55 SURGENT 2111

Question 1

What is a balance sheet prepared in account form?

Answer 1

Assets are on the left
Equities are on the right

Question 2

What three major categories typically appear on corporate balance sheets?

Answer 2

Assets, Liabilities, Equity

Question 3

Assets:

Answer 3

Definition (SFAC 6): Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Subcategories: Current assets; Investments; Property, plant, and equipment; Intangible assets; Other

Question 4

Liabilities:

Answer 4

Definition (SFAC 6): Probable future sacrifices of economic benefits arising from present obligations to transfer assets or provide services to other entities as a result of past transactions

Subcategories: Current; Noncurrent

Question 5

Equity:

Answer 5

Definition (SFAC 6): The residual interest in the assets of an entity that remains after deducting its liabilities. For a corporation, equity is the ownership interest (identified as “stockholders’ equity”).

Subcategories: Contributed capital (Par/stated value, Amounts in excess of par/stated value, Donated capital, Capital arising from asset revaluation); Retained earnings; Treasury stock; Accumulated other comprehensive income

Question 6

What five types of assets typically appear on corporate balance sheets?

Answer 6

current assets

investments

property, plant and equipment

intangible assets

other

Question 7

What two types of liabilities typically appear on corporate balance sheets?

Answer 7

current liabilities (short-term)
noncurrent liabilities (long-term)

Question 8

What equity categories typically appear on corporate balance sheets?

Answer 8

• Contributed capital
  1. par/stated value
  2. amounts in excess of par/stated value
  3. donated capital
  4. capital arising from asset revaluation
• Retained earnings
• Treasury stock
• Accumulated other comprehensive income

Question 9

What is the report form of a balance sheet?

Answer 9

It includes assets at the top of the statement and equities at the bottom

Question 10

What is the financial position form of a balance sheet?

Answer 10

It shows the net working capital (by deducting current liabilities from current assets) adds noncurrent assets, deducts noncurrent liabilities, and finally nets to the stockholders’ equity, which is presented in detail in a balancing section.

Question 11

Is it proper to offset assets and liabilities in the balance sheet?

Answer 11

No. A general principle of accounting is that the offsetting of assets and liabilities in the balance sheet is improper except where a right of setoff exists.

Question 12

When is the right of setoff allowed?

Answer 12

When the following specified conditions are met:
1. Each of the two parties owes the other determinable amounts
2. The reporting party ahs the right to set off the amount owed with amount owed by the other party.
3. The reporting entity intends to set off.
4. The right of setoff is enforceable at law.

For example, a debtor with a payable to an entity many not offset a receivable from that same entity and display only the difference as a net payable or receivable unless those four conditions are met.

Question 13

A general principle of accounting is that the offsetting of assets and liabilities in the balance sheet is improper except where a right of setoff exists. For example, a debtor with a payable to an entity may not offset a receivable from that same entity and display only the difference as a net payable or receivable unless the following specified conditions are met for the right of setoff to exist:

a. Each of the two parties owes the other determinable amounts.
b. The reporting party has the right to set off the amount owed with the amount owed by the other party.
c. The reporting entity intends to set off.
d. The right of setoff is enforceable at law.

Reference: 2111.04