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Financial reporting: current assets, pending litigation

21. Which of the following would not be classified as a current asset on a classified balance sheet?
a. Investment securities (trading)
b. Short-term investments
c. Prepaid expenses
d. Intangible assets

22. The correct order to present current assets is
a. cash, inventories, prepaid items, accounts receivable.
b. cash, inventories, accounts receivable, prepaid items.
c. cash, accounts receivable, prepaid items, inventories.
d. cash, accounts receivable, inventories, prepaid items.

23. Pending litigation would generally be considered a(n)
a. nonmonetary liability.
b. contingent liability.
c. estimated liability.
d. current liability.

24. Which of the following statements best describes a subsequent event?
a. A subsequent event affects only subsequent reporting periods.
b. A subsequent event may occur any time after financial statements are issued.
c. A subsequent event is, in some cases, reflected in the statements of the preceding period.
d. A subsequent event is not covered by the independent auditor's report.

25. The operating cycle
a. measures the time elapsed between cash disbursement for inventory and cash collection of the sales price.
b. refers to the seasonal variations experienced by business enterprises.
c. should be used to classify assets and liabilities as current if it is less than one year.
d. cannot exceed one year.

26. Blues Corporation's trial balance included the following account balances at December 31, 2011:

Accounts Payable ........................................ $45,000
Bonds Payable, due 2012 ................................. 75,000
Discount on Bonds Payable, due 2012 ..................... 9,000
Dividends Payable January 31, 2012 ...................... 24,000
Notes Payable, due January 31, 2015 ..................... 60,000

What amount should be included in the current liability section of Blues' December 31, 2011, balance sheet?
a. $135,000
b. $153,000
c. $195,000
d. $234,000

Solution Preview

21. Which of the following would not be classified as a current asset on a classified balance sheet?
a. Investment securities (trading)
b. Short-term investments
c. Prepaid expenses
d. Intangible assets

Intangible assets would normally never be current assets because they would not turn to cash within one year. Answer is d.

22. The correct order to present current assets is
a. cash, inventories, prepaid items, accounts receivable.
b. cash, inventories, accounts receivable, prepaid items.
c. cash, accounts receivable, prepaid items, inventories.
d. cash, accounts receivable, inventories, prepaid items.

The correct order is in terms of liquidity meaning the ones that will turn to cash first. Cash is already cash; accounts receivable should be collected in cash within 60 or 90 days; inventories should turn over 3 or ...

Solution Summary

In one to three sentences, each problem is explained including calculations as necessary to answer the questions.

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