Balance Sheets quiz

Balance Sheets

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Consider the following statements.

Statement #1: Par value is a nominal dollar value assigned to shares of stock in a corporation's charter.

Statement #2: The par value of common stock represents the amount the corporation received when the stock was issued.

With respect to these statements :

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A vertical common-size balance sheet expresses each category of the balance sheet as a percentage of:

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A segment of a common-size balance sheet for Olsen Company in its most recent year shows the following data :

1% Common stock
19% Additional paid-in capital
15% Preferred stock

How should an analyst most appropriately interpret these data ?

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The most appropriate measurement base for unimpaired goodwill is :

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Galaxy Corporation manufactures custom motorcycles. Galaxy finances the motorcycles over 36 months for customers who make a minimum down payment of 10%. Historically, Galaxy has experienced bad debt losses equal to 1% of sales. Galaxy also provides a 24 month unlimited warranty on all new motorcycles. In the past, warranty expense has averaged 3% of sales. Ignoring taxes, how does the recognition of bad debt expense and warranty expense at the time of sale affect Galaxy's liabilities ?

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 Given the following income statement and balance sheet for a company :

Balance Sheet
Year 2023 Year 2022
 : Assets
450 500 Cash
660 600 Accounts Receivable
550 500 Inventory
1660 1600 Total CA
1250 1000 Plant, prop. equip
2910 2600 Total Assets
: Liabilities
550 500 Accounts Payable
1002 700 Long term debt
1552 1200 Total liabilities
: Equity
538 400 Common Stock
820 1000 Retained Earnings
2910 2600 Total Liabilities & Equity
Income Statement
3000 Sales
- 1000 Cost of Goods Sold
2000 Gross Profit
- 500 SG&A
- 151 Interest Expense
1349 EBT
- 405 Taxes (30%)
944 Net Income

What is the current ratio for 2023 ?

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A liquidity-based balance sheet, on which assets and liabilities are not classified as current or non-current, is permitted under :

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At the beginning of the year, Parent Company purchased all 500,000 shares of Sub Incorporated for $15 per share. Just before the acquisition date, Sub’s balance sheet reported net assets of $6 million. Parent determined the fair value of Sub’s property and equipment was $1 million higher than reported by Sub. What amount of goodwill should Parent report as a result of its acquisition of Sub ?

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Which of the following characteristics are required for recognition of a balance sheet asset ?

Characteristic #1: Future economic benefits to the firm are probable.

Characteristic #2: The asset is tangible and is obtained at a cost.

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Duster Company reported the following financial information at the end of 2022 :

in millions
240 Unearned revenue
30 Common stock at par
440 Capital in excess of par
1,150 Accounts payable
2,000 Treasury stock
5,160 Retained earnings
830 Accrued expenses
210 Accumulated other comprehensive loss
1,570 Long-term debt

Calculate Duster's liabilities and stockholders' equity as of December 31, 2022.

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Balance sheet data for two comparable firms are presented below :

Brevis, Inc Amplus, Inc
500 3,800 Cash and equivalents
700 2,400 Accounts receivable
1,100 5,800 Inventories
2,300 12,000 Current assets
100 400 Land
6,400 24,600 Property, plant and equipment
6,500 25,000 Noncurrent assets
8,800 37,000 Total assets 
400 1,800 Accounts payable
100 600 Unearned revenue
500 2,400 Current liabilities
3,300 9,600 Long-term borrowing
3,800 12,000 Total liabilities
300 1,500 Common stock
4,700 23,500 Retained earnings
5,000 25,000 Total equity
8,800 37,000 Total liabilities and equity 

Based on common-size analysis of the two firms' balance sheets, Amplus Company:

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Which of the following transactions is most likely to be recognized on a firm's statement of changes in equity?

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Under IFRS, firms may report an investment in the equity securities of other companies at fair value through :

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A classified balance sheet categorizes assets and liabilities based on whether they are :

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For which of the following balance sheet items is a change in market value most likely to affect net income?

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Which of the following is most likely an essential characteristic of an asset ?

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Liabilities are best described as :

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Earlier this year, Slayton Corporation repurchased 5% of its total shares outstanding. At the time, the book value of Slayton shares exceeded their market value. The shares are expected to be reissued in the future when the market price of Slayton's stock increases. Do Slayton's repurchased shares continue to have voting rights and to pay cash dividends ?

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A company that reports under IFRS has developed a new product which required research costs of $2 million and development costs of $3 million. The maximum amount the company can record as the value of the new product on its balance sheet is :

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Common size balance sheets express all balance sheet items as a percentage of:

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The statement of changes in equity is least likely to provide information on the firm's :

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Century Company’s balance sheet follows :

Century company Balance sheet  (in millions)
2023 2022
Current assets 340 280
Noncurrent assets 660 630
Total assets  1000 910
Current liabilities 170 110
Noncurrent liabilities 50 50
Total liabilities 220 160
Equity 780 750
Total liabilities and equity 1000 910

Century’s balance sheet presentation is known as :

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Which of the following would most likely result in a current liability ?

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Under U.S. GAAP, land owned by the firm is most likely to be reported on the balance sheet at :

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A firm's balance sheet prepared under IFRS is least likely to include :

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Ascot Corporation has 4 million shares of common stock authorized, 2.4 million shares of common stock issued, and 1.8 million shares of common stock outstanding. How many shares of treasury stock does Ascot own and is the treasury stock reported as an asset in Ascot's balance sheet ?

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Which of the following statements about analyzing the balance sheet is most accurate ?

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According to International Financial Reporting Standards, how do cash dividends received from trading securities and financial securities measured at fair value through OCI affect net income?

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Which of the following statements about a classified balance sheet is least likely accurate ? A classified balance sheet :

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An analyst has gathered the following information about a company :

Balance Sheet
Assets :
100 Cash
750 Accounts Receivable
300 Marketable Securities
850 Inventory
900 Property, Plant & Equip
-150 Accumulated Depreciation
2750 Total Assets 
Liabilities and Equity :
300 Accounts Payable
130 Short-Term Debt
700 Long-Term Debt
1000 Common Stock
620 Retained Earnings
2750 Total Liab. and Stockholder's equity

Income Statement
1500 Sales
1100 COGS
400 Gross Profit
150 SG&A
250 Operating Profit
25 Interest Expense
75 Taxes
150 Net Income 

What is the quick ratio ?

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How should the proceeds received from the advance sale of tickets to a sporting event be treated by the seller, assuming the tickets are nonrefundable ?

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Selected balance sheet data for Parker Company are as follows :

Current assets 3,000
Long-lived assets 7,000
Total assets 10,000
Current liabilities 2,000
Long-term liabilities 4,000
Total liabilities 6,000
Shareholders' equity 4,000

On a common-size balance sheet, Parker's current liabilities would be stated as :

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A key limitation of balance sheets in financial analysis is that :

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One of a firm's assets is 270-day commercial paper that the firm intends to hold to maturity. One of its liabilities is a short position in a common stock, which the firm holds for trading purposes. How should this asset and this liability be classified on the firm's balance sheet ?

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Current assets that arise from the accrual process most likely include :

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At the beginning of the year, Company P purchased $80,000 face value of Company S corporate bonds for $77,000. Company P intends to hold these bonds for several years but sell them before they mature. At the end of the year, the market value of the bonds was $75,000. What amount should Company P report on its balance sheet at year-end for the investment in Company S bonds ?

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Miller Corporation has 160,000 shares of common stock authorized. There are 92,000 shares issued and 84,000 shares outstanding. How many shares of treasury stock does Miller own ?

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What is the appropriate measurement basis for equipment used in the manufacturing process ?

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Which of the following inventory valuation methods is required by the accounting standard setting bodies ?

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SF Corporation has created employee goodwill by reorganizing its retirement benefit package. An independent management consultant estimated the value of the goodwill at $2 million. In addition, SF recently purchased a patent that was developed by a competitor. The patent has an estimated useful life of five years. Should SF report the goodwill and patent on its balance sheet ?

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Selected data from Alpha Company’s balance sheet at the end of the year follows :

  150,000 investment Beta company, at fair value
    86,000 deferred taxes
  550,000 common stock , $1 par value
  175,000 preferred stock , $100 par value
  893,000 retained earnings
    46,000 accumulated other comprehensive income

The investment in Beta Company had an original cost of $120,000. Assuming the investment in Beta is classified as available-for-sale, Alpha’s total owners’ equity at year-end is closest to :

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Carpenter Corporation reported the following statement of shareholders' equity as of December 31, 2022 :

$600,000 Common stock at par
900,000 Additional paid-in-capital
- 200,000 Treasury stock
10,500,000 Retained earnings
450,000 Accumulated other comprehensive income

During 2023, Carpenter:

1- earned net income of $1,700,000.

2- declared dividends of $300,000. $75,000 of the dividends remain unpaid.

3- purchased held-to-maturity securities for $100,000. The securities have a fair value of $110,000 at year-end.

4- purchased available-for-sale securities for $250,000. The securities have a fair value of $225,000 at year-end.

5- translated the financial statements of a foreign subsidiary and calculated a $90,000 unrealized gain.

6- purchased treasury stock for $75,000. The stock was valued at $60,000 when issued.

Calculate Carpenter's accumulated other comprehensive income as of December 31, 2023.

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At the beginning of the year, Alpha Corporation, which reports under U.S. GAAP, purchased 10,000 shares of Beta Corporation for $20 per share. During the year, Beta paid a $2,000 cash dividend to Alpha. At the end of the year, Beta's stock was selling for $22 per share. What amount should Alpha recognize in its year-end income statement if the investment is treated as an available-for-sale security and what amount should be recognized in the income statement if the investment is treated as a trading security ?

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Liquidity-based presentation of a balance sheet is most likely to be used by a :

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The average number of days that it takes to turn raw materials into cash proceeds is a firm's :

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GTO Corporation purchased all of the common stock of Charger Company for $4 million. At the time, Charger reported total assets of $3 million and total liabilities of $1 million. At the acquisition date, the fair value of Charger's assets was $3.5 million and the fair value of Charger's liabilities was $1.3 million. What amount of goodwill should GTO report as a result of the acquisition and is it necessary for GTO to amortize the goodwill ?

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A U.S. GAAP reporting company invests $50 million in a bond portfolio yielding 4% with an average maturity of seven years. After one year, interest rates have fallen by 50 basis points. The company will report the highest retained earnings if the securities in the portfolio are classified as:

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The balance sheet is most likely to provide an analyst with information about a firm's :

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Earlier this year, Ponca Corporation purchased non-dividend paying equity securities which it classified as trading securities. Information related to the securities follows :

Fair value at year-end Cost Security
$435,000 $400,000 
$545,000 $550,000 

What amounts should Ponca report in its year-end income statement and balance sheet as a result of its investment in securities X and Y ?

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Which of the following firms is most likely to present a liquidity-based balance sheet rather than a classified balance sheet ?

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Resources controlled as a result of past transactions that are expected to provide future benefits are referred to as :

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The following data is from Delta's common size financial statement:

Earnings after taxes 18 %
Equity 40 %
Current assets 60 %
Current liabilities 30 %
Sales $ 300
Total assets $ 1,400

What is Delta's total liabilities to equity ratio ?

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Consider the following:

Statement #1 – Copyrights and patents are tangible assets that can be separately identified.

Statement #2 – Purchased copyrights and patents are amortized on a straight line basis over 30 years.

With respect to the statements about copyrights and patents acquired from an independent third party:

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Under IFRS, a firm may report the value of property, plant, and equipment using :

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Two of the elements of a balance sheet are :

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Which of the following ratios are used to measure a firm’s liquidity and solvency ?

The balance sheet (also known as the statement of financial position or statement of financial condition) reports the firm’s financial position at a point in time. The balance sheet consists of assets, liabilities, and equity.

Assets: Resources controlled as a result of past transactions that are expected to provide future economic benefits.

Liabilities: Obligations as a result of past events that are expected to require an outflow of economic resources.

Equity: The owners’ residual interest in the assets after deducting the liabilities. Equity is also referred to as stockholders’ equity, shareholders’ equity, or owners’ equity. Analysts sometimes refer to equity as “net assets”.

Liquidity ratios

measure the firm’s ability to satisfy its short-term obligations as they come due. Liquidity ratios include the current ratio, the quick ratio, and the cash ratio.

current assets   current ratio =
current liabilities


cash + marketable securities + receivables quick ratio =
current liabilities


cash + marketable securities  cash ratio =
current liabilities

Solvency ratios

measure the firm’s ability to satisfy its long-term obligations. Solvency ratios include the long term debt to equity ratio, the total debt to equity ratio, the debt ratio, and the financial leverage ratio.

long term debt long term debt to equity =
total equity
total debt total debt to equity =
total equity
total debt debt ratio =
total assets
total assets financial leverage =
total equity


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