Balance Sheet
Easy Practice Test
Introduction to Accounting
Balance Sheet
Easy Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. Asset categories would include all of the following except:
a. contingent assets
b. intangible assets
c. property, plant, and equipment
d. current assets
Answer
A. An asset is a probable future economic benefit as a result of a past transaction. A contingent asset does not exist because a company cannot project future assets and record them. The other categories are commonly found on the balance sheet.
2. Liability categories would include which of the following:
a. current liabilities
b. short term liabilities
c. projected liabilities
d. owed to suppliers
Answer
A. Liabilities are a probable use of an economic resource as a result of a past transaction. Projected liabilities are not recorded because there is no post transaction. Amounts owed to suppliers is called accounts payable and is an item on the balance sheet and not a category. Short term liabilities is not a general category that is used. Current liabilities is the category for liabilities that will be repaid in one year or less.
3. Office supplies is listed under which category?
a. current liabilities
b. current assets
c. intangible assets
d. property, plant, equipment
Answer
B. Office supplies are owned as a result of a past transaction and give future benefit when used to provide goods and services. Office supplies are assets used within one year and are current. Intangible assets and P/P/E are used longer than one year.
4. A patent is listed under which category?
a. current liabilities
b. current assets
c. intangible assets
d. property, plant, equipment
Answer
C. A patent has no physical substance and is a right to do something that brings future benefit, which is the definition of intangible assets. Property, plant, equipment has physical substance.
5. Goodwill is recorded when
a. it is internally generated
b. the total asset value of the company is increased
c. it is paid for when purchasing another company
d. it is recognized by management
Answer
C. Goodwill is recorded only when a company is purchased. The amount recorded is the difference between the amount paid for the company and the fair market value of the net assets of the company purchased. Internally generated goodwill is not recorded because it cannot be reliably valued.
6. An item reported on the balance sheet can:
a. Be an item that the company owns
b. Be an item that the company owes
c. Be financing from investors
d. All of the above
Answer
D. (a.) describes an asset, (b.) describes a liability, and (c.) describes an owner’s equity account.
7. Intangible assets
a. are not really a real asset
b. have no physical substance
c. are reported at fair market value
d. all of the above
Answer
B. Intangible assets have no physical substance, are real assets because they provide future benefit gained from the right to use it and they are reported at historical cost just like all other assets.
8. Property, plant and equipment is
a. used to produce revenues over a period of more than one year
b. an asset that is never an expense to the company
c. used to produce revenues for a short period of time
d. reported at fair market value
Answer
A. By definition, Property, plant and equipment are assets used to produce revenues over a period of more than one year. They are reported at historical cost. All assets used eventually become expenses as they are used.
9. A copyright of a user’s manual will be reported under
a. current assets
b. liquid noncurrent assets
c. property, plant, equipment
d. intangible assets
Answer
D. A copyright has no physical substance and gives the right to publish a manuscript for more than one year. Intangible assets are long term assets with no physical substance.
10. The balance sheet reports
a. how assets were gained during a period of time
b. assets, liabilities and owner’s equity during a period of time
c. assets, liabilities and owner’s equity at a point in time
d. the specific transactions that change assets during a period of time
Answer
C. The balance sheet reports what the company has, owes and what is owned as of a given date. It normally reports two years and the user can see the difference in the categories reported, but not the specific transactions that change the amounts.
11. Determine whether each of the following is a Current Asset (CA), a Long-term Asset (LTA), a Current Liability (CL), a Long-term Liability (LTL), a Stockholders’ Equity (SE), or not reported on the balance sheet (N).
a. Investments expected to be held for 3 years
b. Supplies on hand
c. Symbol used to represent the business
d. Machines used to manufacture goods
e. The cumulative profits and losses kept in the company from the first day of operations
f. Money received from investors in exchange for ownership.
g. Amounts the company pays in advance before a service is provided
h. Amounts owed to a bank due in 2 years
i. Amounts owed to investors
j. Cash on hand
k. Items held only for sale to the customer
l. Amounts owed for repeat purchases
m. Portion of long-term debt due within 1 year
n. Amounts owed to the company from loaning cash to another party; due in 2 years
Answer
LTA a. Investments expected to be held for 3 years (long-term investments)
CA b. Supplies on hand
LTA c. Symbol used to represent the business (Trademark)
LTA d. Machines used to manufacture goods (part of property, plant & equipment)
SE e. The cumulative profits and losses kept in the company from the first day of operations (Retained Earnings)
SE f. Money received from investors in exchange for ownership (Common Stock)
CA g. Amounts the company pays in advance before a service is provided (Prepaid)
LTL h. Amounts owed to a bank due in 2 years (Notes Payable on Long-term Debt)
LTL i. Amounts owed to investors (Bonds Payable)
CA j. Cash on hand
CA k. Items held only for sale to the customer (Inventory)
CL l. Amounts owed for repeat purchases (Accounts Payable)
CL m. Portion of long-term debt due within 1 year (current portion of L/T debt)
LTA n. Amounts owed to the company from loaning cash to another party; due in 2 years (L/T Notes Receivable)
a. The amount of cumulative earnings kept by the company since the first day of operations.
b. Amounts owed for repeat purchases
c. Products that are held for sale to customers
d. Money that is in the bank
e. Financial instruments for the purpose of earning money within a year.
f. The right to reproduce written work.
g. Items that are used up in day to day operations
h. Amounts borrowed from a bank and due in 6 months
i. Amounts borrowed from investors that will be repaid in 10 years.
j. The amount that is paid when acquiring a company over and above the fair market value of net assets
k. An item that is used long-term in the business to generate revenue and has physical substance.
l. Money received from investors in exchange for ownership.
Answer
a. Retained earnings
b. Accounts Payable
c. Inventory
d. Cash
e. Short-term investments
f. Copyright
g. Supplies
h. Short-term notes payable
i. Bonds Payable
j. Goodwill
k. Property, Plant, and Equipment
l. Common Stock
13. State whether each of the following items is reported as current (C) or non-current (N) or both depending on the length of time (B).
a. Money borrowed from a bank to be repaid in 3 years.
b. Cash that is in the company’s bank account
c. Profits that have been kept in the business since the first day of operations
d. Stock issued to investors
e. Cash put into investments that are expected to be held for 5 years
f. Money borrowed from investors and due in 10 years.
g. Money borrowed from a bank that is to be paid in equal payments every 6 months for 5 years
h. Copyright owned to reprint a book for the next 40 years.
i. Money owed to suppliers due in the next 60 days.
j. Items that are held for sale to customers
k. Machines that are expected to be used for the next 5 years.
l. Money borrowed from a bank and due in1 year.
m. Money lent to another company and due to be repaid in 2 years.
n. Cash paid for rent 2 years in advance.
Answer
a. N (Long-term Notes Payable)
b. C (Cash)
c. N (Retained Earnings)
d. N (Common Stock)
e. N (Long-term Investment)
f. N (Long-term Bonds Payable)
g. B (Current Portion of Long-term Debt and Long-term Debt)
h. N (Copyright)
i. C (Accounts Payable)
j. C (Inventory)
k. N (Machines; Property, Plant and Equipment)
l. C (Short-term Notes Payable)
m. C (Short-term Notes Receivable)
n. B (Current Prepaid for 1st year and Non-current Prepaid for 2nd year)