Balance Sheet

Question 1

Historical Cost

Answer 1

Land, Prepaid insurance

Question 2

Amortized Historical Cost

Answer 2

Fixed assets

Question 3

FMV

Answer 3

marketable securities, derivatives

Question 4

Net Realizable Value

Answer 4

Net value an entity thinks it can realize

A/R less uncollectible

Question 5

PV

Answer 5

Projection of cash flows discounted back to today

e.g. bonds

Question 6

Contra/Adjunct

Answer 6

Contra - subtracted from balance sheet accounts

adjunct - added to the balance sheet accounts

both can either be dr or cr

Question 7

Current Assets

Answer 7

Received or consumed within one year - a/r, prepaid expenses, short-term investments

Question 8

Current Liabilities

Answer 8

Expected to be etinguished with current assets or another liability within one year/operating cycle - a/p, accrued expenses

Question 9

Historical Cost

Answer 9

Some accounts are measured and reported at a fixed, unchanging historical amount. Examples include land, some investments, cash, prepaids, many current liabilities, contributed capital accounts, and treasury stock.

Question 10

Depreciated, Amortized, or Depleted Historical Cost

Answer 10

Other accounts reflect the remaining portion of a fixed unchanging historical amount. In some cases, the original cost or other relevant amount is maintained in one account, with a contra or adjunct account being subtracted from or added to that account for the purpose of reporting net book value (carrying value). Examples include property, plant and equipment; intangibles; natural resources.

Question 11

Market Value

Answer 11

Examples include investments in marketable securities (stocks and bonds) for which the holding firm does not have significant influence and does not intend to hold to maturity (in the case of bonds). “Fair value,” often used synonymously with “market value,” is the selling price for assets and amount currently required to retire a liability. These are “exit” values rather than “entry” values.

Question 12

Net Realizable Value

Answer 12

This is another type of current value but one that is less in amount than the historical value. Net realizable value is the amount the firm expects to receive from the sale or collection of the item. Examples include accounts receivable and inventories.

Question 13

Present Value

Answer 13

The present value of a future cash flow is its discounted value. This is the primary measurement basis for noncurrent debt (mainly bonds and long-term notes). The present value is the measure of current sacrifice when extinguishing the debt at the balance sheet date.

Question 14

Aggregate of More than One Valuation Basis

Answer 14

Retained earnings-net income reflects all measurement bases through revenue and expense recognition.

Question 15

Noncurrent Assets

Answer 15

Long-term investments, property, plant and equipment, intangibles, “other” assets (including long-term prepaids);
Goodwill is by far the largest intangible in terms of dollar amount for many firms and equals the excess of the purchase price paid for another business over the market value of its net assets. Only when a firm is purchased by another is goodwill recognized in the balance sheet of the purchaser. Internally, generated goodwill is expensed.

Question 16

Noncurrent Liabilities

Answer 16

Notes payable, bonds payable, lease liabilities, pension liabilities, postretirement healthcare liabilities, deferred taxes. (Although this item can appear in all four possible classifications (i.e., CA, NCA, CL, and NCL), the NCL category is by far the largest.)

Question 17

Owners’ Equity

Answer 17

2 MAIN TYPES: 
Contributed capital (common stock, preferred stock, contributed capital in excess of par), treasury stock (a contra account);
Retained earnings (total net income to date less total dividends to date).

Question 18

Valuation Accounts

Answer 18

A valuation account is one used to increase or decrease the book value of an item to a measure of current value.
Not all contra or adjunct accounts are valuation accounts, but all valuation accounts are contras or adjuncts.

Question 19

Market Capitalization

Answer 19

The total value of the firm’s outstanding stock, for a publicly traded firm this can be found on internet financial sites

Question 20

Control and Subsidiary Accounts

Answer 20

The accounts reside in the ledger. The general ledger contains all accounts to be used in preparing the balance sheet. Some of these accounts are called control accounts because they report the aggregate balance of several subsidiary accounts.

The accounts receivable (AR) control account balance (in the general ledger) is the sum of the subsidiary AR account balances. For example, a firm has 100 subsidiary AR accounts, each one for a different customer. The sum of the 100 subsidiary AR balances equals the balance in the control AR account balance, which is reported on the balance sheet.

Question 21

Special Journals

Answer 21

High volume similar transactions are recorded in special journals (e.g., utility bill, the sales journal) with very infrequent transactions being recorded in the general journal. Special journals facilitate the review and control of similar transactions (all sales, all cash receipts etc.).