Intermediate Accounting Test Bank 3Rd Edition - Test Bank Chapter 5 PDF

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CHAPTER 5 STATEMENT OF FINANCIAL POSITION AND STATEMENT OF CASH FLOWS CHAPTER LEARNING OBJECTIVES 1. Explain the uses limitations and content of a statement of financial position. 2. Prepare a classified statement of financial position. 3. Identify the purpose content and usefulness of the statement...

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CHAPTER 5 STATEMENT OF FINANCIAL POSITION AND STATEMENT OF CASH FLOWS CHAPTER LEARNING OBJECTIVES 1. Explain the uses limitations and content of a statement of financial position. 2. Prepare a classified statement of financial position. 3. Identify the purpose content and usefulness of the statement of cash flows. 4. Describe additional types of information provided. *5. Identify the major types of financial ratios and what they measure. * This information can be found in an Appendix to the chapter

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Test Bank for Intermediate Accounting: IFRS Edition, 3e

TRUE FALSE—Conceptual 1. Liquidity refers to the ability of an enterprise to pay its debts as they mature. 2. The statement of financial position omits many items that are of financial value to the business but cannot be recorded objectively. 3. Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows. 4. Under IFRS the statement of financial position is often referred to as the statement of changes in equity. 5. Companies frequently describe the terms of all long-term liability agreements in notes to the financial statements. 6. An asset which is expected to be converted into cash, sold, or consumed within one year of the statement date is always reported as a current asset. 7. Land held for speculation is reported in the property, plant, and equipment section of the statement of financial position. 8. Under IFRS a company may use the term “reserve” to include items such as retained earnings, share premium, and accumulated other comprehensive income. 9. On the statement of financial position the non-controlling interest account is reported as a long-term investment. 10. The equity section of an IFRS statement of financial position includes share capital, share premium, and retained earnings in that order. 11. The account form and the report form of the statement of financial position are both acceptable under IFRS. 12. The primary purpose of a statement of cash flows is to report the cash effects of operations during a period. 13. The statement of cash flows reports only the cash effects of operations during a period and financing transactions. 14. Financial flexibility is a company’s ability to respond and adapt to financial adversity and unexpected needs and opportunities. 15. Collection of a loan is reported as an investing activity in the statement of cash flows. 16. Under IFRS the payment of dividends may be reported as either an investing activity or a financing activity. 17. Companies determine cash provided by operating activities by converting net income on an accrual basis to a cash basis.

Statement of Financial Position and Statement of Cash Flows

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18. Significant financing and investing activities that do not affect cash are not reported in the statement of cash flows or any other place. 19. Under IFRS non-cash activities are reported as either investing or financing activities in the body of the statement of cash flows. 20. Financial statement readers often assess liquidity by using current cash debt coverage. 21. Free cash flow is net income less capital expenditures and dividends. 22. The IASB recommends disclosure for all significant accounting principles and methods that involve selection from among alternatives. 23. Companies present a “Summary of Significant Accounting Policies” generally as the first note to the financial statements. 24. IFRS requires that a complete set of financial statements be presented annually and that for comparative purposes, companies must include three complete sets of financial statements and related notes. 25. IFRS requires specific note disclosures on inventories that are disaggregated into classifications such as merchandise, production supplies, work in process, and finished goods. 26. Companies may use parenthetical explanations, notes, cross references, and supporting schedules to disclose pertinent information. 27. The accounting profession has recommended that companies use the word reserve only to describe amounts deducted from assets. 28. On the statement of financial position, an adjunct account reduces either an asset, a liability, or an equity account. 29. Under IFRS, companies may offset assets and liabilities; for example, accounts payable may be offset against cash to report net cash available for other expenses. 30. Under IFRS an adjunct account on the statement of financial position increases an asset, liability, or equity account.

True False Answers—Conceptual Item 1. 2. 3. 4. 5. 6.

Ans. F T T F T F

Item 7. 8. 9. 10. 11. 12.

Ans. F T F T T F

Item 13. 14. 15. 16. 17. 18.

Ans. F T T F T F

Item 19. 20. 21. 22. 23. 24.

Ans. F T F T T F

Item 25. 26. 27. 28. 29. 30.

Ans. T T F F F T

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Test Bank for Intermediate Accounting: IFRS Edition, 3e

MULTIPLE CHOICE—Conceptual 31.

Which of the following is a limitation of the statement of financial position? a. Many items that are of financial value are omitted. b. Judgments and estimates are used. c. Current fair value is not reported. d. All of these choices are correct.

32.

The statement of financial position is useful for analyzing all of the following except a. liquidity. b. solvency. c. profitability. d. financial flexibility.

33.

Statement of financial position information is useful for all of the following except to a. compute rates of return b. analyze cash inflows and outflows for the period c. evaluate capital structure d. assess future cash flows

34.

Statement of financial position information is useful for all of the following except a. assessing a company's risk b. evaluating a company's liquidity c. evaluating a company's financial flexibility d. determining free cash flows.

35.

A limitation of the balance sheet that is not also a limitation of the income statement is a. the use of judgments and estimates b. omitted items c. the numbers are affected by the accounting methods employed d. valuation of items at historical cost

S

36.

The statement of financial position contributes to financial reporting by providing a basis for all of the following except a. computing rates of return. b. evaluating the capital structure of the enterprise. c. determining the increase in cash due to operations. d. assessing the liquidity and financial flexibility of the enterprise.

S

One criticism not normally aimed at a statement of financial position prepared using current accounting and reporting standards is a. failure to reflect current value information. b. the extensive use of separate classifications. c. an extensive use of estimates. d. failure to include items of financial value that cannot be recorded objectively.

37.

Statement of Financial Position and Statement of Cash Flows P

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38.

The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability.

39.

The statement of financial position a. Omits many items that are of financial value. b. Makes very limited use of judgments and estimates. c. Uses fair value for most assets and liabilities. d. All of the choices are correct regarding the statement of financial position.

40.

The statement of financial position can help assess all of the following except a. Solvency. b. Financial flexibility. c. Profitability. d. Liquidity.

41.

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 s hareholders' equity. d. none of these choices are correct.

42.

The correct order to present current assets is a. cash, accounts receivable, prepaid items, inventories. b. inventories, receivables, prepaid items, cash. c. cash, inventories, accounts receivable, prepaid items. d. inventories, prepaid items, accounts receivable, cash.

43.

The basis for classifying assets as current or noncurrent is conversion to cash within a. the accounting cycle or one year, whichever is shorter. b. the operating cycle or one year, whichever is longer. c. the accounting cycle or one year, whichever is longer. d. the operating cycle or one year, whichever is shorter.

44.

The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in a. inventory back into cash, or 12 months, whichever is shorter. b. receivables back into cash, or 12 months, whichever is longer. c. tangible fixed assets back into cash, or 12 months, whichever is longer. d. inventory back into cash, or 12 months, whichever is longer.

45.

The current assets section of the statement of financial position should include a. machinery. b. patents. c. goodwill. d. inventory.

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Test Bank for Intermediate Accounting: IFRS Edition, 3e

46.

Which of the following is a current asset? a. Cash surrender value of a life insurance policy of which the company is the beneficiary. b. Investment in equity securities for the purpose of controlling the issuing company. c. Cash designated for the purchase of tangible fixed assets. d. Trade installment receivables normally collectible in 18 months.

47.

Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as a. current assets. b. property, plant, and equipment. c. intangible assets. d. long-term investments.

48.

Each of the following are an intangible asset except a. copyrights. b. goodwill. c. plant expansion fund. d. trademarks.

49.

Which of the following is not a long-term investment? a. Investments in ordinary shares b. Franchise c. Land held for speculation d. A sinking fund

50.

A generally accepted method of valuation is 1. trading securities at market value. 2. accounts receivable at net realizable value. 3. inventories at current cost. a. 1 b. 2 c. 3 d. 1 and 2

51.

Which item below is not a current liability? a. Unearned revenue b. Share dividends distributable c. The currently maturing portion of long-term debt d. Trade accounts payable

52.

Working capital is a. capital which has been reinvested in the business. b. unappropriated retained earnings. c. cash and receivables less current liabilities. d. none of these choices are correct.

Statement of Financial Position and Statement of Cash Flows

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53.

An a. b. c. d.

example of an item which is not an element of working capital is accrued interest on notes receivable. goodwill. goods in process. short-term investments.

54.

Non-current liabilities include a. obligations not expected to be liquidated within the next year or operating cycle. b. obligations payable at some date beyond the next year or operating cycle. c. deferred income taxes and most lease obligations. d. All of these choices are correct.

55.

Which of the following should be excluded from long-term liabilities? a. Obligations payable at some date beyond the operating cycle b. Most pension obligations c. Non-current liabilities that mature within the operating cycle and will be paid from a sinking fund d. None of these choices are correct.

56.

Treasury shares should be reported as a(n) a. current asset. b. investment. c. other asset. d. reduction of equity.

57.

Which of the following should be reported for share capital? a. The shares authorized b. The shares issued c. The shares outstanding d. All of these choices are correct.

58.

The shareholders' equity section is usually divided into how many parts? a. 6 b. 5 c. 4 d. 3

59.

Which of the following is not an acceptable major asset classification? a. Current assets b. Investments c. Property, plant, and equipment d. Deferred charges

5-8 60.

Test Bank for Intermediate Accounting: IFRS Edition, 3e Fulton Company owns the following investments: Trading securities (fair value) Non-trading securities (fair value) Held-for-collection securities (amortized cost)

€70,000 35,000 47,000

Fulton will report investments in its current assets section of a. €0. b. exactly €70,000. c. €70,000 or an amount greater than $70,000, depending on the circumstances. d. exactly €105,000. 61.

For Grimmett Company, the following information is available: Capitalized leases ¥200,000 Trademarks 55,000 Long-term receivables 75,000 In Grimmett’s statement of financial position, intangible assets should be reported at a. ¥ 55,000. b. ¥ 75,000. c. ¥255,000. d. ¥275,000.

62.

Houghton Company has the following items: share capital –ordinary, €820,000; treasury shares, €85,000; deferred taxes, €100,000 and retained earnings, € 313,000. What amount should Houghton Company report as total equity? a. €948,000. b. €1,048,000. c. €1,148,000. d. €1,218,000.

63.

Kohler Company owns the following investments: Trading securities (fair value) £ 60,000 Non-trading securities (fair value) 45,000 Held-for-collection securities (amortized cost) 57,000 Kohler will report securities in its long-term investments section of a. exactly £105,000. b. exactly £117,000. c. exactly £162,000. d. £102,000 or an amount less than £102,000, depending on the circumstances.

64.

For Randolph Company, the following information is available: Capitalized leases Trademarks Long-term receivables

R280,000 110,000 105,000

In Randolph’s statement of financial position, intangible assets should be reported at a. R110,000. b. R105,000. c. R390,000. d. R385,000.

Statement of Financial Position and Statement of Cash Flows

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65.

Olmsted Company has the following items: share capital –ordinary, €920,000; treasury shares, €85,000; deferred taxes, €100,000 and retained earnings, € 363,000. What amount should Olmsted Company report as total equity? a. €1,098,000. b. €1,198,000. c. €1,298,000. d. €1,398,000.

66.

Stine Corp.'s trial balance reflected the following account balances at December 31, 2019: Accounts receivable (net) R$24,000 Trading securities 6,000 Accumulated depreciation—equipment 15,000 Cash 21,000 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, 2019 statement of financial position, the current assets total is a. R$101,000. b. R$92,000. c. R$87,000. d. R$83,000.

67.

Within the statement of financial position companies should separately report all of the following except a. Assets and liabilities with different general liquidity characteristics. b. Assets and liabilities that have been financed with different types of instruments. c. Assets that differ in their expected function in the company’s central operations. d. Liabilities that differ in their amounts, timing, and nature.

68.

Within the statement of financial position where should the account non-controlling interest (minority interest) be reported? a. Non-current assets. b. Non-current liabilities. c. Equity. d. Current liabilities.

69.

On the statement of financial position all of the following are reported as investments except a. Bonds, ordinary shares, and long-term notes. b. Non-controlling interest. c. Pension funds. d. Non-consolidated subsidiaries.

5 - 10 70.

Test Bank for Intermediate Accounting: IFRS Edition, 3e Caroline, Inc. hired a new controller in late 2019. The controller has not prepared financial statements using IFRS before and needs your assistance. In compiling a complete set of financial statements under IFRS, in what order should the following items be reported in the equity section on the statement of financial position at December 31, 2019? If an item is not reported in the equity section, omit it from your answer. I. Share premium II. Retained earnings III. Investments IV. Non-controlling interest V. Accumulated comprehensive income VI. Share capital a. b. c. d.

71.

Using IFRS, which of the following items is matched correctly with its basis of valuation for purposes of reporting on the statement of financial position? Item Basis of Valuation I. Inventory A. Cost II. Prepaid expenses B. Estimated amount collectible III. Receivables C. Lower-of-cost-or net realizable value a. b. c. d.

72.

I, VI, IV, II, V, III VI, I, II, V, IV VI, I, IV, II, V III, VI, I, II, IV, V

I and A II and C III and B II and B

Presented below are data for Antwerp Corp. Assets, January 1 Liabilities, January 1 Equity, Jan. 1 Dividends Increase in share capital–ordinary Equity, Dec. 31 Net Income Equity at January 1, 2018 is a. € 504. b. € 560. c. €1,220. d. €1,724.

2018

2019

€2,800 1,580 ? 560 504 ? 560

€3,360 ? ? 420 448 ? 448

2020 ? €2,016 2,100 476 500 1,596 ?

Statement of Financial Position and Statement of Cash Flows 73.

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Presented below are data for Bandkok Corp. 2018 Assets, January 1 Liabilities, January 1 Equity, Jan. 1 Dividends Increase in share capital–ordinary Equity, Dec. 31 Net Income Equity at January 1, 2019 is a. Rp1,690. b. Rp1,798. c. Rp2,932. d. Rp2,986.

Rp 5,400 3,440 ? 1,080 972 ? 1,080

2019 Rp6,480 ? ? 810 864 ? 864

2020 ? Rp3,888 4,050 918 920 3,078 ?

74.

Rosalie Corporation is located in London but does business throughout Europe. The company builds and sells equipment used in manufacturing pharmaceuticals . On December 31, 2019, Rosalie has trading securities valued at £ 63,000; goodwill valued at £450,000; prepaid insurance valued at £36,000; patents valued at £210,000; and a customer list valued at £390,000. On Rosalie Corporation’s statement of financial position at December 31, 2019, what amount should be reported as intangible assets? a. £1,113,000 b. £1,149,000 c. £1,050,000 d. £660,000

75.

The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the a. retained earnings statement. b. income statement. c. statement of cash flows. d. statement of financial position.

76.

The statement of cash flows provides answers to all of the following questions except a. where did the cash come from during the period? b. what was the cash used for during the period? c. what is the impact of inflation on the cash balance at the end of the year? d. what was the change in the cash balance during the period?

77.

The statement of cash flows reports all of the following except a. the net change in cash for the period. b. the cash effects of operations during the period. c. the free cash flows generated during the period. d. investing transactions.

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Test Bank for Intermediate Accounting: IFRS Edition, 3e

78.

Which of the following events will appear i n the cash flows from financing activities section of the statement of cash flows? a. Cash purchases of equipment. b. Cash purchases of bonds issued by another company. c. Cash received as repayment for funds loaned. d. Cash purchase of treasury stock.

79.