Chapter 4 Test 1

Question 1

What is the balance sheet also known as?

Answer 1

Statement of Fina Position

Question 2

Balance Sheet Equation

Answer 2

Assets = Liabilities + Shareholder Equity

Question 3

Finance Structure

Answer 3

the nature and mix of liabilities and shareholders equity

Question 4

Operating Cycle

Answer 4

is the period of time required to convert cash into salable goods and services, sell those goods and services to customers, and recieve cash payments from customers.

Question 5

What are considered Current Assets

Answer 5

cash, accounts and notes receivable, inventories of merchandise, raw materials, supplies, work in process

Question 6

What are noncurrent Assets

Answer 6

property, plant, equipment, intangible assets (patents, trademarkers)

Question 7

What are considered Current Liabilities?

Answer 7

amounts owed to suppliers, accrued salaries/ wages, govermental units

Question 8

What are considered Non Current Liabilities?

Answer 8

Interest bearing obligations with maturities beyond one year, long term leases, some retirement obligations over a year

Question 9

How is a balance sheet broken up?

Answer 9

1. Assets (most current to non current for both assets and liabilities)
2. Liabilities
3. Shareholders Equity

Question 10

Definition of an Asset

Answer 10

an asset is a probable future economic benefit that a firm controls because of a past event or transaction.

Question 11

Asset Recognition

Answer 11

3 criteria

1. The firm owns or controls the right to use the item
2. The right to use the item arises as a result of a past transaction or exchange.
3. The future benefit has a relevant measurement attribute that can be quantified with sufficient reliability.

Question 12

Acquisition (Historical) Cost

Answer 12

is the amount of cash paid to acquire an asset.

Question 13

Current Replacement Cost

Answer 13

is the amount a firm would have to pay to obtain asset with identical service potential.

Question 14

Entry Value

Answer 14

amount that reflects econmomic conditions at the measurement date.

Question 15

Net Realizable Value

Answer 15

is the net cash (Selling Price - Selling Cost) that the firm would recieve if it sold the asset today in an arms length transaction.

Question 16

Exit Value

Answer 16

the price that the firm would recieve when an asset leaves the firm.

Question 17

Fair Value

Answer 17

The price that would be recieved to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the meausrement date.

Question 18

Opportunity Cost

Answer 18

the fair value of an asset is called

Question 19

The Present Value Of Future Cash Flows

Answer 19

is the sum of the present values of the individual future cash inflows and outflows associated with an asset.

Question 20

Financial Assets

Answer 20

cash, claims to cash

Question 21

Non Financial Assets

Answer 21

are intangible and tangible resources that firms use in operations to generate future cash flows.

Question 22

Deapreciation Process

Answer 22

allocates the assets acquistiion cost less estimated salvage value to the period.

Question 23

Realized

Answer 23

converted to cash

Question 24

Relevance

Answer 24

information could affect the decisions of users of financial reports

Question 25

Reliability

Answer 25

means that the information presented is resonably free from error and bias and faithfully represents what it purporse to represent

Question 26

Conservatism

Answer 26

has described a preference for financial reporting such that possible errors in measurement be in the director of understatment rather than over

Question 27

Liability Definition

Answer 27

are probable future sacrifices of economic benifits arising from present obligations to transfer assets or provide services to other entites in the future as a result of a past vevent or transaction

Question 28

Liability Recognition

Answer 28

1. represent a present obligation, not protential future commitment
2. The obligation must exist as a result of a past transaction or exchange, called the obligating event
3. The obligation must require a probable future economic resource that the firm has little or no discretion to avoid.
4. The obligation must have a relevant measurement base that the firm can quantify with sufficent reliablity.

Question 29

Mutually Unexecuted Contract

Answer 29

Niether party performed under the contract.

Question 30

Shareholders Equity

Answer 30

is a residual interest or claim

Question 31

Par/Nominal/Stated Value

Answer 31

Research More

Question 32

Additional Paid In Capital/Share Premium/Capital Contributed in excess of par value

Answer 32

Research More

Question 33

Retained Earnings

Answer 33

measures the net assets generated by a firm from operations exceeding dividends declared.

Question 34

Accumulated Deficit

Answer 34

The firm has accumulated losses, rather than profits