Deck 5: Financial Position and Cash Flows

Question 1

A company that follows private entity GAAP

A)must not disclose the cash flow per share
B)can disclose the cash flow per share
C)can disclose the cash flow per share if it makes a special election to do so
D)None of these

Answer 1

A

Question 2

The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in

A)inventory back into cash, or twelve months, whichever is shorter.
B)receivables back into cash, or twelve months, whichever is longer.
C)tangible fixed assets back into cash, or twelve months, whichever is longer.
D)inventory back into cash, or twelve months, whichever is longer.

Answer 2

D

Question 3

Monetary assets are defined as assets that are convertible to

A)known amounts of cash.
B)cash within one operating cycle.
C)cash within twelve months.
D)cash within three months

Answer 3

A

Question 4

Which of the following should be excluded from long-term liabilities?

A)Obligations payable at some date beyond the operating cycle
B)Most pension obligations
C)Long-term liabilities that mature within the operating cycle and will be paid from a sinking fund
D)None of these

Question 5

Which of the following is a current asset?

A)Cash surrender value of a life insurance policy of which the company is the beneficiary.
B)Investment in equity securities for the purpose of controlling the issuing company.
C)Cash designated for the purchase of tangible fixed assets.
D)Trade instalment receivables normally collectible in eighteen months.

Question 6

Which item below is not a current liability?

A)Unearned revenue
B)Stock dividends distributable
C)The currently maturing portion of long-term debt
D)Trade accounts payable

Question 7

When current debt is refinanced by the issue date of financial statements, it may generally be presented as non-current

A)if the company follows IFRS
B)under either private entity GAAP or IFRS
C)if the company follows private entity GAAP
D)None of these

Question 8

The balance sheet is useful for analysing all of the following except

A)liquidity.
B)solvency.
C)profitability.
D)financial flexibility.

Question 9

The basis for classifying assets as current or noncurrent is conversion to cash within

A)the accounting cycle or one year, whichever is shorter.
B)the operating cycle or one year, whichever is longer.
C)the accounting cycle or one year, whichever is longer.
D)the operating cycle or one year, whichever is shorter.

Question 10

A company that follows IFRS

A)can disclose the cash flow per share if it makes a special election to do so
B)must not disclose the cash flow per share
C)is generally allowed to disclose the cash flow per share
D)None of these

Question 11

Significant changes to the presentation of financial statements are currently being developed by the IASB and FASB.Which of the following statements best describes the focus of these changes?

A)To better highlight the company's assets, liabilities and equity
B)To segregate the company's operating, financing and investing activities
C)To highlight the company's major business and financing activities.
D)To increase the number of notes to be attached to the company's financial statements.

Question 12

An example of an item which is not an element of working capital is

A)accrued interest on notes receivable.
B)goodwill.
C)goods in process.
D)short-term investments.

Question 13

Which of the following is a limitation of the balance sheet?

A)Many items that are of financial value are omitted.
B)Judgements and estimates are used.
C)Current fair value is not reported.
D)All of these

Question 14

Treasury stock should be reported as a(n)

A)current asset.
B)investment.
C)other asset.
D)reduction of shareholders' equity.

Question 15

Which of the following should not be considered as a current asset in the balance sheet?

A)Instalment notes receivable due over eighteen months in accordance with normal trade practice.
B)Prepaid taxes which cover assessments of the following operating cycle of the business.
C)Equity or debt securities purchased with cash available for current operations.
D)The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.

Question 16

Working capital is

A)capital which has been reinvested in the business.
B)unappropriated retained earnings.
C)cash and receivables less current liabilities.
D)none of these.

Question 17

Long-term liabilities include

A)obligations not expected to be liquidated within the operating cycle.
B)obligations payable at some date beyond the operating cycle.
C)future income taxes and most lease obligations.
D)all of these.

Question 18

Which of the following items would require special disclosure under IFRS?

A)Investment property
B)Biological assets
C)Provisions
D)All of these

Question 19

Disclosure of the date that financial statements are authorized for issue is

A)mandatory if the company follows private entity GAAP
B)mandatory if the company follows IFRS
C)mandatory under either private entity GAAP or IFRS
D)None of these

Question 20

Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as

A)current assets.
B)property, plant, and equipment.
C)intangible assets.
D)long-term investments.

Question 21

A company's petty cash fund of $450 would generally be

A)included as part of cash
B)would not qualify as a current asset because the amount is below $1,000
C)a current asset
D)(a) and (c)

Question 22

Which of the following is not a method of disclosing pertinent information?

A)Supporting schedules
B)Parenthetical explanations
C)Cross reference and contra items
D)All of these are methods of disclosing pertinent information.

Question 23

In preparing a statement of cash flows, cash flows from operating activities

A)are always equal to accrual accounting income.
B)are calculated as the difference between revenues and expenses.
C)can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.
D)can be calculated by appropriately adding to or deducting from net income those items

Question 24

Preparing the statement of cash flows involves all of the following except determining the

A)cash provided by operations.
B)cash provided by or used in investing and financing activities.
C)change in cash during the period.
D)cash collections from customers during the period.

Question 25

The cash debt coverage ratio is computed by dividing net cash provided by operating activities by

A)average long-term liabilities.
B)average total liabilities.
C)ending long-term liabilities.
D)ending total liabilities.

Question 26

Which of the following would be classified in a different major section of a balance sheet from the others?

A)Capital stock
B)Common stock subscribed
C)Stock dividend distributable
D)Stock investment in affiliate

Question 27

The current cash debt coverage ratio is often used to assess

A)financial flexibility.
B)liquidity.
C)profitability.
D)solvency.

Question 28

Wolanski Corp.'s trial balance reflected the following account balances at December 31, 2010: In Wolanski's December 31, 2010 balance sheet, the current assets total is

A)$104,500.
B)$90,500.
C)$86,500.
D)$73,500.

Question 29

Making and collecting loans and disposing of property, plant, and equipment are

A)operating activities.
B)investing activities.
C)financing activities.
D)liquidity activities.

Question 30

The standards for private entity GAAP and IFRS include numerous differences.Which of the following statements best describes the requirements for the preparation and presentation of the cash flow statement?

A)Both standards allow the use of the indirect or direct method
B)Private entity GAAP permits the use of the direct method only
C)IFRS permits the use of the single-step method only
D)(b) and (c)

Question 31

A measure of a company's financial flexibility is the

A)cash debt coverage ratio.
B)current cash debt coverage ratio.
C)free cash flow.
D)cash debt coverage ratio and free cash flow.

Question 32

A cash flow statement that is prepared under the direct method starts with:

A)Net income
B)Gross Profit
C)None of these
D)Income from operations

Question 33

Free cash flow is calculated as net cash provided by operating activities less

A)capital expenditures.
B)dividends.
C)capital expenditures and dividends.
D)capital expenditures and amortization.

Question 34

In preparing a statement of cash flows, repurchase of a company's own shares at an amount greater than cost would be classified as a(n)

A)operating activity.
B)financing activity.
C)extraordinary activity.
D)investing activity.

Question 35

Which of the following best describes a liability?

A)Any obligation, whether enforceable or not, is a liability
B)A liability is an enforceable economic burden or obligation
C)A liability is a legal economic benefit
D)None of these

Question 36

The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the

A)retained earnings statement.
B)income statement.
C)statement of cash flows.
D)statement of financial position.

Question 37

The shareholders' equity section is usually divided into what four parts?

A)Preferred stock, common stock, treasury stock, contributed surplus
B)Preferred stock, common stock, retained earnings, other comprehensive income
C)Capital shares, contributed surplus, retained earnings, accumulated other comprehensive income
D)Capital stock, appropriated retained earnings, unappropriated retained earnings, contributed surplus

Question 38

A cash flow statement that is prepared under the indirect method adds and subtracts certain items to the base number.How would decreases in unearned revenues be shown? They would be shown as

A)a deduction from net income
B)an addition to net income
C)a deduction from sales
D)an addition to sales

Question 39

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?

A)Sale of equipment at book value
B)Sale of merchandise on credit
C)Declaration of a cash dividend
D)Issuance of bonds payable at a discount

Question 40

Which of the following should be reported for capital shares?

A)The shares authorized
B)The shares issued
C)The shares outstanding
D)All of these

Question 41

In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from

A)operating activities.
B)financing activities.
C)investing activities.
D)selling activities.

Question 42

Use the following information for questions
The following trial balance of Terracota Corp.at December 31, 2010 has been properly adjusted except for the income tax expense adjustment.

Other financial data for the year ended December 31, 2010:
 Included in accounts receivable is $720,000 due from a customer and payable in quarterly instalments of $90,000.The last payment is due December 29, 2012.
 The balance in the Future Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $30,000 is classified as a current liability.
 During the year, estimated tax payments of $465,000 were charged to income tax expense.
The current and future tax rate on all types of income is 35 percent.In Terracota's December 31, 2010 balance sheet,
The final retained earnings balance is

A)$5,551,000.
B)$6,016,000
C)$5,135,000.
D)$6,431,000.

Question 43

Use the following information for questions
The following trial balance of Terracota Corp.at December 31, 2010 has been properly adjusted except for the income tax expense adjustment.

Other financial data for the year ended December 31, 2010:
 Included in accounts receivable is $720,000 due from a customer and payable in quarterly instalments of $90,000.The last payment is due December 29, 2012.
 The balance in the Future Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $30,000 is classified as a current liability.
 During the year, estimated tax payments of $465,000 were charged to income tax expense.
The current and future tax rate on all types of income is 35 percent.In Terracota's December 31, 2010 balance sheet,
The current liabilities total is

A)$2,435,000.
B)$2,695,000.
C)$2,200,000.
D)$2,230,000.

Question 44

In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash equivalents) should be classified as cash outflows for

A)operating activities.
B)investing activities.
C)financing activities.
D)lending activities.

Question 45

In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for

A)operating activities.
B)borrowing activities.
C)lending activities.
D)financing activities.

Question 46

Which of the following facts concerning depreciable assets should be included in the summary of significant accounting policies?

Question 47

On January 1, 2010, Kapp Co.leased a building to Duerr Corp.for a ten-year term at an annual rental of $80,000.At inception of the lease, Kapp received $320,000 covering the first two years' rent of $160,000 and a security deposit of $160,000.This deposit will not be returned to Duerr upon expiration of the lease but will be applied to payment of rent for the last two years of the lease.What portion of the $320,000 should be shown as a current and long-term liability in Kapp's December 31, 2010 balance sheet?

Question 48

Use the following information for questions
The following trial balance of Terracota Corp.at December 31, 2010 has been properly adjusted except for the income tax expense adjustment.

Other financial data for the year ended December 31, 2010:
 Included in accounts receivable is $720,000 due from a customer and payable in quarterly instalments of $90,000.The last payment is due December 29, 2012.
 The balance in the Future Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $30,000 is classified as a current liability.
 During the year, estimated tax payments of $465,000 were charged to income tax expense.
The current and future tax rate on all types of income is 35 percent.In Terracota's December 31, 2010 balance sheet,
The current assets total is

A)$5,955,000.
B)$5,595,000.
C)$3,060,000.
D)$4,495,000.

Question 49

In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from

A)lending activities.
B)operating activities.
C)investing activities.
D)financing activities.