intermediate accounting(fifteenth edition) ch05

1、CHAPTER 5Balance 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, 21, 30, 313, 42.Classification of ite

2、ms 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, 8,9, 101, 23.Preparation of balance sheet; issues of format, terminology, and valuation.4, 7, 8, 9, 16, 17, 20, 29, 324, 5, 6, 7, 11, 12, 171, 2, 3, 4, 5, 6, 72, 3, 44.State

3、ment of cash flows.21, 22, 23, 24, 25, 26, 27, 2812, 13, 14, 15, 1613, 14, 15, 16, 17, 186, 75ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)Learning Objectives QuestionsBrief ExercisesExercisesProblemsConcepts for Analysis1.Explain the uses and limitations of a balance sheet.1, 2, 3, 4, 5,

4、6, 7, 187CA5-2, CA5-32.Identify the major classifications of the balance sheet.6, 8, 9,11, 12, 13, 14, 15, 16, 17, 18, 191, 2, 3, 4, 6,8, 9, 10CA5-2, CA5-33.Prepare a classified balance sheet using the report and account formats.9, 10, 14, 201, 2, 3, 4, 5, 6, 7, 8, 9, 10, 111, 2, 3, 4, 5, 6, 7, 9, 1

5、0, 11, 12, 171, 2, 3, 4, 5, 6, 7CA5-14.Indicate the purpose of the statement of cash flows.21CA5-45.Identify the content of the statement of cash flows.22, 23, 24, 2613CA5-4, CA5-56.Prepare a basic statement of cash flows.2512, 13, 14, 15 14, 15, 16, 17, 186, 77.Understand the usefulness of the stat

6、ement of cash flows.26, 27, 2812, 1615, 16, 186, 78.Determine which balance sheet information requires supplemental disclosure.30, 31, 3249.Describe the major disclosure techniques for the balance sheet.29ASSIGNMENT CHARACTERISTICS TABLEItemDescriptionLevel of DifficultyTime (minutes)E5-1Balance she

7、et classifications.Simple1520E5-2Classification of balance sheet accounts.Simple1520E5-3Classification of balance sheet accounts.Simple1520E5-4Preparation of a classified balance sheet.Simple3035E5-5Preparation of a corrected balance sheet.Simple3035E5-6Corrections of a balance sheet.Complex3035E5-7

8、Current assets section of the balance sheet.Moderate1520E5-8Current vs. long-term liabilities.Moderate1015E5-9Current assets and current liabilities.Complex3035E5-10Current liabilities.Moderate1520E5-11Balance sheet preparation.Moderate2530E5-12Preparation of a balance sheet.Moderate3035E5-13Stateme

9、nt of cash flowsclassifications.Moderate1520E5-14Preparation of a statement of cash flows.Moderate2535E5-15Preparation of a statement of cash flows.Moderate2535E5-16Preparation of a statement of cash flows.Moderate2535E5-17Preparation of a statement of cash flows and a balance sheet.Moderate3035E5-1

10、8Preparation of a statement of cash flows, analysis.Moderate2535P5-1Preparation of a classified balance sheet, periodic inventory.Moderate3035P5-2Balance sheet preparation.Moderate3540P5-3Balance sheet adjustment and preparation.Moderate4045P5-4Preparation of a corrected balance sheet.Complex4045P5-

11、5Balance sheet adjustment and preparation.Complex4045P5-6Preparation of a statement of cash flows and a balance sheet.Complex3545P5-7Preparation of a statement of cash flows and balance sheet.Complex4050CA5-1Reporting for financial effects of varied transactions.Moderate2025CA5-2Identifying balance

12、sheet deficiencies.Moderate2025CA5-3Critique of balance sheet format and content.Simple2025CA5-4Presentation of property, plant, and equipment.Simple2025CA5-5Cash flow analysis.Complex4050SOLUTIONS TO CODIFICATION EXERCISESCE5-1(a)Current assets is used to designate cash and other assets or resource

13、s commonly identified as those that are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.(b)Intangible assets are assets (not including financial assets) that lack physical substance. (The term intangible assets is used to refer to inta

14、ngible assets other than goodwill.) Clicking on the first link yields the following FASB ASC string: 350 IntangiblesGoodwill and Other > 10 Overall.(c)Cash equivalents are short-term, highly liquid investments that have both of the following characteristics:a.Readily convertible to known amounts

15、of cashb.So near their maturity that they present insignificant risk of changes in value because of changes in interest rates.Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding th

16、e investment. For example, both a three-month U.S. Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three moths. Examples

17、of items commonly considered to be cash equivalents are Treasury bills, commercial paper, money market funds, and federal funds sold (for an entity with banking operations).(d)Financing activities include obtaining resources from owners and providing them with a return on, and a return of, their inv

18、estment; receiving restricted resources that by donor stipulation must be used for long-term purposes; borrowing money and repaying amounts borrowed, or otherwise settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit.CE5-2See FASC ASC 210-1

19、0-45 (Other Presentation Matters)Classification of Current Liabilities45-5ATotal of current liabilities shall be presented in classified balance sheets.45-6The concept of current liabilities shall include estimated or accrued amounts that are expected to be required to cover expenditures within the

20、year for known obligations the amount of which can be determined only approximately (as in the case of provisions for accruing bonus payments) or where the specific person or persons to whom payment will be made cannot as yet be designated (as in the case of estimated costs to be incurred in connect

21、ion with guaranteed servicing or repair of products already sold).CE5-2 (Continued)45-7Section 470-10-45 includes guidance on various debt transactions that may result in current liability classification. These transactions are the following:a.Due on demand loan agreementsb.Callable debt agreementsc

22、.Short-term obligations expected to be refinanced.CE5-3The following discussion is provided at 235-10-50 Disclosure> Accounting Policies Disclosure50-1Information about the accounting policies adopted by an entity is essential for financial statement users. When financial statements are issued pu

23、rporting to present fairly financial position, cash flows, and results of operations in accordance with generally accepted accounting principles (GAAP), a description of all significant accounting policies of the entity shall be included as an integral part of the financial statements. In circumstan

24、ces where it may be appropriate to issue one or more of the basic financial statements without the others, purporting to present fairly the information given in accordance with GAAP, statements so presented also shall include disclosure of the pertinent accounting policies.> Accounting Policies D

25、isclosure in Interim Periods50-2The provisions of the preceding paragraph are not intended to apply to unaudited financial statements issued as of a date between annual reporting dates (for example, each quarter) if the reporting entity has not changed its accounting policies since the end of its pr

26、eceding fiscal year.> What to Disclose50-3Disclosure of accounting policies shall identify and describe the accounting principles followed by the entity and the methods of applying those principles that materially affect the determination of financial position, cash flows, or results of operation

27、s. In general, the disclosure shall encompass important judgments as to appropriateness of principles relating to recognition of revenue and allocation of asset costs to current and future periods; in particular, it shall encompass those accounting principles and methods that involve any of the foll

28、owing:a.A selection from existing acceptable alternativesb.Principles and methods peculiar to the industry in which the entity operations, even if such principles and methods are predominantly followed in that industryc.Unusual or innovative applications of GAAP.> Examples of Disclosures50-4Examp

29、les of disclosures by an entity commonly required with respect to accounting policies would include, among others, those relating to the following:a.Basis of consolidationb.Depreciation methodsCE5-3 (Continued)c.Amortization of intangiblesd.Inventory pricinge.Accounting for recognition of profit on

30、long-term construction-type contractsf.Recognition of revenue from franchising and leasing operations.> Avoid Duplicate Details of Disclosures50-5Financial statement disclosure of accounting policies shall not duplicate details (for example, composition of inventories or of plant assets) presente

31、d elsewhere as part of the financial statements. In some cases, the disclosure of accounting policies shall refer to related details presented elsewhere as part of the financial statements; for example, changes in accounting policies during the period shall be described with cross-reference to the d

32、isclosure required by Topic 250.> Format50-6This Subtopic recognizes the need for flexibility in matters of format (including the location) of disclosure of accounting policies provided that the entity identifies and describes its significant accounting policies as an integral part of its financi

33、al statements in accordance with the provisions of this Subtopic. Disclosure is preferred in a separate summary of significant accounting policies preceding the notes to financial statements, or as the initial note, under the same or a similar title.CE5-4The following section: 230-10-05 Overview and

34、 Background provides a discussion of the objectives for the Statement of Cash Flows.05-1The Statement of Cash Flows Topic presents standards for reporting cash flows in general-purpose financial statements.05-2Specific guidance is provided on all of the following:a.Classifying in the statement of ca

35、sh flows of cash receipts and payments as either operating, investing, or financing activitiesb.Applying the direct method and the indirect method of reporting cash flowsc.Presenting the required information about noncash investing and financing activity and other eventsd.Classifying cash receipts a

36、nd payments related to hedging activities.230-10-10 Objectives10-1The primary objective of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an entity during a period.CE5-4 (Continued)10-2The information provided in a statement of cash flows, i

37、f used with related disclosures and information in the other financial statements, should help investors, creditors, and others (including donors) to do all of the following:a.Assess the entitys ability to generate positive future net cash flowsb.Assess the entitys ability to meet its obligations, i

38、ts ability to pay dividends, and its needs for external financingc.Assess the reasons for differences between net income and associated cash receipts and paymentsd.Assess the effects on an entitys financial position of both its cash and noncash investing and financing transactions during the period.

39、ANSWERS 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 information not only complements information about the components of income,

40、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 enterprise.2.Solvency refers to the ability of an enterprise to pay its debts a

41、s 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 total assets can be used to assess resources that will be needed to meet these

42、 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 needs and opportunities. An enterprise with a high degree of financial flexibil

43、ity 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 risk of enterprise failure.4.Some situations in which estimates affect amounts re

44、ported 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 recorded as unearned.When estimates are required, there is subjectivity in deter

45、mining the amounts. Such subjectivity can impact the usefulness of the information by reducing the faithful representation of the measures, either because of bias or lack of verifiability.5.An increase in inventories increases current assets, which is in the numerator of the current ratio. Therefore

46、, 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 instructorsWhen inventories increase faster than sales, this may not be a good sig

47、nal 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 current assets in the numerator.6.Liquidity describes the amount of time that

48、 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) Inventory.(4) (c) Buildings.(5) (a) Goodwill.7.The major limitations of the ba

49、lance sheet are:(a)The values stated are generally historical and not at fair value.(b)Estimates have to be used in many instances, such as in the determination of collectibility of receivables or finding the approximate useful life of long-term tangible and intangible assets.(c)Many items, even tho

50、ugh 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 as Intel or IBM are the value of research and development (new products that are being d

51、eveloped 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 industry), and the value of the company reputation or name brand (e.g., the “Intel Insid

52、e” logo). In most cases, the reasons why the value of these items are not recorded in the balance sheet concern the lack of faithful representation of the estimates of the future cash flows that will be generated by these “assets” (for all three types) and the ability to control the use of the asset

53、 (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.Classification in financial statements helps users by grouping items with similar c

54、haracteristics and separating items with different characteristics. Current assets are expected to be converted to cash within one year or the operating cycle, whichever is longerproperty, plant and equipment will provide cash inflows over a longer period of time. Thus, separating long-term assets f

55、rom 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 for the allowance for doubtful accounts should be deducted. The amount and na

56、ture of any nontrade receivables, and any amounts designated or pledged as collateral, should be clearly identified.11.No. Available-for-sale securities should be reported as a current asset only if management expects to convert 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 liabil