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Intermediate Accounting, 2/e
Thomas Beechy, York University
Joan E. Conrod, Dalhousie University
OLC Content Author: Clifton Philpott, Kwantlen University College

Balance Sheet and Disclosure Notes

Multiple Choice Quiz



1

What are the similarities between prepaid expenses and deferred charges?
(CGA FA2-June 99)
A)They are both reported on a classified balance sheet as "other" assets.
B)They are both debited to expense in conformity with the matching principle in the accounting period immediately following the balance sheet on which they are reported as an asset.
C)They are both destined to be expensed in a subsequent accounting period in conformity with the matching principle.
D)They are both destined to be recognized as revenue in a subsequent accounting period in conformity with the matching principle.
2

Each of the following is an essential characteristic of a liability, except:
A)it is a result of past transactions or events.
B)the dollar amount of the obligation is known for certain.
C)it represents a probable future sacrifice of economic benefits.
D)it represents an obligation to transfer assets or provide services to another entity in the future.
3

The basis used to classify assets as current or noncurrent is:
A)the operating cycle or one year, whichever is shorter.
B)the operating cycle or one year, whichever is longer.
C)whether the asset is used currently in the company's operations.
D)whether the dollar amount is fixed.
4

An item not generally classified as a current asset is:
A)a patent.
B)trade notes receivable.
C)prepaid expenses.
D)marketable securities.
5

A valuation method typically used to value operational assets is:
A)historical cost.
B)replacement cost.
C)selling price.
D)present value.
6

Which of the following is likely to be classified as a current liability?
A)Obligations expected to require the creation of other current liabilities.
B)Bonds payable currently due.
C)Accrued expenses.
D)All of the above.
7

Current assets minus current liabilities is referred to as:
A)net assets.
B)working capital.
C)current cash equivalent.
D)cash surrender value.
8

An item not reported in the owners' equity section of the balance sheet is:
A)retained earnings appropriated for plant expansion.
B)contribution of a plant site from a city.
C)working capital.
D)capital stock.
9

A loss contingency should be recognized if it is:
A)probable that a liability was incurred and the amount of loss can be reasonably estimated.
B)probable that a liability was incurred or the amount of loss can be reasonably estimated.
C)reasonably possible that a loss will occur and the amount of loss can be reasonably estimated.
D)reasonably possible that a loss will occur or the amount of loss can be reasonably estimated.
10

Which of the following is not a characteristic of the balance sheet?
A)The major classifications of the balance sheet are assets, liabilities, and owners' equity.
B)The balance sheet reports the change in financial position.
C)Assets generally are listed in order of their liquidity.
D)The balance sheet provides information useful in assessing liquidity.
11

Included in the category of current liabilities would be:
A)Pension obligations.
B)Lease obligations.
C)Obligations expected to require the creation of other current liabilities.
D)Mortgages payable.
12

An item not generally classified as a current liability is:
A)Revenue received in advance.
B)Accrued interest payable.
C)Accounts payable.
D)Bonds payable.
13

Operational assets refer to property, plant, and equipment, and:
A)Receivables.
B)Inventories.
C)Investments.
D)Intangibles.
14

For a firm with a current ratio of 2.0, which of the following transactions would most likely cause the ratio to decrease?
A)The collection of cash from customers on account.
B)The sale of a building for cash.
C)The purchase of inventory on account.
D)The issuance of capital stock.
15

The acid-test (quick) ratio excludes which of the following elements from the numerator?
A)Short-term investments.
B)Receivables.
C)Cash equivalents.
D)Inventories.




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