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Reading 33: Understanding the Balance Sheet - LOS d ~ Q1-3

Q1. 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)  No                                           No

B)  Yes                                          No

C)  No                                           Yes

Q2. 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        $420 million

B)                                                     $1,665 million        $490 million

C)                                                     $1,735 million        $490 million

Q3. 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 cash

10,000

Recognized salaries expense

54,000

Purchased paint supplies on on credit

25,000

Consumed paint supplies

20,000

Paid salaries

50,000

Collected accounts receivable

157,000

Recognized straight-line depreciation expense

2,000

Paid accounts payable

15,000

Calculate Peterson’s working capital at the end of 20X7 and the change in cash for the year 20X7.

          Working capital               Change in cash

 

A) $414,000                                  $82,000

B) $416,000                                  $82,000

C) $416,000                                  $80,000

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