Deck 7: Financial Statements Ii: the Balance Sheet and the Statement of Cash Flows

Question 1

The balance sheet can be used to analyze all of the following except

A)Financial flexibility.
B)Solvency.
C)Liquidity.
D)Profitability

Answer 1

D

Question 2

When preparing a statement of changes in financial position using the cash basis for defining funds,an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

A)Funds were increased since inventory is a current asset
B)The net increase in inventory reduced cost of goods sold but represents an assumed use of cash
C)Inventory is an expense deducted in computing net earnings,but is not a use of funds
D)All changes in noncash accounts must be disclosed under the all financial resources concept

Answer 2

B

Question 3

On a balance sheet,what is the preferable presentation of notes or accounts receivable from officers,employees,or affiliated companies?

A)As trade notes and accounts receivable if they otherwise qualify as current assets
B)As assets but separately from other receivables
C)As offsets to capital
D)By means of notes or footnotes

Answer 3

B

Question 4

The balance sheet discloses

A)Stocks
B)Flows
C)Both stocks and f lows
D)Neither stocks nor flows

Question 5

There would probably be a major difference between a statement of source and application of working capital and a cash flow statement in the treatment of

A)Dividends declared and paid
B)Sales of noninventory assets for cash at a loss
C)Payment of long-term debt
D)A change during the period in the accounts payable balance

Question 6

A measure of a company's financial flexibility is

A)Return on assets ratio
B)Return on sales ratio
C)Free cash flow
D)Accounts receivable turnover ratio

Question 7

Current assets are presented on the balance sheet in

A)Descending order of their balances.
B)Ascending order of their balances.
C)Order of their liquidity.
D)Reverse order of their liquidity.

Question 8

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

A)Statement of cash flows.
B)Retained earnings statement.
C)Statement of financial position.
D)Income statement.

Question 9

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

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

Question 10

When preparing a funds statement using the all financial resources concept,the retirement of long-term debt by the issuance of common stock should be presented in a statement of changes in financial position as a Source of Funds Use of Funds

A)No No
B)No Yes
C)Yes No
D)Yes Yes

Question 11

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

A)Liquidity activities.
B)Financing activities.
C)Investing activities.
D)Operating activities

Question 12

Which of the following should theoretically be presented in a statement of changes in financial position only because of the all-financial-resources concept?

A)Conversion of preferred stock to common stock
B)Purchase of treasury stock
C)Sale of common stock
D)Declaration of cash dividend

Question 13

Which of the following should be presented in a statement of cash flows? Conversion of Conversion of
Long-term debt preferred stock
To common stock to common stock

A)No No
B)No Yes
C)Yes Yes
D)Yes No

Question 14

The working capital format is one possible format for presenting a statement of changes in financial position.Which of the following formats is are)also theoretically acceptable? Cash Quick Assets

A)Acceptable Not acceptable
B)Not acceptable Not acceptable
C)Not acceptable Acceptable
D)Acceptable Acceptable

Question 15

The basis for classifying assets as current or noncurrent is the period of time normally elapsed from the time the accounting entity expends cash to the time it converts

A)Inventory back to cash or 12 months,whichever is shorter
B)Receivable s back into cash or 12 months,whichever is longer
C)Tangible fixed assets back into cash or 12 months,whichever is longer
D)Inventory back to cash or 12 months,whichever is longer

Question 16

A transaction that would appear as an application of funds on a conventional funds statement using the all-financial-resources concept,but not on a statement using the traditional working capital concept would be the

A)Acquisition of property,plant,and equipment for cash
B)Reacquisition of bonds issued by the reporting entity
C)Acquisition of property,plant,and equipment with an issue of common stock
D)Declaration and payment of dividends

Question 17

The valuation basis used in conventional financial statements is

A)Replacement cost
B)Market value
C)Original cost
D)A mixture of costs and values

Question 18

A basic objective of the statement of cash flows is to

A)Supplant the income statement and balance sheet
B)Disclose changes during the period in all asset and all liability accounts
C)Disclose the change in working capital during the period
D)Provide essential information for financial statements users in making economic decisions

Question 19

A gain on the sale of plant assets in the ordinary course of business should be presented in a statement of cash flows as a an)

A)Source and use of cash
B)Use of cash
C)Addition to income from continuing operations
D)Deduction from income from continuing operations

Question 20

A statement of cash flows should be issued by a profit-oriented business

A)As an alternative to the statement of income and retained earnings
B)Only if the business classifies its assets and liabilities as current and noncurrent
C)Only when two-year comparative balance sheets are not issued
D)Whenever a balance sheet and a statement of income and retained earnings are issued

Question 21

The calculation sales/average total assets is the formula for which of the following ratios

A)Return on assets
B)Profit margin
C)Asset turnover
D)Asset usage

Question 22

What is reported on the statement of cash flows?

A)Operating,investing,and financing activities of an entity for a period of time
B)All revenues and expense listed by operating,financing,and operating actitivity
C)Operating,investing,and financing activities of an entity at the balance sheet date
D)A detail of all incoming and outgoing cash flows of a business

Question 23

Investments in equity securities are disclosed as current assets on a company's balance sheet if

A)Management intends to sell them within a year and they have a ready market exists.
B)The fair market value cannot be determined.
C)Management intends to convert them into common stock within one year.
D)Management owns less than 50% of the outstanding stock.

Question 24

Level 1 of fair value hierarchy measures originally outlined in SFAS No.are based on:

A)Historical cost of similar assets.
B)Market prices for identical assets.
C)Market prices for similar assets.
D)Unobservable inputs.

Question 25

The definition of fair value in SFAS No 157FASB ASC 820)is

A)Entry price based
B)Exit price based
C)Replacement cost based
D)Historical cost based

Question 26

Which of the following is not a balance sheet element?

A)Assets
B)Liabilities
C)Gains
D)Equities

Question 27

The calculation net income/sales is the formula for which of the following ratios

A)Return on assets
B)Profit margin
C)Asset turnover
D)Asset usage

Question 28

Which of the following is not an important aspects of SFAS No.157 FASB ASC 820)?

A)A new definition of fair value.
B)A requirement that all assets and liabilities are to be measured at their fair value.
C)A fair value hierarchy used to classify the source of information used in fair value measurements for example,market based or nonmarket based).
D)New disclosures of assets and liabilities measured at fair value based on their level in the hierarchy.

Question 29

Net cash provided used)by operating activities − net cash used in acquiring property,plant is the calculation for

A)Free cash flow
B)Cash flow from investing activities
C)Working capital
D)Current ratio

Question 30

The firm's ability to use its financial resources to adapt to change is the definition of

A)Liquidity
B)Solvency
C)Financial flexibility
D)Working capital

Question 31

A firm's ability to obtain cash for business operations change is the definition of

A)Liquidity
B)Solvency
C)Financial flexibility
D)Working capital

Question 32

Which of the following s the lowest level of the SFAS 157 FASB ASC 820)fair value hierarchy?

A)Unobservable inputs that are corroborated by observable market data)
B)Unobservable inputs that are not corroborated by observable market data)
C)Observable market-based inputs or unobservable inputs that are corroborated by market data)
D)Quoted market prices for identical assets or liabilities in active markets

Question 33

The calculation net income/average total assets is the formula for which of the following ratios

A)Return on assets
B)Profit margin
C)Asset turnover
D)Asset usage

Question 34

Which of the following is not a component of equity?

A)Common stock
B)Treasury stock
C)Retained earnings
D)Unearned revenue

Question 35

The SFAS No 157 FASB ASC 820)fair value hierarchy contains

A)Two level
B)Three levels
C)Four levels
D)Five levels

Question 36

The firm's ability to convert an asset to cash or to pay a current liability change is the definition of

A)Liquidity
B)Solvency
C)Financial flexibility
D)Working capital