e. Other assets
f. Current liabilities
g. Long-term liabilities
h. Contributed capital
i. Retained earnings
j. Accumulated other comprehensive income
balance sheet contains the major sections (a-j) listed below. A listing of balance sheet accounts (1-10) follows.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.
93. A corporation's balance sheet is usually divided into three sections with various classifications reported within each group in an informative manner. Listed below are some typical classifications within a section.
Contributed capital
Current assets
Current liabilities
Intangible assets
Long-term investments
Long-term liabilities
Required:
Other assets
Other liabilities
Property, plant, and equipment
Retained earnings
Accumulated other comprehensive income
Identify each of the three balance sheet sections and list the classifications within each section in the appropriate order.
94. The following information has been provided by Meyers Company:
Required:
Prepare the
for Meyers.
95. On January 1, 2014 Hammer Company listed the following shareholders’ equity section of its balance sheet:
During 2014, the followi ng transact ions and events occurre d and were recorde d:
1.) Hammer issued 50,000 shares of common stock at $3 per share.
2.) Hammer earned net income of $175,900.
3.) Hammer paid a cash dividend of $.10 per share of common stock
4.) Hammer had an unrealized loss associated with some available-for-sale securities in the amount of $1,450.
Required:
Prepare Hammer’s statement of shareholders’ equity for 2014.
96. On January 1, 2015, Marlow Corporation had the following shareholders' equity account balances:
Accumulated
During 2015, the following events occurred in the order listed and were properly recorded:
The company issued 3,000 shares of common stock at $25 per share.
· The company earned net income of $126,300.
· The company paid a $1.20 per share dividend on its common stock.
· The company experienced an unrealized decrease in the value of its investment in available-for-sale securities of $9,000.
Required:
Prepare a statement of changes in shareholders' equity for 2015.
97. A list of statements follows:
a. A balance sheet summarizes the ____________________ ____________________ of a company.
b. GAAP defines the ____________________ of a corporate balance sheet.
c. Temporary investments in marketable securities are classified as ____________________ ____________________ and investment securities available for sale.
d. A company must accrue a loss and a liability from a contingency if it is ____________ that a liability has been incurred and the amount of the loss can be ______________ _______________.
e. Unrealized fair value increases in available-for-sale securities is an example of ____________________ ____________________ ____________________ ____________________.
f. _____________ ______________ of a company include affiliated entities such as subsidiaries, trusts for the benefit of employees, its management, and its principal owners or immediate families.
g. A(n) ____________________ ____________________ is one that occurs between the balance sheet date and the date the annual report is issued.
Required:
Fill in the words necessary to complete the statements.
98. The following data were taken from the Oxon Hill, Inc. balance sheet:
Required:
Compute working capital.
99. The following information has been provided for Zero One Corp.:
Required:
a. Prepare the current asset section of Zero One's balance sheet.
b. Calculate Zero One's working capital.
100. Below is a list of common ratios necessary for financial statement analysis.
a.) Debt-to-Assets
b.) Return on Common Equity
c.) Fixed Asset Turnover
d.) Total Asset Turnover
f.) Debt-to-Equity Ratio
g.) Inventory Turnover
h.) Current Ratio
i.) Quick Ratio
Required: Match the ratio with the appropriate formula.
1.) Net Income Average Total Common Equity
2.) Quick Assets Current Liabilities
3.) Current Assets Current Liabilities
4.) Cost of Goods Sold Average Inventory
5.) Total Liabilities Total Common Equity
6.) Total Revenues Average Net Fixed Assets
7.) Total Revenues Average Total Assets
8.) Total Liabilities Total Assets
101. The following is from the financial reports of Sledge Company:
Calculate the following to three decimal places:
Asset Turnover
102. From what two perspectives does the balance sheet report the financial position of a company?
103. What three processes must be completed in order for the elements of the balance sheet to be reported by a specific company?
104. What three characteristics must an economic resource have in order be considered an asset?
105. What is FASB’s definition of fair value?
106. How would a common classification of a balance sheet look?
107. What are the three categories of intangible assets?
108. What is FASB’s Statement of Financial Accounting Concepts No. 6 definition of investments by owners and distributions to owners?
109. In order for an external user of a company’s financial statements to fully understand the in workings of the company, their accounting policies, practices, and methods must be disclosed. The disclosure of revenue recognition and asset allocations is important. When is it particularly important for this information to be disclosed?
110. What differences exist between IFRS and U.S. GAAP balance sheet presentation?
111. Name five analyses or ratios used to evaluate a company’s performance.
112. A client of your accounting firm is impressed with the precision and detail in the financial statements that you have just prepared for his company. However, he wants to know if there are any limitations to the information contained in them.
Required:
Describe four limitations of the balance sheet.
113. A friend of the family has just received her first set of financial statements from her accountant. When she finds out that you are an accounting major, she asks you, "Why aren't my employees listed as an asset on my company's balance sheet?"
Required:
Write an explanation describing the characteristics that an economic resource must possess in order to be considered an asset. Include in your discussion the primary reason why "human resources" are not recognized as assets.
114. With all of the turmoil in the financial markets in 2008, one of your friends has emailed you because she has been wondering about the financial disclosure requirements for the banks and brokerage firms affected by the market turbulence. Explain the general accounting requirements for financial instruments to your friend.
115. A friend comes to you with a set of financial statements that he thinks contains an error. The footnotes contain a note on a bond issue sold after the end of the reporting period. Your friend is sure this is an error because the transaction occurred after the cutoff date for the financial statements.
Required:
Explain to your friend why certain items that occur after the end of an accounting period are included in the financial statements and the manner in which they can be disclosed.
116. Discuss how intracompany and intercompany comparisons help fulfill the qualitative characteristics of consistency and comparability.