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Intermediate Accounting

Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Chapter 5

Balance Sheet and Statement of Cash Flows - all with Video Answers

Educators


Chapter Questions

01:02

Problem 1

How does information from the balance sheet help users of the financial statements?

Nick Johnson
Nick Johnson
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00:57

Problem 2

What is meant by solvency? What information in the balance sheet can be used to assess a company's solvency?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:36

Problem 3

A recent financial magazine indicated that the airline industry has poor financial flexibility. What is meant by financial flexibility, and why is it important?

Pragya Ahuja
Pragya Ahuja
Numerade Educator
02:28

Problem 4

Discuss at least two situations in which estimates could affect the usefulness of information in the balance sheet.

Ameer Said
Ameer Said
Numerade Educator
02:25

Problem 5

Perez Company reported an increase in inventories in the past year. Discuss the effect of this change on the current ratio (current assets $\div$ current liabilities). What does this tell a statement user about Perez Company's liquidity?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
01:49

Problem 6

What is meant by liquidity? Rank the following assets from one to five in order of liquidity.
(a) Goodwill.
(b) Inventories.
(c) Buildings.
(d) Short-term investments.
(e) Accounts receivable.

Pragya Ahuja
Pragya Ahuja
Numerade Educator
01:02

Problem 7

What are the major limitations of the balance sheet as a source of information?

Nick Johnson
Nick Johnson
Numerade Educator
00:40

Problem 8

Discuss at least two items that are important to the value of companies like Intel or IBM but that are not recorded in their balance sheets. What are some reasons why these items are not recorded in the balance sheet?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
12:18

Problem 9

How does separating current assets from property, plant, and equipment in the balance sheet help analysts?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
01:08

Problem 10

In its December 31,2010 , balance sheet Oakley Corporation reported as an asset, "Net notes and accounts receivable, $\$ 7,100,000 . "$ What other disclosures are necessary?

Cory Kuzinski
Cory Kuzinski
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00:40

Problem 11

Should available-for-sale securities always be reported as a current asset? Explain.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
00:56

Problem 12

What is the relationship between current assets and current liabilities?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
06:10

Problem 13

The New York Knicks, Inc. sold 10,000 season tickets at $\$ 2,000$ each. By December 31,2010,16 of the 40 home games had been played. What amount should be reported as a current liability at December $31,2010 ?$

Pronoy Sinha
Pronoy Sinha
Numerade Educator
03:49

Problem 14

What is working capital? How does working capital relate to the operating cycle?

Tina Pavlovich
Tina Pavlovich
Numerade Educator
04:32

Problem 15

In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?
(a) Treasury stock (recorded at cost).
(b) Checking account at bank.
(c) Land (held as an investment).
(d) sinking fund.
(e) Unamortized premium on bonds payable.
(f) Copyrights.
(g) Pension fund assets.
(h) Premium on capital stock.
(i) Long-term investments (pledged against bank loans payable).

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
04:29

Problem 16

Where should the following items be shown on the balance sheet, if shown at all?
(a) Allowance for doubtful accounts receivable.
(b) Merchandise held on consignment.
(c) Advances received on sales contract.
(d) Cash surrender value of life insurance.
(e) Land.
(f) Merchandise out on consignment.
(g) Franchises.
(h) Accumulated depreciation of plant and equipment.
(i) Materials in transit-purchased f.o.b. destination.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
02:34

Problem 17

State the generally accepted accounting principle applicable to the balance sheet valuation of each of the following assets.
(a) Trade accounts receivable.
(b) Land.
(c) Inventories.
(d) Trading securities (common stock of other companies).
(e) Prepaid expenses.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:27

Problem 18

Refer to the definition of assets on page $180 .$ Discuss how a leased building might qualify as an asset of the lessee (tenant) under this definition.

Rashmi Sinha
Rashmi Sinha
Numerade Educator
01:58

Problem 19

Kathleen Battle says, "Retained earnings should be reported as an asset, since it is earnings which are reinvested in the business." How would you respond to Battle?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:59

Problem 20

The creditors of Chester Company agree to accept promissory notes for the amount of its indebtedness with a proviso that two-thirds of the annual profits must be applied to their liquidation. How should these notes be reported on the balance sheet of the issuing company? Give a reason for your answer.

Robin Corrigan
Robin Corrigan
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00:57

Problem 21

What are some of the techniques of disclosure for the balance sheet?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:38

Problem 22

What is a "Summary of Significant Accounting Policies"?

Prashant Bana
Prashant Bana
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02:24

Problem 23

What types of contractual obligations must be disclosed in great detail in the notes to the balance sheet? Why do you think these detailed provisions should be disclosed?

Mihir Nayar
Mihir Nayar
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02:07

Problem 24

What is the profession's recommendation in regard to the use of the term "surplus"? Explain.

Tristan Wille
Tristan Wille
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03:17

Problem 25

What is the purpose of a statement of cash flows? How does it differ from a balance sheet and an income statement?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:23

Problem 26

The net income for the year for Genesis, Inc. is $\$ 750,000$, but the statement of cash flows reports that the cash provided by operating activities is $\$ 640,000$. What might account for the difference?

Alejandro Ruiz
Alejandro Ruiz
Numerade Educator
01:16

Problem 27

Net income for the year for Carrie, Inc. was $\$ 750,000,$ but the statement of cash flows reports that cash provided by operating activities was $\$ 860,000 .$ What might account for the difference?

Daniel Cisneros
Daniel Cisneros
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02:16

Problem 28

Differentiate between operating activities, investing activities, and financing activities.

Tommy Nguyen
Tommy Nguyen
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03:01

Problem 29

Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as $\$ 90,000$.
(a) Accounts receivable increased from $\$ 34,000$ to $\$ 39,000$ from the beginning to the end of the year.
(b) During the year, 10,000 shares of preferred stock with a par value of $\$ 100$ a share were issued at $\$ 115$ per share.
(c) Depreciation expense amounted to $\$ 14,000$, and bond premium amortization amounted to $\$ 5,000$
(d) Land increased from $\$ 10,000$ to $\$ 30,000$.

Breanna Ollech
Breanna Ollech
Numerade Educator
01:25

Problem 30

Sergey Co. has net cash provided by operating activities of $\$ 1,200,000 .$ Its average current liabilities for the period are $\$ 1,000,000,$ and its average total liabilities are $\$ 1,500,000$ Comment on the company's liquidity and financial flexibility, given this information.

Narayan Hari
Narayan Hari
Numerade Educator
03:01

Problem 31

Net income for the year for Tanizaki, Inc. was $\$ 750,000,$ but the statement of cash flows reports that cash provided by operating activities was $\$ 860,000$. Tanizaki also reported capital expenditures of $\$ 75,000$ and paid dividends in the amount of $\$ 30,000 .$ Compute Tanizaki's free cash flow.

Breanna Ollech
Breanna Ollech
Numerade Educator
01:15

Problem 32

What is the purpose of a free cash flow analysis?

Ameer Said
Ameer Said
Numerade Educator
00:59

Problem 33

Where can authoritative iGAAP guidance be found related to the balance sheet and the statement of cash flows?

Natalie Britton
Natalie Britton
Numerade Educator
01:35

Problem 34

Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to balance sheet reporting.

Ameer Said
Ameer Said
Numerade Educator
00:03

Problem 35

Briefly describe the convergence efforts related to financial statement presentation.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
05:33

Problem 36

Rainmaker Company prepares its financial statements in accordance with iGAAP. In 2010 , Rainmaker recorded the following revaluation adjustments related to it buildings and land: The company's building increased in value by $\in 200,000 ;$ its land declined by $€ 35,000 .$ How will these revaluation adjustments affect Rainmaker's balance sheet? Will the reporting differ under U.S. GAAP? Explain.

Puneet Prajapati
Puneet Prajapati
Numerade Educator