accounting 5110 Balance Sheet and Disclosure (A+ graded and with accurate answers)

The purpose of the balance sheet - ANS The purpose of the balance sheet, also known as the statement of financial position, is to present the financial position of the company on a particular date. Unlike the income statement, which is a change statement that reports events occurring during a period of time, the balance sheet is a statement that presents an organized array of assets, liabilities, and shareholders' equity at a point in time. It is a freeze frame or snapshot picture of financial position at the end of a particular day marking the end of an accounting period. Why does the balance sheet not portray the market value of the entity - ANS The balance sheet does not portray the market value of the entity (number of common stock shares outstanding multiplied by price per share) for a number of reasons. Most assets are not reported at fair value, but instead are measured according to historical cost. Also, there are certain resources, such as trained employees, an experienced management team, and a good reputation, that are not recorded as assets at all. Therefore, the assets of a company minus its liabilities, as shown in the balance sheet, will not be representative of the company's market value. Current Assets - ANS (1) Cash (2) Cash equivalents (a) commerical paper (b) money market funds (c ) U.S. treasury bills (3) Short-term investments (4) Recivables (5) Inventories (6) Pre-paid expenses Current Liabilties - ANS Refers to the time period of the following: (1) Cash to acquire raw materials (2) Convert raw materials to finished goods (3) Deliver product to customer (4) Collect cash Operating cycle for a typical manufacturing company - ANS The operating cycle for a typical manufacturing company refers to the period of time required to convert cash to raw materials, raw materials to a finished product, finished product to receivables, and then finally receivables back to cash Current Vs. Noncurrent assets in investments in equity securities - ANS Investments in equity securities are classified as current if the company's management (1) intends to liquidate the investment in the next year or operating cycle, whichever is longer, and (2) has the ability to do so, i.e., the investment is marketable. If either of these criteria does not hold, the investment is classified as noncurrent.