Kế toán, kiểm toán - Chapter 4: Balance sheet

CHAPTER 4BALANCE SHEETINTERMEDIATE ACCOUNTINGPrinciples and Analysis 2nd EditionWarfield Weygandt Kieso Explain the uses and limitations of a balance sheet.Identify the major classifications of the balance sheet.Prepare a classified balance sheet using the report and account formats.Determine which balance sheet information requires supplemental disclosure.Describe the major disclosure techniques for the balance sheet.Learning ObjectivesUse and LimitationsUsefulnessLimitationsClassificationAdditional InformationTechniques of DisclosureParenthetical explanationsNotesCross-reference and contra itemsSupporting schedulesTerminologyContingenciesAccounting policiesContractual situationsPost–balance-sheet eventsFair valuesBalance SheetCurrent assetsNoncurrent assetsLiabilitiesOwners’ equityFormatEvaluating the capital structure.Assess risk and future cash flows.Analyze the company’s: Liquidity, Solvency, and Financial flexibility.Balance SheetUsefulness of the Balance SheetLO 1 Explain the uses and limitations of a balance sheet.Review: Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows. FalseTrueTrueBalance SheetLO 1 Explain the uses and limitations of a balance sheet.Use of historical cost.Use of judgments and estimates.Many items of financial value are omitted.Limitations of the Balance SheetBalance SheetLO 1 Explain the uses and limitations of a balance sheet.Three General Classifications Assets, Liabilities, and Stockholders’ EquityCompanies further divide these classifications:Classification in the Balance SheetLO 2 Identify the major classifications of the balance sheet.Balance SheetIllustration 4-1 Balance Sheet ClassificationsCash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer. Current AssetsLO 2 Identify the major classifications of the balance sheet.Balance SheetIllustration 4-2 Accounts and basis of valuationReviewThe correct order to present current assets is a. Cash, Accounts Receivable, Prepaid Items, Inventories. b. Cash, Accounts Receivable, Inventories, Prepaid Items. c. Cash, Inventories, Accounts Receivable, Prepaid Items. d. Cash, Inventories, Prepaid Items, Accounts Receivable.Balance SheetLO 2 Identify the major classifications of the balance sheet.Review: An asset which is expected to be converted into cash, sold, or consumed within one year of the balance sheet date is always reported as a current asset. FalseTrueFalseBalance SheetLO 2 Identify the major classifications of the balance sheet.Generally any monies available “on demand.”Cash equivalents are short-term highly liquid investments that will mature within three months or less.Any restrictions or commitments must be disclosed. CashLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”Illustration 4-3PortfoliosShort-Term InvestmentsLO 2 Identify the major classifications of the balance sheet.TypeValuationClassificationHeld-to-MaturityDebtAmortized CostCurrent or NoncurrentTradingDebt or EquityFair ValueCurrentAvailable- for-SaleDebt or EquityFair ValueCurrent or NoncurrentBalance Sheet – “Current Assets”Short-Term InvestmentsLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”Illustration 4-5 Balance Sheet PresentationClaims held against customers and others for money, goods, or services.Accounts Receivable – oral promisesNotes Receivable – written promisesMajor categories of receivables should be shown in the balance sheet or the related notes.ReceivablesLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”Accounts Receivable – Presentation OptionsLO 2 Identify the major classifications of the balance sheet.Current assets: Cash $ 346 Accounts receivable 500 Less: Allowance for doubtful accounts 25 475 Inventory 812 Total current assets $1,633Current assets: Cash $ 346 Accounts receivable, net of $25 allowance 475 Inventory 812 Total current assets $1,63312Balance Sheet – “Current Assets”Accounts ReceivableLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”Illustration 4-6 Balance Sheet PresentationCompany discloses: basis of valuation (e.g., lower-of-cost-or-market) andthe method of pricing (e.g., FIFO or LIFO). InventoriesLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”InventoriesLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”Illustration 4-7 Balance Sheet PresentationPayment of cash, that is recorded as an asset because service or benefit will be received in the future.insurancesuppliesadvertisingCash PaymentExpense RecordedBEFORErentmaintenance on equipmentPrepayments often occur in regard to:Prepaid ExpensesLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”LO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”Illustration 4-9 Balance Sheet PresentationPrepaid ExpensesGenerally consists of four types: Securities Tangible fixed assetsSpecial fundsNonconsolidated subsidiaries or affiliated companies.Long-Term InvestmentsLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”Long-Term Investments Securities LO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”bonds, stock, and long-term notesFor marketable securities, management’s intent determines current or noncurrent classification.Fixed Assets LO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”Land held for speculationLong-Term Investments Special Funds LO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”Sinking fundPensions fundCash surrender value of life insuranceLong-Term Investments Nonconsolidated Subsidiaries or Affiliated Companies LO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”Long-Term Investments Property, Plant, and EquipmentLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”Assets of a durable nature used in the regular operations of the business.Review: Land held for speculation is reported in the property, plant, and equipment section of the balance sheet. FalseTrueFalseBalance SheetLO 2 Identify the major classifications of the balance sheet.IntangiblesLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”Lack physical substance and are not financial instruments.Limited life intangibles amortized.Indefinite-life intangibles tested for impairment.LO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Exercise”Exercise Mickey Snyder Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2008: Prepaid Rent $12,000; Goodwill $40,000; Franchise Fees Receivable $2,000; Franchises $47,000; Patents $33,000; Trademarks $10,000. Prepare the intangible assets section of the balance sheet.Intangibles Goodwill $ 40,000Franchises 47,000Patents 33,000Trademarks 10,000Total $130,000Other AssetsLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Noncurrent Assets”This section should include only unusual items sufficiently different from assets in the other categories.“Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities.”LO 2 Identify the major classifications of the balance sheet.Balance SheetCurrent Liabilities“Obligations that a company does not reasonably expect to liquidate within the normal operating cycle.”All covenants and restrictions must be disclosed.LO 2 Identify the major classifications of the balance sheet.Balance SheetLong-Term LiabilitiesLO 2 Identify the major classifications of the balance sheet.Balance Sheet – “Exercise”Exercise Included in Ewing Company’s December 31, 2008, trial balance are the following accounts: Accounts Payable $240,000; Pension Liability $375,000; Discount on Bonds Payable $24,000; Advances from Customers $41,000; Bonds Payable $400,000; Wages Payable $27,000; Interest Payable $12,000; Income Taxes Payable $29,000. Prepare the long-term liabilities section of the balance sheet.Long-term liabilities Pension liability $375,000Bonds payable 400,000Discount on bonds payable (24,000)Total 751,000Companies usually divide equity into three parts, (1) Capital Stock, (2) Additional Paid-In Capital, and (3) Retained Earnings.LO 2 Identify the major classifications of the balance sheet.Balance SheetOwners’ EquityIllustration 4-15 Balance Sheet Presentation(a) Investment in Preferred StockLO 2 Identify the major classifications of the balance sheet.Balance Sheet Classification ExerciseAccount(b) Treasury Stock(c) Common Stock(d) Cash Dividends Payable(e) Accumulated Depreciation(f) Interest Payable(g) Deficit(h) Trading Securities(i) Unearned Revenue(a) Current asset/Investment(b) Equity (c) Equity(d) Current liability(e) Contra-asset(f) Current liability(g) Equity(h) Current asset(i) Current liabilityClassificationClassified Balance SheetAccount formReport formBalance Sheet - FormatAccounting Trends and Techniques—2004 (New York: AICPA) indicates that all of the 600 companies surveyed use either the “report form” (506) or the “account form” (94), sometimes collectively referred to as the “customary form.”LO 3 Prepare a classified balance sheet using the report and account formats.ContingenciesAccounting PoliciesContractual SituationsPost-Balance-Sheet DisclosuresFair ValuesAdditional Information ReportedThere are normally five types of information that are supplemental to account titles and amounts presented in the balance sheet:LO 4 Determine which balance sheet information requires supplemental disclosure.Additional Information ReportedLO 4 Determine which balance sheet information requires supplemental disclosure.Post-Balance-Sheet DisclosuresTwo Types:Events that provide evidence about conditions that existed at the balance sheet date.Events that provide evidence about conditions that did not exist at the balance sheet date.Parenthetical ExplanationsNotesCross-Reference and Contra ItemsSupporting SchedulesTerminologyTechniques of DisclosureLO 5 Describe the major disclosure techniques for the balance sheet.Copyright © 2008 John Wiley & Sons, Inc. 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