Question

1.A balance sheet prepared in accordance with U.S. GAAP typically:

Multiple Choice

• reports common stock at the current market price of the stock.

• provides critical information for understanding a firm’s capital structure.

• helps to determine the proper mix of debt and equity financing.

• provides critical information for understanding a firm’s profitability.

2.In a common-size balance sheet, each balance sheet account is expressed as a percentage of total:

Multiple Choice

• liabilities.

• assets.

• shareholders’ equity.

• assets plus shareholders’ equity.

3.Accrued liabilities represent:

Multiple Choice

• income that has not yet been recognized on the income statement.

• expenses that have not yet been recognized on the income statement.

• expenses that have been recognized on the income statement but not yet been paid.

• income that has been recognized on the income statement but not yet collected.

4.Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. He notices that the Retained Earnings account increased from the beginning of the year. This information is used to:

Multiple Choice

• increase cash flow from financing as it indicates receipt of payments from customers.

• decrease cash flow from investing as it indicates payment of debt.

• increase cash flow from operations as it signifies a net income.

• decrease cash flow from operations as it indicates a net loss.

5.Retained earnings are reported on the balance sheet at:

Multiple Choice

• historical cost.

• current market value.

• net realizable value.

• a mixture of different measurement bases.

Answer 1

1. A Balance Sheet prepared in accordance with U.S. GAAP Typically

the correct answer is " helps to determine the proper mix of Debt & Equity Financing." ( it gives more clear picture of Actual debt that is outsourced from outside and Finance by its Equity shareholders)

the incorrect answers are

a) report common stock at the current market price of the stock (stock are always shown at Net Realisable value or at cost whichever is less hence statement is not correct)

b) provides critical information for understanding a firm's capital structure ( Information about Captial Structure provided to the extent it is needed ( i.e. equity or Preference )& not all information levels) hence this statement is also not correct

c) proides critical information for understanding a firms profitability ( How profit is derived is explained in Profit & Loss Account i.e. Revenue Less Expenses ) Hence no need of Critical Information for understanding of a firms profitability and hence this statement is also not valid.

2. In a Common -size Balance Sheet, each balance sheet account is expressed as a percentage of total "Shareholders Equity".

the Correct Answer is "Shareholders Equity".

The Incorrect answer are

a) Liabilities as it show only total liabilities of the firm which is inaccurate to express in ratio analysis.

b) Assets this also shows total assets of the firm which is not proper to express in ratio analysis.

c) assets plus Sharesholders Equity it has no meaning in ratio analysis.

3. Accrued Liabilities represents

the correct answer is "Expenses that have been recognised on the Income Statement but not paid". Accrue means which is expense out but not having cash outflow.

the incorrect answer are

a) income that has not been recognised on the income statement. As the given question of Accrued Liabilites hence accrued income is wrong.

b) expenses that have not been recognised on the income statement. If it is not recognised then it should not be the part of the income statement for example Future Expenses.

c) income that has not been recognised on the income statement but not collected. Accrued liabilities refer to Expenses and hence Income is out of question and hence it is wrong.

4. Increase in Retained Earnings from the begining of the year in Indirect Method means "Increase of Cash Flow from Operations as it signifies Net Income."

The Incorrect answer are

a) increase in cash flow financing activity as it indicates receipts of payment from Customers ( receipt from customer increse the Current Assets & not Retained Earnings hence answer is not correct).

b) decrease of cash flow from investing activities as it indicates payment of debts. (Payment of debts does not increase retained earning but it increase Current assets hence it is wrong)

c) decrease in cash flow from operations as it indicates a Net Loss ( Net loss does not increase retained earnings hence it is wrong)

5. Retained Earnings are reported on the Balance Sheet at "Historical Cost"

As it is retained earning, it derived after payment of all expenses of current year from the total earnings & which is kept for future year hence in next year it is a historical cost.

The Incorrect Answer are

a) Current Market Price :- Retained earning are from Historical Data hence it is not reflect current market price.

b) Net Realisable Value :- Net Realisable value is for those item which available for luidity in the open market typically for stock. Wheres Retained earnings are from Historical data.

c) a mixture of different measurement bases :- different measurement bases are used for different purpose and for Retained Earnings and hence not acceptable.