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Exam 3: The Balance Sheet and Financial Disclosures

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Question 71

Multiple Choice

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Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Debt to equity ratio

A) Also know as the quick ratio.
B) Current assets divided by current liabilities.
C) Refers to riskiness of a company with regard to the amount of liabilities in its capital structure.
D) Relates to the amount of time before an asset is converted to cash or a liability is paid.
E) If four to one, 80% of assets are debt-financed.

F) C) and D)
G) B) and C)

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Question 72

Multiple Choice

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The quick ratio is:

A) The liquidity ratio divided by the equity ratio.
B) Current assets minus inventory divided by current liabilities minus accounts payable.
C) Current assets minus inventory and prepaid items divided by current liabilities.
D) Cash divided by accounts payable.

E) B) and C)
F) None of the above

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Question 73

Multiple Choice

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Long-term solvency refers to:

Bronco Electronics' current assets consist of cash, marketable securities, accounts receivable, and inventories. The following data were abstracted from a recent financial statement: Required: Compute the following for Bronco: -Long-term assets

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Notes receivable

The ultimate responsibility for the financial statements lies with the auditors.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Acid-test ratio

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Retained earnings

Briefly explain the purpose of the disclosure note on significant accounting policies. Provide two examples of what might be found in this note.

Explain how management's discussion and analysis of its operations and liquidity may be helpful to investors.

You are reviewing the December 31, 2018, financial statements of Ellie's Antiques. Ellie's management is considering an initial public offering of their shares. The following items come to your attention: a. Included in long-term investments are 10-year U.S. Treasury bonds that mature March 31, 2019. The bonds were purchased November 20, 2018. b. The property, plant, and equipment account is stated at cost, except that it includes a parcel of land purchased for investment purposes at a cost of $40,000. Because of rising land prices, the value of the land has been written up to $60,000. The company has an independent appraisal that attests to this amount. c. The accounts receivable account includes $20,000 due in three years from officers and employees and a two-year, 8% note for $25,000 due from a customer. The loan enabled the customer to buy equipment needed to process materials purchased from Ellie's Antiques. Required: Determine the proper balance sheet presentation and amounts for the above items.

Management's Report on Internal Control Over Financial Reporting:

The balance sheet for Altoid Co. is shown below. Required: Compute the following financial statement ratios for 2018: -Altoid Co.'s times interest earned ratio. Round your answer to two decimal places.

You recently joined the internal auditing department of Kaitlyn Sportswear Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant. In the course of your examination you uncover the following information pertaining to the balance sheet: 1. The land and buildings represent the corporate headquarters and manufacturing facilities. 2. The note receivable is due in 2020. The balance of $80,000 includes $5,000 of accrued interest. The next interest payment is due in July 2019. 3. The note payable is due in installments of $50,000 per year. Interest on both the notes and bonds is payable annually. 4. The company's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year. 5. Deferred revenue will be recognized ratably (equally) over the next two years. Required: Identify and explain the deficiencies in the statement prepared by the company's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

Cash equivalents would include:

Listed below are ten terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Deferred revenues

Janson Corporation Co.'s trial balance included the following account balances at December 31, 2018: Investments consist of treasury bills that were purchased in November, 2018 and mature in January, 2019. Prepaid insurance is for two years. What amount should be included in the current asset section of Janson's December 31, 2018, balance sheet?

List the circumstances under which land would be classified under the following balance sheet classifications: 1. Current assets. 2. Investments (long-term). 3. Property, plant, and equipment. 4. Other long-term assets.

Listed below are ten terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Accounts payable

The condensed balance sheet and income statement for Marjoram Company are presented below. -Compute the return on shareholders' equity ratio for Marjoram Company. Round your answer to two decimal places.