Chapter 003 The Balance Sheet and Financial Disclosures 1 The balance sheet reports a company s financial position at a point in time TRUE 2 A company s market value is generally less than its book value FALSE 3 All current assets are either cash or assets that will be converted into cash or consumed within twelve months or the operating cycle if that is longer than one year TRUE 4 The balance of net receivables represents the amount expected to be collected TRUE True False Questions AACSB Reflective thinking Blooms Knowledge Learning Objective 1 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 1 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 2 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 3 Level of Learning 1 3 1 Chapter 003 The Balance Sheet and Financial Disclosures 5 Prepaid expenses are classified as current assets if the services purchased are expected to expire within twelve months or the operating cycle if that is longer TRUE 6 Operational assets include property plant equipment and inventories FALSE 7 Intangible assets usually are reported in the balance sheet as current assets FALSE 8 Accrued salaries and wages in a balance sheet represent salary and wages that have been earned by employees but not yet paid TRUE AACSB Reflective thinking Blooms Knowledge Learning Objective 3 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 3 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 3 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 4 Level of Learning 1 3 2 Chapter 003 The Balance Sheet and Financial Disclosures 9 The criteria for determining which items comprise cash equivalents often is disclosed in the summary of significant accounting policies TRUE 10 Payment terms interest rates and other details of long term liabilities usually are reported in disclosure notes TRUE 11 Subsequent events are significant developments that take place after a firm s year end and after the financial statements are issued FALSE 12 Illegal acts will only need to be disclosed if the impact of the act is material FALSE AACSB Reflective thinking Blooms Knowledge Learning Objective 5 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 5 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 5 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 5 Level of Learning 1 3 3 Chapter 003 The Balance Sheet and Financial Disclosures 13 The ultimate responsibility for the financial statements lies with the auditors FALSE 14 The compensation of top executives is disclosed in the proxy statement TRUE 15 Horizontal analysis involves expressing each item in the financial statements as a percentage of an appropriate total or base amount within the same year FALSE AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 8 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 9 Level of Learning 1 16 Liquidity refers to the riskiness of a company with regard to the amount of liabilities in its capital structure FALSE 3 4 Chapter 003 The Balance Sheet and Financial Disclosures 17 A payment on account has no effect on working capital but will increase the current ratio if it is already greater than 1 0 TRUE 18 Segment reporting requires disclosure of each customer that accounts for more than 5 of total enterprise revenue FALSE AACSB Analytic Blooms Comprehension Learning Objective 9 Level of Learning 2 AACSB Reflective thinking Blooms Knowledge Learning Objective Appendix Level of Learning 1 3 5 Chapter 003 The Balance Sheet and Financial Disclosures Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase Essay Questions Terms A Accrued liabilities B Current liabilities C Intangible asset D Liquidity E Long term solvency F Notes receivable G Qualified opinion H Proxy statement I Times interest earned ratio J Unqualified opinion B J AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension 3 6 19 Will be satisfied in the next year or the operating cycle whichever is longer 20 Presented fairly in conformity with GAAP Chapter 003 The Balance Sheet and Financial Disclosures 21 The larger the better from a debt holder s perspective I F A AACSB Reflective thinking Blooms Comprehension 22 Supported by a negotiable instrument AACSB Reflective thinking Blooms Comprehension 23 Expenses incurred but not yet paid AACSB Reflective thinking Blooms Comprehension 3 7 Chapter 003 The Balance Sheet and Financial Disclosures Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase 24 Scope limitation or a departure from GAAP AACSB Reflective thinking Blooms Comprehension 25 Related to the debt to equity ratio Terms A Accrued liabilities B Current liabilities C Intangible asset D Liquidity E Long term solvency F Notes receivable G Qualified opinion H Proxy statement I Times interest earned ratio J Unqualified opinion G E D AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension 3 8 26 Relates to the amount of time before an asset is converted to cash or a liability is paid Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase Chapter 003 The Balance Sheet and Financial Disclosures 27 Recorded when an expense is incurred but not yet paid AACSB Reflective thinking Blooms Comprehension 28 Ownership of an exclusive right AACSB Reflective thinking Blooms Comprehension Terms A Cash equivalent B Current assets C Debt to equity ratio D Disclaimer E Inventories F Operational assets G Proxy statement H Short term investments I Subsequent events J Summary of significant accounting policies 29