Question 1

On the balance sheet, treasury stock is classified as a
A) long-term investment account
B) contra shareholders' equity account
C) companion shareholders' equity account
D) contra asset account

Accepted Answer

Treasury stock is considered a contra shareholders' equity account and is subtracted from the total shareholders' equity. This is because treasury stock represents shares of a company's own stock that have been repurchased and are no longer outstanding.

Question 2

Changes in the separate shareholders' equity accounts can be disclosed in all of the following ways, except a
A) financial statement
B) note to the financial statements
C) parenthetical remark
D) supporting schedule

Accepted Answer

Parenthetical remarks are not typically used to disclose changes in equity accounts. Financial statements, notes to the financial statements, and supporting schedules are all commonly used methods to disclose changes in equity accounts.

Question 3

A leased asset under capital lease is disclosed on the balance sheet at its
A) present value
B) historical cost
C) current replacement cost
D) net realizable value

Accepted Answer

Under a capital lease, the leased asset is considered to be effectively owned by the lessee and therefore must be disclosed on the balance sheet as an asset. The asset is disclosed at its present value, which is the total of minimum lease payments discounted at the interest rate implicit in the lease or the lessee's incremental borrowing rate. This is because the lessee effectively finances the purchase of the asset through the lease payments, and the present value represents the cost of that financing. Historical cost, current replacement cost, and net realizable value are not relevant for disclosing the leased asset on the balance sheet under a capital lease.

Question 4

Which of the following would typically be recorded as an intangible asset with a finite useful life?
A) franchises
B) trademarks
C) brand name
D) goodwill

Accepted Answer

Franchises are intangible assets that have a finite useful life, as they expire after a certain period or when the franchise agreement terminates.

Answer: B) trademarks 
 Trademarks are also intangible assets that have a finite useful life, as they expire after a certain period of time or when the trademark is no longer in use.

Answer: C) brand name 
 While brand names are also intangible assets, they are typically not recorded as having a finite useful life since they can continue to hold value indefinitely as long as the brand is still recognized and valued by consumers.

Answer: D) goodwill 
 Goodwill is an intangible asset that does not have a finite useful life because it represents the value of a business's reputation, customer relationships, and other intangible factors that can continue to generate economic benefits for the business indefinitely.

Question 5

In preparing a statement of changes in shareholders' equity, the company includes land given to a shareholder as a dividend. This transaction is included in the statement because it represents
A) an investment by a shareholder that increases equity
B) an investment by a shareholder that decreases equity
C) a distribution to a shareholder that increases equity
D) a distribution to a shareholder that decreases equity

Accepted Answer

The transaction of distributing land to a shareholder as a dividend represents a distribution to a shareholder that decreases equity. This is because the company is decreasing its assets (land) and distributing it as a dividend to the shareholder, which decreases the company's retained earnings and thus its total shareholders' equity.

Question 6

Cash equivalents are securities that
A) management intends to convert into cash within one year
B) have maturity dates of at least six months
C) management intends to convert into cash within the normal operating cycle
D) have maturity dates of three months or less

Accepted Answer

Cash equivalents are short-term, highly liquid investments that can be easily converted into cash and have a maturity date of three months or less. This definition excludes options, stocks, and other instruments that have a maturity date greater than three months.

Question 7

Which of the following would not be classified as contributed capital?
A) additional paid-in capital
B) unrealized capital
C) common stock
D) preferred stock

Accepted Answer

Contributed capital consists of the funds and assets that a company receives from investors in exchange for stock. Additional paid-in capital, common stock, and preferred stock are all examples of contributed capital. Unrealized capital is not a recognized category of contributed capital.

Question 8

Which of the following is not included in comprehensive income?
A) net income
B) unrealized gains in the fair market value of equipment
C) foreign currency translation adjustments
D) certain pension plan gains (losses) and prior service cost adjustments

Accepted Answer

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Unrealized gains in the fair market value of equipment are not included in comprehensive income because they are typically recognized in the income statement only when realized.

Question 9

A deficit occurs when a company's
A) retained earnings are less than its common stock
B) dividends distributed are greater than comprehensive income
C) dividends and cumulative losses are greater than cumulative net income
D) retained earnings are less than assets minus liabilities

Accepted Answer

A deficit occurs when a company's cumulative losses and dividends paid are greater than its cumulative net income. This means the company has more losses and dividends paid out than it has earned over time, resulting in a negative balance in its retained earnings account. Choices A and D are not correct because they do not necessarily lead to a deficit, and choice B is only a temporary situation where dividends exceed earnings for a particular period, not a cumulative deficit.

Question 10

The FASB has suggested guidelines for developing homogenous classes of assets and liabilities. For assets, this can be accomplished by following guidelines that include reporting
A) assets according to their outside use for the corporation
B) all assets the same, regardless of the implications on a company's financial flexibility
C) the valuation of assets at their net realizable value
D) assets at their fair value

Accepted Answer

The FASB suggests reporting assets at their fair value, which is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. This helps to ensure that assets are reported consistently and accurately, providing users of financial statements with relevant and reliable information.

Question 11

Current liabilities would include all of the following except
A) wages payable
B) obligations under capital lease contracts
C) current portion of long-term debt
D) unearned rent revenue

Accepted Answer

All of the options listed are typically considered current liabilities except obligations under capital lease contracts, which are typically classified as long-term liabilities.

Question 12

Justification for having both intangible assets and other assets listed on a balance sheet include that
A) intangible assets have no physical existence and other assets are deferred charges
B) having more items listed on the balance sheet improves the users' understanding of the company
C) the intangible assets are more important than the tangible assets
D) the other asset classification is important because goodwill cannot be amortized, so it needs to be recorded on the balance sheet

Accepted Answer

Intangible assets are non-physical assets like patents and trademarks, while other assets can include deferred charges, which are costs that are capitalized and amortized over time.

Question 13

Obligations that are not expected to require the use of current assets or the creation of other current liabilities within one year or the normal operating cycle, if longer than a year, are called
A) other liabilities
B) current liabilities
C) long-term liabilities
D) contingent liabilities

Accepted Answer

Long-term liabilities are obligations that are expected to be paid beyond one year or the normal operating cycle, if longer than a year. Current liabilities are obligations that are expected to be paid within one year or the normal operating cycle, if longer than a year. Other liabilities refer to any other type of obligation that does not fall under the categories of current or long-term liabilities. Contingent liabilities are potential obligations that may arise depending on certain future events, such as lawsuits or warranties.

Question 14

State law may require that capital stock have which of the following values?
A) stated value
B) market value
C) no-par value
D) present value

Accepted Answer

The answer of State law may require that capital stock...

Question 15

Which is classified as a long-term investment?
A) bond premium
B) cash surrender value of life insurance
C) operating lease
D) three-year prepaid rental

Accepted Answer

The cash surrender value of life insurance is a long-term investment as it represents the value of the policy over a long period. Bond premium, operating lease and three-year prepaid rental are not necessarily long-term investments as they may have shorter durations or be more associated with operational expenses.

Question 16

Which of the following is typically recorded at its present value?
A) long-term investments
B) long-term liabilities
C) intangible assets
D) contingent liabilities

Accepted Answer

Long-term liabilities are typically recorded at their present value because this reflects the current worth of the future cash flows associated with the liability, taking into account the time value of money.

Question 17

Which of the following is least likely to be included in long-term liabilities?
A) obligations for future pension payments
B) capital leases payable
C) liabilities on options to sell stock
D) unearned revenues

Accepted Answer

Long-term liabilities typically refer to obligations that are due more than one year after the balance sheet date. Unearned revenues, also known as deferred revenues, are typically categorized as current liabilities since they represent cash received from customers for products or services that have not yet been delivered or earned. Options to sell stock are typically classified as stockholder's equity or potential stockholder's equity, while obligations for future pension payments and capital leases payable are commonly included as long-term liabilities. Therefore, unearned revenues are the least likely to be included in long-term liabilities.

Question 18

Which of the following liabilities is properly classified as a current liability?
A) currently maturing bonds payable that will be paid out of a fund accumulated for that purpose
B) short-term notes payable being refinanced with long-term notes
C) obligations that will be paid outside the operating cycle
D) obligations for goods and services that have entered the operating cycle

Accepted Answer

Current liabilities are obligations that are due within one year or one operating cycle, whichever is longer. Therefore, obligations for goods and services that have entered the operating cycle are properly classified as a current liability. Choice A is not a current liability because the bond payable is paid out of a fund accumulated for that purpose and not expected to be paid within one year. Choice B is not a current liability because notes payable being refinanced with long-term notes means that they will not be paid within one year. Choice C is not a current liability because it will be paid outside the operating cycle.

Question 19

Current liabilities are defined as obligations that will be paid
A) by refinancing through issuing new long-term liabilities
B) by using existing resources properly classified as current assets
C) out of a fund classified as a long-term investment
D) by using existing resources, regardless of their classification

Accepted Answer

Current liabilities are obligations expected to be paid within one year or within the entity's operating cycle, whichever is longer, and are typically settled by using assets classified as current assets.

Question 20

Which is a component of shareholders' equity?
A) sinking funds
B) deferred charges
C) accumulated other comprehensive income
D) goodwill

Accepted Answer

Accumulated other comprehensive income is a component of shareholders' equity, representing the unrealized gains and losses from certain investments and financial instruments. Sinking funds, deferred charges, and goodwill are not components of shareholders' equity, but rather represent specific assets or liabilities on a company's balance sheet.

Quiz 4: The Balance Sheet and the Statement of Shareholders Equity

On the balance sheet, treasury stock is classified as a

Changes in the separate shareholders' equity accounts can be disclosed in all of the following ways, except a

A leased asset under capital lease is disclosed on the balance sheet at its

Which of the following would typically be recorded as an intangible asset with a finite useful life?

In preparing a statement of changes in shareholders' equity, the company includes land given to a shareholder as a dividend. This transaction is included in the statement because it represents

Cash equivalents are securities that

Which of the following would not be classified as contributed capital?

Which of the following is not included in comprehensive income?

A deficit occurs when a company's

The FASB has suggested guidelines for developing homogenous classes of assets and liabilities. For assets, this can be accomplished by following guidelines that include reporting

Current liabilities would include all of the following except

Justification for having both intangible assets and other assets listed on a balance sheet include that

Obligations that are not expected to require the use of current assets or the creation of other current liabilities within one year or the normal operating cycle, if longer than a year, are called

State law may require that capital stock have which of the following values?

Which is classified as a long-term investment?

Which of the following is typically recorded at its present value?

Which of the following is least likely to be included in long-term liabilities?

Which of the following liabilities is properly classified as a current liability?

Current liabilities are defined as obligations that will be paid

Which is a component of shareholders' equity?