CHAPTER 4: THE BALANCE SHEET AND THE STATEMENT OF
SHAREHOLDER’S EQUITY
1. The balance sheet reports the financial position of a company at a specific date in time whereas all other financial
statements report changes in the financial position of the company over a period of time.
a.
True
b.
False
True
Easy
ACCT.WHAL.16.4.1 – LO: 4.1
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2. The elements recognized on the balance sheet are assets, liabilities, revenues, and expenses.
a.
True
b.
False
False
Easy
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3. Equity is defined as a residual claim such that assets plus liabilities equals equity.
a.
True
b.
False
1
Moderate
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
4. Asset measurement methods that reflect historical values include acquisition cost and residual value.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.2 – LO: 4.2
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5. Asset measurement methods that reflect historical values include fair value, present value, replacement cost, and net
realizable value.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.3 – LO: 4.1
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6. Companies typically recognize monetary assets and liabilities using present values.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.3 – LO: 4.1
United States – BUSPROG – BUSPROG: Analytic
Bloom’s: Understanding
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
7. Net realizable value is the amount a company would have to pay currently to acquire an asset it now holds.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.3 – LO: 4.1
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Bloom’s: Understanding
8. Adjusted present value is based on the present-day fair value adjusted to reflect the passage of time.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.3 – LO: 4.1
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Bloom’s: Understanding
9. FASB’s definition of fair value of an asset is characterized as a measure of market-based exit value, which is the
amount for which a company could sell the asset.
a.
True
b.
False
True
1
Moderate
ACCT.WHAL.16.4.3 – LO: 4.1
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
10. Current assets include cash, accounts receivable, inventory, and prepaid items.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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11. Long-term investments are listed on the balance sheet at historical cost.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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12. Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.5 – LO: 4.4
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
13. All long-term investments are listed on the balance sheet at fair value.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.5 – LO: 4.4
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14. Equity of a wholly-owned company is comprised only of contributed capital and earned capital.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.6 – LO: 4.5
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15. The SEC requires listed companies to report changes in shareholder’s equity and ending balances as a separate
financial statement, but smaller companies may report this information in a supporting schedule or as a note.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.6 – LO: 4.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
16. Distributions to owners increase equity and investments by owners decrease equity.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.7 – LO: 4.5
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17. Distributions to owners include paying dividends, repurchasing common shares, transferring assets, rendering
services, and incurring liabilities to owners.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.7 – LO: 4.5
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18. Typically, the first note to the financial statements is the Summary of Significant Accounting Policies.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
19. Derivative financial instruments must be reported as either assets or liabilities on the balance sheet and be measured at
their net realizable value.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
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Bloom’s: Remembering
20. Gain contingencies must be accrued if they are probable and can reasonably be estimated.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
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21. A company must make adjustments to the financial statements for certain events that occur after the end of the
accounting period.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
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Bloom’s: Remembering
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
22. In common-size analysis, all balance sheet items and income statement items are presented as a percentage of total
assets.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
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Bloom’s: Remembering
23. Cross-sectional analysis involves intercompany comparisons.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
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24. Time-series analysis is the same as rate of change analysis.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
United States – BUSPROG – BUSPROG: Analytic
Bloom’s: Remembering
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
25. Financial leverage is measured by the debt-to-assets ratio.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.4.9 – LO: 4.7
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Bloom’s: Remembering
26. Which financial statement is also called the statement of financial position?
a.
The balance sheet
b.
The income statement
c.
The statement of cash flows
d.
The statement of shareholders’ equity
a
1
Easy
ACCT.WHAL.16.4.1 – LO: 4.1
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27. A balance sheet shows the
a.
b.
c.
d.
c
1
Easy
ACCT.WHAL.16.4.1 – LO: 4.1
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28. Which of the following financial statements reports changes in financial position of the company during the
accounting period?
a.
Statement of cash flows
b.
Balance sheet
c.
Statement of financial position
d.
All of the above report changes in financial position during the accounting period.
a
1
Easy
ACCT.WHAL.16.4.1 – LO: 4.1
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29. Which of the following elements is not recognized on the balance sheet?
a.
Equity
b.
Expense
c.
Liability
d.
Asset
b
1
Moderate
ACCT.WHAL.16.4.1 – LO: 4.1
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30. What element is a probable future economic benefit controlled and previously acquired by a company?
a.
Equity
b.
Gain
c.
Revenue
d.
Asset
d
1
Moderate
ACCT.WHAL.16.4.1 – LO: 4.1
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31. The primary attribute of all assets is
a.
service potential.
b.
productive capacity.
c.
historical cost.
d.
service contribution.
a
1
Easy
ACCT.WHAL.16.4.2 – LO: 4.2
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32. All of the following items would appear on the balance sheet except
a.
an investment in another company’s bonds
b.
an investment in marketable securities
c.
a realized gain on the sale of a equipment
d.
the premium related to a bond liability that is still two years from maturity
c
1
Easy
ACCT.WHAL.16.4.2 – LO: 4.2
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33. All of the following are non-monetary assets except
a.
goodwill.
b.
patents
c.
inventory.
d.
accounts receivable.
d
1
Moderate
ACCT.WHAL.16.4.2 – LO: 4.2
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
34. Which is not a required characteristic for a liability to be recognized?
a.
Transfer
b.
Service potential
c.
Nonavoidable
d.
Incurred
b
1
Easy
ACCT.WHAL.16.4.2 – LO: 4.2
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35. Which of the following is a probable future sacrifice of economic benefits arising from present obligations as a result
of past events?
a.
Expense
b.
Liability
c.
Loss
d.
Asset
c
1
ACCT.WHAL.16.4.2 – LO: 4.2
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36. Which of the following statements about executory contracts is false?
a.
Executory contracts are contracts in the process of begin filled.
b.
A purchase order is an example of an executory contract.
c.
Executory contracts are recognized as liabilities when the company receives the benefits
d.
Executory contracts are contingent obligations.
a
1
Moderate
ACCT.WHAL.16.4.3 – LO: 4.1
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
37. The residual interest in a company’s assets after deducting liabilities is
a.
net income.
b.
equity.
c.
noncontrolling interest
d.
earned capital
b
1
Moderate
ACCT.WHAL.16.4.3 – LO: 4.1
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38. Which of the following is not a general category of shareholders’ equity?
a.
Net income
b.
Contributed capital
c.
Noncontrolling interest
d.
Earned capital
a
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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39. Which of the following assets is reported at net realizable value on the balance sheet?
a.
Short-term investments
b.
Merchandise inventory
c.
Accounts receivable
d.
Prepaid insurance
c
1
Moderate
ACCT.WHAL.16.4.4 – LO: 4.3
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
40. Which of the following is a measurement method that reflects historical value?
a.
Fair value
b.
Acquisition cost
c.
Replacement cost
d.
Net realizable value
b
1
Moderate
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
41. An asset is valued by the price that would be received by selling it in an orderly transaction between market
participants on the date of measurement. Which measurement method is being used in this case?
a.
Fair value
b.
Historical cost
c.
Present value
d.
Reliable value
a
1
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
42. Which of the following statements about fair value is true?
a.
Level 1 inputs should be used to determine fair value only when Level 2 and Level 3 inputs are not available.
b.
Level 3 inputs are observable market prices for similar assets in active markets.
c.
Fair value accounting is also known as “mark–to–market” accounting.
d.
Fair value is a measure of market-based entry value.
c
1
Moderate
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
43. The expected exit value is also referred to as the
a.
fair value.
b.
present value.
c.
input value.
d.
current replacement cost.
a
1
Moderate
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
44. The amount a company would pay to acquire an asset it now holds is the asset’s
a.
historical cost.
b.
current replacement cost.
c.
current exit value.
d.
present value.
b
1
Moderate
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
45. The measurement of an asset’s value based on the discounted future cash flows relating to the asset is
a.
net realizable value.
b.
future value.
c.
historical value.
d.
present value.
d
1
Moderate
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
46. Which balance sheet account is usually reported at net realizable value?
a.
Investments
b.
Land.
c.
Accounts Receivable.
d.
Inventory.
c
1
Moderate
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
47. A balance sheet account that is usually reported at fair value is
a.
Marketable Securities.
b.
Land.
c.
Accounts Payable.
d.
Inventory.
a
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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48. A balance sheet account that is usually reported at present value is
a.
Land.
b.
Note Payable.
c.
Accounts Payable.
d.
Inventory.
b
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
49. Which of the following accounts is not classified as a current asset?
a.
Receivables
b.
Inventory
c.
Patent
d.
Prepaid Insurance
c
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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50. Cash equivalents are securities that
a.
management intends to convert into cash within one year.
b.
are denominated in a recognized national currency.
c.
management intends to convert into cash within the normal operating cycle.
d.
have maturity dates of three months or less.
d
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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51. Long-term investments include all of the following except
a.
sinking funds.
b.
cash surrender value of life insurance policies.
c.
a building held for rental activity.
d.
bonds payable.
d
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
52. Property, plant, and equipment section of the balance sheet includes all of the following except
a.
construction in progress.
b.
natural resources.
c.
intangible assets
d.
leasehold improvements.
b
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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53. Intangible assets include all of the following except
a.
natural resources.
b.
licenses.
c.
goodwill.
d.
Trademarks
d
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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54. What is the term for the systematic allocation of the costs of intangible assets to expense?
a.
Amortization
b.
Depreciation
c.
Impairment
d.
Depletion
a
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Remembering
Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
55. 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
a
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Understanding
56. Which of the following is not an intangible asset?
a.
Computer software
b.
Deferred tax asset
c.
Brand name
d.
Franchise
b
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Remembering
57. The systematic allocation of the costs of natural assets to expense is called
a.
amortization.
b.
depreciation.
c.
impairment.
d.
depletion.
d
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Chapter 4: The Balance Sheet and the Statement of Shareholders‘ Equity
58. The adjusted historical cost of fixed assets, calculated as historical cost minus depreciation, is called
a.
amortization.
b.
net book value.
c.
impairment.
d.
depreciable cost.
b
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Remembering
59. Which of the following is amortized over its useful life and reported at adjusted historical cost?
a.
Intangible asset with finite useful lives
b.
Intangible asset with indefinite useful lives
c.
Goodwill
d.
Property, plant, and equipment
a
1
Easy
ACCT.WHAL.16.4.5 – LO: 4.4
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60. 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
b
1
Easy
ACCT.WHAL.16.4.4 – LO: 4.3
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Bloom’s: Remembering