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Financial Reporting and Analysis: Using Financial Accounting Information

Charles H. Gibson

Chapter 3

Balance Sheet - all with Video Answers

Educators

Chapter Questions

Problem 1

Name and describe the three major categories of balance sheet accounts.

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Problem 2

Are the following balance sheet items (A) assets, (L) liabilities, or (E) stockholders' equity?
a. Cash dividends payable
b. Mortgage notes payable
c. Investments in stock
d. Cash
e. Land
f. Inventory
g. Unearned rent
h. Marketable securities
i. Patents
j. Capital stock
k. Retained earnings
I. Accounts receivable
m. Taxes payable
n. Accounts payable
o. Organizational costs
p. Prepaid expenses
q. Goodwill
r. Tools
s. Buildings

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Problem 3

Classify the following as (CA) current asset, (IV) investments, (IA) intangible asset, or (TA) tangible asset:
a. Land
b. Cash
c. Copyrights
d. Marketable securities
e. Goodwill
f. Inventories
g. Tools
h. Prepaids
i. Buildings
j. Accounts receivable
k. Long-term investment in stock
I. Machinery

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Problem 4

Usually, current assets are listed in a specific order, starting with cash. What is the objective of this order of listing?

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Problem 5

Differentiate between marketable securities and long-term investments. What is the purpose of owning each?

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03:05

Problem 6

Differentiate between accounts receivable and accounts payable.

Akash M
Akash M
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Problem 7

What types of inventory will a retailing firm have? A manufacturing firm?

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Problem 8

What is depreciation? Which tangible assets are depreciated, and which are not? Why?

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Problem 9

For reporting purposes, management prefers higher profits; for tax purposes, lower taxable income is desired. To meet these goals, firms often use different methods of depreciation for tax and reporting purposes. Which depreciation method is best for reporting and which for tax purposes? Why?

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Problem 10

A rental agency collects rent in advance. Why is the rent collected treated as a liability?

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02:39

Problem 11

A bond carries a stated rate of interest of $6 \%$ and par of $$\$ 1,000$$. It matures in 20 years. It is sold at 83 ($83\%$ of $$\$ 1,000$$, or $$\$ 830$$ ).
a. Under normal conditions, why would the bond sell at less than par?
b. How would the discount be disclosed on the statements?

Anand Jangid
Anand Jangid
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Problem 12

To be conservative, how should noncontrolling interest on the balance sheet be handled for primary analysis?

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Problem 13

Many assets are presented at historical cost. Why does this accounting principle cause difficulties in financial statement analysis?

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Problem 14

Explain how the issuance of a convertible bond can be a very attractive means of raising common equity funds.

James Kiss
James Kiss
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Problem 15

Classify each of the following as a (CA) current asset, (NA) noncurrent asset, (CL) current liability, (NL) noncurrent liability, or $(E)$ equity account. Choose the best or most frequently used classification.
a. Supplies
b. Notes receivable
c. Unearned subscription revenue
d. Accounts payable
e. Retained earnings
f. Accounts receivable
g. Preferred stock
h. Plant
i. Prepaid rent
j. Capital
k. Wages payable
I. Mortgage bonds payable
m. Unearned interest
n. Marketable securities
o. Paid-in capital from sale of treasury stock
p. Land
q. Inventories
r. Taxes accrued
s. Cash

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Problem 16

Explain these preferred stock characteristics:
a. Accumulation of dividends
b. Participation in excess of stated dividend rate
c. Convertibility into common stock
d. Callability by the corporation
e. Preference in liquidation

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Problem 17

Describe the account Unrealized Exchange Gains or Losses.

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Problem 18

What is treasury stock? Why is it deducted from stockholders' equity?

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Problem 19

A firm, with no opening inventory, buys 10 units at $$\$ 6$$ each during the period. In which accounts might the $$\$ 60$$ appear on the financial statements?

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Problem 20

How is an unconsolidated subsidiary presented on a balance sheet?

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Problem 21

When would noncontrolling interest be presented on a balance sheet?

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Problem 22

DeLand Company owns 100\% of Little Florida, Inc. Will DeLand Company show a noncontrolling interest on its balance sheet? Would the answer change if it owned only $60 \%$ ? Will there ever be a case in which the subsidiary, Little Florida, is not consolidated?

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Problem 23

Describe the item Unrealized Decline in Market Value of Noncurrent Equity Investments.

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Problem 24

What is redeemable preferred stock? Why should it be included with debt for purposes of financial statement analysis?

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Problem 25

Describe fair value as it relates to assets and liabilities.

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01:08

Problem 26

With fair value the firm selects the highest appropriate level for valuation. Why the direction to select the highest appropriate level of valuation?

Kaylee Mcclellan
Kaylee Mcclellan
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Problem 27

For level 3 valuation (fair value), the company must include the valuation technique used to measure fair value, a reconciliation of the changes in fair value during the period, and a related discussion. Why the related discussion?

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01:26

Problem 28

Describe quasi-reorganization.

Ameer Said
Ameer Said
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Problem 29

Describe employee stock ownership plans (ESOPs).

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00:57

Problem 30

Why are commercial lending institutions, insurance companies, and mutual funds willing to grant loans to an employee stock ownership plan at favorable rates?

Amrita Bhasin
Amrita Bhasin
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02:59

Problem 31

What are some possible disadvantages of an employee stock ownership plan?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
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Problem 32

How does a company recognize, in an informal or a formal way, that it has guaranteed commitments to future contributions to an ESOP to meet debt-service requirements?

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Problem 33

Describe depreciation, amortization, and depletion. How do they differ?

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02:10

Problem 34

What are the three factors usually considered when computing depreciation?

Jennifer Stoner
Jennifer Stoner
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Problem 35

An accelerated system of depreciation is often used for income tax purposes but not for financial reporting. Why?

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02:10

Problem 36

Which depreciation method will result in the most depreciation over the life of an asset?

Jennifer Stoner
Jennifer Stoner
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Problem 37

Should depreciation be recognized on a building in a year in which the cost of replacing the building rises? Explain.

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Problem 38

Describe the account Accumulated Other Comprehensive Income.

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Problem 39

Describe donated capital.

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Problem 40

Assume that a city donated land to a company. What accounts would be affected by this donation, and what would be the value?

Rashmi Sinha
Rashmi Sinha
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