Chapter 5: Balance Sheet And Statement Of Cash Flows

Question 1

What does the balance sheet do?

Answer 1

• It reports assets, liabilities, and equity at a specific date.
• provides resources, obligations, and equity in net resources.
• helps in predicting amants, timing, and uncertainty of future cash flows.

Question 2

What is the usefulness of the balance sheet?

Answer 2

• Computing rates of return
• evaluating capital structure
• assess risks and future cash flows
• analyze company’s liquidity, solvency, and financial flexibility

Question 3

What are the limitations of the balance sheet?

Answer 3

• most assets and liabilities are reported at historic lost
• use of judgements and estimates
• many items of financial value are omitted

Question 4

What are the elements of the balance sheet?

Answer 4

• Assets
• liabilities
  *Equity

Question 5

What is included in the asset section of the balance sheet?

Answer 5

• Current assets
• long term investments
• property, plant, equipment
  *Intangible assets
• other assets

Question 6

What is included on the liabilities and owners equity section of the balance sheet?

Answer 6

• Current liabilities
• Long term debt
• owners equity

Question 7

What are current assets?

Answer 7

Cash and equivalents expected to be converted to cash, consumed, or sold within a year or within operating cycle.

Cash and cash equivalents
Short term investments
Receivables
Inventories
Prepaid expenses

Question 8

What are concurrent assets in the asset section?

Answer 8

Long term investments
1.) securities- (bonds, common stock, or long term notes)
2.) tangible fixed assets- not currently used in b operations ( land held for speculation)
3.) Special funds- (sinking funds, pension funds, plant expansion funds, or cash surrender value of life insurance)
4.) non consolidated subsidiaries or affiliated companies

Question 9

What are other assets in the assets section of the balance sheet?

Answer 9

Includes:
Long term prepaid expenses
Prepaid pension cost
Non current receivables
Assets in special funds
Deferred income taxes
Property held for sale
Restricted cash or securities

Question 10

What is included in the liabilities section of the balance sheet?

Answer 10

*Current liabilities
*Long term liability

Question 11

Three different types of long term liabilities:

Answer 11

1. Obligations arising from financing situations: issuance of bonds, long term lease obligations, long term notes payable
2. Obligations arising from pension obligations and deferred income tax liabilities
3. Obligations that depends on the occurrence or non occurrence of one or more events ( service, product warranties, and other contingencies)

Question 12

What is included in the stockholders equity section?

Answer 12

1. Capital stock
2. Additional paid in capital
3. Retained earnings
4. Accumulated other comprehensive income
5. Treasury stock
6. Non controlling interest