Question 1

The TimeNow Corporation had 2017 fixed assets of $1345, current assets of $260, current liabilities of $180 and shareholder's equity of $775. The 2016 fixed assets were $1300, current assets of $220, current liabilities of 300, long-term liabilities of $390 and shareholder's equity of $750. What was the change in net working capital for TimeNow in 2017?
A) 80.
B) 20.
C) 60.
D) 160.

Accepted Answer

D

Question 2

Which of the following statements concerning the income statement is not true?
A) It measures performance over a specific period of time.
B) It determines after-tax income of the firm.
C) It includes deferred taxes.
D) It does not include depreciation.
E) It treats interest as an expense or revenue.

Accepted Answer

The income statement does include depreciation as an expense, which is used to allocate the cost of a tangible asset over its useful life. This is contrary to option D, making it the incorrect statement about the income statement.

Question 3

Accounting liquidity is defined as:
A) the amount of cash the firm has.
B) the turnover ratio.
C) the ability of the assets to generate income.
D) the ease and quickness with which assets can be converted to cash.

Accepted Answer

Accounting liquidity refers to how easily and quickly a company's assets can be converted into cash without significant loss in value. This is crucial for meeting short-term obligations.

Question 4

In the Statement of Financial Position assets are:
A) all relatively illiquid.
B) listed at current market value.
C) listed at market value as of the most recent fiscal year.
D) listed at cost.

Accepted Answer

Assets in the Statement of Financial Position are typically listed at their historical cost, not at their current market value. This approach is based on the cost principle, which states that assets should be recorded and listed at their original purchase cost.

Question 5

Under IFRS the value of all the firm's assets are reported at:
A) Carrying value or market value.
B) Book value or liquidation value.
C) Market value or Carrying value.
D) Book value or Carrying value.

Accepted Answer

Under IFRS, assets are typically reported at their book value or carrying value, which is the original cost minus any accumulated depreciation or impairment losses.

Question 6

Fixed assets can be either tangible or intangible. Intangible assets are:
A) property, plant and equipment.
B) can be converted to cash in the normal course of business.
C) can be very valuable, although they have no physical presence, such as trademarks or patents.
D) are highly liquid.

Accepted Answer

Intangible assets, such as trademarks or patents, are valuable due to their ability to generate economic benefits for the owner, despite having no physical presence.

Question 7

According to IFRS, revenue is recognized as income when:
A) a contract is signed to perform a service or deliver a good.
B) the transaction is complete and the goods or services delivered.
C) payment is received.
D) income taxes are paid.

Accepted Answer

Revenue is recognized under IFRS when control of the goods or services is transferred to the customer, which typically occurs when the transaction is complete and the goods or services have been delivered.

Question 8

Which of the following is not included in the computation of operating cash flow?
A) Earnings before interest and taxes.
B) Interest paid.
C) Depreciation.
D) Current taxes.

Accepted Answer

Interest paid is not included in the computation of operating cash flow because it is considered a financing activity, not an operating activity. Operating cash flow focuses on the cash flows from the core operations of the business, excluding financing and investing activities.

Question 9

_____ refers to the firm's dividend payments less any net new equity raised.
A) Operating cash flow
B) Capital spending
C) Net working capital
D) Cash flow from creditors
E) Cash flow to shareholders

Accepted Answer

Cash flow to shareholders is calculated as the firm's dividend payments minus any net new equity raised. This metric indicates the amount of cash that the firm returns to its shareholders.

Question 10

The Statement of Financial Position is based on which following equality:
A) Fixed Assets = (Stockholder's equity + Current Assets)
B) Assets = (Liabilities + Stockholder's equity)
C) Assets = (Current Long Term Debt + Retained earnings)
D) Fixed Asset = (Liabilities + Stockholder's equity)

Accepted Answer

The Statement of Financial Position, also known as the Balance Sheet, is based on the accounting equation: Assets = Liabilities + Stockholder's Equity. This equation shows that a company's assets are financed by debts and equity.

Question 11

For a firm with long-term debt, net income is equal to:
A) Pretax income - Interest expense - Taxes.
B) Dividends + Addition to retained earnings.
C) EBIT - Taxes.
D) Taxes + Addition to retained earnings.
E) Pretax income * (1 - Marginal tax rate).

Accepted Answer

Net income is the sum of dividends and the addition to retained earnings, as it represents the total earnings available to shareholders after all expenses and taxes have been deducted.

Question 12

Of the following assets, which is the generally the least liquid?
A) Marketable securities.
B) Cash.
C) Inventory.
D) Accounts receivable.

Accepted Answer

Inventory is generally considered the least liquid asset among the options given because it takes longer to convert into cash without losing value. Marketable securities, cash, and accounts receivable can typically be converted to cash more quickly and easily.

Question 13

Noncash items refer to:
A) the credit sales of a firm.
B) the accounts payable of a firm.
C) the costs incurred for the purchase of intangible fixed assets.
D) expenses charged against revenues that do not directly affect cash flow.
E) all accounts on the Statement of Financial Position other than cash on hand.

Accepted Answer

Noncash items are expenses recorded on an income statement that do not directly affect cash flow, such as depreciation, amortization, and deferred taxes. These are costs that impact the income statement and the calculation of net income, but do not involve an actual cash transaction during the period they are recorded.

Question 14

Intangible fixed assets would include:
A) building.
B) machinery.
C) trademarks.
D) equipment.

Accepted Answer

Intangible fixed assets are non-physical assets that have a useful life of more than one year. Trademarks fall into this category as they represent a form of intellectual property that provides a competitive advantage and recognition in the market, unlike physical assets such as buildings, machinery, and equipment.

Question 15

Which one of these accounts is classified as a current asset on the balance sheet?
A) intangible asset
B) accounts payable
C) preferred stock
D) inventory
E) net plant and equipment

Accepted Answer

Inventory is classified as a current asset on the balance sheet because it is expected to be sold or used within one year or within the business's normal operating cycle, whichever is longer.

Question 16

Assets are listed on the Statement of Financial Position in order of:
A) decreasing liquidity.
B) increasing liquidity.
C) increasing size.
D) relative life.

Accepted Answer

Assets on the Statement of Financial Position (Balance Sheet) are listed in order of decreasing liquidity, meaning the most liquid assets (e.g., cash) are listed first, and less liquid assets (e.g., property, plant, and equipment) are listed later.

Question 17

Net working capital is defined as:
A) current assets plus fixed assets.
B) current assets plus stockholders' equity.
C) fixed assets minus long-term liabilities.
D) total assets minus total liabilities.
E) current assets minus current liabilities.

Accepted Answer

Net working capital is calculated as current assets minus current liabilities, which helps in assessing a company's ability to meet its short-term obligations with its short-term assets.

Question 18

The primary distinction between tangible and intangible assets is that:
A) intangible assets have a physical existence while tangible assets do not.
B) intangible assets do not have a physical existence while tangible assets do.
C) since tangible assets do not have a physical existence they do not show up on the balance sheet.
D) since intangible assets do not have a physical existence they do not show up on the balance sheet.

Accepted Answer

Intangible assets, unlike tangible assets, do not have a physical form. This is the key difference between the two, where tangible assets include physical items such as buildings and machinery, and intangible assets include non-physical items such as patents, copyrights, and brand recognition.

Question 19

The earnings before interest and taxes, EBIT, on the income statement provides results on:
A) the post financing effect on the earnings capability of the firm.
B) the operating income for the period.
C) the gross margin of the firm.
D) the extraordinary items of the firm for the period.

Accepted Answer

EBIT, or Earnings Before Interest and Taxes, reflects the operating income of a firm, which is the profit from its core business operations before deducting interest and taxes. This measure focuses on the company's operational performance rather than its financing or tax obligations.

Question 20

The TimeNow Corporation had 2017 fixed assets of $1345, current assets of $260, current liabilities of $180 and shareholder's equity of $775. What was the net working capital for TimeNow in 2017?
A) $260.
B) $180.
C) $80.
D) $390.

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. For TimeNow in 2017, this would be $260 (current assets) - $180 (current liabilities) = $80.

Quiz 2: Accounting Statements and Cash Flow

Which of the following statements concerning the income statement is not true?

Accounting liquidity is defined as:

In the Statement of Financial Position assets are:

Under IFRS the value of all the firm's assets are reported at:

Fixed assets can be either tangible or intangible. Intangible assets are:

According to IFRS, revenue is recognized as income when:

Which of the following is not included in the computation of operating cash flow?

_____ refers to the firm's dividend payments less any net new equity raised.

The Statement of Financial Position is based on which following equality:

For a firm with long-term debt, net income is equal to:

Of the following assets, which is the generally the least liquid?

Noncash items refer to:

Intangible fixed assets would include:

Which one of these accounts is classified as a current asset on the balance sheet?

Assets are listed on the Statement of Financial Position in order of:

Net working capital is defined as:

The primary distinction between tangible and intangible assets is that:

The earnings before interest and taxes, EBIT, on the income statement provides results on:

The TimeNow Corporation had 2017 fixed assets of $1345, current assets of $260, current liabilities of $180 and shareholder's equity of $775. What was the net working capital for TimeNow in 2017?