2.1 Balance Sheet (Statement of Financial Position)

Question 1

What does the balance sheet help a user assess about an entity?

Answer 1

• liquidity
• financial flexibility
• risk

Question 2

The left side of the balance sheet represents the entity’s ______ structure

Answer 2

Resource structure which consists of assets current & noncurrent

Question 3

How are assets generally reported on the balance sheet?

Answer 3

in order of liquidity

Question 4

Current Assets:

Define current assets

Answer 4

• cash and other assets or resources expected to be realized in cash or sold or consumed during the normal operating cycle of the business

Question 5

Current Assets:

What is an operating cycle?

Answer 5

• the average time between the acquisition of resources and the final receipt of cash from their sale as the culmination of revenue generating activities

Question 6

Current Assets:

What time-frame is used for segregating current from non-current assets if the cycle is < a year?

Answer 6

1 year is used

Question 7

Current Assets:

Identify the 6 items included as current assets

Answer 7

1 - Cash and cash equivalents;

2 - Certain individual trading, available-for-sale, and held-to-maturity debt securities;

3 - Receivables;

4 - Inventories;

5 - Prepaid expenses; and

6 - Certain individual investments in equity securities

Question 8

Non-current Assets:

Define investments and funds as non-current assets

Answer 8

nonoperating items intended to be held beyond the longer of 1 year or the operating cycle

Question 9

Non-current Assets:

Identify the 4 assets classified as investments and funds that are regarded as non-current assets

Answer 9

1 - Investments in equity securities made to control or influence another entity

2 - Other non-current equity securities (AFS, HTM)

3 - Funds restricted for other than current operations,
- to retire long-term debt,
- satisfy pension obligations, or
- pay for the acquisition or
construction of non-current assets

4 - Capital assets not used in current operations,

       - Idle facilities or
       - Land held for a future plant site

Question 10

Non-current Assets:

Identify the 5 categories of non-current assets

Answer 10

1 - investments and funds

2 - property, plant & equipment (PPE)

3 - intangible assets

4 - other non-current assets

5 - deferred charges

Question 11

Non-current Assets:

Define PPE or property plant and equipment

Answer 11

tangible operating items recorded at cost and reported net of any accumulated depreciation

Question 12

Non-current Assets:

Provide examples of PPE

Answer 12

• Land and natural resources subject to depletion, e.g., oil and gas
• Buildings, equipment, furniture, fixtures, leasehold improvements, land improvements, noncurrent assets under construction, and other depreciable assets

Question 13

Non-current Assets:

Define intangible assets and provide an example

Answer 13

• non-financial assets without physical substance

- Examples are patents and goodwill

Question 14

Non-current Assets:

Define “other non-current assets” and provide an example

Answer 14

• non-current assets not readily classifiable elsewhere

- Examples are deferred tax assets and long-term receivables

Question 15

Non-Current Assets:

Define “deferred charges” as a non-current asset

Answer 15

long-term prepayments

Question 16

Current Liabilities:

Define current liabilities

Answer 16

obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets, or the creation of other current liabilities

Question 17

Current Liabilities:

When are current liabilities generally expected to be settled or liquidated?

Answer 17

in the ordinary course of business during the longer of 1 year or the operating cycle.

Question 18

Current Liabilities:

Identify the 5 common categories of current liabilities

Answer 18

1 - trade payables

2 - other payables or accruals arising from operations

3 - unearned revenues

4 - other current liabilities

5 - non-current obligations callable

Question 19

Current Liabilities:

Define trade payables

Answer 19

obligations incurred for items entering or used during the operating cycle (materials & supplies used in producing goods or services for sale)

Question 20

Current Liabilities:

Provide an example of “other payables” arising from operations that are listed as current liabilities

Answer 20

accruals such as:
- wages

• salaries
• rentals
• royalties
• taxes

Question 21

Current Liabilities:

Define unearned revenues

Answer 21

• arise from collections or receiving payment in advance of delivering goods or performing services

Question 22

Current Liabilities:

Identify “other current liabilities”

Answer 22

• Short-term notes given to acquire capital assets

- Payments on the current portion of serial bonds or other non-current debt

Question 23

Current Liabilities:

Define “non-current obligations callable” and how are they classified as current liabilities

Answer 23

• violation of a long term debt agreement that will become due or is currently due if the violation is not cured within a specified time frame.

Question 24

Current Liabilities:

How are obligations classified on the balance sheet when an entity intends to refinance them on a non-current basis and demonstrates an ability to do so?

Answer 24

non-current liabilities

Question 25

Current Liabilities:

How is the ability to refinance demonstrated?

Answer 25

• Entering into a financing agreement meeting all conditions before the balance sheet is issued.
• Issuing a non-current obligation or equity securities after the end of the reporting period but before issuance of the balance sheet.

Question 26

Current Liabilities:

Define working capital

Answer 26

current assets - current liabilities

Question 27

Current Liabilities:

How are debts to be paid from funds accumulated in non-current asset accounts classified on the balance sheet?

Answer 27

as current liability

Question 28

Non-Current Liabilities:

Identify the 7 items that are commonly classified as non-current liabilities

Answer 28

non-current portions of the following

1 - non-current notes and bonds

2 - lease liability

3 - most post-retirement benefit obligations

4 - obligations under product or service warranty agreements

5 - Advances for non-current commitments to provide goods or services

6 - Deferred revenue

7 - deferred tax liabilities arising from interperiod tax allocation

Question 29

Equity or Net Assets:

Identify the 4 items equity consists of:

Answer 29

1 - capital contributed by owners

2 - retained earnings

3 - accumulated other comprehensive income

4 - non-controlling interest in a consolidated entity

Question 30

Equity or Net Assets:

Define equity or net assets for a not-for-profit entity

Answer 30

the residual after total liabilities are subtracted from total assets.

Question 31

Equity or Net Assets:

How is treasury stock presented in the equity section of the balance sheet?

Answer 31

as a reduction of total equity

Question 32

Equity or Net Assets:

What is treasury stock?

Answer 32

the entity’s own common stock that it has repurchased