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Chapter 8

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Chapter 8

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Deniel Joy Natan
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Problem 7-2 Multiple choice (Conceptual Framework) 1, Financial capital is defined. as ‘a. Net assets in monetary term, 1 Not ascets in terms of physical prouctive capacity. Legal capital. 4. Share capital issued and outstanding. 2.The physical capital maintenance concept requires the adoption of which measurement basia? ‘a. Historical cost B Current vost © Fair value 4 Present value . 8. Which concept is appliod to net income and other comprehensive income? ‘a. Financial capital b. Physical capital © Legal capital 4. Borrowed capital 4. Which statement regarding the term proftis true? ‘2 Profit is any amount ovér and above that required to ‘maintain the capital at the begining ofthe period. b, Prot is equal to inoume minus expense © Profit isthe equivalent of net income under IFRS 4 “Allof those statomonto are true abou the term prof 5. Under the financial capt cnept, nt ins oecure 4% Phe nominal amount of net, ant 1 The phyla productive capital at yearend inereased ier excluding ey datos tad conttbons nd a t yo The nominal amount of net increased after excluding di contributions from owners 4. The physical productive capital at yo 1a CHAPTER 8 PAS1 PRESENTATION OF FINANCIAL STATEMENTS Statement of financial position TECHNICAL KNOWLEDGE To identify the componente of financial statements ‘To understand the objective of financial statements. To know the preparation of a statement of financial position. ° To identify the minimum line items to be presented in a ‘Statement of financial position as required by IFRS. To understand the current and noncurrent classification of ‘assets and liabilities, To know the forms of presenting the statement of financial position. 4s. FINANCIAL STATEMENTS Financial statements are the means by which the information ‘accumulated. dnd processed in financial accounting is periodically communicated fo the user ‘The financial statements are the end product or main output of the financial accounting proces. Financial statements are a structured: ‘financial representation of the financial position and financial performance of an entity General purpose financial statements An entity shall propare and present gnetal purpose financial ‘statementa in accordance with the International Financial Reporting Standards. General purpose financial statoments or simply referred to 2s financial elatements-are those intended to meet the needs Of users who are not in a position to require an entity to prepare reports tailored to their particular information needa, * In other words, general purpose financial statements are Noncurrent portion of long-term debt B Binance ease Haiity <@) Deferred tax liability ‘2. Long-term obligations to company officers fe. Long-term deferred revenue 49 Currently maturing long-term debt A liability which is duo to be settled within twelve months after the reporting period is classified ae current, even if 4 The orginal term was for « evo onger than twelve b. An agreoment to refinance or to reschedule payment on ' long-torm basis is completed after the reporting period ‘and before the financial statements are authorized for Howover, ifthe refinancing on long-term basis is completed (on or before the end ofthe reporting period, the refinancing is an adjusting event and therefore the obligation is classified as noncurrent. ; Diseretion to refinance If the entity has the discretion to refinance or rll over an obligation for at least twelve months after the reporting period under an existing lon facility, the obligation is lassified as noneurrent oven if it would otherwise be due withif a shorter period. ‘The reason for this treatment ié that auch obligation ie {nsidered to form pat of the entity’ long-term refinancing because the entity hos on unconditional right under the lating loan agreement defer payment for at leat Ovelve mnths after the end ofthe reporting period. Note thatthe rena is e refinsncing or tolling over must be at the discretion of the entity. ma . * Othervise, if the ref Suerte. if the reinancing orig over ie not at the curation of the entity, the obligation i lasted 150 Covenants Covenants are often attached to borrowing agreementa which represent undertakings by the borrower. Covenants are actualiy restrictions on the borrower as to undertaking further borrowings, paying dividends, maintaining specified level of working capital and oo forth Under these covenants, if certain conditions relating to the borrower's financial situation are breached, the liability: ‘becomes payable on demand, Effect of bréach of covenants PAS 1, paragraph 74, provides that the lability is classified tas current even ifthe lender has agreed, after the reporting [period ond before the statements are authorized for issue, not fo demand payment as a consequence of the breach. "This Kability is classified as current because at reporting date the borrower does not have an unconditional right to ‘Gofer payment for at least twelve months after the reporting period. However, Paragraph 75 provides that the liability Classified as noneurrent ifthe lender has agreed on orb the end of reporting period to provide a grace period ending ft least twelve months after the end of reporting petiod. 151 Definition of equity ‘The torm equity isthe residual interest in the assete of the entity after deducting all of its Labilities, Simply stated, equity meens “net asset" or total assots minus abilities, ‘The terms used in reporting the equity ofan entity depending on the form of tho business organization are ‘a. Owner's equity in a proprotorship '. Partners’ equity in a partnership - ‘6 Stockholders’ equity or sharehaery’ equity in a corporation However, the term equity may simply be used forall business entities, Under PAS 1, paragraph 7, the holders of instruments lassified as equity are simply known as owners. Shareholders’ equity Shareholders’ equity isthe residual intarest of owners in the het assets ofa corporation measured by the excess of assets over Liabilities. Generally, the elomenta constituting shareholders’ equity ‘with their equivalent IAS term are: Philipsine term Stem Capita wok Sine cata Salen capt ck shoe cae capil ceed wk Preference dare capita: cn ‘ria sare ‘Aditnal paint Stare premin Retsned earning Gab) ‘esate prot Cones) Retained earings aproied . Appepaton ere Revaluation eran eval eer Treanury sock Jroany sare 12 Notes to financial statements [Notes to financial statements provide narrative description or disaggregation of items presented in the financial ‘statements and information about items that do not qualify for recognition. Notes contain information in addition to that presented in’ the statement of financial position, income statement, statement of comprehensive income, statement of changes {in equity and statement of cash flows. In other words, notes to financial statements are used to report information that does not ft into the body of the financial statements in order to enhance the understandability of the financial statements ‘The purpose of the notes to financial statements ie "to provide the necessary disclosures required by Philippine Financial Reporting Standards. Forms of statement of financial position In practice, there are two customary forme in presenting the statement of financial position, namely: 8. Report form ‘This form sets forth the three major sections in a downward sequence of assets, Labilities and equity. b. Account form ‘As the title suggests; the presentation follows that of an ‘account, meaning, the assets are shown on the left side and the liabilities and equity on the right side of the statement of financial position. "The following is an illustration of the two forms of statement of financial position. 153 PANY. stern ofFinmntal sition ASSETS - Note "Gah and ch uivlente 500,000 ‘inaneial ane fave 200/000 ‘Trade and other receivables) 700,000, Inventories (900000 Prepaid expenace (3 _s0;000 ‘Total curentaneta 2,350,000 [Nogeurrentassete: . ‘Property, plantandequipment.| (6) $,000000 [estan noc ony {eae acts 5) 30800 20.008 titer noncurrent assets ‘lomo ssn tee ioe Canes sHAnEnLoens rau? Onis TERE eo Tee Goecetaes, ° Be vemgiang 80,000 ‘lene iin sans “gua TSREUA Tangri. toate ase ae a8 ‘nn ie ssinso tae Eero ofits ‘Retained e 13,650,000 Talore’ my aLesnow ‘Total labilitin and sherbolder aqty 164 Note 1 - Cash and cash equivalents Cashon hand Gash in bane Petey cagh fund [BSP Treasury bil, purchased on December 1, 2019 and due Mareh,2020 ‘Totalcash and cash equivalents Note 2 - Trade and other receivables Accounts rosivable Allowance for dosbtful acount = ocsivable ‘Acoraod interest on notes receivable ‘Advances to employees, collecuble currently ‘Total trade and other ecsivables Note 3 Inventories Finished goods Gooden posse Rewmaterala Manufacturing supption ‘Total inventories Note 4 - Prepaid expenses Otis supplies unused Prepaid insurance ‘Total prepaid expenses Note 5 - Property, plant and equipment Land Bulding ‘Machinery and egiipment Furnitare ana fsturee Pattern, molds, dice and tace, net ‘Total ‘Accumulated depreciation Carrying amount 155° 300,000 4400;000 380,000, 80,000 300,000 7,400,000 (2400,000) 000,000 ‘Accumulated deprecation: Building Machinery and equip Purniture and fstares ‘Total accumolated depreciation Note 6 - Long-term investments Plant expansion fond Investment in bonds Cash surrender value ‘Totel other long-term investments Note 7 ~Intangible assets Patent Franchise ‘Total intangible assets Note 8~ Other noneurrent assets ‘Long-term refundable deposit ‘Long-term advenoon to ofcers ‘Total other noncurrent assets Note 9 - Trade and other payables Accounts payable Notes payable ‘Accrued interest on note payable Tncom: tax payable Dividends payable, Accrued expeatee ‘Total trade and othr payeblee Note 10- Reserves Share premium Pathe i ytd retin ag6 20,000 150,000 350,000 150,000, 16,000 50,000 160,000 85,000 7 000 2,000,000 000,000 "5,000,000 ‘Account form SAMPLAR comPANY. ‘Statement ofFisancial Postion ‘December $1, 2018 LIABILITIES AND EQUITY ‘Cnh snd sesh eutleta 00000 "Trade and one prales7,000 Property lan ‘Bonds papsleremainng eslgaent ‘00.00 on 1.500000 Investment in emacs 1000000 Not ede July 1, Uimgterm investments 6100000 2081 40000 Ieeangibe mete e000 Dared ea abiey 09.000 ter somes ty “iaggan Fol met al nn a ‘Strep Pit pr 5000000 ‘ota 5.509009 Toate nde 15.580.000 ay 157 Line items in statement of financial position PAS 1, paragraph 54, states that as a\minimum, the face of the statement of financial poition shall include the following Tine items: 1. Cash and cash equivalents 2. Financial assets (ther than 1, 8 and 6) 8: Tead and other rosea 4 Inventor 5, Property, plant and equipment 6 Invgstment in associates accounted for by the equity mothod 7 Intangible assets 8 Investment property 9. Biological avets 10. Total of assets classified as held for sale and assets Included in disposal group clase as held for sale 11. Trade and other payables 12. Carrent tax abit 13. Deferred tax asst and fered tx ibility 14, Provisions 15. Financial Kabiities (ther than 11 and 14) 16, Liabilities inched in disposal group classified as held for eale 17. Noncontrolling interest 18. Share capital and reserves In the Phitippines, the common practice is to present current assets before noncurrent assets, current liabilities before noncurrent Habilities, and equity after liabilits Other formats may be equally appropriate provided the distinction is clear. ‘Thi isin accordance with paragraph 7 of the Preface to PAS I. PAS 1, paragraph 67, provides that “the standard does mot prescribe the order or format in which items are to be bresented in the statement of financial position.” ‘Note that the format ofthe statement of financial position as illustrated in the appendix 16 IAS 1 presents noncurrent assets before current assets, equity before liabilities, and oncurrent liabilities before current abilities. This may be the practice in other jurisdiction, lke the United Kingdom, 158 QUESTIONS 1 What are Snancial statements? 2, What are the components of financial statements? Bxplain the objective of financial statements ‘4 What is the frequency of reporting of financial statements? 5. Define a statement of financial position 6. What are the essential characteristics of an asset? 17. What are the classifications of assets? 8, Define current assets, 9. What are the line items for current assets? 10. Define noncurrent assets. 11. Identify: the noncurrent assets. 12, What‘are the essential characteristics of a liability? 18. What are the classcations of bites? 14, Define curront Kable. 15. What are the line items for current Lilies? 16 Explain the treatment of curently maturing long-term debt 17, Explain the effect of breach of covenants on the classification of ability 18, What are tho clomente comprising the equity of @ corporation? 18, What is the meaning of “notes to financial statements"? 20, Explain the two forme of statement of financial position. 189 PROBLEMS Problem -1 (IAA) ‘Simple Company provided the followsig sezoiunt balances on December 31, 2018 Share opt 8,000,000 ‘Share prem 500,000 Retsnedexrings 80,000 Sern fonds ppubl (P00,00 dus every Daly 1 ‘ofeach year) @ nae 2,500,000 Employeersmme taxpaysble 20,000 Nonepayeae 100:000 expenace $0:000 ‘Acco ntreton not payable 12,000 Tcome tar patie 60,000 ‘Allowance for doubtful accounts 50.000 ‘Advances from eusomers ‘Account receivable ‘Accumulated deprecation-buiding ‘Accumulated deprecation machinery Investment in bonds Land Machinery Eactory supplies Notes ecole i Gash Claits receivable Finished goods Franchies Goods in process Prepaid insurance Raw materials = ‘Trading secur ‘Toole Geodwit Plant expansion fund Accounte payable Required: Prepare a properly classified statement of financial position on December 81, 2019, 160 Problem 8-2 (IAA) Exemplar Company provided the following account balances on December 31, 2018: Accounts receivable 400,000 ‘Advancos to officers not currently collectible 100,000, Sinking fund + 400,000 Building 5,000,000, Long-torm refundable deposit ‘30,000 Gath and cash equivalents ‘500,000 Gath surrender value 160,000 Equipment 1,000,000 Patent ‘100000, ‘Aceried interest on notes receivable 10,000 Inventories 1,300,000 Tana 1/500) 000, TEand held for apeculation’ ‘600000 Notes receivable 260:000 Computer software 3,380,000, Prepaid expen ‘Tending securite Unoarned rent income *40,000 Retained earnings (deficit) (2,800,000) Share premium = preference ‘300,000 Premium on bonds payable 1,000,000 Preference share capital 2'000,000, iremium ordinary "200,000 le 500,000, 10,000 400:000 2,000,000 ‘Accumulated depreciation-equipment 200000, Allowance for doubtful accounts 20,000 Bonds payable 8,000,000 Dividends payable 120,000 Qrainary share capital ;000,000 Withholding tax payable 30,000 Preference share redemption fund 360,000, Required: F Prepare a properly classified statement of financial position on December 51, 2018. 161 Problem 8-8 (IAA) Relax Company provided the following information for thé purpose of presenting the statement of financial position on. ‘December 81, 2018: Cash 400,000 ‘Accounts receivable 800,000 ‘Allowance for doubtful acounte 0,000 Inventor 1,000,000 Vand ‘500,000 Building 45,000,000 Accumulated depresiation-bulding 2'000,000 Machinery ss 5,000,000 ‘Accumulated depreciaton-machinery "200000 Equipment “400,000 ‘Accumulated depreciation equipment 00,000 Investment in associate 1,300,000, Prepaid expences 100,000 on 1750,000, te payable 450,000 Income tax payable *50,000, Aserued expenses {0,000 ‘Mortetge note peyable in quarterynetalients ‘fP 100,000 2,000,000 Betimeted abit for damages ‘40,000 spproprnted or plantexpacsion 1,000,000 Retained earnings appropriated or 106,000, learnings entingnciee 4 Share premium, “$0.00 ‘Retained earings uneppropiatl 1,280,000 ‘Tredemac * 180,000, Secret processes and format 200,000 ‘Banicloen payable due June 30,2021 500.000 ‘Required: Prepare in good form a properly classified statement of financial position on December 31,2019 with supporting notes and computations. 162 Problem 8-4 (IAA) Summa Company revealed the following account balances on December 81, 2018: ‘Acoounts payable 1,000,000 ‘Accounta receivable, netof allowance for doubtful ‘Authorized share eaptal, 60,000 shares, LOO par Building, net of sccumulated deprosintih ofP3,000,000 Cash on hand Cashin bere Bend sinking fand FRaraltare and equipment net of accumulated Aepreciation of F900, 000, Ipveiy Investment property Land Deferzed tax ality ‘Bonds payable due June 80,2020 . [Notes payable Nate receivable Patent (itr accrued aiitien paid expenses Share premium Retained earnings appropriated for contingencies Retained range ‘Share subacpttonrosivable Subsesbed share capital 2,000 shares Uniosued share capital ‘Required: Prepare a statement of financial position, presented and classified according to generally accepted accounting principles with appropriate notes. 163. Problem 85 Multiple choice (PAS 1) 1. The major nancial statements include all, except ‘a. Statoment of financial position {5 Statement of changes in Enancial position Statement of comprehensive income & Statement of dsangos in equity 2, What is the objctivo of Snancal statements? ‘4. To provide information about the financial position, finanetal performance and changes in financial position of an entity that fe useful to a wide range of Users in making economic decisions, b, To presenta etatoment of nancial position and statement of comprehensive ineome. ¢, To present relevant, reliable, comparable and Understandable information to investors 4, To'prosent financial statements in accordance with all applicable standards. 4. To mb the ahetieof Sean reporting nancial Te tet re eer Aer seach a te gen an Se a Set ci REPAIRS wits 4. Financial statemonts must be prepared atleast ee ° ek ison. 5 Roe ay Se Sn tly cel alice a eSeepe Ete fess ring a longer or soter er Fhe Ta et teak ceM ented at nk entirely FRET esr esto have one's 164 Problem 8-6 Multiple choice (PAS 1) 1. When there is much variability, the operating eycle is measured at a. The mean value b. The median value & Twelve months 4. Three years 2. ‘The operating cycle of an entity ‘Is the time between the acquisition of materials entering into a process and their realization in cash. ». Te the period of time normally elapsed in converting ‘trade receivables back into cash. ¢ Ie'a period of one year. 4. Refers to the seasonal variation experienced by entitige, 3. An entity shall classify an asset as current under all of ‘the following conditions, exeept 1. The entity expects to realize the asset or intends to sell or consume it within the entity's normal operating gyele. b, ‘The entity holds the aaaet for the purpose of trading. © The entity expecta to realize the asset within twelve months after the reporting period. 4, The asset is cash or cash equivalent that is restricted to settle a linbikty for more than twelve months after the reporting period, 4. An entity shall classify a liability as current when under all of the following conditions, except a. The entity expects to settle the liability within the entitys normal operating cycle b. The entity holds the lability primarily for the purpose of trading. cc. The liability is due to be settled within twelve months after the reporting period. 4, The entity has an unconditional right to defer fettlement of the lability for atleast twelve months fier the reporting period, 165 5, Which obligations are classified aa current even if these are due to be eetled after more than twelve months from the end of the reporting period? ‘4. Trade payables and accruals for employee and other operating cost '. Current portion of interest bearing liabilities Bank overdratte 4. Dividends payable 6. Current and noncurrent presentation of assets and Liabilities provides use Information when the entity, ‘2. Supplies goods or cervcee within a clearly identifiable operating cycle be, Tea Gnancial institution & Is. public wiity 4. Ts a nodprofit organization 7. A presentation of assets and liabilities in increasing or ‘ofder of liquidity provides information that is ‘liable and more relevant than a current and noncurrent presentation for ‘a. Financial institution b. Public wey © Manufacturing entity, 4. Serviee provider 8. In the Philipines, the common practice isto present in the statement of financial postion & Current assete before noncurrent abilities before noncurrent lables liabilities. . Noncurrent assets before current assets, noncurrent abilities before current liabilities and equity after liabilitios. © Current assets before noncurrent assets, noncurrent abilities before current liabilities and equity after Habllitioe. 4. Noncurrent assote before current assets, current liabilitice before noncurrentHabilities and equity alter abilities. 166 9. A financial Lsbility due within twelve months after the reporting period shall be classified ae noncurrent. b. a When it is refinanced on a long-term basis before the isguo of financial statements. When the entity has no discretion to refinance for at least twelve months. ‘When itis refinanced on a long-term basis after the end. of reporting period, Wher it ie refinanced on a long-term basis on or before the end of reporting period. 10, When an entity breaches under long-term Joan agreement on or before the end ofthe reporting period with the effect ‘that the Hability becomes payable on demand, the liability classified as ‘2. Current under all circumstances '. Noneurrent under all circumstances ‘Current if the lender has agreed after the reporting period and before the issuance of the statements not to Bemand payment as a consequence of the breach, Noncurrent if the lender agreed after the reporting period to provide a grace period for at least twelve months after the reporting period. 167 Problem 8-7 Multiple choice (FRS) 5. In which section of the statement of financial position should employment taxes that are due for settlement in 1 In presenting a statement of Gnanial position, an entity 16 months’ time be presented? ‘4. Must make the current and noncurrent presentation. a Current Liabilities ', Must present asvets and liabilities in order of liquidity b Current assets (& Must choose either the current and noncurrent or the © Noneurrent liabilities liquidity presentation, meaning free choice of a. Noneurrent assets presentation 4. Must make the current and noncurrent presentation, 6. An entity has a loan due for repayment in six months! fexeept when a presentation based on liquidity provides time but the entity has the option to refinance for {information tht is reliable and more relevant repayment two years later. The entity plans to refinance this loan. In which section of the statement of financial 2. Aaseta tobe sold, consumed o realized ns part ofthe normal position should this loan be presented? ‘operating.eycle are &. Current liabilities Current assets b. Current assets 1h Noncurrent asceta ¢. Noncusrent liabilities ©. Classified ag current or noncurrent in accordance with . Noneurront eonste other eriteria. 4. Noncurrent investments 1. Which of the following must be included on the face of 83, Liabilities that an entity expect to settle within the normal NN es ‘operating cycle are classified as ‘a. Investment property 'b. Number of shares authorized © Contingent asset 4, Shares in an entity owned by that entity a. Nonourrent liabilities - . Current or noncurrent liabilities in accordance with aes ae 4. Equity ” 8. Which of the following is not required to be presented as 4 tht of te pn sen pl Shout ec oc ee aa ER an pi onde SSE ET ae ee met eet © Corpent ancots, d. Contingent liability b. Equity € Noneurrent liabilities 4. Noncurrent ascots 168 169 eee ee sheer ene a Contingent asset Property, plant and equipment analyzed by class Se cpl an sss aniand 6 Ses Deferred tax liability ve pore ‘Which statement about the statement of financial posit Which state sof inaneial position 4 Biologia aust shoul be reported inthe statement of financial position. ai a 5. The number of share authorised for ise should be reported inthe statement of fancial poston oF the Statement of change in egy or inthe noon ¢. Provisions sbould be rennisd in the statoment of financial position. -Aealion mag 9 nneurant aati he ‘current year should be recngnized In the income statement, sda) 170 Problem 8-8 Multiple choice (AICPA Adapted) Lim analyzing an entity's financial statements, which ‘inaneial statement would a potential investor primarily tase to assess liquidity and financial flexibility? ‘a. Statement of financial position , Income statement ©. Statement of retained earnings @ Statement of cash flows ‘2. Which is an essential characteristic of an asset? fa. The claims ton asset’ benefits are legally enforceable by An aesot is tangible ©. An acset in obtained at a cost GL An asset provides future benefits 3. "The essential characteristics of an asset include all of the following, except fa. The ascot is the result of past event. B. The asset provides future economic benefit 2. The cost of the asset can be measured reliably GL. The asset is tangible. 4, Conceptually, asset valuation accounts are Assets ‘Neither assets nor liabilities Part of sharcholders’ equity Liabilities 6. z forking capital is ‘The group of assata needed by the entity to operate profitably. Gapital which haa been reinvested in business ‘Unappropriated retained earnings. Current assets lesa current liabilities pes P am. 6.As generally used, the term net asete represents Retained carnings urrent assete less current ©. Total contributed capital Total asoots lee total liabilities ‘.Treasury shares should be reported as & Current asset 1b Tavestment © Other asset 4. Reduction of shareholders equity 8. The torsh "deficit" refers to ‘An exzes of current assets overcurrent lnbiitiea 5 ‘an excns of current aii overcurrent aneta A dobie balance in retained 4, A prior period error. Sarnings 9. When classifying assets as current and noncurrent The amounts at which current assets are carried and reported must rect realizable cash value . Prepayments are included in other assets Current aseots are determined by the eeseonal nature, 4. Assets are classified ea current if reasonably expected to be realized in cash or consumed during the normal operating cycle, 10. The basis for classifying assets as current or noncurrent is the period of time normally required to convert cash invested in ‘& Inventory back into cash or 12 months, whichever is shorter 3 Receivale bak nto oth oF 12 months, whichever is longer, ©. Property, plant and equipment back into cash or 12 ‘months, whichever i¢ longer. A Taventory basi cash or 12 months, whichever is longer. am Problem 8-9 Multiple choice (AICPA Adapted) 1, Which should be classified as current asset? a. Trade installment accounts receivable normally collectible in 18 months b, Cash designated for the redemption of callable preference shart ¢. Cash surrender value of @ life insurance policy 4. A deposit on machinery ordered, delivery of which ‘will be made within six months 2. Which should not be considered as current asset? Installment notes receivable due over 18 months in accordance with normal trade practice Prepaid taxes ‘Trading securitios Cash surrender value of life insurance policy Current assets should never include |A receivable not collectible within one year ‘Current tax ascet Goodwill arising in @ business ecimbination Premium paid on a bond investment Equity investments held to finance construction of {ditional plant should be classified as a. Current assets 1. Property, plant, and equipment © Intangible assets 4. Noncurrent investments ‘Which of the following is not @ noncurrent investment? Casis surrender value of life insurance policy Franchise ‘Land held for speculation ‘Asinking fund 178 Problem §-10 Multiple choice (IAA) 1. The statoment of financial position is useful for analyzing all of the following, except a. Liquidity b. Solvency © Profitability 4. Financial flexibility 2. The statement of financial position is useful for all of the following, except To compute rate of retura '. To analyze cash inflows and outflows for the period ‘¢. To evaluate capital structure . To assess future cash flows ‘8 What is ore criticism not normally aimed at of financial position? Failure to reflect current value information ‘The extensive use of separate classifications ‘An extensive use of estimate Failure to include items of financial value that cannot bbe recorded objectively pore 4. The statement of financial position Omits many items that are of financial value ‘Makes very limited use of judgment and estimate ‘Uses fair value for most ascots and lisbilitios |All of the choices are correct. ‘5. Which isa limitation ofa statoment of financial position? ‘Many itoms that are of financial value are omitted. ‘Judgment and estimate are used ‘Curront fair value is not reported ‘All of these aro a limitation of the statement of Sinancial position 114 6.The amount of time that is expected to elapse until. an a. Solvency. bb: Financial flexibility ©. Liquidity 4. Exchangeability 7. Which of the following is not an acceptable major asset classification? 2 Current assets b. Investments ¢. Property, plant, and equipment 4. Deferred charges 8, What is an example of an item which is not an element of working capital? . Accrued interest on notes receivable ¥. Goodwill ©. Goods in proces 4. Temporary investments 9. Accrued revenue would normally appear in the statement of financial position under Noncurrent assets Current liabilities Noncurrent liabilities Current assets 10. Which of the following ie usually classified as noneurrent asset? . Plant expansion fund b. Prepaid rent & Supplies 4. Goods in process as Problem 8-11 Multiple choice (IAA) 1. Notes to financial statementa ‘Ary clay unimportant ats that do not belong inne bane atemenia Borne the sures of facil statement fala ©. Atean integral part efam endif nancial statement 4G Ate Wrelevant fata that are immaterial in amount. wi Mhich of the following best demonstrates the full disclosure principle? ‘To meet the needs of full digclosure, entities use supplemental information including ‘agreements’and pending litigation ©. Supplemental financial statements that report’ more etailed information a. All of these are correct 4. The recognition and measurement concepts récognis which of the following ne @ principle rather than an assumption? a. Time period B. Monetary nit © Going concern 4. Full disclosure 5. The fall disclosure principle requires a balance betwee copay nt it Sept el cates, = ican En EEE sa pore 16 CHAPTER 9 PAS1 PRESENTATION OF FINANCIAL STATEMENTS, Statement of comprehensive income TECHNICAL KNOWLEDGE To understand the objective and usefulness of an income ‘Statement. To understand the-concept of comprehensive inéome, profit (or loss and other comprehensive income. Toiidentify the components of other comprehensive income. To know the minimum line items in the statement of comprehensive income. To know the natural and functional presentation of the income statement, wm

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