Balance Sheet and Disclosures

Question 1

What is another title for an entity’s balance sheet?

Answer 1

Statement of financial position.

Question 2

Which of the following are not classified as current assets on the balance sheet?

1-Inventory
2-Trading Securities
3-Prepaid expenses
4-Cash surrender value of life insurance policy
5-Trade A/R to be collected within 12 months

Answer 2

1 - Inventory - CA
2- Trading Securities - CA
3- Prepaid expenses - long term Non-current generally CA
4- Cash surrender value of life insurance policy - non-current
5-Trade A/R - CA

Question 3

Events having a material effect on the F/S, but occurring subsequent to the balance sheet date and prior to issuance, are either type 1 or type 2 subsequent events. Describe the treatment for type 1 and type 2 subsequent events.

Answer 3

Type 1 - require an adjustment be made to the F/S being issued

Type 2 - require a note disclosure be made in the F/S being issued.

Question 4

Where is the Summary of Significant Accounting Policies reported? What does it disclose?

Answer 4

The preferred presentation of Summary of significant accounting policies is reported either as the first note to the F/S or separately just before the notes to the F/S. This summary details the accounting policies of the firm and how they are applied.

The summary includes judgments made by management on the appropriateness of principles in particular when (1) the firm chose from acceptable alternatives, (2) there are principles and methods peculiar to the firms industry, and (3) any unusual or innovative applications of GAAP.

Question 5

What disclosure requirements must be met for cash payments required of long-term liabilities?

Answer 5

To help readers of F/S assess the future cash flows created by long-term liabilities, cash payments in each of the next five years must be reported along with the total of all cash payments.

Question 6

Related-party transactions must be disclosed. Who qualifies as a related party of an entity?

Answer 6

• a parent and its subsidiaries, including subsidiaries, including subsidiaries of a common parent
• entity and employee trusts managed by the entity’s management
• an entity and its owner or known beneficial owners who hold 10% or more of the voting stock
• an entity or any of entity if one party can significantly influence the other
• a party that can significantly influence the transacting parties or has an ownership interest in one and can significantly influence the other
• an entity and its members of management and their immediate families

Question 7

Material related-party transactions must be disclosed. What disclosure is required?

Answer 7

• nature of the relationship
• description and terms of the transaction and the amounts
• balances currently due
• certain tax information if the entity is part of a group that files a consolidated return