Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Balance Sheet and Statement of Cash Flows
5 - 21
96. Huge Cart Inc. gives you the following information pertaining to the year 2014.
Net sales $850,000
Cost of goods sold 500,000
Current assets 500,000
Current liabilities 250,000
Average total assets 900,000
Total liabilities 550,000
Net income 150,000
The rate of return on assets Huge Cart Inc. is:
a. 55.5%.
b. 30.0%.
c. 18.7%.
d. 16.6%.
MULTIPLE CHOICE—CPA Adapted
97. Stine Corp.'s trial balance reflected the following account balances at December 31, 2014:
Accounts receivable (net) $19,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash 16,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Stine's December 31, 2014 balance sheet, the current assets total is
a. $90,000.
b. $82,000.
c. $77,000.
d. $73,000.
Test Bank for Intermediate Accounting, Fifteenth Edition
5 - 22
Use the following information for questions 98 through 100.
The following trial balance of Reese Corp. at December 31, 2014 has been properly adjusted
except for the income tax expense adjustment.
Reese Corp.
Trial Balance
December 31, 2014
Dr. Cr.
Cash $ 775,000
Accounts receivable (net) 2,695,000
Inventory 2,085,000
Property, plant, and equipment (net) 7,566,000
Accounts payable and accrued liabilities $ 1,701,000
Income taxes payable 654,000
Deferred income tax liability 85,000
Common stock 2,350,000
Additional paid-in capital 3,680,000
Retained earnings, 1/1/14 3,450,000
Net sales and other revenues 13,560,000
Costs and expenses 11,180,000
Income tax expenses 1,179,000
$25,480,000 $25,480,000
Other financial data for the year ended December 31, 2014:
• Included in accounts receivable is $1,200,000 due from a customer and payable in quarterly
installments of $150,000. The last payment is due December 29, 2016.
• The balance in the Deferred Income Tax Liability account pertains to a temporary difference
that arose in a prior year, of which $20,000 is classified as a current liability.
• During the year, estimated tax payments of $525,000 were charged to income tax expense.
The current and future tax rate on all types of income is 30%.
In Reese's December 31, 2014 balance sheet,
98. The current assets total is
a. $6,080,000.
b. $5,555,000.
c. $5,405,000.
d. $4,955,000.
99. The current liabilities total is
a. $1,850,000.
b. $1,915,000.
c. $2,375,000.
d. $2,440,000.
100. The final retained earnings balance is
a. $4,651,000.
b. $4,736,000.
c. $5,176,000.
d. $5,105,000.
Balance Sheet and Statement of Cash Flows
5 - 23
101. On January 4, 2014, Kiley Co. leased a building to Dodd Corp. for a ten-year term at an
annual rental of $150,000. At inception of the lease, Kiley received $600,000 covering the
first two years' rent of $300,000 and a security deposit of $300,000. This deposit will not
be returned to Dodd upon expiration of the lease but will be applied to payment of rent for
the last two years of the lease. What portion of the $600,000 should be shown as a
current and long-term liability in Kiley's December 31, 2014 balance sheet?
Current Liability Long-term Liability
a. $0 $600,000
b. $150,000 $300,000
c. $300,000 $300,000
d. $300,000 $150,000
102. In a statement of cash flows, receipts from sales of property, plant, and equipment and
other productive assets should generally be classified as cash inflows from
a. operating activities.
b. financing activities.
c. investing activities.
d. selling activities.
103. In a statement of cash flows, interest payments to lenders and other creditors should be
classified as cash outflows for
a. operating activities.
b. borrowing activities.
c. lending activities.
d. financing activities.
104. In a statement of cash flows, proceeds from issuing equity instruments should be
classified as cash inflows from
a. lending activities.
b. operating activities.
c. investing activities.
d. financing activities.
105. In a statement of cash flows, payments to acquire debt instruments of other entities (other
than cash equivalents) should be classified as cash outflows for
a. operating activities.
b. investing activities.
c. financing activities.
d. lending activities.
106. Which of the following facts concerning fixed assets should be included in the summary of
significant accounting policies?
Depreciation Method Composition
a. No Yes
b. Yes Yes
c. Yes No
d. No No
Test Bank for Intermediate Accounting, Fifteenth Edition
5 - 24
DERIVATIONS — Computational
No. Answer Derivation
DERIVATIONS — CPA Adapted
No. Answer Derivation
Balance Sheet and Statement of Cash Flows
5 - 25
No. Answer Derivation
BRIEF EXERCISES
BE. 5-107—Definitions.
Provide clear, concise answers for the following.
1. What are assets?
2. What are liabilities?
3. What is equity?
4. What are current liabilities?
5. Explain what working capital is and how it is computed.
6. What are intangible assets?
7. What are current assets?
Solution 5-107
Test Bank for Intermediate Accounting, Fifteenth Edition
5 - 26
BE. 5-108—Terminology.
In the space provided at right, write the word or phrase that is defined or indicated.
1. Obligations expected to be liquidated 1. __________________________________
through use of current assets.
2. Statement showing financial condition at a 2. __________________________________
point in time.
3. Events that depend upon future outcomes. 3. __________________________________
4. Probable future sacrifices of economic 4. __________________________________
benefits.
5. Resources expected to be converted to 5. __________________________________
cash in one year or the operating cycle,
whichever is longer.
6. Resources of a durable nature used in 6. __________________________________
operations.
7. Economic rights or competitive advantages 7. __________________________________
which lack physical substance.
8. Probable future economic benefits. 8. __________________________________
9. Residual interest in the net assets of an 9. __________________________________
entity.
Solution 5-108
BE. 5-109—Current assets.
Define current assets without using the word "asset."
Solution 5-109
Balance Sheet and Statement of Cash Flows
5 - 27
EXERCISES
Ex. 5-110—Account classification.
ASSETS LIABILITIES AND CAPITAL
a. Current assets f. Current liabilities
b. Investments g. Long-term liabilities
c. Plant and equipment h. Preferred stock
d. Intangibles i. Common stock
e. Other assets j. Additional paid-in capital
k. Retained earnings
l. Items excluded from balance sheet
Using the letters above, classify the following accounts according to the preferred and ordinary
balance sheet presentation.
____ 1. Bond sinking fund
____ 2. Common stock dividend distributable
____ 3. Appropriation for plant expansion
____ 4. Bank overdraft
____ 5. Bonds payable (due 2017)
____ 6. Premium on common stock
____ 7. Securities owned by another company which are collateral for that company's note
____ 8. Equity investments (trading)
____ 9. Inventory
____ 10. Discount on bonds payable
____ 11. Patents
____ 12. Unearned rent revenue
Solution 5-110
Test Bank for Intermediate Accounting, Fifteenth Edition
5 - 28
Ex. 5-111—Valuation of Balance Sheet Items.
Use the code letters listed below (a – l) to indicate, for each balance sheet item (1 – 13) listed
below the usual valuation reported on the balance sheet.
____ 1. Common stock ____ 8. Long-term bonds payable
____ 2. Prepaid insurance ____ 9. Land (in use)
____ 3. Natural resources ____ 10. Land (future plant site)
____ 4. Property, plant, and equipment ____ 11. Patents
____ 5. Accounts receivable ____ 12. Equity investments (trading)
____ 6. Copyrights ____ 13. Accounts payable
____ 7. Inventory
a. Par value
b. Current cost of replacement
c. Amount payable when due, less unamortized discount or plus unamortized premium
d. Amount payable when due
e. Market value at balance sheet date
f. Net realizable value
g. Lower of cost or market
h. Original cost less accumulated amortization
i. Original cost less accumulated depletion
j. Original cost less accumulated depreciation
k. Historical cost
l. Unexpired or unconsumed cost
Solution 5-111
Balance Sheet and Statement of Cash Flows
5 - 29
Ex. 5-112—Balance sheet classifications.
Typical balance sheet classifications are as follows.
a. Current Assets g. Long-Term Liabilities
b. Investments h. Capital Stock
c. Plant Assets i. Additional Paid-In Capital
d. Intangible Assets j. Retained Earnings
e. Other Assets k. Notes to Financial Statements
f. Current Liabilities l. Not Reported on Balance Sheet
Indicate by use of the above letters how each of the following items would be classified on a
balance sheet prepared at December 31, 2014. If a contra account, or any amount that is
negative or opposite the normal balance, put parentheses around the letter selected. A letter may
be used more than once or not at all.
____ 1. Accrued salaries and wages
____ 2. Rent revenues for 3 months
collected in advance
____ 3. Land used as plant site
____ 4. Equity securities classified as
trading
____ 5. Cash
____ 6. Accrued interest payable due in
30 days
____ 7. Premium on preferred stock issued
____ 8. Dividends in arrears on preferred
stock
____ 9. Petty cash fund
____ 10. Unamortized discount on bonds
payable due 2017
____ 11. Common stock at par value
____ 12. Bond indenture covenants
____ 13. Unamortized premium on bonds
payable due in 2018
____ 14. Allowance for doubtful accounts
____ 15. Accumulated depreciation—
equipment
____ 16. Natural resource—timberlands
____ 17. Deficit (no net income earned since
beginning of company)
____ 18. Goodwill
____ 19. 90 day notes payable
____ 20. Investment in bonds of another
company; will be held to 2017
maturity
____ 21. Land held for speculation
____ 22. Death of company president
____ 23. Current maturity of bonds payable
____ 24. Investment in subsidiary; no plans
to sell in near future
____ 25. Accounts payable
____ 26. Preferred stock ($10 par)
____ 27. Prepaid rent
____ 28. Copyright
____ 29. Accumulated amortization, patents
____ 30. Earnings not distributed to
stockholders
Test Bank for Intermediate Accounting, Fifteenth Edition
5 - 30
Solution 5-112
Ex. 5-113—Balance sheet classifications.
The various classifications listed below have been used in the past by Maris Company on its
balance sheet. It asks your professional opinion concerning the appropriate classification of each
of the items 1-14 below.
a. Current Assets f. Current Liabilities
b. Investments g. Long-Term Liabilities
c. Plant and Equipment h. Common Stock and Paid-in Capital in Excess of Par
d. Intangible Assets i. Retained Earnings
e. Other Assets
Indicate by letter how each of the following items should be classified. If an item need not be
reported on the balance sheet, use the letter "X." A letter may be used more than once or not at
all. If an item can be classified in more than one category, choose the category most favored by
the authors of your textbook.
____ 1. Employees' payroll deductions.
____ 2. Cash in sinking fund.
____ 3. Rent revenue collected in advance.
____ 4. Equipment retired from use and held for sale.
____ 5. Patents.
____ 6. Payroll cash fund.
____ 7. Goods held on consignment.
____ 8. Accrued revenue on short-term investments.
____ 9. Advances to salespersons.
____ 10. Premium on bonds payable due two years from date.
____ 11. Bank overdraft.
____ 12. Salaries which company budget shows will be paid to employees within the next year.
____ 13. Work in process.
____ 14. Appropriation for bonded indebtedness.
Balance Sheet and Statement of Cash Flows
5 - 31
Solution 5-113
Ex. 5-114—Balance sheet classifications.
The various classifications listed below have been used in the past by Hale Company on its
balance sheet.
a. Current Assets e. Current Liabilities
b. Investments f. Long-term Liabilities
c. Plant and Equipment g. Common Stock and Paid-in Capital in Excess of Par
d. Intangible Assets h. Retained Earnings
Instructions
Indicate by letter how each of the items below should be classified at December 31, 2014. If an
item is not reported on the December 31, 2014 balance sheet, use the letter "X" for your answer.
If the item is a contra account within the particular classification, place parentheses around the
letter. A letter may be used more than once or not at all.
Sample question and answer:
(a) Allowance for doubtful accounts.
____ 1. Customers' accounts with credit balances.
____ 2. Bond sinking fund.
____ 3. Salaries which the company's cash budget shows will be paid to employees in 2015.
____ 4. Accumulated depreciation—equipment.
____ 5. Appropriation for plant expansion.
____ 6. Amortization of patents for 2014.
____ 7. On December 31, 2014, Hale signed a purchase commitment to buy all of its raw
materials from Delta Company for the next 2 years.
____ 8. Discount on bonds payable due March 31, 2017.
____ 9. Launching of Hale’s Internet retailing division in February, 2015.
____ 10. Cash dividends declared on December 15, 2014 payable to stockholders on January
15, 2015.
Test Bank for Intermediate Accounting, Fifteenth Edition
5 - 32
Solution 5-114
Ex. 5-115—Statement of cash flows.
For each event listed below, select the appropriate category which describes the effect of the
event on a statement of cash flows:
a. Cash provided/used by operating activities.
b. Cash provided/used by investing activities.
c. Cash provided/used by financing activities.
d. Not a cash flow.
____ 1. Payment on long-term debt
____ 2. Issuance of bonds at a premium
____ 3. Collection of accounts receivable
____ 4. Cash dividends declared
____ 5. Issuance of stock to acquire land
____ 6. Sale of available-for-sale securities (long-term)
____ 7. Payment of employees' wages
____ 8. Issuance of common stock for cash
____ 9. Payment of income taxes payable
____ 10. Purchase of equipment
____ 11. Purchase of treasury stock (common)
____ 12. Sale of real estate held as a long-term investment
Solution 5-115
Balance Sheet and Statement of Cash Flows
5 - 33
Ex. 5-116—Statement of cash flows ratios.
Financial statements for Hilton Company are presented below:
Hilton Company
Balance Sheet
December 31, 2014
Assets Liabilities & Stockholders’ Equity
Cash $ 40,000 Accounts payable $ 20,000
Accounts receivable 35,000 Bonds payable 50,000
Buildings and equipment 150,000 Common stock 65,000
Accumulated depreciation— Retained earnings 60,000
buildings and equipment (50,000) $195,000
Patents 20,000
$195,000
Hilton Company
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income $55,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable $(16,000)
Increase in accounts payable 8,000
Depreciation—buildings and equipment 15,000
Gain on sale of equipment (6,000)
Amortization of patents 2,000 3,000
Net cash provided by operating activities 58,000
Cash flows from investing activities
Sale of equipment 12,000
Purchase of land (25,000)
Purchase of buildings and equipment (48,000)
Net cash used by investing activities (61,000)
Cash flows from financing activities
Payment of cash dividend (15,000)
Sale of bonds 30,000
Net cash provided by financing activities 15,000
Net increase in cash 12,000
Cash, January 1, 2014 28,000
Cash, December 31, 2014 $40,000
At the beginning of 2014, Accounts Payable amounted to $12,000 and Bonds Payable was
$20,000.
Instructions
Calculate the following for Hilton Company:
a. Current cash debt coverage
b. Cash debt coverage
c. Free cash flow
Test Bank for Intermediate Accounting, Fifteenth Edition
5 - 34
d. Explain the purpose of free cash flow analysis.
Solution 5-116
