Quick Check Question 1

 The accounting equation is least accurately stated as:

a. Ending retained earnings = assets – contributed capital -
liabilities
b. Assets = liabilities + contributed capital + beginning
retained earnings + revenue – expenses - dividends
c. Owners’ equity = liabilities - assets
d. Liabilities = assets – contributed capital – ending retained
earnings
 Quick Check Question 1
 The accounting equation is least accurately stated as:
a. Ending retained earnings = assets – contributed capital -
liabilities
b. Assets = liabilities + contributed capital + beginning
retained earnings + revenue – expenses - dividends
c. Owners’ equity = liabilities - assets
d. Liabilities = assets – contributed capital – ending retained
earnings Owners’ equity is equal to assets minus liabilities
 Quick Check Question 2
 Annual depreciation and accumulated depreciation are
most likely classified as which financial statement
elements?
 Depreciation Accumulated depreciation
a. Expenses Contra liabilities
b. Expenses Contra assets
c. Liabilities Contra assets
d. Liabilities Contra liabilities
 Quick Check Question 2
 Annual depreciation and accumulated depreciation are
most likely classified as which financial statement
elements?
 Depreciation Accumulated depreciation
a. Expenses Contra liabilities
b. Expenses Contra assets
Annual depreciation is an expense. Accumulated
c. Liabilitiesdepreciation is aContra assetsaccount that typically
contra asset
offsets the historical cost of property, plant, and
d. Liabilitiesequipment. Contra liabilities
 Quick Check Question 3
 What is the largest asset (in dollar amount) on Nike’s
balance sheet? How does this asset relate to Nike’s
business model/strategies?

a. Cash
b. Accounts receivable
c. Inventories
d. Property, plant, and equipment
 Quick Check Question 3
 What is the largest asset (in dollar amount) on Nike’s
balance sheet? How does this asset relate to Nike’s
business model/strategies?

a. Cash
b. Accounts receivable
c. Inventories The largest asset (in dollar amount) on Nike’s
balance sheet is Inventories. This reflects
d. Property, plant, and equipment
Nike’s strategy as the world’s leading seller of
athletic footwear, apparel, and equipment.
Because some of Nike sales occur through
Nike’s own stores and through Nike’s online
sales system, it must carry additional inventory.
 Quick Check Question 4
 Nike includes identifiable intangible assets on its balance
sheet. Does this account include the value of Nike’s brand
name and Nike’s “swoosh” trademark?

a. Yes
b. No
 Quick Check Question 4
 Nike includes identifiable intangible assets on its balance
sheet. Does this account include the value of Nike’s brand
name and Nike’s “swoosh” trademark?
U.S. GAAP require firms to expense in the year incurred
a. Yes any expenditures (for example, advertising, promotion, and
quality control) to develop intangibles (for example, patents,
b. No trademarks, and brand names). Thus, expenditures made to
develop the Nike name or its trademarks will not appear on
the balance sheet as assets. Expenditures made to
purchase intangibles from other firms will appear on the
balance sheet as assets (in some cases subject to
amortization). Most of the identifiable intangible assets and
goodwill appearing on Nike’s balance sheet arose from the
acquisition of Converse Inc. in 2004 and Umbro in 2008.
 Quick Check Question 5
 Nike reports property, plant, and equipment on its balance
sheet and discloses the amount of depreciation for each
year in its statement of cash flows. Why doesn’t
depreciation expense appear among its expenses on the
income statement?

a. It is included in the cost of sales.

b. It is included in the demand creation expense and
operating overhead.
c. It is very suspicious! Nike is committing fraud.
 Quick Check Question 5
 Nike reports property, plant, and equipment on its balance
sheet and discloses the amount of depreciation for each
Nike outsources its manufacturing. Thus, depreciation
year in its expense
statement of cash
relates flows.and
to buildings Why doesn’t
equipment used in
depreciation expense
selling appear among
and administrative its expenses
activities. on the
Nike’s income
income statement?
statement classifies expenses by their function
instead of their nature. Thus, Nike includes
depreciation expense in demand creation expenses
a. It is included
and inin the cost
operating of sales.
overhead.

b. It is included in the demand creation expense and

operating overhead.
c. It is very suspicious! Nike is committing fraud.
 Quick Check Question 6
 What does “demand creation expense” represent?

a. It represents cost of goods sold.

b. It represents selling expense.
c. It represents administrative expense.
d. None of the above.
 Quick Check Question 6
 What does “demand creation expense” represent?

a. It represents cost of goods sold.

b. It represents selling expense.
c. It represents administrative expense.
Demand creation expense represents marketing and
d. None ofadvertising
the above. expenses. In the notes, Nike states, “Demand
creation expense consists of advertising and promotion
costs, including costs of endorsement contracts,
television, digital and print advertising, brand events and
retail brand presentation. Advertising production costs
are expensed the first time an advertisement is run.”
 Quick Check Question 7
 Refer to the common-size and percentage change income
statement for Nike at the end of 2014, 2015, and 2016.
What are some reasons for the increases in the net
income/sales revenue percentages for Nike between 2014
and 2015, and between 2015 and 2016?

a. A decrease in the cost of sales percentage

b. A decrease in the demand creation expenses percentage
c. A decrease in operating overhead expense percentage
d. An increase in the other income percentage
 Quick Check Question 7
 Refer toThe
the
improved net income/sales percentage in 2015
common-size and percentage change income
reflects the net result of several changes: a decrease in
statement for Nike
the cost at percentage,
of sales the end ofa2014, 2015,
decrease and
in the 2016.
demand
What are someexpenses,
creation reasons an forincrease
the increases in income,
in the other the net and
a decrease in taxes, partially offset by an increase in the
income/sales revenue percentages for Nike between 2014
operating overhead expense percentage. From 2015 to
and 2015,
2016,andthebetween
same primary2015 and 2016?
reasons caused the increase in
the net income/sales percentage.

a. A decrease in the cost of sales percentage

b. A decrease in the demand creation expenses percentage
c. A decrease in operating overhead expense percentage
d. An increase in the other income percentage
 Quick Check Question 8
 Information about accounting estimates, assumptions, and
methods chosen for reporting is most likely found in:

a. The auditor’s opinion

b. Financial statement notes
c. Management’s Discussion and Analysis
d. Chairman’s statement
 Quick Check Question 8
 Information about accounting estimates, assumptions, and
methods chosen for reporting is most likely found in:

a. The auditor’s opinion

b. Financial statement notes
c. Management’s Discussion and Analysis
Information about accounting methods and
d. Chairman’s statement
estimates is contained in the footnotes to the
financial statements.