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标题: Financial Reporting and Analysis 【Reading 26】Sample [打印本页]
作者: optiix    时间: 2012-3-26 14:35     标题: [2012 L1] Financial Reporting and Analysis 【Session 8 - Reading 26】Sample

Which of the following characteristics are required for recognition of a balance sheet asset?
Characteristic #1: Future economic benefits to the firm are probable.
Characteristic #2: The asset is tangible and is obtained at a cost.
Characteristic #1 Characteristic #2
A)
Yes No
B)
Yes Yes
C)
No No


An asset is recognized on the balance sheet only if it is probable that it will provide future economic benefits. Assets can be tangible or intangible. In some cases, assets are acquired without cost, but will be reported to the extent that they will provide future economic benefit, and thus have value.
作者: optiix    时间: 2012-3-26 14:36

Galaxy Corporation manufactures custom motorcycles. Galaxy finances the motorcycles over 36 months for customers who make a minimum down payment of 10%. Historically, Galaxy has experienced bad debt losses equal to 1% of sales. Galaxy also provides a 24 month unlimited warranty on all new motorcycles. In the past, warranty expense has averaged 3% of sales. Ignoring taxes, how does the recognition of bad debt expense and warranty expense at the time of sale affect Galaxy’s liabilities?
Bad debt expense Warranty expense
A)
No effect No effect
B)
Increase Increase
C)
No effect Increase


The recognition of bad debt expense has no effect on liabilities, current revenues are reduced by the expected amount of uncollectable accounts. Bad debt expense reduces net income and reduces assets. The recognition of expected warranty expense decreases net income (following the matching principle), and since it is not currently paid (doesn’t reduce assets) it creates or increases a liability at the time of sale.
作者: optiix    时间: 2012-3-26 14:36

Duster Company reported the following financial information at the end of 2007:
in millions
Unearned revenue

$240

Common stock at par

30

Capital in excess of par

440

Accounts payable

1,150

Treasury stock

2,000

Retained earnings

5,160

Accrued expenses

830

Accumulated other comprehensive loss 210
Long-term debt 1,570

Calculate Duster’s liabilities and stockholders’ equity as of December 31, 2007.
Liabilities Stockholders' equity
A)
$3,790 million $7,420 million
B)
$3,550 million $7,840 million
C)
$3,790 million $3,420 million


Liabilities are equal to $3,790 million ($240 million unearned revenue + $1,570 long-term debt + $1,150 accounts payable + $830 accrued expenses). Stockholders’ equity is equal to $3,420 million ($30 common stock at par + $440 capital in excess of par – $2,000 treasury stock + $5,160 retained earnings – $210 accumulated other comprehensive loss).
作者: optiix    时间: 2012-3-26 14:51

Which of the following statements about a classified balance sheet is least likely accurate? A classified balance sheet:
A)
groups accounts by subcategories.
B)
presents the net equity of each asset by subtracting its related liability.
C)
distinguishes between current and noncurrent assets.


A classified balance sheet groups assets and liabilities by subcategories. It distinguishes between current and noncurrent assets and current and noncurrent liabilities. The assets and related liabilities are reported separately, they are not netted.
作者: optiix    时间: 2012-3-26 14:51

Do the following characteristics have to be met in order to classify a liability as current on the balance sheet? Characteristic #1 – Settlement is expected within one year or operating cycle, whichever is less.
Characteristic #2 – Settlement will require the use of cash within one year or operating cycle, whichever is greater.
Characteristic #1 Characteristic #2
A)
Yes No
B)
No Yes
C)
No No


A current liability is expected to be settled within one year or operating cycle, whichever is greater. It is not necessary to settle a current liability with cash. There are a number of ways to settle a current liability. For example, unearned revenue is a liability that is settled by providing goods or services.
作者: optiix    时间: 2012-3-26 14:51

Firebird Company reported the following financial information at the end of 2007:
in millions
Merchandise inventory

$240

Minority interest

70

Cash and equivalents

275

Accounts receivable

1,150

Accounts payable

225

Property & equipment

2,160

Accrued expenses

830

Current portion of long-term debt 120
Long-term debt 1,570
Retained earnings 4,230

Calculate Firebird’s current assets and working capital.
Current assets Working capital
A)
$1,665 million $490 million
B)
$1,665 million $420 million
C)
$1,735 million $490 million


Current assets are equal to $1,665 ($275 cash and equivalents + $1,150 accounts receivable + $240 inventory). Working capital (current assets minus current liabilities) is equal to $490 ($1,665 current assets – $225 accounts payable – $830 accrued expenses – $120 current portion of long-term debt).
作者: optiix    时间: 2012-3-26 14:52

Peterson Painting Company is a commercial painting contractor. At the beginning of 20X7, Peterson’s net working capital was $350,000. The following transactions occurred during 20X7:
Performed services on credit$150,000
Purchased office equipment for cash10,000
Recognized salaries expense54,000
Purchased paint supplies on on credit25,000
Consumed paint supplies20,000
Paid salaries50,000
Collected accounts receivable157,000
Recognized straight-line depreciation expense2,000
Paid accounts payable15,000

Calculate Peterson’s working capital at the end of 20X7 and the change in cash for the year 20X7.
Working capitalChange in cash
A)
$414,000$82,000
B)
$416,000$82,000
C)
$416,000$80,000


TransactionAmountWorking capitalCash
Performed services on credit$150,000Increase A/R
Purchased PP&E for cash10,000Decrease cash-$10,000
Recognized salaries expense54,000Increase A/P
Purchased paint supplies on on credit25,000Increase inventories, increase A/P
Consumed paint supplies20,000Decrease inventories
Paid salaries50,000Decrease cash, decrease A/P-$50,000
Collected accounts receivable157,000Increase cash, decrease A/R+$157,000
Recognized straight-line depreciation expense2,000
Paid accounts payable15,000Decrease cash, decrease A/P-$15,000
The change in cash was $82,000 ($157,000 collections – $10,000 from equipment purchase – $50,000 salaries paid – $15,000 for payables). Working capital at the end of 20X7 is $416,000 ($350,000 beginning working capital + $150,000 increase in accounts receivable from services – $10,000 office equipment purchase – $54,000 salaries expense accrual – $20,000 consumed supplies).
作者: optiix    时间: 2012-3-26 14:53

GTO Corporation purchased all of the common stock of Charger Company for $4 million. At the time, Charger reported total assets of $3 million and total liabilities of $1 million. At the acquisition date, the fair value of Charger’s assets was $3.5 million and the fair value of Charger’s liabilities was $1.3 million. What amount of goodwill should GTO report as a result of the acquisition and is it necessary for GTO to amortize the goodwill?
Goodwill Amortization required
A)
$1.8 million No
B)
$1.8 million Yes
C)
$2.2 million No


The acquisition goodwill is equal to $1.8 million [$4 million purchase price – $2.2 million fair value of net assets acquired ($3.5 million assets at fair value – $1.3 million liabilities at fair value)]. Under IFRS or U.S. GAAP, goodwill is not amortized but is subject to an annual impairment test.
作者: optiix    时间: 2012-3-26 14:53

Consider the following:Statement #1 – Copyrights and patents are tangible assets that can be separately identified.
Statement #2 – Purchased copyrights and patents are amortized on a straight line basis over 30 years.
With respect to the statements about copyrights and patents acquired from an independent third party:
A)
only statement #2 is incorrect.
B)
only statement #1 is incorrect.
C)
both are incorrect.


Acquired copyrights and patents are intangible assets that can be separately identified. Identifiable intangible assets are amortized over their useful lives.
作者: optiix    时间: 2012-3-26 14:53

According to the Financial Accounting Standards Board, what is the appropriate measurement basis for equipment used in the manufacturing process and inventory that is held for sale?
Equipment Inventory
A)
Historical cost Lower of cost or market
B)
Historical cost Historical cost
C)
Fair value Lower of cost or market


Equipment is reported in the balance sheet at historical cost less accumulated depreciation. Inventory is reported in the balance sheet at the lower of cost or market.
作者: optiix    时间: 2012-3-26 14:57

According to International Financial Reporting Standards, how do cash dividends received from trading securities and available-for-sale securities affect net income?
Trading securities Available-for-sale securities
A)
No effect Increase
B)
Increase Increase
C)
Increase No effect


Dividends received from trading securities and available-for-sale securities are recognized in the income statement. The difference in trading and available-for-sale classifications relates to the treatment of any unrealized gains and losses.
作者: optiix    时间: 2012-3-26 14:57

Current assets that arise from the accrual process most likely include:
A)
cash equivalents.
B)
accounts receivable.
C)
marketable securities.


The accrual process refers to accounting for transactions when revenue or expense recognition does not coincide with the exchange of cash. Accounts receivable, for example, represent sales of goods and services that have been recognized as revenue, but for which the firm has not yet been paid cash. Cash equivalents are highly liquid marketable securities, such as Treasury bills, in which a firm typically invests its short-term cash balances.
作者: optiix    时间: 2012-3-26 14:58

On January 1, 20X7, Omega Corporation paid $45,000 to renew its property insurance for 3 years. What amount of insurance expense should Omega report for the year-ended December 31, 20X7 and what is the balance of Omega’s prepaid insurance account on December 31, 20X8?
Insurance expense Prepaid insurance
A)
$15,000 $30,000
B)
$15,000 $15,000
C)
$45,000 $15,000


At the beginning of 20X7, the prepaid insurance account (asset) will have a balance of $45,000. Insurance expense will be recognized at a rate of $15,000 per year. At the end of 20X8, one year’s insurance remains; thus, the balance of the prepaid insurance account will equal $15,000 ($45,000 beginning balance – $15,000 insurance expense for 20X7 – $15,000 insurance expense for 20X8).
作者: optiix    时间: 2012-3-26 14:59

At the beginning of 20X7, Bryan’s Bakery Company purchased a secret cookie recipe for $25,000. In addition, Bryan developed a new cake recipe at a cost of $5,000. Bryan expects to use both recipes indefinitely; however, the useful (economic) life of similar recipes has been 10 years. Assuming straight-line amortization, what amount of recipe expense should Bryan report for the year ended 20X7 and what amount should Bryan report as assets related to these recipes on its balance sheet at the end of 20X7?
Recipe expense Balance sheet
A)
$5,000 $25,000
B)
$7,500 $22,500
C)
$3,000 $30,000


The recipes are intangible assets. The purchased cookie recipe is capitalized and amortized over 10 years at $2,500 per year ($25,000 cost / 10 years). Since the cake recipe was developed internally, it is expensed immediately. Thus, total expense for 20X7 is $7,500 ($2,500 amortization expense + $5,000 cake recipe expense). The balance sheet value of the purchased recipe at the end of 20X7 is $25,000 – $2,500 = $22,500.
作者: optiix    时间: 2012-3-26 14:59

At the beginning of the year, Alpha Corporation purchased 10,000 shares of Beta Corporation for $20 per share. During the year, Beta paid a $2,000 cash dividend to Alpha. At the end of the year, Beta’s stock was selling for $22 per share. What amount should Alpha recognize in its year-end income statement if the investment is treated as an available-for-sale security and what amount should be recognized in the income statement if the investment is treated as a trading security?
Available-for-sale Trading security
A)
$2,000 $22,000
B)
$2,000 $20,000
C)
$0 $22,000


Unrealized gains and losses from trading securities are recognized in the income statement while unrealized gains and losses from available-for-sale securities bypass the income statement and are reported as other comprehensive income, a component of stockholders’ equity. Cash dividends are recognized in the income statement for both trading and available-for-sale securities. Thus, Alpha will recognize only the $2,000 dividend if the shares are considered available-for-sale and will recognize $22,000 ($2,000 dividend + $20,000 unrealized gain) if the shares are considered trading securities.
作者: optiix    时间: 2012-3-26 15:00

Earlier this year, Ponca Corporation purchased non-dividend paying equity securities which it classified as trading securities. Information related to the securities follows:

Security

Cost

Fair value at year-end

X

$400,000

$435,000

Y

$550,000

$545,000


What amounts should Ponca report in its year-end income statement and balance sheet as a result of its investment in securities X and Y?
Income Statement Balance Sheet
A)
$30,000 unrealized gain $950,000
B)
$30,000 unrealized gain $980,000
C)
No gain or loss $980,000


Trading securities are reported in the balance sheet at fair value. At the end of the year, the fair value of the securities was $980,000 ($435,000 + $545,000). The unrealized gains and losses from trading securities are recognized in the income statement. Thus, Ponca would recognize an unrealized gain of $30,000 ($980,000 fair value – $950,000 cost).
作者: optiix    时间: 2012-3-26 15:00

When the market value of an investment in a debt security is less than its carrying value, how should the investor report the investment on the balance sheet if the security is classified as held-to-maturity and what amount should be reported if the security is classified as available-for-sale?
Held-to-maturity Available-for-sale
A)
Amortized cost Amortized cost
B)
Amortized cost Fair value
C)
Fair value Fair value


Held-to-maturity securities are reported on the balance sheet at amortized cost while available-for-sale securities are reported at fair value. Amortized cost includes the amortization of a premium or discount that was created when the security was purchased.
作者: optiix    时间: 2012-3-26 15:01

Consider the following statements.

Statement #1:
Par value is a nominal dollar value assigned to shares of stock in a corporation’s charter.

Statement #2:
The par value of common stock represents the amount the corporation received when the stock was issued.

With respect to these statements:
A)
both statements are correct.
B)
only statement #2 is correct.
C)
only statement #1 is correct.


The par value of common stock is the stated or nominal value assigned to the stock. Par value has no relationship to market value. The amount the corporation receives from the issuance of common stock is equal to the par value plus the additional paid-in-capital (proceeds in excess of par).
作者: optiix    时间: 2012-3-26 15:01

Carpenter Corporation reported the following statement of shareholders’ equity as of December 31, 2006:

Common stock at par

$600,000


Additional paid-in-capital

900,000


Treasury stock

(200,000)


Retained earnings

10,500,000


Accumulated other comprehensive income

450,000


$12,250,000


During 2007, Carpenter:
Calculate Carpenter’s retained earnings and accumulated other comprehensive income as of December 31, 2007.
Retained earnings Accumulated other comprehensive income
A)
$11,900,000 $65,000
B)
$11,900,000 $515,000
C)
$12,125,000 $515,000


As of December 31, 2007, Carpenter’s retained earnings is $11,900,000 [$10,500,000 beginning balance + $1,700,000 net income – $300,000 dividends declared]. Accumulated other comprehensive income is $515,000 [$450,000 beginning balance – $25,000 unrealized loss from available for sale securities ($225,000 fair value – $250,000 cost) + $90,000 unrealized translation gain]. There is no impact on retained earnings or accumulated other comprehensive income from unrealized gains and losses on held-to-maturity securities since the securities are not reported at fair value on the balance sheet. The purchase of treasury stock does not affect comprehensive income because it is a transaction with shareholders.
作者: optiix    时间: 2012-3-26 15:02

Ascot Corporation has 4 million shares of common stock authorized, 2.4 million shares of common stock issued, and 1.8 million shares of common stock outstanding. How many shares of treasury stock does Ascot own and is the treasury stock reported as an asset in Ascot’s balance sheet?
Treasury shares Reported as an asset
A)
600,000Yes
B)
600,000 No
C)
1.6 millionNo


Shares that were issued previously but are not outstanding are treasury shares (owned by the firm). Thus, there are 600,000 treasury shares (2.4 million issued – 1.8 million outstanding). Treasury shares are reported as a reduction in shareholders’ equity on the balance sheet. Treasury stock is not an asset.
作者: optiix    时间: 2012-3-26 15:02

Earlier this year, Slayton Corporation repurchased 5% of its total shares outstanding. At the time, the book value of Slayton shares exceeded their market value. The shares are expected to be reissued in the future when the market price of Slayton’s stock increases. Do Slayton’s repurchased shares continue to have voting rights and to pay cash dividends?
Voting rights Cash dividends paid
A)
Yes No
B)
No No
C)
No Yes


Repurchased stock that is not cancelled is called treasury stock. Treasury stock does not have voting rights and does not receive cash dividends.
作者: optiix    时间: 2012-3-26 15:03

Coleman Corporation’s unadjusted trial balance at the end of 2007 reflected compensation expense of $90 million. The trial balance did not include the following:
Ignoring payroll taxes, what is Coleman’s adjusted compensation expense for the year ended 2007 and what impact will the adjustment have on Coleman’s 2007 current ratio?
Compensation expense Current ratio
A)
$98.5 million Decrease
B)
$94.5 million Decrease
C)
$98.5 million No effect


Because of the matching principle, compensation expense should be increased by the (accrued) salary expense for the last week of 2007 and the liability for the bonuses was incurred in 2007. Thus, total compensation expense for 2007 is $98.5 million ($90 million unadjusted compensation expense + $3.5 million salary accrual + $5 million bonus accrual). Since the salaries and bonuses were not paid in 2007, accrued liabilities would increase by $8.5 million. An increase in accrued liabilities, a current liability, would decrease the current ratio.
作者: optiix    时间: 2012-3-26 15:03

On January 1, 2008, Tenant Company leased office space from Landlord Inc. for 5 years at $75,000 per month. On that same date, Tenant made the following payments to Landlord:

First month’s rent

$75,000


Last month’s rent

75,000


Security deposit

100,000


Lease improvements

1,500,000

The leasehold improvements include build-out costs to install office walls, restrooms, and a kitchen. Tenant allocates the cost of the leasehold improvements over the lease term using the straight-line method. What amount of total lease expense should Tenant report for the year ended 2008 and what is the balance of all of the lease related assets on December 31, 2008, assuming the lease payments are made on the first day of each month?
Lease expense Lease related assets
A)
$1,200,000 $1,375,000
B)
$1,200,000 $1,200,000
C)
$375,000 $1,375,000


Total annual lease expense is $1,200,000 [$75,000 monthly payment × 12 months) + ($1,500,000 lease improvements / 5 years)]. At the end of 2008, Tenant will report lease related assets of $1,375,000 [$75,000 prepaid rent + 100,000 deposit + $1,200,000 book value of leasehold improvements].
作者: optiix    时间: 2012-3-26 15:04

The statement of changes in equity is least likely to provide information on the firm’s:
A)
payment of dividends.
B)
repayment of bond principal.
C)
comprehensive income.


The statement of changes in equity shows a firm’s comprehensive income (net income and other comprehensive income) and transactions with shareholders, such as dividends paid and issuance or repurchases of stock. Repayment of bond principal is not a change in equity: assets (cash) decrease and liabilities (long-term debt) decrease.
作者: ikoreaii    时间: 2012-3-26 15:06

Bug-Be-Gone is a residential pest control company that offers a 12 month home-service contract to eliminate insect infestation. Customers are required to prepay for the service at the beginning of each year. If Bug-Be-Gone erroneously records these payments as revenue and include the estimated cost of performing the service, what is the most likely effect on the firm’s liabilities and equity compared to the correct treatment?
Liabilities Equity
A)
Overstated Overstated
B)
Overstated Understated
C)
Understated Overstated


When payment is received, the firm has an obligation to provide the service. This obligation is reported as a liability ‘unearned revenue’ as a liability, offsetting the increase in cash. If they book the revenue and estimated expenses of providing the service this will overstate equity (assuming revenue greater than expected expense) and liabilities will be understated.
作者: ikoreaii    时间: 2012-3-26 15:06

A key limitation of balance sheets in financial analysis is that:
A)
different balance sheet items may be measured differently.
B)
liquidity and solvency ratios require information from other financial statements.
C)
some items are recognized when they are unlikely to reflect a flow of economic benefits.


Balance sheet values may use a mixture of measurement bases (historical cost, fair value, etc.). As a result, balance sheet values of assets, liabilities, and equity may not reflect their intrinsic values. Balance sheets provide the information necessary to calculate the firm’s solvency and liquidity ratios. Items are recognized on the balance sheet only if a flow of future economic benefits to or from the firm is probable.
作者: ikoreaii    时间: 2012-3-26 15:06

Common size balance sheets express all balance sheet items as a percentage of:
A)
sales.
B)
equity.
C)
assets.


Common size balance sheets express all balance sheet items as a percentage of assets. Note that common size income statements express all income statement items as a percentage of sales.
作者: ikoreaii    时间: 2012-3-26 15:07

The following data is from Delta's common size financial statement:
Earnings after taxes18%
Equity40%
Current assets60%
Current liabilities30%
Sales$300
Total assets$1,400
What is Delta's total-liabilities-to-equity ratio?
A)
1.5.
B)
1.0.
C)
2.0.


If equity = 40% of assets, total liabilities = 60% of assets, thus 60 / 40 = 1.5.
作者: ikoreaii    时间: 2012-3-26 15:07

An analyst has gathered the following information about a company:

Balance Sheet

Assets
Cash100
Accounts Receivable750
Marketable Securities300
Inventory850
Property, Plant & Equip900
Accumulated Depreciation(150)
Total Assets2750
Liabilities and Equity
Accounts Payable300
Short-Term Debt130
Long-Term Debt700
Common Stock1000
Retained Earnings620
Total Liab. and Stockholder's equity2750

Income Statement

Sales1500
COGS1100
Gross Profit400
SG&A150
Operating Profit250
Interest Expense25
Taxes75
Net Income150

What is the quick ratio?
A)
1.53.
B)
2.67.
C)
0.62.


Quick ratio = [100(cash) + 750(AR) + 300(marketable securities)] / [300(AP) + 130(short-term debt)] = (1,150 / 430) = 2.67
作者: ikoreaii    时间: 2012-3-26 15:08

Given the following income statement and balance sheet for a company:

Balance Sheet

AssetsYear 2003Year 2004
Cash500450
Accounts Receivable600660
Inventory500550
Total CA16001660
Plant, prop. equip10001250
Total Assets26002910
Liabilities
Accounts Payable500550
Long term debt7001002
Total liabilities12001552
Equity
Common Stock400538
Retained Earnings1000820
Total Liabilities & Equity26002910

Income Statement

Sales3000
Cost of Goods Sold(1000)
Gross Profit2000
SG&A(500)
Interest Expense(151)
EBT1349
Taxes (30%)(405)
Net Income944

What is the current ratio for 2004?
A)
3.018.
B)
0.331.
C)
2.018.


Current ratio = (CA / CL) = (1,660 / 550) = 3.018
作者: terpsichorefan    时间: 2013-4-2 14:04

thanks for sharing



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