Chapter 3 Solutions

Chapter 3 Solutions - Chapter 3 The Balance Sheet and...

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Question 3-1 The purpose of the balance sheet, also known as the statement of financial position, is to present the financial position of the company on a particular date. Unlike the income statement, which is a change statement that reports events occurring during a period of time, the balance sheet is a statement that presents an organized array of assets, liabilities, and shareholders’ equity at a point in time. It is a freeze frame or snapshot picture of financial position at the end of a particular day marking the end of an accounting period. Question 3-3 Current assets include cash and other assets that are reasonably expected to be converted to cash or consumed during one year, or within the normal operating cycle of the business if the operating cycle is longer than one year. The typical asset categories classified as current assets include: — Cash and cash equivalents — Short-term investments — Accounts receivable — Inventories — Prepaid expenses Question 3-4 Current liabilities are those obligations that are expected to be satisfied through the use of current assets or the creation of other current liabilities. So, this classification will include all liabilities that are scheduled to be liquidated within one year or the operating cycle, whichever is longer, except those that management intends to refinance on a long-term basis. The typical liability categories classified as current liabilities include: — Accounts payable — Short-term notes payable — Accrued liabilities — Current maturities of long-term debt Question 3-8 Property, plant, and equipment and intangible assets each represent assets that are long-lived and are used in the operations of the business. The difference is that property, plant, and equipment represent physical assets, while intangibles lack physical substance. Generally, intangibles represent the ownership of an exclusive right, such as a patent, copyright or franchise. Chapter 3 The Balance Sheet and Financial Disclosures QUESTIONS FOR REVIEW OF KEY TOPICS
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Question 3-9 A note payable of $100,000 due in five years would be classified as a long-term liability. A $100,000 note due in five annual installments of $20,000 each would be classified as a $20,000 current liability — current maturities of long-term debt — and an $80,000 long-term liability. Question 3-11
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This note was uploaded on 05/27/2011 for the course ACC 313 taught by Professor Null during the Summer '10 term at GWU.

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Chapter 3 Solutions - Chapter 3 The Balance Sheet and...

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