Balance Sheet

Question 1

Current assets

Answer 1

Assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer.

Question 2

the cutoff for classification as current assets is

Answer 2

one year from the balance sheet date

Question 3

operating cycle

Answer 3

the average time required to go from cash to cash in producing revenue (to purchase inventory, sell it on account, and then collect cash from customers)

Question 4

operating cycle mostly take…

Answer 4

less than a year, so they use a one-year cutoff.

Question 5

Companies list current assets in order of…

Answer 5

liquidity, that is, the order in which they expect to convert them into cash

Question 6

Order of current assets:

Answer 6

1. Cash.
2. Investments (such as short-term U.S. government securities).
3. Receivables (accounts receivable, notes receivable, and interest receivable).
4. Inventories.
5. Prepaid expenses (insurance and supplies).

Question 7

Why are receivables considered more liquid than inventory?

Answer 7

Inventory must be sold before it is converted to cash (and is often sold on account), whereas receivables are converted to cash upon collection.

Question 8

Long-term investments generally include the following

Answer 8

• Investments in stocks and bonds of other corporations that are held for more than one year.
• Long-term assets such as land or buildings that a company is not currently using in its operating activities.
• Long-term notes receivable.

Question 9

Property, plant, and equipment is defined as follows:

Answer 9

-Assets with relatively long useful lives that are currently used in operating the business
-This category includes land, buildings, equipment, delivery vehicles, and furniture.

Question 10

Depreciation

Answer 10

the systematic allocation of the cost of an asset to expense over number of years (rather than expensing the full purchase price in the year of purchase)

Question 11

accumulated depreciation

Answer 11

the total amount of depreciation that the company has expensed thus far in the asset’s life.

Question 12

intangible assets

Answer 12

Assets that do not have physical substance.

Question 13

One common intangible is

Answer 13

goodwill

Question 14

Other intangibles include patents, copyrights, and trademarks or trade names that give the company

Answer 14

exclusive right of use for a specified period of time.

Question 15

Sometimes intangible assets are reported under a broader heading called

Answer 15

Other assets

Question 16

Current liabilities

Answer 16

obligations that the company is to pay within the next year or operating cycle, whichever is longer.

Question 17

Examples of current liabilities are:

Answer 17

accounts payable, salaries and wages payable, notes payable, unearned revenue, interest payable, and income taxes payable

Question 18

Also included as current liabilities are current maturities of long-term obligations, which are

Answer 18

payments to be made within a year of the balance sheet date on long-term obligations.

Question 19

Long-term liabilities (long-term debt) are:

Answer 19

• Obligations that a company expects to pay after one year.
• Liabilities in this category include bonds payable, mortgages payable, long-term notes payable, lease liabilities, and pension liabilities.

Question 20

Stockholders’ equity consists of two parts:

Answer 20

common stock and retained earnings

Question 21

Companies record as common stock the

Answer 21

investments of assets into the business by the stockholders

Question 22

They record as retained earnings the

Answer 22

income retained for use in the business.

Question 23

Common stock and retained earnings combined make up… on the balance sheet

Answer 23

stockholders’ equity