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Multiple Choice (22, 25, 26, 32, 37, 40, 42, 48, 45, 43) (c, c, d, d, b, d, d, d, c, d)

1. The balance sheet is useful for analyzing all of the following except

a. liquidity.

b. solvency.c. profitability.d. financial flexibility

2. The amount of time that is expected to elapse until an asset is realized orotherwise converted into cash is referred to as

a. solvency.b. financial flexibility.c. liquidity.d. exchangeability.

3. The net assets of a business are equal to

a. current assets minus current liabilities.b. total assets plus total liabilities.c. total assets minus total stockholders' equity.d. none of these.

4. Which of the following should not be considered as a current asset in thebalance sheet?

a. Installment notes receivable due over 18 months in accordance withnormal trade practice.

b. Prepaid taxes which cover assessments of the following operating cycleof the business.

c. Equity or debt securities purchased with cash available for currentoperations.

d. The cash surrender value of a life insurance policy carried by acorporation, the beneficiary, on its president.

5. Which item below is nota current liability?

a. Unearned revenue

b. Stock dividends distributablec. The currently maturing portion of long-term debtd. Trade accounts payable

6. Long-term liabilities include

a. obligations not expected to be liquidated within the operating cycle.b. obligations payable at some date beyond the operating cycle.c. deferred income taxes and most lease obligations.d. all of these.

7. Treasury stock should be reported as a(n)

a. current asset.

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b. investment.c. other asset.d. reduction of stockholders' equity.

8. Which of the following is a contra account?

a. Premium on bonds payableb. Unearned revenuec. Patentsd. Accumulated depreciation

9. The stockholders' equity section is usually divided into what three parts?

a. Preferred stock, common stock, treasury stockb. Preferred stock, common stock, retained earningsc. Capital stock, additional paid-in capital, retained earningsd. Capital stock, appropriated retained earnings, unappropriated retained

earnings

10.Which of the following should be reported for capital stock?

a. The shares authorizedb. The shares issuedc. The shares outstandingd. All of these

Essay (question 7, 11, E5-3, P5-2)

1. What are the major limitations of the statement of financial position as asource of information?2. Should non-trading equity securities be reported as a current asset? Explain.3. Classify how each of these accounts should be put in the financial statement.

a. Unexpired insurance (1,3,4,8, 11, 14, 16, 7)b. Unearned booking revenuec. Advances to suppliers.d. Copyrightse. Interest on notes payablef. Unrealized gain on non-trading equity securitiesg. Salaries that company budget shows will be paid to employees within the

next year

h. Share premium

preference4. Presented below are a number of statement of financial position items for

Montoya, Inc., for the current year, 2010.

Goodwill $125,000Payroll taxes payable 177,591Bonds payable 285,000Cash 360,000Land 480,000Notes receivable 445,700Notes payable to banks 265,000Accounts payable 490,000

Retained earnings ?Income taxes payable 97,360

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Unsecured notes payable(long-term) 1,600,000Accumulated depreciation-Equipment 292,000Inventories 239,800Rent payable short-term 45,000Taxes payable 98,362Long-term rental obligations 480,000Share capital ordinary, $1Par value 200,000Share capital preference,$10 par value 150,000Prepaid expenses 87,920Equipment 1,470,000Trading securities 121,000Accumulated depreciation- building 270,200

Building 1,640,000

Prepare a classified statement of financial position in good form. Sharecapital ordinary authorized was 400,000 shares, and share capital preference authorized was 20,000 shares. Assume that notes receivable andnotes payable are short-term, unless stated otherwise. Cost and fair value oftrading securities are the same.