BS or Statement of Financial Position

Question 1

Current Liabilities : Examples

Debits or Obligations that are due within one year or less:

Answer 1

Accounts payable, Notes payable (due within 1 year), Dividends Payable, Income Tax Payable, deferred revenues (due within 1 year), Loan Payable (within 1 year), salaries payable, sales tax payable, Accrued Expenses, Serial Bond (due within 3 months), Unsecured notes (due within 3 months/year), Unearned revenue, current portion of long term debt, other short-term debt

Question 2

Long term Liabilities

Answer 2

Notes/Bonds payable, DTL, ST Debt refinanced to LT debt, non-current portion of finance lease

Question 3

Current Assets

Answer 3

(1) A/R less: Allowance for credit losses (debit balance)
(2) CIP in excess of billings on LT contracts
(3) Prepaid taxes if income tax expense has been recorded
(4) Prepaid expenses

Question 4

Formula of calculating Retained Earnings

Answer 4

NI - Dividends Paid = RE

Question 5

What’s the difference between accruals and deferrals?

Answer 5

Accruals - future cash receipts and payments but past services. e.g. A co. provides services in Dec but does not receive payment until Jan. The revenue is recognized in Dec because that’s when the service was provided. accruals are recognized becfore cash is exchanged.

Deferrals - expected future revenue but past cash receipts(for which service has not been provided yet)e.g. prepaid insurace for the next year received upfront. Payment is made immediately, but expense is recognized monthly as the insurance is used. Deferrals involve cash being exchanged before recognition.

Question 6

True or False : (a) Income Statement (IS) reports a measure of the performance of the entity for a period of time. It does not say much about liquidity or ability to adapt to changing financial conditions. (b) SOCF reports cash flows in the past: the sources and outflows of cash categorized by operating, financing and investing. (c) BS provides info on company’s liquidity and financial flexibility.

Answer 6

BS provides info on company’s liquidity
and financial flexibility - True

Question 7

Contra accounts are reported on the _________ and are generally netted with another account such as Accumulated Depreciation (equipment account will be netted with accumulated depreciation)

Answer 7

Balance Sheet

Question 8

_______________is a formerly outstanding stock that has been repurchased by the issuing company and reduces total shareholders’ equity on the balance sheet..

Answer 8

Treasury Stock (It is a contra equity account reported as a reduction of stockholders’ equity and excluded from total assets.)

Question 9

True or False: Stock Dividends declared reduces RE and increases common stock (Liability) . No effect on equity

Answer 9

True

Question 10

True or False: DTL is a non-current liability

Answer 10

True, DTL is a long term liability (operating activity)

Question 11

Examples of Contra assets are:

Answer 11

Accumulated Depreciation and allowance for doubtful debts (they both decrease the asset value or are netted of)

Question 12

Examples of Contra Liabilities are:

Answer 12

Discounts on notes or bonds payable (Contra liabilities hold a debit balance)

Question 13

Example of Contra Equity Account is:

Answer 13

Treasury Stock, Contra equity reduces the total number of outstanding shares on the balance sheet.
Treasury stock represents the amount paid to buyback stock.

Question 14

Marketable Securities

Answer 14

Preferred equity, Debt (always non-voting), Common equity - own less than 20%, reported at Market Value

Question 15

Non-Marketable Securities/Investment

Answer 15

Common equity only (inv in another company stock) - significant influence (20-50%), Control - more than 50%

Question 16

All Deferred Tax Liabilities (DTL) are long term

Answer 16

True

Question 17

Dividends payable is a _________ as soon as they are declared

Answer 17

CURRENT LIABILITY

Question 18

Dividends in arrears on cumulative preferred stock are NOT a liability but must be disclosed in the _________ FS

Answer 18

NOTES to Financial statements

Question 19

Current Liabilties

Answer 19

e.g. The bank loan was in violation of the loan agreement. If the lender does not waive the right, the violation typically results in the entire debt being classified as current becuase lender would like to call the debt immediately making it current.