Balance Sheet Exam online advanced

Balance sheet information is as of a specific pointin time, and items measured at current value reflect the valuethat was current at the end of the reporting period.

For allfinancial statement items, an item should be recognized in thefinancial statements only if it is probable that any futureeconomic benefit associated with the item will flow to or from theentity and if the item has a cost or value that can be measuredwith reliability.

Accrued liabilities are expenses that have beenreported on a company’s income statement but have not yetbeen paid.

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.

An asset is a probable future economic benefit as a result of a past transaction. There is no such thing as a contingent asset because a company can not project future assets and record them. The other categories are commonly found on the balance sheet.

Under IFRS, inventories are carried at historicalcost, unless net realizable value of the inventory is less.

UnderUS GAAP, inventories are carried at the lower of cost or market.

Impairment write-downs reduce equity in thedenominator of the debt-to-equity ratio but do not affect debt, sothe debt-to-equity ratio is expected to increase. Impairmentwrite-downs reduce total assets but do not affect revenue. Thus,total asset turnover is expected to increase.

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.

Liquidity-based balance sheet presentation is an exception, under IFRS only, to the requirement (under both IFRS and U.S. GAAP) for assets and liabilities to be classified as current or non-current. Under IFRS, a firm may present a liquidity-based balance sheet if this format is more reliable and relevant than a classified balance sheet.

Assets are resources that are expected to provide future benefits and are controlled as a result of past transactions. Liabilities are obligations resulting from past events that are expected to require a future outflow of resources. Equity is a residual interest in assets after deducting liabilities.

Liabilities are a probable use of an economic resource as a result of a past transaction.

Possible liabilities are not recorded.

Amounts owed to suppliers is called accounts payable and is an item on the balance sheet not a category.

Current liabilities is the category for liabilities that will be repaid in one year or less.

Intangible assets have no physical substance, are real assets because they provide future benefit gained from the right to use it and they are reported at historical cost just like all other assets.

An analyst can use the balance sheet to assess a firm's solvency and liquidity.

Operating profitability can be assessed by examining the income statement.

Information on a firm's investing and financing activities appears in a firm's statement of cash flows.

Deferred tax liabilities result when, for a givenperiod, taxable income and the associated income tax payableare less than the reported financial statement income beforetaxes and the associated income tax expense.

(items of expense are included in financial statement income in earlier periods than those for which taxable income is reported) is incorrect because if items of expense are included infinancial statement income in earlier periods than those for whichtaxable income is reported, then the financial statement incomeand associated reported income tax expense will be less thantaxable income and actual income tax payable. A deferred taxliability occurs only in the opposite case, when taxable income
and income tax payable are smaller. Deferred tax liabilities resultfrom timing differences between financial statement income andtaxable income when taxable income is lower than financialstatement income, not higher.

(straight-line depreciation methods are used for tax purposes and accelerated methods are employed for financial statement purposes) is incorrect because straight-line depreciation methods resultin lower depreciation expense than accelerated methods. Thisapproach would produce higher taxable income than financialstatement income, with no resulting deferred tax liability.

Trade receivables are typically reported at netrealizable value, based on estimates of collectability.

trade receivables are reported net of anallowance for doubtful accounts or at their net realizable value.

trade receivables are amounts owed to acompany by its customers for products and services alreadydelivered, not for items with delivery pending.

The debt-to-equity ratio, a solvency ratio, is anindicator of financial risk.

Liabilities represent obligations of a companyarising from past events, the settlement of which is expected toresult in an outflow of economic benefits from the entity.

prepaid expenses are assets, and assetsare fundamentally resources controlled by a company as a resultof past events.

shareholders’ equity represents theshareholders’ residual interest in a company’s assets afterdeducting its liabilities.

By definition, P/P/E are assets used to produce revenues over a period of more than one year.

They are reported at historical cost for reliability. The use of the asset generates the expense called depreciation expense.

Depreciation expense is spreading the cost of the asset over the period of time the asset is used.

Goodwill is a long-term asset, and the others areall current assets.

Common size balance sheets express all balance sheet items as a percentage of assets. Common size income statements express all income statement items as a percentage of sales .

A liquidity-based presentation, rather than a current/noncurrent presentation, may be used by such entities as banks if broadlypresenting assets and liabilities in order of liquidity is reliable and morerelevant.

The liquidity-based format of balance sheet presentation is most common in the banking industry.

Common equity is a component of the balancesheet and represents the owners’ residual interest in thecompany’s assets after deducting its liabilities.

Common equity includes the initial investment bythe shareholders and the retained earnings; this definition isincomplete.

Assets are a component of the balance sheet andrepresent resources controlled by an enterprise as a result ofpast events and from which future economic benefits to theenterprise are expected to flow.

The balance sheet reports what the company has, what they owe and what is owned on a given date.

It normally reports two years and the user can see the difference in the categories reported, but not the cause.

A company’s value is a function of many factors, includingexpected future cash flows and current market conditions. Importantaspects of a company’s ability to generate future cash flows—for example,its reputation and management skills—are absent from the balance sheet.

While the statement is true of all financial statements, it is nota reason that intrinsic or market value may be different from equity reported
on the balance sheet. The balance sheet is intended to disclose all relevantinformation about what an entity owns (or controls), what it owes, and whatthe owners’ claims are at a specific point in time.

The balance sheet information is presented as of a specificpoint in time. The income statement and cash flow statement are financialstatements that are evaluated spanning a period of time.

Under US GAAP, intangibles must be valued athistorical cost; under IFRS they can be valued at cost orrevaluation.

(IFRS, a classified balance sheet must present current assets before non-current assets) is incorrect. Under IFRS, a classified balance sheet doesseparate current assets from non-current assets, but non-currentassets could be presented first.

(IFRS, a commercial real estate company should use a liquidity based presentation) is incorrect. A commercial real estate company would havemany non-liquid assets and would not likely use the liquiditybased presentation under IFRS. A commercial bank would usethis format.

Equipment is reported in the balance sheet at historical cost less accumulated depreciation .

Each category of the balance sheet is expressed as a percentage of total assets .

Listed equity securities are measured at fair value through profit and loss, unless the firm chooses at the time of purchase to measure them at fair value through other comprehensive income. Debt securities issued by the firm, and debt securities that the firm intends to hold until maturity, are both reported at amortized cost unless the firm chooses to report them at market value.

Goodwill developed internally is expensed as incurred. The purchased patent is reported on the balance sheet.

Estimated income taxes for the current year are likely reported as a current liability. To recognize the warranty expense, it must be probable, not just possible. Recognizing impairment of PP&E does not create a liability.

The three elements of a balance sheet are assets, liabilities, and equity.

Trade receivables are amounts owed to a company by itscustomers for products and services already delivered. They are typicallyreported at net realizable value, an approximation of fair value based onestimates of collectability.

Present value is the present discounted value of future netcash inflows that the asset is expected to generate in the normal course ofbusiness. Trade receivables are typically reported at net realisable value.

Face value would not account for the potential foruncollectability. Trade receivables are typically reported at net realisablevalue.

Retained earnings, a component of equity, isdefined as the cumulative amount of earnings recognized on thecompany’s income statements that have not been distributed asdividends to the company’s owners.

Other comprehensive income is also a componentof equity, but it is defined as items of comprehensive income notreported on the income statement.

Dividends payable represent dividends that havebeen declared but not yet paid. Not all earnings not yet paid outwould be accrued as a liability: only those that have beendeclared as dividends.

The current ratio, quick ratio, and cash ratio measure liquidity. Debt-to-equity, the total debt ratio, and the financial leverage ratio measure solvency.

The balance sheet lists the firm’s assets, liabilities, and equity. The capital structure is measured by the mix of debt and equity used to finance the business .

A classified balance sheet is one with separatelyclassified current and non-current assets and liabilities.

(liquid or non-liquid) is incorrect because a liquidity-based balance sheet, not aclassified balance sheet, presents assets and liabilities in orderof liquidity.

(tangible or intangible) is incorrect because a classified balance sheet separatelyclassifies assets and liabilities as either current or non-current(not tangible or intangible).

Acquired copyrights and patents are intangible assets that can be separately identified.

Identifiable intangible assets are amortized over their useful lives .

Operating cycle = days of inventory + days of receivables, and is the number of days that it takes to turn raw materials into cash from sales .

Liabilities are obligations resulting from past events that are expected to require a future outflow of resources. Assets are resources that are expected to provide future benefits. Equity is residual ownership interest in an entity's assets (i.e., assets minus liabilities).

Financial assets classified as held to maturity aremeasured at amortised cost. Gains and losses are recognizedonly when realized.

Unless impairment has been recognized, land is reported at historical cost and is not subject to depreciation. Increases in value are not reflected in balance sheet values under U.S. GAAP.

IFRS requires that the statement of shareholders’equity present information about the effects of any accountingchanges that have been retrospectively applied to previousperiods.

(carrying amounts of each component of equity as of the end of the year only) is incorrect because IFRS requires that companies present areconciliation of the carrying amounts of each component ofstockholders’ equity as of the beginning and end of the year, notjust the end of the year.

(contracts that give rise to a financial asset for one entity and a financial liability or equity instrument for another entity) is incorrect because contracts that give rise to a financial assetfor one entity and a financial liability or equity instrument foranother are financial instruments, as defined under IFRS.

The balance sheet omits important aspects of acompany’s ability to generate future cash flows, such as itsreputation and management skills. The balance sheet measuressome assets and liabilities based on historical cost andmeasures others based on current value.

Market value ofshareholders’ equity is updated continuously. Shareholders’equity reported on the balance sheet is updated for reportingpurposes and represents the value that was current at the end ofthe reporting period.

Assets are resources controlled by a company as a result of past events.

Items measured at current value reflect the valuethat was current at the end of the reporting period. The values ofthose items can change after the balance sheet is prepared.

(start of the reporting period) is incorrect because items measured at current value reflectthe value that was current at the end of the reporting period (notat the start of the reporting period).

(midpoint of the reporting period) is incorrect because items measured at current value reflectthe value that was current at the end of the reporting period (notat the midpoint).

An asset is a future economic benefit obtained or controlled as a result of past transactions. Some assets are intangible (e.g., goodwill), and others may be donated .