Ch 5 (IFSA) Understanding Balance Sheets Flashcards

1
Q

The starting place for analyzing a company’s financial position is typically ___.

A

the balance sheet

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2
Q

___ reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.

A

Revenue

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3
Q

Revenue reported on ___ before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.

A

the income statement

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4
Q

Revenue reported on the income statement before cash is received results in ___, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.

A

accrued revenue or accounts receivable

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5
Q

Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an ___. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.

A

asset

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6
Q

Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on ___ as an increase in accounts receivable and an increase in retained earnings.

A

the balance sheet

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7
Q

Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in ___ and an increase in retained earnings.

A

accounts receivable

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8
Q

Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in ___.

A

retained earnings

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9
Q

Cash received before ___ is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.

A

revenue

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10
Q

Cash received before revenue is to be reported on ___ results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.

A

the income statement

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11
Q

Cash received before revenue is to be reported on the income statement results in ___, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.

A

a deferred revenue or unearned revenue

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12
Q

Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a ___. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.

A

liability

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13
Q

Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, ___ reflects an increase in cash and an increase in liabilities.

A

the balance sheet

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14
Q

Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in ___ and an increase in liabilities.

A

cash

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15
Q

Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in ___.

A

liabilities

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16
Q

___ reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.

A

Expense

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17
Q

Expense reported on ___ before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.

A

the income statement

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18
Q

Expense reported on the income statement before cash is paid results in ___, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.

A

an accrued expense

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19
Q

Expense reported on the income statement before cash is paid results in an accrued expense, which is a ___. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.

A

liability

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20
Q

Expense reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on ___ as an increase in liabilities and a decrease in retained earnings.

A

the balance sheet

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21
Q

Expense reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in ___ and a decrease in retained earnings.

A

liabilities

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22
Q

Expense reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in ___.

A

retained earnings

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23
Q

Cash paid before an ___ is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, cash is reduced and prepaid assets are increased

A

expense

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24
Q

Cash paid before an expense is to be reported on ___ results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, cash is reduced and prepaid assets are increased

A

the income statement

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25
Q

Cash paid before an expense is to be reported on the income statement results in a ___, which is an asset. On the balance sheet, cash is reduced and prepaid assets are increased

A

deferred expense, also known as a prepaid expense

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26
Q

Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an ___. On the balance sheet, cash is reduced and prepaid assets are increased

A

asset

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27
Q

Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On ___, cash is reduced and prepaid assets are increased

A

the balance sheet

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28
Q

Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, ___ is reduced and prepaid assets are increased

A

cash

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29
Q

Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, cash is reduced and ___ are increased

A

prepaid assets

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30
Q

The key purposes of equity capital are to ___.

A

provide stability and to absorb losses, thereby providing a measure of protection to creditors in the event of liquidation

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31
Q

The key purposes of ___ are to provide stability and to absorb losses, thereby providing a measure of protection to creditors in the event of liquidation.

A

equity capital

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32
Q

The ___ of a company should have three important characteristics:
- It should be permanent.
- It should not impose mandatory fixed charges against earnings (in the case of banks).
- It should allow for legal subordination to the rights of creditors.

A

capital

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33
Q

The capital of a company should have three important characteristics:
- ___.
- It should not impose mandatory fixed charges against earnings (in the case of banks).
- It should allow for legal subordination to the rights of creditors.

A

It should be permanent

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34
Q

The capital of a company should have three important characteristics:
- It should be permanent.
- ___.
- It should allow for legal subordination to the rights of creditors.

A

It should not impose mandatory fixed charges against earnings (in the case of banks)

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35
Q

The capital of a company should have three important characteristics:
- It should be permanent.
- It should not impose mandatory fixed charges against earnings (in the case of banks).
- ___.

A

It should allow for legal subordination to the rights of creditors

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36
Q

When using the ___, assets, liabilities, and equity are listed in a single column on the balance sheet.

A

report format

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37
Q

When using the report format, assets, liabilities, and equity are ___ on the balance sheet.

A

listed in a single column

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38
Q

When using the report format, assets, liabilities, and equity are listed in a single column on ___.

A

the balance sheet

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39
Q

The ___ follows the pattern of the traditional general ledger accounts, with assets at the left and liabilities and equity at the right of a central dividing line, it’s the most commonly preferred and used by financial statement preparers.

A

account format

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40
Q

The account format ___, it’s the most commonly preferred and used by financial statement preparers.

A

follows the pattern of the traditional general ledger accounts, with assets at the left and liabilities and equity at the right of a central dividing line

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41
Q

Grouping together the various classes of assets and liabilities is a format described as ___.

A

a classified balance sheet

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42
Q

___ is a format described as a classified balance sheet.

A

Grouping together the various classes of assets and liabilities

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43
Q

___ should distinguish between current and noncurrent assets and between current and noncurrent liabilities unless a presentation based on liquidity provides more relevant and reliable information (e.g., in the case of a bank or similar financial institution).

A

The balance sheet

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44
Q

The balance sheet should distinguish between ___ unless a presentation based on liquidity provides more relevant and reliable information (e.g., in the case of a bank or similar financial institution).

A

current and noncurrent assets and between current and noncurrent liabilities

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45
Q

The balance sheet should distinguish between current and noncurrent assets and between current and noncurrent liabilities unless ___.

A

a presentation based on liquidity provides more relevant and reliable information (e.g., in the case of a bank or similar financial institution)

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46
Q

It should be clear that in essence, ___ is also an attempt at incorporating liquidity expectations into the structure of the balance sheet.

A

the current/noncurrent distinction

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47
Q

It should be clear that in essence, the current/noncurrent distinction is also an attempt at ___ into the structure of the balance sheet.

A

incorporating liquidity expectations

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48
Q

It should be clear that in essence, the current/noncurrent distinction is also an attempt at incorporating liquidity expectations into the structure of ___.

A

the balance sheet

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49
Q

___ is the amount of time that elapses between spending cash for inventory and supplies and collecting the cash from its sales to customers.

A

A company’s operating cycle

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50
Q

A company’s operating cycle is ___.

A

the amount of time that elapses between spending cash for inventory and supplies and collecting the cash from its sales to customers

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51
Q

___ is called working capital.

A

The excess of current assets over current liabilities

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52
Q

The excess of current assets over current liabilities is called ___.

A

working capital

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53
Q

The level of ___ tells analysts about the ability of an entity to meet liabilities as they fall due.

A

working capital

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54
Q

The level of working capital tells analysts about ___.

A

the ability of an entity to meet liabilities as they fall due

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55
Q

___ is the amount at which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s-length transaction.

A

Fair value (sometimes referred to as fair market value)

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56
Q

Fair value (sometimes referred to as fair market value) is ___.

A

the amount at which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s-length transaction

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57
Q

When the asset or liability trades regularly, its ___ is usually readily determinable from its market price.

A

fair value

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58
Q

When the asset or liability trades regularly, its fair value is usually readily determinable from ___.

A

its market price

59
Q

The ___ of an asset or liability is its cost or fair value at acquisition, including any costs of acquisition and/or preparation.

A

historical cost

60
Q

The historical cost of an asset or liability is ___.

A

its cost or fair value at acquisition, including any costs of acquisition and/or preparation

61
Q

In limited circumstances other measurement bases are sometimes used, such as ___ (the cost to replace an asset) or present value (the present discounted value of future cash flows).

A

current cost

62
Q

In limited circumstances other measurement bases are sometimes used, such as current cost (___) or present value (the present discounted value of future cash flows).

A

the cost to replace an asset

63
Q

In limited circumstances other measurement bases are sometimes used, such as current cost (the cost to replace an asset) or ___ (the present discounted value of future cash flows).

A

present value

64
Q

In limited circumstances other measurement bases are sometimes used, such as current cost (the cost to replace an asset) or present value (___).

A

the present discounted value of future cash flows

65
Q

___ should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • Accounting policies, including the cost formulas used.
  • Total carrying amount of inventories and amount per category.
  • Amount of inventories carried at fair value less costs to sell.
  • Amount of any write - downs and reversals of any write- down.
  • Circumstances or events that led to the reversal of a write - down.
  • Inventories pledged as security for liabilities.
  • Amount of inventories recognized as an expense.
A

The financial statements

66
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on ___:

  • Accounting policies, including the cost formulas used.
  • Total carrying amount of inventories and amount per category.
  • Amount of inventories carried at fair value less costs to sell.
  • Amount of any write - downs and reversals of any write- down.
  • Circumstances or events that led to the reversal of a write - down.
  • Inventories pledged as security for liabilities.
  • Amount of inventories recognized as an expense.
A

the balance sheet

67
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • ___.
  • Total carrying amount of inventories and amount per category.
  • Amount of inventories carried at fair value less costs to sell.
  • Amount of any write - downs and reversals of any write- down.
  • Circumstances or events that led to the reversal of a write - down.
  • Inventories pledged as security for liabilities.
  • Amount of inventories recognized as an expense.
A

Accounting policies, including the cost formulas used

68
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • Accounting policies, including the cost formulas used.
  • ___.
  • Amount of inventories carried at fair value less costs to sell.
  • Amount of any write - downs and reversals of any write- down.
  • Circumstances or events that led to the reversal of a write - down.
  • Inventories pledged as security for liabilities.
  • Amount of inventories recognized as an expense.
A

Total carrying amount of inventories and amount per category

69
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • Accounting policies, including the cost formulas used.
  • Total carrying amount of inventories and amount per category.
  • ___.
  • Amount of any write - downs and reversals of any write- down.
  • Circumstances or events that led to the reversal of a write - down.
  • Inventories pledged as security for liabilities.
  • Amount of inventories recognized as an expense.
A

Amount of inventories carried at fair value less costs to sell

70
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • Accounting policies, including the cost formulas used.
  • Total carrying amount of inventories and amount per category.
  • Amount of inventories carried at fair value less costs to sell.
  • ___
  • Circumstances or events that led to the reversal of a write - down.
  • Inventories pledged as security for liabilities.
  • Amount of inventories recognized as an expense.
A

Amount of any write - downs and reversals of any write- down

71
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • Accounting policies, including the cost formulas used.
  • Total carrying amount of inventories and amount per category.
  • Amount of inventories carried at fair value less costs to sell.
  • Amount of any write - downs and reversals of any write- down.
  • ___.
  • Inventories pledged as security for liabilities.
  • Amount of inventories recognized as an expense.
A

Circumstances or events that led to the reversal of a write - down

72
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • Accounting policies, including the cost formulas used.
  • Total carrying amount of inventories and amount per category.
  • Amount of inventories carried at fair value less costs to sell.
  • Amount of any write - downs and reversals of any write- down.
  • Circumstances or events that led to the reversal of a write - down.
  • ___.
  • Amount of inventories recognized as an expense.
A

Inventories pledged as security for liabilities

73
Q

The financial statements should disclose the following information related to the measures used for assets and liabilities shown on the balance sheet:

  • Accounting policies, including the cost formulas used.
  • Total carrying amount of inventories and amount per category.
  • Amount of inventories carried at fair value less costs to sell.
  • Amount of any write - downs and reversals of any write- down.
  • Circumstances or events that led to the reversal of a write - down.
  • Inventories pledged as security for liabilities.
  • ___.
A

Amount of inventories recognized as an expense

74
Q

___ are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • Specific accounting policies that were used in compiling the financial statements.
  • Terms of debt agreements.
  • Lease information.
  • Off-balance-sheet financing.
  • Breakdowns of operations by important segments.
  • Contingent assets and liabilities.
  • Detailed pension plan disclosure.
A

The notes to financial statements and management’s discussion and analysis

75
Q

The notes to financial statements and management’s discussion and analysis are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • __.
  • Terms of debt agreements.
  • Lease information.
  • Off-balance-sheet financing.
  • Breakdowns of operations by important segments.
  • Contingent assets and liabilities.
  • Detailed pension plan disclosure.
A

Specific accounting policies that were used in compiling the financial statements

76
Q

The notes to financial statements and management’s discussion and analysis are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • Specific accounting policies that were used in compiling the financial statements.
  • Terms of debt agreements.
  • ___.
  • Off-balance-sheet financing.
  • Breakdowns of operations by important segments.
  • Contingent assets and liabilities.
  • Detailed pension plan disclosure.
A

Lease information

76
Q

The notes to financial statements and management’s discussion and analysis are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • Specific accounting policies that were used in compiling the financial statements.
  • ___.
  • Lease information.
  • Off-balance-sheet financing.
  • Breakdowns of operations by important segments.
  • Contingent assets and liabilities.
  • Detailed pension plan disclosure.
A

Terms of debt agreements

77
Q

The notes to financial statements and management’s discussion and analysis are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • Specific accounting policies that were used in compiling the financial statements.
  • Terms of debt agreements.
  • Lease information.
  • ___.
  • Breakdowns of operations by important segments.
  • Contingent assets and liabilities.
  • Detailed pension plan disclosure.
A

Off-balance-sheet financing

78
Q

The notes to financial statements and management’s discussion and analysis are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • Specific accounting policies that were used in compiling the financial statements.
  • Terms of debt agreements.
  • Lease information.
  • Off-balance-sheet financing.
  • ___.
  • Contingent assets and liabilities.
  • Detailed pension plan disclosure.
A

Breakdowns of operations by important segments

79
Q

The notes to financial statements and management’s discussion and analysis are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • Specific accounting policies that were used in compiling the financial statements.
  • Terms of debt agreements.
  • Lease information.
  • Off-balance-sheet financing.
  • Breakdowns of operations by important segments.
  • ___.
  • Detailed pension plan disclosure.
A

Contingent assets and liabilities

80
Q

The notes to financial statements and management’s discussion and analysis are integral parts of the U.S. GAAP and IFRS financial reporting processes and include information on such topics as the following:

  • Specific accounting policies that were used in compiling the financial statements.
  • Terms of debt agreements.
  • Lease information.
  • Off-balance-sheet financing.
  • Breakdowns of operations by important segments.
  • Contingent assets and liabilities.
  • ___.
A

Detailed pension plan disclosure

81
Q

___ is the estimated inventory selling price less the estimated costs of completion and costs necessary to make the sale.

A

The net realizable value (NRV)

82
Q

The net realizable value (NRV) is ___.

A

the estimated inventory selling price less the estimated costs of completion and costs necessary to make the sale

83
Q

___, used to measure the cost of inventories, should take into account the normal levels of materials, labor, and actual capacity.

A

Standard cost

84
Q

Standard cost, used to measure the cost of inventories, should take into account ___.

A

the normal levels of materials, labor, and actual capacity

85
Q

___ used to measure the cost of inventories, is where the sales value is reduced by the gross margin to calculate cost.

A

The retail method

86
Q

The retail method used to measure the cost of inventories, is where ___.

A

the sales value is reduced by the gross margin to calculate cost

87
Q

The advance payment of ___ creates an asset out of a transaction that would normally have resulted in an expense.

A

prepaid expenses

88
Q

The advance payment of prepaid expenses creates ___ out of a transaction that would normally have resulted in an expense.

A

an asset

89
Q

The advance payment of prepaid expenses creates an asset out of a transaction that would normally have resulted in ___.

A

an expense

90
Q

___ are amounts owed by a business to creditors as a result of borrowings that are evidenced by a (short-term) loan agreement.

A

Notes payable

91
Q

Notes payable are ___.

A

amounts owed by a business to creditors as a result of borrowings that are evidenced by a (short-term) loan agreement

92
Q

If any ___ are not used in company operations, they must be classified as investment assets.

A

tangible assets

93
Q

If any tangible assets are not used in company operations, they must be classified as ___.

A

investment assets

94
Q

In a purchase acquisition, the excess of the cost of acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired is described as ___ and is recognized as an asset.

A

goodwill

95
Q

In a purchase acquisition, ___ is described as goodwill and is recognized as an asset.

A

the excess of the cost of acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired

96
Q

In a purchase acquisition, the excess of the cost of acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired is described as goodwill and is recognized as an ___.

A

asset

97
Q

Many analysts believe that ___ should not be listed on the balance sheet, as it cannot be sold separately from the entity.

A

goodwill

98
Q

Many analysts believe that goodwill should not be listed on the balance sheet, as ___.

A

it cannot be sold separately from the entity

99
Q

Under IFRS and U.S. GAAP, ___ should be capitalized and tested for impairment annually.

A

goodwill

100
Q

Under IFRS and U.S. GAAP, goodwill should be capitalized and tested for ___ annually.

A

impairment

101
Q

An analyst should remove any distortion that the recognition, amortization, and impairment of ___ might create by adjusting the
company’s financial statements. Adjustments should be made by:
- Computing financial ratios using balance sheet data that exclude goodwill.
- Reviewing operating trends using data that exclude the amortization of goodwill or impairment to goodwill charges.
- Evaluating future business acquisitions by taking into account the purchase price paid relative to the net assets and earnings prospects of the acquired company.

A

goodwill

102
Q

An analyst should remove any distortion that the recognition, amortization, and impairment of goodwill might create by adjusting the
company’s financial statements. Adjustments should be made by:
- ___.
- Reviewing operating trends using data that exclude the amortization of goodwill or impairment to goodwill charges.
- Evaluating future business acquisitions by taking into account the purchase price paid relative to the net assets and earnings prospects of the acquired company.

A

Computing financial ratios using balance sheet data that exclude goodwill

103
Q

An analyst should remove any distortion that the recognition, amortization, and impairment of goodwill might create by adjusting the
company’s financial statements. Adjustments should be made by:
- Computing financial ratios using balance sheet data that exclude goodwill.
- ___.
- Evaluating future business acquisitions by taking into account the purchase price paid relative to the net assets and earnings prospects of the acquired company.

A

Reviewing operating trends using data that exclude the amortization of goodwill or impairment to goodwill charges

104
Q

An analyst should remove any distortion that the recognition, amortization, and impairment of goodwill might create by adjusting the
company’s financial statements. Adjustments should be made by:
- Computing financial ratios using balance sheet data that exclude goodwill.
- Reviewing operating trends using data that exclude the amortization of goodwill or impairment to goodwill charges.
- ___.

A

Evaluating future business acquisitions by taking into account the purchase price paid relative to the net assets and earnings prospects of the acquired company

105
Q

International accounting standards define ___ as a contract that gives rise to a financial asset of one entity, and a financial liability or equity instrument of another entity.

A

a financial instrument

106
Q

International accounting standards define a financial instrument as ___.

A

a contract that gives rise to a financial asset of one entity, and a financial liability or equity instrument of another entity

107
Q

According to SFAS No. 130, three alternative formats are allowed for presenting ___:
1. Below the line for net income in a traditional income statement (as a combined statement of net income and comprehensive income).
2. In a separate statement of comprehensive income that begins with the amount of net income for the year.
3. In a statement of changes in stockholders’ equity.

A

OCI and total comprehensive income

108
Q

According to SFAS No. 130, three alternative formats are allowed for presenting OCI and total comprehensive income:
1. ___.
2. In a separate statement of comprehensive income that begins with the amount of net income for the year.
3. In a statement of changes in stockholders’ equity.

A

Below the line for net income in a traditional income statement (as a combined statement of net income and comprehensive income)

109
Q

According to SFAS No. 130, three alternative formats are allowed for presenting OCI and total comprehensive income:
1. Below the line for net income in a traditional income statement (as a combined statement of net income and comprehensive income).
2. ___.
3. In a statement of changes in stockholders’ equity.

A

In a separate statement of comprehensive income that begins with the amount of net income for the year

110
Q

According to SFAS No. 130, three alternative formats are allowed for presenting OCI and total comprehensive income:
1. Below the line for net income in a traditional income statement (as a combined statement of net income and comprehensive income).
2. In a separate statement of comprehensive income that begins with the amount of net income for the year.
3. ___.

A

In a statement of changes in stockholders’ equity

111
Q

Two techniques used to analyze balance sheets adjusted for differences or changes are ___ and ratio analysis.

A

common-size analysis

112
Q

Two techniques used to analyze balance sheets adjusted for differences or changes are common-size analysis and ___.

A

ratio analysis

113
Q

Two techniques used to ___ are common-size analysis and ratio analysis.

A

analyze balance sheets adjusted for differences or changes

114
Q

___ involves stating all balance sheet items as a percentage of total assets.

A

Common-size analysis

115
Q

Common-size analysis involves ___.

A

stating all balance sheet items as a percentage of total assets

116
Q

In ___, the analyst may examine the level and trend of a ratio in relation to past values of the ratio for the company, thereby providing information on changes in the financial position of a company over time.

A

ratio analysis

117
Q

In ratio analysis, the analyst may ___.

A

examine the level and trend of a ratio in relation to past values of the ratio for the company, thereby providing information on changes in the financial position of a company over time

118
Q

___ are those involving balance sheet items only.

A

Balance sheet ratios

119
Q

Balance sheet ratios are ___.

A

those involving balance sheet items only

120
Q

___ fall under the heading of liquidity ratios (measuring the company’s ability to meet its short-term obligations) or solvency ratios (measuring the company’s ability to meet long-term and other obligations).

A

Balance sheet ratios

121
Q

Balance sheet ratios fall under the heading of ___ (measuring the company’s ability to meet its short-term obligations) or solvency ratios (measuring the company’s ability to meet long-term and other obligations).

A

liquidity ratios

122
Q

Balance sheet ratios fall under the heading of liquidity ratios (___) or solvency ratios (measuring the company’s ability to meet long-term and other obligations).

A

measuring the company’s ability to meet its short-term obligations

123
Q

Balance sheet ratios fall under the heading of liquidity ratios (measuring the company’s ability to meet its short-term obligations) or ___ (measuring the company’s ability to meet long-term and other obligations).

A

solvency ratios

124
Q

Balance sheet ratios fall under the heading of liquidity ratios (measuring the company’s ability to meet its short-term obligations) or solvency ratios (___).

A

measuring the company’s ability to meet long-term and other obligations

125
Q

Liquidity Ratios / ___: Current assets ÷ Current liabilities

A

Current

126
Q

Liquidity Ratios / Current: ___

A

Current assets ÷ Current liabilities

127
Q

Liquidity Ratios / ___: (Cash + Marketable securities + Receivables) ÷ Current liabilities

A

Quick (acid test)

128
Q

Liquidity Ratios / Quick (acid test): ___ ÷ Current liabilities

A

(Cash + Marketable securities + Receivables)

129
Q

Liquidity Ratios / Quick (acid test): (Cash + Marketable securities + Receivables) ÷ ___

A

Current liabilities

130
Q

Liquidity Ratios / ___: (Cash + Marketable securities) ÷ Current liabilities

A

Cash

131
Q

Liquidity Ratios / Cash: ___

A

(Cash + Marketable securities) ÷ Current liabilities

132
Q

Solvency Ratios / ___: Total long-term debt ÷ Total equity

A

Long-term debt to equity

133
Q

Solvency Ratios / Long-term debt to equity: ___

A

Total long-term debt ÷ Total equity

134
Q

Solvency Ratios / ___: Total debt ÷ Total equity

A

Debt to equity

135
Q

Solvency Ratios / Debt to equity: ___

A

Total debt ÷ Total equity

136
Q

Solvency Ratios / ___: Total debt ÷ Total assets

A

Total debt

137
Q

Solvency Ratios / Total debt: ___

A

Total debt ÷ Total assets

138
Q

Solvency Ratios / ___: Total assets ÷ Total equity

A

Financial leverage

139
Q

Solvency Ratios / Financial leverage: ___

A

Total assets ÷ Total equity

140
Q

___ serve the following purposes:
- They provide insights into the microeconomic relationships within a company that help analysts project earnings and free cash flow (which is necessary to determine entity value and creditworthiness).
- They provide insights into a company’s financial flexibility, which is its ability to obtain the cash required to meet financial obligations or to make asset acquisitions, even if unexpected circumstances should develop. Financial flexibility requires a company to possess financial strength (a level and trend of financial ratios that meet or exceed industry norms), lines of credit, or assets that can be easily used as a means of obtaining cash, either by their outright sale or by using them as collateral.
- They provide a means of evaluating management’s ability. Key performance ratios can serve as quantitative measures for ranking management’s ability relative to a peer group.

A

Financial ratios

141
Q

Financial ratios serve the following purposes:
- ___
- They provide insights into a company’s financial flexibility, which is its ability to obtain the cash required to meet financial obligations or to make asset acquisitions, even if unexpected circumstances should develop. Financial flexibility requires a company to possess financial strength (a level and trend of financial ratios that meet or exceed industry norms), lines of credit, or assets that can be easily used as a means of obtaining cash, either by their outright sale or by using them as collateral.
- They provide a means of evaluating management’s ability. Key performance ratios can serve as quantitative measures for ranking management’s ability relative to a peer group.

A

They provide insights into the microeconomic relationships within a company that help analysts project earnings and free cash flow (which is necessary to determine entity value and creditworthiness).

142
Q

Financial ratios serve the following purposes:
- They provide insights into the microeconomic relationships within a company that help analysts project earnings and free cash flow (which is necessary to determine entity value and creditworthiness).
- ___
- They provide a means of evaluating management’s ability. Key performance ratios can serve as quantitative measures for ranking management’s ability relative to a peer group.

A

They provide insights into a company’s financial flexibility, which is its ability to obtain the cash required to meet financial obligations or to make asset acquisitions, even if unexpected circumstances should develop. Financial flexibility requires a company to possess financial strength (a level and trend of financial ratios that meet or exceed industry norms), lines of credit, or assets that can be easily used as a means of obtaining cash, either by their outright sale or by using them as collateral.

143
Q

Financial ratios serve the following purposes:
- They provide insights into the microeconomic relationships within a company that help analysts project earnings and free cash flow (which is necessary to determine entity value and creditworthiness).
- They provide insights into a company’s financial flexibility, which is its ability to obtain the cash required to meet financial obligations or to make asset acquisitions, even if unexpected circumstances should develop. Financial flexibility requires a company to possess financial strength (a level and trend of financial ratios that meet or exceed industry norms), lines of credit, or assets that can be easily used as a means of obtaining cash, either by their outright sale or by using them as collateral.
- ___

A

They provide a means of evaluating management’s ability. Key performance ratios can serve as quantitative measures for ranking management’s ability relative to a peer group.