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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  

Medium Practice Test

1.  Liquidity on the balance sheet means
            a.  the amount of cash a company currently hasIncorrect
            b.  how soon an asset is expected to be converted into cashB. Liquidity refers to how quickly an asset will convert to cash or get used up and how quickly a liability will be paid. Liquidity can be an indicator of c. and d., however, this is not what it means.
            c.  the amount of time before a company will have to borrow moneyIncorrect
            d.  the amount of money a company has the ability to borrowIncorrect


2.  The most common difference between notes payable and accounts payable is
            a.  one if legally enforceable and one is notIncorrect
            b.  one is always classified as current and one is notIncorrect
            c.  one has known payment terms and the other does notIncorrect
            d.  one carries interest and the other does notD. A notes payable carries interest and accounts payable does not carry interest. Accounts payable is extended time from the purchase to payment to a supplier, which is someone you do business with over and over – (usually 30 days). Notes payable can be current or long term depending on the repayment terms. Both have a specified repayment term and are legally enforceable.


3.  Notes payable is reported as a
            a.  current assetIncorrect
            b.  current liabilityIncorrect
            c.  long term liabilityIncorrect
            d.  can’t determine where to report it without additional informationD. Notes payable can be either current or long term. It is reported based on the repayment date. Repayment in one year or less is current and repayment in more than one year is long term. It is always a liability. “Payables” are always liabilities.


4.  A major reason for categorizing the balance sheet is to report
            a.  current versus long termA. The balance sheet is categorized so that the user can determine if the company has enough cash or will have enough cash to pay liabilities. Current and long term categories facility this. All assets are used to provide future benefit. Only assets owned by the company are presented. The balance sheet is cumulative and does not show changes during a period of time.
            b.  owed internally versus owed externallyIncorrect
            c.  assets used versus assets not usedIncorrect
            d.  changes in owner’s equity during a period of timeIncorrect


5.  Assets less liabilities reported on the balance sheet will directly measure
            a.  the company’s book valueA. Assets less liabilities equals owner’s equity. This is at book value; the net at historical cost. Assets and liabilities are not recorded at fair market value and therefore owner’s equity is not at fair market value. The company does not repay debt with owner’s equity.
            b.  the company’s fair market valueIncorrect
            c.  the company’s ability to pay debtIncorrect
            d.  the amount an intangible asset is worth at a given timeIncorrect


6.  Assets that have physical substance used long term to generate revenues are classified as
            a.  intangible assetsIncorrect
            b.  total long term assetsIncorrect
            c.  property, plant, equipmentC. This is the technical definition of property, plant, and equipment. Intangible assets have no physical substance. Total long term assets include assets with no physical substance such as more liquid assets and intangible assets. 
            d.  liquid non-current assetsIncorrect


7.  Goodwill reported on the balance sheet is
            a.  the increase in value of the business over timeIncorrect
            b.  the amount paid for a company less than the fair market value of net assetsIncorrect
            c.  the amount paid for a company above the fair market value of net assets C. The definition of goodwill is the amount paid when purchasing a company above the fair market value of net assets purchased. Once this is recorded it is not increased to fair market value. Internally generated goodwill (a.) is not reported on the balance sheet due to unreliability of the estimated amount and the fact that no exchange has occurred.
            d.  always adjusted to fair market valueIncorrect


8. Which of the following transactions is not typically part of the operating cycle:
            a.  Pay for assets purchasedIncorrect
            b.  Collect from customersIncorrect
            c.  Reporting financial numbersC. Reporting financial numbers is not a part of the operating cycle. The operating cycle is the time it takes the company to spend cash to do business and get the cash back again. The operating cycle typically involves purchasing assets to be sold to customers, paying for assets purchased, selling assets or providing service to customers, and collecting from customers.
            d.  Provide goods or service to customersIncorrect


9. Which of the following criteria is not required to be an intangible asset:
            a.  Has physical substanceA. An intangible asset has no physical substance. The other choices are all part of the definition of an intangible asset.
            b.  Is used long-term to generate revenueIncorrect
            c.  Has no physical substanceIncorrect
            d.  Gives the company an exclusive rightIncorrect


10. The balance sheet will be used by an investor to answer which of the following questions?
            a.  How much did the company earn this period?Incorrect
            b.  What was paid for inventory purchased this period?Incorrect
            c.  What is owed for purchases?C. The balance sheet reports assets (have), liabilities (owed) and owner’s equity (owned). It does not report revenues and expenses which net to earnings and it does not show the amount of cash paid or received during the period. It is reported at historical cost because cost is reliable
            d.  What is the fair market value of all company assets?Incorrect


11.  Answer the following questions using the balance sheet as of May 31, 2011
for Nike (see below.)

  1. How much does Nike owe to banks or other financing institutions that is due in more than 1 year?
  2. How much has Nike paid for physical long-term assets, net, used to operate business?
  3. What is the amount Nike reports for items that are held for sale to customers?
  4. What is the amount of profits that Nike has kept in the business since the first day of operations?
  5. How much has Nike paid in advance for services not yet provided to Nike?
  6. What is the amount that Nike has in investments that are expected to be held for less than a year?
  7. How much have investors paid for ownership in the company?
  8. What is the amount that Nike owes to suppliers?
  9. How much cash does Nike have in the bank and invested with no risk?
  10. What is the amount of long-term debt that is due within 1 year?
  11. What is the amount that Nike paid over fair value of net assets when they acquired companies?
  How much did Nike borrow from banks or financing institutions that must be repaid in 1 year or less?

12.  Answer the questions below using the General Electric Statement of
         Financial Position (Balance Sheet)

12.  Answer the following questions for 2010 for General Electric.

  1. What is the amount of money that a bank would accept for deposit to GE’s   account and investments with no risk?
  2. What is the amount that GE owes to suppliers?
  3. What is the amount that investors have paid for ownership in GE?
  4. What is the amount that GE paid above fair value for companies they have acquired?
  5. How much did GE borrow from banks or financial institutions that is due within 1 year?
  6. How much did GE pay to purchase physical long-term assets, net, that are used in its business operations?
  7. How much did GE borrow that is due in more than 1 year?
  8. What is the amount of cumulative profits that GE has kept in the business since the first day of operations?
  9. What is the cost of the items that GE is holding for sale to customers?
  10. What could be included in “other intangible assets, net”?



13. Prepare a classified balance sheet using the following accounts:

Accounts Payable                                       35,000
Equipment                                                   25,000
Supplies                                                        2,000
Cash and Cash equivalents                        55,000
Common Stock                                              4,000
Notes Payable due in 5 years                      30,000
Land                                                            15,000
Patent                                                            8,000
Investment to be held for 3 years                   9,000
Inventory                                                      18,000
Long-term Debt due within 1 year                  5,000
Building                                                        25,000
Retained Earnings                                           ???
Goodwill                                                        13,000
Owed to Investors                                         40,000
Prepaid Expenses                                           6,000

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