title
Focus.....Study Smarter!

Members Login

New User Registration

Video Lectures for Each Subject

Subjects Covered!





Balance Sheet

1) Key Things To Know 5) Medium Practice Test
2) Self Test 6) Hard Practice Test
3) Practice as You Learn  
4) Easy Practice Test  

Hard Practice Test

1.  Current assets include all assets expected to be consumed or converted to cash
            a.  within one year or moreIncorrect
            b.  within one year or lessIncorrect
            c.  within the company’s operating cycle or one year whichever is less timeIncorrect
            d.  within the company’s operating cycle or one year whichever is more timeD. The term current means it is expected to result in a cash flow within the company’s operating cycle which can be more than one year. Normally, current is one year or less; however, if the company’s operating cycle is more than one year, current can be as long as the operating cycle. (Example: a construction company that works on projects that last more than one year.)

 

2.  Which of the following is usually a characteristic of the balance sheet?
            a.  assets are listed in order of usefulnessIncorrect
            b.  the balance sheet is used to project future incomeIncorrect
            c.  the balance sheet reports changes in financial positionIncorrect
            d.  the balance sheet reports economic resourcesD. Economic resources are assets. Assets are reported on the balance sheet. The balance sheet is listed in the order of liquidity. It shows financial position at a given point in time and does not show the change or project future income. The income statement can be used to project future income given trends reported.

 

3.  Which of the following statements related to the balance sheet is not true?
            a.  it is a primary source of information to determine a company’s liquidityIncorrect
            b.  it is used to measure the fair market value of the companyB. Balance sheet items are generally reported at historical cost and not fair market value (with the exception of investments with a reliable fair market value.) A company typically has intangible assets that bring future benefit that are not recorded and reported (such as internally generated goodwill.) The balance sheet does indicate liquidity and provides information on of a given date.
            c.  it is a financial picture at a given point in timeIncorrect
            d.  it does not report all of a company’s assetsIncorrect

 

4.  An operating cycle is best described as
            a.  any 12 month periodIncorrect
            b.  the average number of days required to sell inventory and pay billsIncorrect
            c.  the average number of days required to collect receivablesIncorrect
            d.  the average number of days required to sell inventory and collect D. An operating cycle is the time it takes a company to sell goods or provide services and collect cash from the customer. It includes both selling inventory and collecting from the customer.
                 from customers

 

5.  Which of the following is a current asset?
            a.  notes receivable expected to be collected in 36 monthsIncorrect
            b.  a cash fund established to pay for expansion in 24 monthsIncorrect
            c.  trademarks used in day to day businessIncorrect
            d.  supplies D. A current asset is one that will be used up or converted to cash in one year or less. Supplies are typically used up in less than 60 days. Trademarks are used for longer than one year. (a. & b.) are longer than one year and are long term.

 

6.  Which of the following would not be reported as property, plant, and equipment on the balance sheet?
            a.  leasehold improvements associated with a building being usedIncorrect
            b.  furniture and computer equipment being used Incorrect
            c.  land held for speculation and resale C. Property, plant and equipment are assets used long term to generate revenues. Land being held for speculation and resale is not being used to generate revenues.
            d.  a building currently used for operating activitiesIncorrect

 

7.  Investments are not reported as property, plant, equipment because
            a.  they can be sold at any timeIncorrect
            b.  they are not used in the operations of the business to generate revenues B. Property plant and equipment is used long term to generate revenues. Investments are not used in the operations of the business to generate revenue. An investment is providing your money to someone else and earning a return. P/P/E can be sold at any time if the company desires. Both P/P/E and investments are reported at original cost. Depreciation is associated only with using PPE over a period of time.
            c.  they are recorded at original costIncorrect
            d.  they are depreciatedIncorrect

 

8. The balance sheet is reported at historical cost because
            a.  historical cost is the most reliable value that can be determinedA. Historical cost is used because it is reliable. It is easy to verify what was paid for an asset. Fair market value is more relevant, however, it is often very subjective and not reliable
            b.  fair market value is the most relevant value that can be determinedIncorrect
            c.  how much cash was originally paid is the most relevant informationIncorrect
            d.  how much an asset is worth is the most relevant informationIncorrect

 

9. Redbird recorded the following on their balance sheet:
            Cash                                   35,000
            Accounts Payable               12,000
            Common Stock                    15.000
            Inventory                              10,000
            Long-term Debt                    23,000
            Bonds Payable                     20,000

     What are Redbird’s total liabilities?
            a.  12,000Incorrect
            b.  43,000Incorrect
            c.  55,000C. The liabilities for Redbird includes: Accounts Payable (12,000) + Long-term Debt (23,000) + Bonds Payable (20,000) = Total liabilities (55,000).
            d.  62,000Incorrect

 

10. Steal Edge reported net income of $20,000; $35,000; and $23,000 for the first three years of operation. If the company paid $2,000 of dividends each year, what would Steal Edge report as their retained earnings at the end of the third year?
            a.  $78,000Incorrect
            b.  $84,000Incorrect
            c.  $76,000Incorrect
            d.  $72,000D. Retained earnings is the cumulative profits kept in the company since the first day of operations. Retained earnings can be found by using the formula: Beginning retained earnings + Net Income – Dividends paid. Year 1: 0 + 20,000 – 2,000 = 18,000. Year 2: 18,000 + 35,000 – 2,000 = 51,000. Year 3: 51,000 + 23,000 – 2,000 = 72,000.

11.  Answer the questions below using the following balance sheets.

11.  Answer the following questions using the above balance sheets for the most current year:

  1. Which company has earned the most and kept the earnings in the business since the first day of operations?
  2. Determine if either company will have trouble paying the invoices that are due in 30 days or less.
  3. Which company appears to have enough cash and investments to carry out a new business strategy?
  4. Which company has paid the most for physical long-term assets used to operate the business?
  5. Which company has received the most money from investors?
  6. Which company has had to borrow the most amount of money from banks or financial institutions that is due in more than 1 year?
  7. Which company has the higher amount in the account used to record the amount paid above the fair value for the net identifiable assets when acquiring a customer?
  8. Which company has the highest amount in investments that are expected to be held for more than one year?
  9. Which of these two companies have borrowed money to finance operations that is due within 1 year?
  10. Which company has more items being held to sell to customers?
  11. Which of the two companies increased the amount in investments expected to be held for less than 1 year?

 

 

12.  Answer the following questions using the most current year information reported
on Wal-Mart’s and AT&T’s balance sheets.

a.  Which company has paid more for services not yet performed for the company?
b.  Determine if either company will have trouble paying the invoices that are due
in 30 days or less.
c.  Which company has the higher amount in the account used to record the amount
paid above the fair value for the net identifiable assets when acquiring a
customer?
d.  Which company has received the most money from investors?
e.  Which company must pay more back, in 1 year or less, to banks and financial
institutions for money borrowed for operations?
f.  Which company has earned the most and kept the earnings in the business since
the first day of operations?
g. Which company has more items being held to sell to customers?
h. Which company has paid the most for physical long-term assets used to operate
the business?
i.  Do either of these companies have enough cash and investments to carry out a   
new business strategy?
j.  Which company has had to borrow the most amount of money from banks or financial institutions that is due in more than 1 year?


        Total liabilities and equity

  

$

180,663

  

 

$

170,407


 

13.  Use the following information to create a classified balance sheet for XYZ Company.

Items held for sale to customers                                    25,000
Right to reprint training material                                    12,000
Money received from investors for ownership                 2,000
Money in investments to be held for 4 years                 15,000
Amount paid for services not yet provided                    10.000
Vehicles used in business operations                           18,000
Right to use the name XYZ Company                              4,000
Amounts owed to suppliers                                            20,000
Amounts owed to banks and other financing               
companies to be paid in 5 years                                    80,000
Money in the company’s bank                                          9,000
Equipment used in production                                        11,000
Items used up in day to day operations                            7,000
Amount paid above fair value of identifiable                 
net assets for acquired company                                    11,000           
Amount of money borrowed from banks or                    
financial institutions due within 1 year                          15,000
Building used for administrative purposes                    42,000
Amount borrowed from investors, due in 10 years        30,000
Money in investments to be held for 1 year                   13,000

 

Check Your Answers

 

 

 
All material on this web site is copyrighted and the exclusive property of the author.  It may not be reproduced or distributed in any form without prior written permission from the author!