Balance Sheet
Medium Test
Medium Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
a. the decline in fair market value of the asset
b. the increase in fair market value of the asset
c. the cumulative expense of using the asset
d. the cost of using the asset for this year only
Answer
a. the amount of cash a company currently has
b. how soon an asset is expected to be converted into cash
c. the amount of time before a company will have to borrow money
d. the amount of money a company has the ability to borrow
Answer
a. one if legally enforceable and one is not
b. one is classified as current and one is not
c. one has known payment terms and the other does not
d. one carries interest and the other does not
Answer
a. property, plant, equipment
b. investments
c. unexpired rent
d. paid in capital
Answer
a. investments
b. dividends payable
c. treasury stock
d. goodwill
Answer
a. current asset
b. current liability
c. long term liability
d. can’t determine where to report it without additional information
Answer
a. salaries payable
b. accrued expenses
c. prepaid expenses
d. unearned revenue
Answer
a. current asset
b. current liability
c. revenue
d. expense
Answer
a. current versus long term
b. owed internally versus owed externally
c. assets used versus assets not used
d. owner’s equity is at a given time
Answer
a. the company’s book value
b. the company’s fair market value
c. the company’s ability to pay debt
d. the amount an intangible asset is worth at a given time
Answer
a. intangible assets
b. total long term assets
c. property, plant, equipment
d. accumulated depreciation
Answer
a. the increase in value of the business over time
b. the amount paid for a company less than its fair market value
c. the amount paid for a company above its fair market value
d. always adjusted to fair market value
Answer
a. a related party transaction does not occur with employees
b. a related party transaction could occur between family members
c. must be disclosed if the transaction is material
d. none of the above
Answer
a. establishing quality internal controls
b. the financial statements
c. both a. and b.
d. none of the above
Answer
a. FASB
b. IASB
c. PCAOB
d. APB
Answer
16. The following items were taken from the accounting records of a company as of December 31st.
Building | 209,000 | Accrued Expenses | 9,000 |
Cash | 35,000 | Short term notes payable | 135,000 |
Computer Equipment | 26,000 | Common Stock | 200,000 |
Retained Earnings | ?? | Bonds Payable | 75,000 |
Prepaid Expenses | 12,000 | Accumulated depreciation | 72,000 |
Sales | 123,000 | Dividends paid | 10,000 |
Depreciation Expense | 18,000 | Unearned Revenue | 8,000 |
Accounts Payable | 47,000 | Long-term Notes Receivable | 35,000 |
Interest Payable | 1,000 | Long Term Debt | 100,000 |
Cost of Goods Sold | 75,000 | Goodwill | 125,000 |
Long term Investments | 80,000 | Treasury Stock | 15,000 |
Inventory | 56,000 | Short Term Investments | 50,000 |
Accounts Receivable | 42,000 | Trademark, net | 6,000 |
Prepare a balance sheet in proper format for the company as of December 31st
Answer
Assets: | Liabilities: | ||
Current Assets: | Current Liabilities: | ||
Cash | 35,000 | Accounts Payable | 47,000 |
Accounts Receivable | 42,000 | Accrued Expenses | 9,000 |
Inventory | 56,000 | Interest Payable | 1,000 |
Prepaid Expenses | 12,000 | Short Term Notes Payable | 135,000 |
Short Term Investment | 50,000 | Unearned Revenue | 8,000 |
Total Current Assets | 195,000 | Total Current Liabilities | 200,000 |
Long-term Investments | 80,000 | Long Term Debt | 100,000 |
Long-term Notes Rec | 35,000 | Bonds Payable | 75,000 |
Property/Plant/Equipment: | Total Liabilities | 375,000 | |
Building | 209,000 | ||
Computer Equipment | 26,000 | ||
Less Accum Depreciation | (72,000) | ||
Net P/P/E | 163,000 | Stockholder’s Equity: | |
Intangible Assets | Common Stock | 200,000 | |
Goodwill | 125,000 | Retained Earnings | 44,000 |
Trademark, net | 6,000 | less Treasury Stock | (15,000) |
Total Intangible Assets | 131,000 | Total Stockholder’s Equity | 229,000 |
Total Assets | 604,000 | = Total Liabilities & Stockholder’s Equity | 604,000 |
1) issued stock to investors for $100,000
2) purchased inventory on account for $35,000
3) sold inventory that cost $29,000 to customers on account for $45,000
4) workers will be paid $10,000, they are paid the first of the following month
5) received the utility bill for $225
6) loaned a customer $10,000 to be repaid in 2 years
7) paid $30,000 for the inventory purchased on account
8) purchased computer equipment for $2,000 cash – recorded depreciation expense of $56 for the month
Prepare a balance sheet in proper format as of January 31st.
Answer
Cash | 58,000 | Accounts Payable | 5,225 |
Accounts Receivable | 45,000 | Salaries Payable | 10,000 |
Inventory | 6,000 | Total Current Liabilities | 15,225 |
Total Current Assets | 109,000 | ||
L/T Notes Receivable | 10,000 | ||
P/P/E: | Common Stock | 100,000 | |
Computer Equipment | 2,000 | Retained Earnings | 5,719 |
– Accumulated Depreciation | (56) | Total S.Eq. | 105,719 |
Net PPE | 1,944 | ||
______ | ______ | ||
Total Assets | 120,944 | Total Liab. + O.Eq. | 120,944 |
======= | ======= |
Cash – $100,000 (1) -10,000 (6) – 30,000 (7) – 2,000 (8)
Accounts Receivable (3)
Inventory 35,000 (2) – 29,000 (3)
Long Term Notes Receivable (6)
Computer Equipment (8) Accumulated depreciation = all months expense which is
only the current month so far.
Accounts Payable $35,000 (2) + $225 (5) – $30,000 (7)
Salaries Payable (4), not yet paid so you owe
Common Stock (1)
Retained Earnings = Sales – CGS – Salary expense – Utility expense – Deprec. Exp.
45,000 – 29,000 – 10,000 – 225 – 56 = 5,719
This is the first month of operations, so retained earnings = this month’s profits
18. Following is a list of the accounts for XYZ Company as of December 31st.
This is not the company’s first year of operations.
Cash | $ 34,000 |
Inventory | $ 97,000 |
Long term Debt – 10% to be paid in 1 year | $120,000 |
Patent | $ 11,000 |
Sales | $378,000 |
Cost of Goods Sold | $195,000 |
Accumulated Depreciation | $ 56,000 |
Land | $100,000 |
Prepaid Insurance | $ 4,000 |
Paid in Capital | $ 29,000 |
Salary Expense | $ 39,000 |
Supplies Expense | $ 3,000 |
Unearned Revenue | $ 2,500 |
Manufacturing Building | $125,000 |
Accrued Expense | $ 14,000 |
Common Stock | $ 1,000 |
Mortgage Payable – due in 10 years | $ 90,000 |
Accounts Receivable | $ 27,000 |
Long-Term Investment | $ 50,000 |
Goodwill | $ 20,000 |
Notes Receivable – due in 6 months | $ 5,000 |
Manufacturing Equipment | $ 89,000 |
A. Determine the total amount of assets expected to be converted into cash in one year or less.
B. Determine the total amount of long term assets and the amount within each category of long term assets.
C. Determine total current liabilities
D. Determine total long-term liabilities
E. Determine the amount of retained earnings.
Answer
A. This will be the total of all assets that you would classify as current assets:
Cash | $ 34,000 |
Inventory | $ 97,000 |
Prepaid Insurance | $ 4,000 |
Accounts Receivable | $ 27,000 |
Notes Receivable – due in 6 months | $ 5,000 |
$167,000 |
B. This will be all assets you would classify as liquid non current, property, plant & equipment and intangibles.
Long-Term Investment | $ 50,000 |
P/P/E: | |
Land | $100,000 |
Manufacturing Building | $125,000 |
Manufacturing Equipment | $ 89,000 |
– Accumulated Depreciation | $ (56,000) |
Net Property, Plant, Equipment | $ 258,000 |
Intangible Assets | |
Patent | $ 11,000 |
Goodwill | $ 20,000 |
Total Intangible Assets | $ 31,000 |
Total Long-term Liabilities | $339,000 |
C. Current liabilities are those that will be paid within one year or less:
Unearned Revenue | $ 2,500 |
Accrued Expense | $ 14,000 |
Current maturities of LTD | $ 12,000 (120,000 x 10%) |
Total current liabilities | $ 28,500 |
D. Long Term Liabilities will be repaid in longer than one year:
Mortgage Payable – due in 10 years | $ 90,000 |
Long Term Debt – 10% paid in 1 year | $108,000 (120,000 x 90%) |
Total Long Term Liabilities | $198,000 |
E. Use the accounting equation: Assets = Liabilities + Owner’s Equity
Total Assets = 167,000 + 50,000 + 258,000 + 31,000 = 506,000 Total Liabilities = 28,500 + 198,000 = 226,500 Total Owner’s Equity has to = 506,000 – 226,500 = 279,500 Common stock is $1,000, paid in capital is $29,000, retained earnings must be $278,500 |
Important:
Since this is not the company’s first year of operations, retained earnings will not equal this year’s profit/loss.
Retained earnings is equal to the company’s total of all prior years’ profits and losses. Retained earnings is a cumulative amount.