Answer (D) is correct. Financial accounting principles assume that a business entity is a going concern in the absence of evidence to the contrary. The concept justifies the use of depreciation and amortization schedules, and the recording of assets and liabilities using attributes other than liquidation value.
Answer (D) is correct. For financial reporting purposes, current assets consist of cash and other assets or resources expected to be realized in cash, sold, or consumed during the longer of 1 year or the normal operating cycle of the business.
Answer (A) is correct. The entity has not substantially completed what it must do to be entitled to the benefits of the advance payment, and the receipt of future economic benefits is not sufficiently certain to justify income recognition. Accordingly, the receipt of cash in anticipation of goods to be delivered or services to be performed must be recognized as a liability, usually called deferred (or unearned) revenue or deferred (or unearned) income. Because the manufacturer must deliver the goods within the next year, this liability is current.
Answer (D) is correct. Liabilities are present obligations arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Customers’ deposits must be returned or credited to their accounts. The deposits should therefore be recorded as liabilities
Answer (D) is correct. The statement of financial position, also known as the balance sheet, reports an entity’s financial position at a moment in time. It is therefore not useful for assessing past performance for a period of time. A balance sheet can be used to help users assess liquidity, financial flexibility, and risk.
Answer (B) is correct. Current liabilities include those obligations that are expected to be satisfied by the (1) payment of cash, (2) use of current assets other than cash, or (3) creation of new current liabilities within 1 year from the balance sheet date (or operating cycle, if longer).
Answer (C) is correct. Current assets are reasonably expected to be realized in cash, sold, or consumed during the normal operating cycle of the business or within 1 year, whichever is longer. The operating cycle is the time between the acquisition of materials or services and the final cash realization from the earning process.
Answer (C) is correct. Apart from cash paid or received, a firm cannot recognize assets, liabilities, gains, or losses from transactions in its own stock. Treasury stock is reported on the balance sheet as a subtraction from equity.
Answer (D) is correct. The purchase of treasury stock is recorded on the statement of financial position as a decrease in shareholders’ equity
Answer (D) is correct. Current assets include, in descending order of liquidity, cash and cash equivalents; certain individual trading, available-for-sale, and held-to-maturity securities; receivables; inventories; and prepaid expenses. Trading securities are expected to be sold in the near term, so they are likely to be classified as current.
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