Week 1 The Balance Sheet

Question 1

___ of a firm contains a list of its resources and of its sources of capital as of a particular day.

Answer 1

The balance sheet

Question 2

___ is by far the most important financial statement.

Answer 2

The balance sheet

Question 3

___ gives a picture of the financial position of the firm at a specific date.

Answer 3

The balance sheet

Question 4

The balance sheet is also called ___.

Answer 4

the statement of financial position

Question 5

The resources of the firm are ___; the sources of capital are the liabilities (L) and the owners’ equity (OE).

Answer 5

the assets (A)

Question 6

The resources of the firm are the assets (A); the sources of capital are ___ and the owners’ equity (OE).

Answer 6

the liabilities (L)

Question 7

The resources of the firm are the assets (A); the sources of capital are the liabilities (L) and ___.

Answer 7

the owners’ equity (OE)

Question 8

___ : A = L + OE

Answer 8

the accounting identity

Question 9

the accounting identity: ___

Answer 9

A = L + OE

Question 10

___ are a) resources owned or controlled by the firm b) that are expected to generate future economic benefits and c) that arise from a past transaction or event.

Answer 10

Assets

Question 11

Assets are a) ___ b) that are expected to generate future economic benefits and c) that arise from a past transaction or event.

Answer 11

resources owned or controlled by the firm

Question 12

Assets are a) resources owned or controlled by the firm b) ___ and c) that arise from a past transaction or event.

Answer 12

that are expected to generate future economic benefits

Question 13

Assets are a) resources owned or controlled by the firm b) that are expected to generate future economic benefits and c) ___.

Answer 13

that arise from a past transaction or event

Question 14

Asset recognition: an asset is recognized in the balance sheet if a) ___ and if b) these benefits can be measured reliably.

Answer 14

it is probable that economic benefits will flow to the firm

Question 15

Asset recognition: an asset is recognized in the balance sheet if a) it is probable that economic benefits will flow to the firm and if b) ___.

Answer 15

these benefits can be measured reliably

Question 16

___ are a) present obligations of the firm b) arising from past events, c) the settlement of which is expected to result in outflows of economic benefits.

Answer 16

Liabilities

Question 17

Liabilities are a) ___ b) arising from past events, c) the settlement of which is expected to result in outflows of economic benefits.

Answer 17

present obligations of the firm

Question 18

Liabilities are a) present obligations of the firm b) ___, c) the settlement of which is expected to result in outflows of economic benefits.

Answer 18

arising from past events

Question 19

Liabilities are a) present obligations of the firm b) arising from past events, c) ___.

Answer 19

the settlement of which is expected to result in outflows of economic benefits

Question 20

Liability recognition: a liability is recognized in the balance sheet if a) ___ and if b) these benefits can be measured reliably.

Answer 20

it is probable that economic benefits will flow from the firm

Question 21

Liability recognition: a liability is recognized in the balance sheet if a) it is probable that economic benefits will flow from the firm and if b) ___.

Answer 21

these benefits can be measured reliably

Question 22

___ is the wealth of the owners in the firm. It consists of two elements: a) the capital contributed by them and b) the earnings generated by the operations and retained in the firm.

Answer 22

Owners’ equity

Question 23

Owners’ equity is the wealth of the owners in the firm. It consists of two elements: a) ___ and b) the earnings generated by the operations and retained in the firm.

Answer 23

the capital contributed by them

Question 24

Owners’ equity is the wealth of the owners in the firm. It consists of two elements: a) the capital contributed by them and b) ___.

Answer 24

the earnings generated by the operations and retained in the firm

Question 25

___ = OE

Answer 25

A – L

Question 26

A – L = ___

Answer 26

OE

Question 27

The difference between assets and liabilities (A – L) is called ___.

Answer 27

net assets

Question 28

___ is called net assets.

Answer 28

The difference between assets and liabilities (A – L)

Question 29

Assets are classified into two categories: ___.

Answer 29

current assets and non-current assets

Question 30

___ are the resources of the firm that are either cash or that the firm expects to convert into cash, to sell, or to consume during the next 12 months or during the firm’s operating cycle, whichever is longer.

Answer 30

Current assets (CA)

Question 31

Current assets (CA) are the resources of the firm that are either ___ or ___

Answer 31

cash / that the firm expects to convert into cash, to sell, or to consume during the next 12 months or during the firm’s operating cycle, whichever is longer.

Question 32

___ are resources that the firm intends to use for a long period of time to conduct its operations

Answer 32

Non-current assets (NCA)

Question 33

Non-current assets (NCA) are ___

Answer 33

resources that the firm intends to use for a long period of time to conduct its operations

Question 34

Liabilities are classified into ___.

Answer 34

current and non-current liabilities

Question 35

___ are present obligations of the firm that have to be paid in less than one year or the firm’s operating cycle, whichever is longer.

Answer 35

Current liabilities (CL)

Question 36

Current liabilities (CL) are ___

Answer 36

present obligations of the firm that have to be paid in less than one year or the firm’s operating cycle, whichever is longer.

Question 37

___ Cash Short-term investments or Marketable securities Accounts receivable Inventories Prepaid expenses Interest receivable Taxes receivable Non-current assets held for sale

Answer 37

Most Common Current Assets

Question 38

Most Common Current Assets ___ Short-term investments or Marketable securities Accounts receivable Inventories Prepaid expenses Interest receivable Taxes receivable Non-current assets held for sale

Answer 38

Cash. Cash includes cash (cash in hand and bank deposits) and cash equivalents, which are highly liquid, short-term investments with maturities lower than three months, such as treasury bills, commercial paper, etc. Cash is the most liquid asset of the firm.

Question 39

Most Common Current Assets Cash ___ Accounts receivable Inventories Prepaid expenses Interest receivable Taxes receivable Non-current assets held for sale

Answer 39

Short-term investments or Marketable securities. These are short-term financial investments in debt or equity instruments with maturities between three and 12 months, such as bonds and shares of other firms.

Question 40

Most Common Current Assets Cash Short-term investments or Marketable securities ___ Inventories Prepaid expenses Interest receivable Taxes receivable Non-current assets held for sale

Answer 40

Accounts receivable. The amounts owed by the customers of the firm. They are reported net of expected defaults.

Question 41

Most Common Current Assets Cash Short-term investments or Marketable securities Accounts receivable ___ Prepaid expenses Interest receivable Taxes receivable Non-current assets held for sale

Answer 41

Inventories. Products purchased or produced by the firm that are held for sale. Manufacturing firms have three types of inventory accounts: a) raw materials inventory, which contains the items that will be used in production; b) work in progress inventory, which contains products undergoing production; and c) finished goods inventory, which contains the finished products ready for sale.

Question 42

Most Common Current Assets Cash Short-term investments or Marketable securities Accounts receivable Inventories ___ Interest receivable Taxes receivable Non-current assets held for sale

Answer 42

Prepaid expenses. These are payments for insurance, rent, etc. that will provide benefits to the firm in the future: for example, a one-year fire insurance policy that provides coverage to the firm or prepaid rent that grants the firm the right to use office space for a specific period of time.

Question 43

Most Common Current Assets Cash Short-term investments or Marketable securities Accounts receivable Inventories Prepaid expenses ___ Taxes receivable Non-current assets held for sale

Answer 43

Interest receivable. Interest earned on the firm’s investments not yet received.

Question 44

Most Common Current Assets Cash Short-term investments or Marketable securities Accounts receivable Inventories Prepaid expenses Interest receivable ___ Non-current assets held for sale

Answer 44

Taxes receivable. Taxes not yet refunded by the tax authorities.

Question 45

Most Common Current Assets Cash Short-term investments or Marketable securities Accounts receivable Inventories Prepaid expenses Interest receivable Taxes receivable ___

Answer 45

Non-current assets held for sale. These are non-current assets that the firm has put up for sale. They have been reclassified from the non-current asset section to the current asset section of the balance sheet.

Question 46

___ Property, plant and equipment Deferred tax assets Intangible assets Financial investments Goodwill

Answer 46

Most Common Non-Current Assets

Question 47

Most Common Non-Current Assets ___ Deferred tax assets Intangible assets Financial investments Goodwill

Answer 47

Property, plant and equipment. These are long-lived assets with physical substance that the firm intends to use in its operations for a long period of time. Examples are land, buildings, machines, vehicles, tools, etc.

Question 48

Most Common Non-Current Assets Property, plant and equipment ___ Intangible assets Financial investments Goodwill

Answer 48

Deferred tax assets. Income taxes recoverable in the future.

Question 49

Most Common Non-Current Assets Property, plant and equipment Deferred tax assets ___ Financial investments Goodwill

Answer 49

Intangible assets. These are long-lived assets, with no physical substance and not financial in nature. They include acquired patents, copyrights, trademarks, etc. If these assets do not have indefinite lives, they must be amortized in a systematic way.

Question 50

Most Common Non-Current Assets Property, plant and equipment Deferred tax assets Intangible assets ___ Goodwill

Answer 50

Financial investments. These are long-term investments of the firm in debt or equity securities.

Question 51

Most Common Non-Current Assets Property, plant and equipment Deferred tax assets Intangible assets Financial investments ___

Answer 51

Goodwill. This is an intangible asset that only arises when a firm acquires another firm. It captures the value of intangibles that cannot be separated from the rest of assets acquired (e.g., growth opportunities, the reputation of the acquired firm, the know-how of its workforce, synergies, etc.).

Question 52

___ Accounts payable Salaries payable, utilities payable, interest payable Taxes payable Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue Short-term loans Notes payable Current portion of long-term loans

Answer 52

Most Common Current Liabilities

Question 53

Most Common Current Liabilities ___ Salaries payable, utilities payable, interest payable Taxes payable Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue Short-term loans Notes payable Current portion of long-term loans

Answer 53

Accounts payable. The amounts owed to suppliers of merchandise, services and goods used in the business.

Question 54

Most Common Current Liabilities Accounts payable ___ Taxes payable Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue Short-term loans Notes payable Current portion of long-term loans

Answer 54

Salaries payable, utilities payable, interest payable. These are amounts owed by the firm to employees, utilities and lenders. These payables are also referred to as accrued expenses.

Question 55

Most Common Current Liabilities Accounts payable Salaries payable, utilities payable, interest payable ___ Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue Short-term loans Notes payable Current portion of long-term loans

Answer 55

Taxes payable. Amounts owed to the tax authorities.

Question 56

Most Common Current Liabilities Accounts payable Salaries payable, utilities payable, interest payable Taxes payable ___ Short-term loans Notes payable Current portion of long-term loans

Answer 56

Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue. This liability reflects the money received from customers for goods or services not yet delivered.

Question 57

Most Common Current Liabilities Accounts payable Salaries payable, utilities payable, interest payable Taxes payable Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue ___ Notes payable Current portion of long-term loans

Answer 57

Short-term loans. Borrowings due in the next 12 months

Question 58

Most Common Current Liabilities Accounts payable Salaries payable, utilities payable, interest payable Taxes payable Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue Short-term loans ___ Current portion of long-term loans

Answer 58

Notes payable. These are like accounts payable but are based on a formal written contract; they usually carry explicit interest. Notes payable have stronger legal enforceability in case of default than accounts payable.

Question 59

Most Common Current Liabilities Accounts payable Salaries payable, utilities payable, interest payable Taxes payable Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue Short-term loans Notes payable ___

Answer 59

Current portion of long-term loans. Quite often, long-term loans require annual repayments of the principal borrowed. This liability reflects the amount of the next repayment due.

Question 60

___ Long-term loans, Mortgages Pension obligations Restructuring provisions, Litigation provisions Capital lease obligations Deferred tax liabilities

Answer 60

Most Common Non-Current Liabilities

Question 61

Most Common Non-Current Liabilities ___ Pension obligations Restructuring provisions, Litigation provisions Capital lease obligations Deferred tax liabilities

Answer 61

Long-term loans, Mortgages. Amounts due for borrowings with maturities longer than one year. They are interest-bearing obligations.

Question 62

Most Common Non-Current Liabilities Long-term loans, Mortgages ___ Restructuring provisions, Litigation provisions Capital lease obligations Deferred tax liabilities

Answer 62

Pension obligations. Obligations with employees, payable when they retire.

Question 62

Most Common Non-Current Liabilities Long-term loans, Mortgages Pension obligations ___ Capital lease obligations Deferred tax liabilities

Answer 62

Restructuring provisions, Litigation provisions. These are obligations of the firm for losses incurred but not yet paid as a result of restructuring plans (e.g., the closing of certain lines of business, the elimination of redundant employees) or lawsuits that the firm expects to lose with certainty.

Question 62

Most Common Non-Current Liabilities Long-term loans, Mortgages Pension obligations Restructuring provisions, Litigation provisions ___ Deferred tax liabilities

Answer 62

Capital lease obligations. These are the amounts owed for the right to use leased assets during periods longer than one year. Technically, these obligations are the present value of the future lease payments for the use of the leased asset.

Question 63

Most Common Non-Current Liabilities Long-term loans, Mortgages Pension obligations Restructuring provisions, Litigation provisions Capital lease obligations ___

Answer 63

Deferred tax liabilities. Income taxes payable in the future as a result of temporary taxable differences.

Question 63

___ Share capital or Common stock Share premium or Additional paid in capital Preferred shares or Preferred stock Retained earnings or Retained profits Accumulated other comprehensive income Non-controlling interests

Answer 63

Most Common Owners’ Equity Accounts

Question 63

Most assets and liabilities are reported on the balance sheet at ___.

Answer 63

historical cost