ch05.docx

1、ch05CHAPTER 5Examining the Balance Sheet and Statement of Cash FlowsASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)TopicsQuestionsBrief ExercisesExercisesProblemsConcepts for Analysis1.Disclosure principles, uses of the balance sheet, financial flexibility.1, 2, 3, 4, 5, 6, 7, 10, 18, 22, 23, 2514, 52.Cl

2、assification of items in the balance sheet and other financial statements.11, 12, 13, 14, 15, 16, 18, 191, 2, 3, 4, 5, 6, 7, 8, 9, 10, 111, 2, 3, 4, 6, 7, 8, 9, 101, 2, 33.Preparation of balance sheet; issues of format, terminology, and valuation.4, 7, 8, 9, 16, 17, 20, 21, 244, 5, 6, 7, 11, 121, 2,

3、 3, 4, 53, 4, 54.Statement of cash flows.25, 26, 27, 28, 29, 30, 31, 3212, 13, 14, 15, 1613, 14, 15, 16, 17, 186, 76ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)Learning Objectives Brief ExercisesExercisesProblems1. Explain the uses and limitations of a balance sheet.72. Identify the major

4、 classifications of the balance sheet.1, 2, 3, 4, 6, 8, 93. Prepare a classified balance sheet using the report and account formats.1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 111, 2, 3, 4, 5, 6, 7, 9, 10, 11, 12, 171, 2, 3, 4, 5, 6, 74. Determine which balance sheet information requires supplemental disclosure.

5、1045. Describe the major disclosure techniques for the balance sheet.6. Indicate the purpose of the statement of cash flows.7. Identify the content of the statement of cash flows.138. Prepare a statement of cash flows.12, 13, 14, 15 14, 15, 16, 17, 186, 79. Understand the usefulness of the statement

6、 of cash flows.1615, 16, 186, 7ASSIGNMENT CHARACTERISTICS TABLEItemDescriptionLevel of DifficultyTime (minutes)E5-1Balance sheet classifications.Simple1520E5-2Classification of balance sheet accounts.Simple1520E5-3Classification of balance sheet accounts.Simple1520E5-4Preparation of a classified bal

7、ance sheet.Simple3035E5-5Preparation of a corrected balance sheet.Simple3035E5-6Corrections of a balance sheet.Complex3035E5-7Current assets section of the balance sheet.Moderate1520E5-8Current vs. long-term liabilities.Moderate1015E5-9Current assets and current liabilities.Complex3035E5-10Current l

8、iabilities.Moderate1520E5-11Balance sheet preparation.Moderate2530E5-12Preparation of a balance sheet.Moderate3035E5-13Statement of cash flowsclassifications.Moderate1520E5-14Preparation of a statement of cash flows.Moderate2535E5-15Preparation of a statement of cash flows.Moderate2535E5-16Preparati

9、on of a statement of cash flows.Moderate2535E5-17Preparation of a statement of cash flows and a balance sheet.Moderate3035E5-18Preparation of a statement of cash flows, analysis.Moderate2535P5-1Preparation of a classified balance sheet, periodic inventory.Moderate3035P5-2Balance sheet preparation.Mo

10、derate3540P5-3Balance sheet adjustment and preparation.Moderate4045P5-4Preparation of a corrected balance sheet.Complex4045P5-5Balance sheet adjustment and preparation.Complex4050P5-6Preparation of a statement of cash flows and a balance sheet.Complex3545P5-7Preparation of a statement of cash flows

11、and a balance sheet.Complex4050CA5-1Reporting for financial effects of varied transactions.Moderate2530CA5-2Current asset and liability classification.Moderate3035CA5-3Identifying balance sheet deficiencies.Moderate2025CA5-4Critique of balance sheet format and content.Simple2530CA5-5Presentation of

12、property, plant, and equipment.Simple2025CA5-6Cash flow analysis.Complex4050ANSWERS TO QUESTIONS1. The balance sheet provides information about the nature and amounts of investments in enterprise resources, obligations to enterprise creditors, and the owners equity in net enterprise resources. That

13、information not only complements information about the components of income, but also contributes to financial reporting by providing a basis for (1) computing rates of return, (2) evaluating the capital structure of the enterprise, and (3) assessing the liquidity and financial flexibility of the en

14、terprise.2. Solvency refers to the ability of an enterprise to pay its debts as they mature. For example, when a company carries a high level of long-term debt relative to assets, it has lower solvency. Information on long-term obligations, such as long-term debt and notes payable, in comparison to

15、total assets can be used to assess resources that will be needed to meet these fixed obligations (such as interest and principal payments).3. Financial flexibility is the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected

16、needs and opportunities. An enterprise with a high degree of financial flexibility is better able to survive bad times, to recover from unexpected setbacks, and to take advantage of profitable and unexpected investment opportunities. Generally, the greater the financial flexibility, the lower the ri

17、sk of enterprise failure.4. Some situations in which estimates affect amounts reported in the balance sheet include: a) allowance for doubtful accounts.b) depreciable lives and estimated salvage values for plant and equipment. c) warranty returns. d) determining the amount of revenues that should be

18、 recorded as unearned. When estimates are required, there is subjectivity in determining the amounts. Such subjectivity can impact the usefulness of the information by reducing the reliability of the measures, either because of bias or lack of verifiability.5. An increase in inventories increases cu

19、rrent assets, which is in the numerator of the current ratio. Therefore, inventory increases will increase the current ratio. In general, an increase in the current ratio indicates a company has better liquidity, since there are more current assets relative to current liabilities. Note to instructor

20、sWhen inventories increase faster than sales, this may not be a good signal about liquidity. That is, inventory can only be used to meet current obligations when it is sold (and converted to cash). That is why some analysts use a liquidity ratiothe acid test ratiothat excludes inventories from curre

21、nt assets in the numerator.6. Liquidity describes the amount of time that is expected to elapse until an asset is converted into cash or until a liability has to be paid. The ranking of the assets given in order of liquidity is: (1) (d) Short-term investments. (2) (e) Accounts receivable. (3) (b) In

22、ventories. (4) (c) Buildings. (5) (a) Goodwill.7. The major limitations of the balance sheet are:(1) The values stated are generally historical and not at fair value. (2) Estimates have to be used in many instances, such as in the determination of collectibility of receivables or finding the approxi

23、mate useful life of long-term tangible and intangible assets. (3) Many items, even though they have financial value to the business, presently are not recorded. One example is the value of a companys human resources.Questions Chapter 5 (Continued)8. Some items of value to technology companies such a

24、s Intel or IBM are the value of research and development (new products that are being developed but which are not yet marketable), the value of the “intellectual capital” of its workforce (the ability of the companies employees to come up with new ideas and products in the fast changing technology i

25、ndustry), and the value of the company reputation or name brand (e.g., the “Intel Inside” logo). In most cases, the reasons why the value of these items are not recorded in the balance sheet concern the lack of reliability of the estimates of the future cash flows that will be generated by these “as

26、sets” (for all three types) and the ability to control the use of the asset (in the case of employees). Being able to reliably measure the expected future benefits and to control the use of an item are essential elements of the definition of an asset, according to the Conceptual Framework.9. Classif

27、ication in financial statements helps users by grouping items with similar characteristics and separating items with different characteristics. Current assets are expected to be converted to cash within one year or one operating cycle, whichever is longerproperty, plant and equipment will provide ca

28、sh inflows over a longer period of time. Thus, separating long-term assets from current assets facilitates computation of useful ratios such as the current ratio.10. Separate amounts should be reported for accounts receivable and notes receivable. The amounts should be reported gross, and an amount

29、for the allowance for doubtful accounts should be deducted. The amount and nature of any nontrade receivables, and any amounts designated or pledged as collateral, should be clearly identified.11. Available-for-sale securities should be reported as a current asset only if management expects to conve

30、rt them into cash as needed within one year or the operating cycle, whichever is longer. If available-for-sale securities are not held with this expectation, they should be reported as long-term investments.12. The relationship between current assets and current liabilities is that current liabilities are those obligations that are reasonably expected to be liquidated either through the use of current assets or the creation of other current liabilities.13. The total selling price of the season tickets is $20,000,000 (10,000 X $2,000). Of this amount, $9,000,000 has been earned by 12/31/07