Deck 5: Financial Position and Cash Flows

Question 1

An enterprise's ability to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities is called

A)financial flexibility.
B)liquidity.
C)the quick ratio.
D)solvency.

Answer 1

A

Question 2

The statement of financial position is useful for all of the following EXCEPT to

A)compute rates of return.
B)analyze cash inflows and outflows for the period.
C)evaluate capital structure.
D)assess future cash flows.

Answer 2

B

Question 3

Which of the following is a current asset?

A)trade instalment receivables normally collectible in eighteen months
B)intangible assets
C)investment in associates (significant influence investments)
D)cash designated for the purchase of property, plant and equipment

Answer 3

A

Question 4

Monetary assets represent

A)only cash.
B)contractual rights to receive cash.
C)equity investments in other companies.
D)cash or claims to future cash flows that are fixed and determinable in amounts and timing.

Question 5

Which of the following statements about intangible assets is INCORRECT?

A)They are capital assets that have no physical substance.
B)Intangibles with finite lives are amortized but not tested for impairment.
C)Intangibles with infinite lives are not amortized but are tested for impairment.
D)Internally recognized intangibles are never recognized on the statement of financial position.

Question 6

Equity or debt securities held to finance future construction of additional plants should be classified on a statement of financial position as

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

Question 7

Non-monetary assets

A)are those for which the cash value is determinable in amount and timing.
B)are often measured at historical cost.
C)are always classified as non-current.
D)will required future cash outflows from the company.

Question 8

Which of the following is NOT a limitation of the statement of financial position?

A)Many assets are reported at historical cost.
B)Judgments and estimates are used.
C)Only "hard" numbers are reported.
D)Disclosure of all pertinent information in the notes.

Question 9

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

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

Question 10

Monetary assets include

A)cash, accounts receivable and inventory.
B)accounts and notes receivable and inventory.
C)cash, accounts and notes receivable.
D)accounts receivable and property, plant and equipment.

Question 11

The statement of financial position is useful for analyzing all of the following EXCEPT

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

Question 12

Non-monetary assets include

A)accounts and notes receivable and inventory.
B)accounts receivable and property, plant and equipment.
C)inventory, property, plant and equipment, and intangibles.
D)accounts receivable and investments.

Question 13

Generally, as financial flexibility increases, the risk of enterprise or business failure will

A)increase.
B)decrease.
C)stay the same.
D)be eliminated.

Question 14

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

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

Question 15

When assessing earnings quality, financial analysts are concerned that management may attempt to manipulate information to make earnings appear better or worse than they really are.Which of the following would NOT suggest poor earnings quality?

A)reduction of the allowance for doubtful accounts
B)consistent application of GAAP
C)significantly higher net income than cash flows from operations
D)reliance on share issuances to offset repeated negative cash flow from operations

Question 16

Financial instruments do NOT include

A)cash.
B)inventory.
C)derivatives.
D)accounts payable.

Question 17

The statement of financial position is useful for all of the following EXCEPT

A)assessing a company's risk.
B)evaluating a company's liquidity.
C)evaluating a company's financial flexibility.
D)determining free cash flows.

Question 18

An enterprise's ability to pay its debts and related interest is called

A)liquidity.
B)financial flexibility.
C)the amount of time expected to pass until an asset is realized.
D)solvency.

Question 19

The operating cycle is the time between

A)selling products to customers and the realization of cash.
B)purchase of inventory and selling to customers.
C)manufacture of products and receiving cash from customers.
D)acquisition of assets for processing and the realization in cash or cash equivalents.

Question 20

Which of the following should NOT be considered current assets in the statement of financial position?

A)instalment notes receivable due over eighteen months, in accordance with normal trade practice
B)prepaid taxes, which cover assessments for the current year
C)equity or debt securities purchased with cash available for current operations
D)franchises and copyrights

Question 21

Significant accounting policies may NOT be

A)selected on the basis of judgment.
B)selected from existing acceptable alternatives.
C)unusual or innovative in application.
D)omitted from financial-statement disclosure.

Question 22

Which of the following would NOT appear in the equity section of a statement of financial position?

A)preferred shares
B)accumulated other comprehensive income
C)stock dividend distributable
D)investment in affiliate

Question 23

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

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

Question 24

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

Question 25

Which of the following is NOT a method of disclosing additional information in the financial statements?

A)supporting schedules
B)parenthetical explanations
C)cross-reference and contra items
D)press releases

Question 26

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

A)derivatives
B)employee future benefits obligations
C)long-term liabilities maturing within the operating cycle, but will be paid from a sinking fund
D)bonds payable maturing in five years

Question 27

Use the following information for questions.
Venus Corp.'s trial balance at December 31, 2017 is properly adjusted except for the income tax expense adjustment. Other financial data for the year ended December 31, 2017:
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, 2019.
The balance in the future income tax liability account relates 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 Venus's December 31, 2017 statement of financial position, the current liabilities total is

A)$2,435,000.
B)$2,695,000.
C)$2,200,000.
D)$2,114,000.

Question 28

Receivables are valued based on their ______.

A)fair value
B)estimated amount collectible
C)lower of cost or market value
D)historical cost

Question 29

Which of the following is a contra account?

A)Premium on bonds payable
B)Unearned revenue
C)Patents
D)Accumulated depreciation

Question 30

The current assets section of the balance sheet should include

A)machinery.
B)patents.
C)goodwill.
D)inventory.

Question 31

Which of the following balance sheet classifications would normally require the greatest amount of supplementary disclosure?

A)Current assets
B)Current liabilities
C)Plant assets
D)Long-term liabilities

Question 32

Which of the following is NOT a current liability?

A)unearned revenue
B)derivatives
C)stock dividends distributable
D)trade accounts payable

Question 33

On January 1, 2017, Mars Inc.leased a building to Vulcan Corp.for a ten-year term at an annual rental of $160,000.At inception of the lease, Mars received $640,000, which covered the first two years rent of $320,000 and a security deposit of $320,000.This deposit will not be returned to Vulcan 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 $640,000 should be shown as a current and long-term liability in Mars's December 31, 2017 statement of financial position?

Question 34

Pluto Corp.'s trial balance included the following account balances at December 31, 2017: In Pluto's December 31, 2017 statement of financial position, the current assets total is

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

Question 35

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

A)preferred shares, common shares, retained earnings, contributed surplus
B)preferred shares, common shares, retained earnings, other comprehensive income
C)capital shares, contributed surplus, retained earnings, accumulated other comprehensive income
D)capital shares, appropriated retained earnings, unappropriated retained earnings, contributed surplus

Question 36

Working capital is

A)capital which has been reinvested in the business.
B)cash invested by owners.
C)cash and receivables less current liabilities.
D)current assets less current liabilities.

Question 37

Which of the following is NOT a required supplemental disclosure for the balance sheet?

A)Contingencies
B)Financial forecasts
C)Accounting policies
D)Contractual situations

Question 38

Use the following information for questions.
Venus Corp.'s trial balance at December 31, 2017 is properly adjusted except for the income tax expense adjustment. Other financial data for the year ended December 31, 2017:
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, 2019.
The balance in the future income tax liability account relates 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 Venus's December 31, 2017 statement of financial position, the final retained earnings balance is

A)$5,551,000.
B)$6,132,000.
C)$5,135,000.
D)$6,016,000.

Question 39

Which of the following statements 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)Deferred income taxes are always shown as liabilities.

Question 40

Use the following information for questions.
Venus Corp.'s trial balance at December 31, 2017 is properly adjusted except for the income tax expense adjustment. Other financial data for the year ended December 31, 2017:
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, 2019.
The balance in the future income tax liability account relates 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 Venus's December 31, 2017 statement of financial position, the current assets total is

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

Question 41

The statement of cash flows reports all of the following EXCEPT

A)the net change in cash for the period.
B)the cash effects of operations during the period.
C)the free cash flows generated during the period.
D)investing transactions.

Question 42

On a statement of cash flows, the enterprise's main revenue-producing activities are disclosed in the

A)operating activities.
B)investing activities.
C)financing activities.
D)both operating and investing activities.

Question 43

A statement of cash flows prepared under the INDIRECT method adds and subtracts certain items to the base number.Decreases in unearned revenues 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 44

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 45

The current cash debt coverage ratio is often used to assess

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

Question 46

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)extraordinary activity.
C)financing activity.
D)investing activity.

Question 47

A statement of cash flows prepared under the DIRECT method starts with

A)net income.
B)gross profit.
C)cash received from customers.
D)income from operations.

Question 48

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 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.

Question 50

Which of the following is NOT included in a statement of cash flows prepared under the DIRECT method?

A)cash flows from operating activities
B)gross profit
C)cash paid to suppliers and employees
D)interest paid or received

Question 51

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 52

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 53

Preparing a statement of cash flows under the INDIRECT method 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 54

Yule Corporation reports the following information: Yule should report cash provided by operating activities of

A)$280,000.
B)$400,000.
C)$560,000.
D)$680,000.

Question 55

In preparing a statement of cash flows under the INDIRECT method, 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 in the income statement that do affect cash.

Question 56

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

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

Question 57

The cash debt coverage ratio is calculated 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 58

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 59

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 60

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 61

Financial or capital market risks are related to

A)financing activities only.
B)investing activities only.
C)both financing and investing activities.
D)operating and financing activities.

Question 62

Significant changes to the presentation of financial statements are currently being developed by the IASB and FASB.Which of the following 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 financial statements

Question 63

Net sales divided by average total assets is called

A)inventory turnover.
B)receivables turnover.
C)rate of return on assets.
D)asset turnover.

Question 64

Which of the following statements about IFRS and ASPE accounting and reporting requirements for the statement of financial position is NOT correct?

A)The presentation formats required by IFRS and ASPE for the statement of financial position are similar.
B)One difference between the reporting requirements under IFRS and those of ASPE statement of financial position is that an IFRS balance sheet may list long-term assets first.
C)Both IFRS and ASPE require that cash flow per share information be reported on the statement of financial position.
D)Both IFRS and ASPE require that comparative information be reported.

Question 65

The IASB issued an Exposure Draft (ED)in May 2015 entitled "Conceptual Framework for Financial Reporting" including proposed changes to the definitions of assets and liabilities.For most assets and liabilities, applying the new definition

A)yields the same accounting results as the current definition.
B)results in more conservative reporting of assets, and more aggressive reporting of liabilities.
C)results in more aggressive reporting of assets and more conservative reporting of liabilities.
D)results in more conservative reporting of both assets and liabilities.

Question 66

Ratios that measure the degree of protection for long-term creditors and investors or the ability to meet long-term obligations are called

A)liquidity ratios.
B)activity ratios.
C)solvency ratios.
D)profitability ratios.

Question 67

A company that follows IFRS

A)may disclose cash flow per share if it makes a special election to do so.
B)must not disclose cash flow per share.
C)is generally allowed to disclose cash flow per share.
D)only discloses cash flow per share if there are more than two shareholders.

Question 68

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 ASPE or IFRS.
C)if the company follows ASPE.
D)only if the company is a subsidiary.

Question 69

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 depreciation.

Question 70

Under IFRS, current assets are listed in

A)the order of liquidity.
B)the reverse order of liquidity.
C)the ascending order of their balances.
D)the descending order of their balances.

Question 71

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

A)investment property only
B)biological assets and investment property only
C)provisions and biological assets
D)biological assets, investment property and provisions

Question 72

Thrifty's Inc.gives you the following information pertaining to the year 2017: The rate of return on assets Thrifty's Inc.is

A)55.5%.
B)30.0%.
C)18.7%.
D)16.6%.

Question 73

Ratios that measure how effectively an entity is using is assets are called

A)liquidity ratios.
B)activity ratios.
C)solvency ratios.
D)profitability ratios.

Question 74

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 depreciation.

Question 75

Thrifty's Inc.gives you the following information pertaining to the year 2017: The asset turnover ratio of Thrifty's Inc.is

A)0.56.
B)0.17.
C)0.89.
D)1.13.

Question 76

One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility.Which of the following explanations is a description of financial flexibility?

A)the nearness to cash of assets and liabilities
B)the firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities
C)the firm's ability to pay its debts as they mature
D)the firm's ability to invest in a number of projects with different objectives and costs

Question 77

A company that follows ASPE

A)must not disclose cash flow per share.
B)may disclose cash flow per share.
C)may disclose cash flow per share if it makes a special election to do so.
D)must disclose cash flow per share.

Question 78

The Exposure Draft (ED)called the "Disclosure Initiative-Proposed Amendments to IAS7" proposes

A)replacement of IAS 7: Statement of Cash flows.
B)amendments that would provide additional information about investing activities.
C)amendments that would provide additional information about financing activities.
D)amendments that would provide additional information about operating activities.