Chapter 2

Question 1

IASB

Answer 1

International Accounting Standards Board

Question 2

Operating cycles

Answer 2

the average time it takes to go from cash to cash in producing revenues

Question 3

Current assets

Answer 3

Assets a company expects to convert cash, sell, or use up within one year or its operating cycle, whichever is longer

Question 4

Trading investments

Answer 4

investments in debt or equity securities that are intended to be sold within a year

Question 5

Accounts receivable

Answer 5

amounts owed to a company by customers who purchased products or services on credit (on account)

Question 6

Notes receivable

Answer 6

amounts owed to a company by customers or others that normally bear interest – distinguishes from accounts receivables

Question 7

Inventory

Answer 7

consists of goods held for sale to customers or that will be used to produce goods that will be sold to customers

Question 8

Supplies

Answer 8

include consumable items like office supplies and cleaning supplies that are not for sale

Question 9

Prepaid expenses

Answer 9

represent the cost of expenses like rent and insurance paid in advance of use

Question 10

Non current assets (long-term assets)

Answer 10

Assets not expected to be converted to cash, sold, or used in the business within one year or one preparing cycle

Question 11

Cash equivalents

Answer 11

short term, high liquid investments with very little risk that can be easily converted to cash

Question 12

Trading investments

Answer 12

Investments in debt or equity securities of another company that are acquired principally for the purpose of selling in the near term

Question 13

Long term investment

Answer 13

Investments in debt securities intended to be held for many years to earn interest, and equity securities of other companies held to generate investment income or for strategic reasons

Question 14

Intangible assets

Answer 14

Assets that have no physical substance but nonetheless have significant value

Question 15

Depreciation

Answer 15

process of allocating cost over estimated useful life

Question 16

Goodwill

Answer 16

an asset similar to intangibles in that it has no physical substance and will generate future benefits

Question 17

Bank indebtedness

Answer 17

short term loan from the bank, typically occurring when a company uses an operating line of credit to cover shortfalls

Question 18

Deferred revenue

Answer 18

represents an obligation to provide a service or product in the future because a payment for this good or service has been received in advance

Question 19

Current liabilities

Answer 19

Obligations that are to be paid or settled within the next year or operating cycle, whichever is longer

Question 20

Notes payable (or loans payable)

Answer 20

promises in writing to pay amounts owed, often to banks but also to suppliers or others

Question 21

Mortgage payable

Answer 21

are similar to long term notes but have property (such as land or a building) pledged as security for the loan

Question 22

Bonds payable

Answer 22

typically issued by large corporations and governments, are like notes payable but often trade in active markets, similar to shares

Question 23

Lease liabilities

Answer 23

include amount that a company will pay in the future on long term rental contracts used for equipment or other property

Question 24

Pension and benefit obligations

Answer 24

amounts companies owe employees for retirement benefits

Question 25

Deferred income tax liabilities

Answer 25

income taxes pertaining to items in current year income that a company will likely pay in a subsequent period

Question 26

Deferred revenue

Answer 26

a liability for products or services that a customer has paid for but will only receive from the company in the future

Question 27

Non-current liabilities

Answer 27

Obligations expected to be paid or settled after one year

Question 28

Shareholders equity

Answer 28

a residual amount equal to the difference between a company’s assets and its liabilities

Question 29

Share capital

Answer 29

the amounts received from investors when the company sells them common shares or preferred shares or both

Question 30

Retained earnings

Answer 30

the company’s cumulative earnings (or net income) that have been retained rather than being distributed to shareholders through dividends