,DOWNLOADgTHEgTestgBankgforgFinancialgAccountinggToolsgforgBusinessgDeci
siongMakingg9thgEditiongKimmel
CHAPTER g 2
AgFURTHERgLOOKgATgFINANCIALgSTATEMENTS
CHAPTERgLEARNINGgOBJECTIVES
1. Identifygthegsectionsgofgagclassifiedgbalancegsheet.gIngagclassifiedgbalancegsheet,gc
ompaniesgclassifygassetsgasgcurrentgassets;glong-
termginvestments;gproperty,gplant,gandgequipment;gandgintangibles.gTheygclassifygliabiliti
esgasgeithergcurrentgorglong-
term.gAgstockholders’gequitygsectiongshowsgcommongstockgandgretainedgearnings.
2. Usegratiosgtogevaluategagcompany’sgprofitability,gliquidity,gandgsolvency.gRatiogan
alysisgexpressesgthegrelationshipgamonggselectedgitemsgofgfinancialgstatementsgdata.gPr
ofitabilitygratios,gsuchgasgearningsgpergshareg(EPS),gmeasuregaspectsgofgthegoperatingg
successgofgagcompanygforgaggivengperiodgofgtime.
Liquiditygratios,gsuchgasgthegcurrentgratio,gmeasuregthegshort-
termgabilitygofgagcompanygtogpaygitsgmaturinggobligationsgandgtogmeetgunexpectedgneed
sgforgcash.gSolvencygratios,gsuchgasgthegdebtgtogassetsgratio,gmeasuregthegabilitygofgag
companygtogsurvivegovergaglonggperiod.
Freegcashgflowgindicatesgagcompany’sgabilitygtoggenerategcashgfromgoperationsgthatgisg
sufficientgtogpaygdebts,gacquiregassets,gandgdistributegdividends.
3. Discussgfinancialgreportinggconcepts.gGenerallygacceptedgaccountinggprinciplesgarega
gsetgofgrulesgandgpracticesgrecognizedgasgaggeneralgguidegforgfinancialgreportinggpurpos
es.gThegbasicgobjectivegofgfinancialgreportinggisgtogprovideginformationgthatgisgusefulgfor
gdecision-gmaking.
Togbegjudgedguseful,ginformationgshouldghavegthegprimarygcharacteristicsgofgrelevanceg
andgfaithfulgrepresentation.gIngaddition,gusefulginformationgisgcomparable,gconsistent,gver
ifiable,gtimely,gandgunderstandable.
Thegmonetarygunitgassumptiongrequiresgthatgcompaniesgincludegingthegaccountinggrecords
gonlygtransactiongdatagthatgcangbegexpressedgingtermsgofgmoney.gThegeconomicgentityg
assumptiongstatesgthatgeconomicgeventsgcangbegidentifiedgwithgagparticulargunitgofgacco
untability.gThegperiodicitygassumptiongstatesgthatgthegeconomicglifegofgagbusinessgcangbe
gdividedgintogartificialgtimegperiodsgandgthatgmeaningfulgaccountinggreportsgcangbegprep
aredgforgeachgperiod.gTheggoinggconcerngassumptiongstatesgthatgthegcompanygwillgconti
nuegingoperationglonggenoughgtogcarrygoutgitsgexistinggobjectivesgandgcommitments.
Theghistoricalgcostgprinciplegstatesgthatgthegcompaniesgshouldgrecordgassetsgatgtheirgcos
t.gThegfairgvaluegprinciplegindicatesgthatgassetsgandgliabilitiesgshouldgbegreportedgatgfairg
value.gThegfullgdisclosuregprinciplegrequiresgthatgcompaniesgdisclosegcircumstancesgandg
eventsgthatgmattergtogfinancialgstatementgusers.
Thegcostgconstraintgweighsgthegcostgthatgcompaniesgincurgtogprovidegagtypegofginformati
ongagainstgitsgbenefitgtogfinancialgstatementgusers.
FORgINSTRUCTORgUSEgONLY
mynursytest.store
,DOWNLOADgTHEgTestgBankgforgFinancialgAccountinggToolsgforgBusinessgDeci
siongMakingg9thgEditiongKimmel
2-2 TestgBankgforgFinancialgAccounting:gToolsgforgBusinessgDecisiongMaking,gNinthgEdition
TRUE-FALSEgSTATEMENTS
1. Cashgandgsuppliesgaregbothgclassifiedgasgcurrentgassets.
Ans: g T,g LO: g 1,g Bloom: g C, g Difficulty:g Easy,g Min:g 1, g AACSB:g None, g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC: g None,g IMA:g Reporting
2. Long-
termg investmentsg appearg ing theg property,g plant,g andg equipmentg sectiong ofg theg
balancegsheet.
Ans: g F,g LO:g 1, g Bloom:g C, g Difficulty:g Easy,g Min:g 1, g AACSB:g None, g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC:g None,g IMA:g Reporting
3. Agliabilitygisgclassifiedgasgagcurrentgliabilitygifgitgisgtogbegpaidgwithingthegcominggyear.
Ans:g T,g LO:g 1,g Bloom:g K,g Difficulty:g Easy,g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC:g None,g IMA:g Reporting
4. Stockholders’gequitygisgdividedgintogtwogparts:gcommongstockgandgretainedgearnings.
Ans: g T,g LO:g 1,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g Reporting
5. Itgisgpossiblegforgangassetgtogbegagcurrentgassetgevengthoughgthegexpectedgconversi
ongofgthatgassetgintogcashgisgtogbeglongergthangonegyeargorgthegnormalgoperatinggc
ycle.
Ans: gF, g LO:g 1,g Bloom:g C,g Difficulty:g Medium, g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAgFC:g Reporting,g AICPA
gPC:gNone,gIMA:g Reporting
6. Theg investmentg categoryg ong theg balanceg sheetg normallyg includesg investmentsg that
g aregintendedgtogbegheldgforgagshortgperiodgofgtimeg(lessgthangonegyear).
Ans: g F,g LO:g 1, g Bloom:g C, g Difficulty:g Easy,g Min:g 1, g AACSB:g None, g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC: g None,g IMA:g Reporting
7. Thegmaingdifferencegbetweengintangiblegassetsgandgproperty,gplantgandgequipmentgi
sgtheglengthgofgthegasset’sglife.
Ans: g F,g LO:g 1, g Bloom:g C,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC: g None,g IMA:g Reporting
8. Profitabilitygmeansghavinggenoughgfundsgonghandgtogpaygdebtsgwhengtheygfallgdue.
Ans:g F,g LO:g 2,g Bloom:g K,g Difficulty:g Medium, g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Riskg Manage
ment,g Analysisg andg Management,g AICPAg PC: g None,gIMA:g Businessg Economics
9. Earningsgpergsharegisgcalculatedgbygdividinggnetgincomegminusgpreferredgstockgdivid
endsgforgthegperiodgbygthegaveragegnumbergofgcommongsharesgoutstandinggduringgt
hegperiod.
Ans:g T,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC:g None,g IMA:g BusinessgEconomics
10. Earningsgpergsharegmeasuresgthegnetgincomegavailablegongeachgsharegofgcommongstock.
Ans: g T,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g BusinessgEconomics
11. Liquiditygratiosgmeasuregthegshort-
termgabilitygofgagcompanygtogpaygitsgmaturinggobligationsgandgmeetgunexpectedgneed
sgforgcash.
Ans: g T,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g Reporting
12. Solvencygratiosgmeasuregthegabilitygofgagcompanygtogsurvivegovergagshortgperiodgofgtime.
Ans: g F,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g Reporting
mynursytest.store
, DOWNLOADgTHEgTestgBankgforgFinancialgAccountinggToolsgforgBusinessgDeci
siongMakingg9thgEditiongKimmel
FORgINSTRUCTORgUSEgONLY
mynursytest.store
siongMakingg9thgEditiongKimmel
CHAPTER g 2
AgFURTHERgLOOKgATgFINANCIALgSTATEMENTS
CHAPTERgLEARNINGgOBJECTIVES
1. Identifygthegsectionsgofgagclassifiedgbalancegsheet.gIngagclassifiedgbalancegsheet,gc
ompaniesgclassifygassetsgasgcurrentgassets;glong-
termginvestments;gproperty,gplant,gandgequipment;gandgintangibles.gTheygclassifygliabiliti
esgasgeithergcurrentgorglong-
term.gAgstockholders’gequitygsectiongshowsgcommongstockgandgretainedgearnings.
2. Usegratiosgtogevaluategagcompany’sgprofitability,gliquidity,gandgsolvency.gRatiogan
alysisgexpressesgthegrelationshipgamonggselectedgitemsgofgfinancialgstatementsgdata.gPr
ofitabilitygratios,gsuchgasgearningsgpergshareg(EPS),gmeasuregaspectsgofgthegoperatingg
successgofgagcompanygforgaggivengperiodgofgtime.
Liquiditygratios,gsuchgasgthegcurrentgratio,gmeasuregthegshort-
termgabilitygofgagcompanygtogpaygitsgmaturinggobligationsgandgtogmeetgunexpectedgneed
sgforgcash.gSolvencygratios,gsuchgasgthegdebtgtogassetsgratio,gmeasuregthegabilitygofgag
companygtogsurvivegovergaglonggperiod.
Freegcashgflowgindicatesgagcompany’sgabilitygtoggenerategcashgfromgoperationsgthatgisg
sufficientgtogpaygdebts,gacquiregassets,gandgdistributegdividends.
3. Discussgfinancialgreportinggconcepts.gGenerallygacceptedgaccountinggprinciplesgarega
gsetgofgrulesgandgpracticesgrecognizedgasgaggeneralgguidegforgfinancialgreportinggpurpos
es.gThegbasicgobjectivegofgfinancialgreportinggisgtogprovideginformationgthatgisgusefulgfor
gdecision-gmaking.
Togbegjudgedguseful,ginformationgshouldghavegthegprimarygcharacteristicsgofgrelevanceg
andgfaithfulgrepresentation.gIngaddition,gusefulginformationgisgcomparable,gconsistent,gver
ifiable,gtimely,gandgunderstandable.
Thegmonetarygunitgassumptiongrequiresgthatgcompaniesgincludegingthegaccountinggrecords
gonlygtransactiongdatagthatgcangbegexpressedgingtermsgofgmoney.gThegeconomicgentityg
assumptiongstatesgthatgeconomicgeventsgcangbegidentifiedgwithgagparticulargunitgofgacco
untability.gThegperiodicitygassumptiongstatesgthatgthegeconomicglifegofgagbusinessgcangbe
gdividedgintogartificialgtimegperiodsgandgthatgmeaningfulgaccountinggreportsgcangbegprep
aredgforgeachgperiod.gTheggoinggconcerngassumptiongstatesgthatgthegcompanygwillgconti
nuegingoperationglonggenoughgtogcarrygoutgitsgexistinggobjectivesgandgcommitments.
Theghistoricalgcostgprinciplegstatesgthatgthegcompaniesgshouldgrecordgassetsgatgtheirgcos
t.gThegfairgvaluegprinciplegindicatesgthatgassetsgandgliabilitiesgshouldgbegreportedgatgfairg
value.gThegfullgdisclosuregprinciplegrequiresgthatgcompaniesgdisclosegcircumstancesgandg
eventsgthatgmattergtogfinancialgstatementgusers.
Thegcostgconstraintgweighsgthegcostgthatgcompaniesgincurgtogprovidegagtypegofginformati
ongagainstgitsgbenefitgtogfinancialgstatementgusers.
FORgINSTRUCTORgUSEgONLY
mynursytest.store
,DOWNLOADgTHEgTestgBankgforgFinancialgAccountinggToolsgforgBusinessgDeci
siongMakingg9thgEditiongKimmel
2-2 TestgBankgforgFinancialgAccounting:gToolsgforgBusinessgDecisiongMaking,gNinthgEdition
TRUE-FALSEgSTATEMENTS
1. Cashgandgsuppliesgaregbothgclassifiedgasgcurrentgassets.
Ans: g T,g LO: g 1,g Bloom: g C, g Difficulty:g Easy,g Min:g 1, g AACSB:g None, g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC: g None,g IMA:g Reporting
2. Long-
termg investmentsg appearg ing theg property,g plant,g andg equipmentg sectiong ofg theg
balancegsheet.
Ans: g F,g LO:g 1, g Bloom:g C, g Difficulty:g Easy,g Min:g 1, g AACSB:g None, g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC:g None,g IMA:g Reporting
3. Agliabilitygisgclassifiedgasgagcurrentgliabilitygifgitgisgtogbegpaidgwithingthegcominggyear.
Ans:g T,g LO:g 1,g Bloom:g K,g Difficulty:g Easy,g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC:g None,g IMA:g Reporting
4. Stockholders’gequitygisgdividedgintogtwogparts:gcommongstockgandgretainedgearnings.
Ans: g T,g LO:g 1,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g Reporting
5. Itgisgpossiblegforgangassetgtogbegagcurrentgassetgevengthoughgthegexpectedgconversi
ongofgthatgassetgintogcashgisgtogbeglongergthangonegyeargorgthegnormalgoperatinggc
ycle.
Ans: gF, g LO:g 1,g Bloom:g C,g Difficulty:g Medium, g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAgFC:g Reporting,g AICPA
gPC:gNone,gIMA:g Reporting
6. Theg investmentg categoryg ong theg balanceg sheetg normallyg includesg investmentsg that
g aregintendedgtogbegheldgforgagshortgperiodgofgtimeg(lessgthangonegyear).
Ans: g F,g LO:g 1, g Bloom:g C, g Difficulty:g Easy,g Min:g 1, g AACSB:g None, g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC: g None,g IMA:g Reporting
7. Thegmaingdifferencegbetweengintangiblegassetsgandgproperty,gplantgandgequipmentgi
sgtheglengthgofgthegasset’sglife.
Ans: g F,g LO:g 1, g Bloom:g C,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC: g None,g IMA:g Reporting
8. Profitabilitygmeansghavinggenoughgfundsgonghandgtogpaygdebtsgwhengtheygfallgdue.
Ans:g F,g LO:g 2,g Bloom:g K,g Difficulty:g Medium, g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Riskg Manage
ment,g Analysisg andg Management,g AICPAg PC: g None,gIMA:g Businessg Economics
9. Earningsgpergsharegisgcalculatedgbygdividinggnetgincomegminusgpreferredgstockgdivid
endsgforgthegperiodgbygthegaveragegnumbergofgcommongsharesgoutstandinggduringgt
hegperiod.
Ans:g T,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1,g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting,g AICP
Ag PC:g None,g IMA:g BusinessgEconomics
10. Earningsgpergsharegmeasuresgthegnetgincomegavailablegongeachgsharegofgcommongstock.
Ans: g T,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g BusinessgEconomics
11. Liquiditygratiosgmeasuregthegshort-
termgabilitygofgagcompanygtogpaygitsgmaturinggobligationsgandgmeetgunexpectedgneed
sgforgcash.
Ans: g T,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g Reporting
12. Solvencygratiosgmeasuregthegabilitygofgagcompanygtogsurvivegovergagshortgperiodgofgtime.
Ans: g F,g LO:g 2,g Bloom:g K,g Difficulty:g Easy,g Min:g 1, g AACSB:g None,g AICPAg BB:g Governanceg Perspective,g AICPAg FC:g Reporting, g AICP
Ag PC: g None,g IMA:g Reporting
mynursytest.store
, DOWNLOADgTHEgTestgBankgforgFinancialgAccountinggToolsgforgBusinessgDeci
siongMakingg9thgEditiongKimmel
FORgINSTRUCTORgUSEgONLY
mynursytest.store
