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Unformatted text preview: CHAPTER 5 HOMEWORK SOLUTIONS Questions: 8. The four major subtotals or totals on the income statement are: (a) gross profit, (b) income from operations, (c) income before income taxes, and (d) net income. 10. The six major classifications on the balance sheet are: (a) current assets, (b) noncurrent assets, (c) current liabilities, (d) long-term liabilities, (e) contributed capital and (f) retained earnings. 11. Property, plant, and equipment are reported on the balance sheet. Property, plant, and equipment are those assets held by the business not for resale but for use in operating the business, such as a delivery truck. (a) Property, plant, and equipment are reported at their acquisition cost which represents the amount of resources expended in acquiring them. (b) Over their period of use, they are "depreciated" because of being worn out (used up) or becoming obsolete in carrying out the function for which they were acquired. A portion of the cost of this effect is known as depreciation expense . A certain amount of depreciation is reported each period as an expense on the income statement and the total amount of depreciation on the asset from the date it was acquired up to the date of the financial statement is known as accumulated depreciation . (c) Cost minus accumulated depreciation equals net book value , as reported on the balance sheet. Net book value (sometimes also called book value or carrying value ) does not represent the current market value of the asset but rather the original cost of it less the amount of that cost that has been measured as depreciation expense for all of the periods since the asset was acquired. Multiple Choice: 3. D 5. B 8. C 9. D Mini-Exercises: M5-3. Elements of Financial Statements Financial Statements B (1) Liabilities A. Income statement....
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