Question

Financial instruments that are not listed on the balance sheet of a company may involve significant risks that must be disclosed in the notes to the financial statements. are reported as assets if the company can determine the fair value. must be reported as a liability on the balance sheet at the end of the accounting period. O must be reported on the income statement. D Question 10 2 pts Countries throughout the world typically pay extremely large dividends to shareholders. rely heavily on local stock and bond markets. have less comprehensive accounting disclosure requirements than the U.S. carry a normal debt/equity ratio that is less than 25%.

Answer 1

Answer to first question in the list: Option-(a): may involve significant risks that must be disclosed in the notes to the financial statements Reason: For a firm, financial statements refer to set of financial reports prepared and presented based on accounting records maintained at the end of respective reporting period concerned, in accordance with applicable statutory requirements under the U.S.GAAP and other applicable accounting standards as per IFRS. Financial statements of a company or a firm consists of Balance sheet as at the last day of the reporting period, Income statement & Statement of cash flows for the reporting period and Notes to accounts thereon. Income statement explains operating results of the company achieved during the reporting period in terms of net income or net loss for the period. When revenues are more than costs & expenses recorded for the period, firm is said to have earned net income; When revenues are less than costs & expenses recorded for the period, firm is said to have suffered net loss for the period.

Balance sheet explains financial position of the company as at last day of the reporting period in terms of net assets held & net liabilities owed by the company. Difference between total net assets and total net liabilities is the networth of the company. Net worth of the company is technically termed as stockholders' equity wherein data related to amount & class of equity capital contributed to the company, retained earnings till the last day of reporting period, reduced by treasury stock held, if any will be reported. Assets will be classified as current assets and non-current assets. If assets' life time is estimated to be one year or less from the last day of reporting period, they are current assets, otherwise, they are non-current assets. Similarly, if liabilities are payable within one year from the last day of reporting period, they are current liabilities, otherwise, they are long-term liabilities. Option-(a) is correct because certain transaction will realize in future period and clue for occurance of the same might not present on the financial statement date. So, those transactions must be quantified and disclosed as notes to financial statements so that when such transaction takes place in subsequent reporting period, users of financial statements can understand about it. Option-(b) & (c) are incorrect because it is already given that a financial instrument is not reported on firm's balance sheet. In such case, it can neither be reported as an asset or a liability on the balance sheet. Option-(d) is incorrect because, financial instrument is a balance sheet item which is either reported as liability or an assset based on its nature but when it becomes realizable. As a result, it cannot be reported on income statement.