Question 1

The balance sheet can be used to analyze all of the following except
A)Financial flexibility.
B)Solvency.
C)Liquidity.
D)Profitability

Accepted Answer

The balance sheet provides information about a company's assets, liabilities, and equity, which can be used to assess financial flexibility, solvency, and liquidity. However, profitability is not directly analyzed on the balance sheet as it is a measure of the company's ability to generate earnings and is reflected in the income statement.

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

Accepted Answer

An increase in ending inventory over beginning inventory under the cash basis for defining funds represents an assumed use of cash because the cost of goods sold is reduced. Therefore, an adjustment is needed to reported net earnings.

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

Accepted Answer

It is preferable to present notes or accounts receivable from officers, employees, or affiliated companies as assets, but separately from other receivables to avoid confusion with trade receivables. This allows the users of the financial statements to easily identify and evaluate related party transactions. It is not appropriate to offset them against capital as they are not related to the owner's investment in the business. While notes or footnotes can provide additional information about related party transactions, they do not provide a clear picture of the amounts involved and can be easily missed by users of the financial statements.

Question 4

The balance sheet discloses
A)Stocks
B)Flows
C)Both stocks and f lows
D)Neither stocks nor flows

Accepted Answer

The balance sheet discloses stocks, which are the financial position of an entity at a specific point in time, including assets, liabilities, and equity.

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

Accepted Answer

The major difference between a statement of source and application of working capital and a cash flow statement in the treatment mentioned would be in "A change during the period in the accounts payable balance." This is because the statement of source and application of working capital focuses on changes in working capital, where accounts payable is a component, while a cash flow statement categorizes changes in cash flows from operating, investing, and financing activities without directly focusing on working capital changes.

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

Accepted Answer

Free cash flow measures the amount of cash a company has available after it has made necessary capital expenditures for maintaining or expanding its operations. This metric thus provides insight into a company's ability to pursue growth opportunities, pay off debt, pay dividends, or engage in share buybacks. A higher free cash flow indicates greater financial flexibility for the company.

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.

Accepted Answer

Current assets are typically listed on the balance sheet in order of liquidity, meaning the assets that can be easily converted to cash are listed first. This helps users of the financial statements understand how easily the company can meet its short-term obligations. Thus, option C is the correct answer.

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.

Accepted Answer

The statement of cash flows is the financial statement that summarizes the operating, investing, and financing activities of an entity for a period of time. It shows the inflows and outflows of cash during the period, and helps users understand how cash was generated and used by the entity. The retained earnings statement shows the changes in retained earnings during the period, the statement of financial position (also known as the balance sheet) shows the entity's assets, liabilities, and equity at a specific point in time, and the income statement shows the entity's revenue and expenses for the period.

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

Accepted Answer

Sale of equipment is a transaction related to investing activities, as it involves a disposal of a long-term asset. The other choices are not related to investing activities - choice A is a sale of merchandise which is a part of operating activities, choice B is a cash outflow related to financing activities, and choice C is an issuance of bond which is a financing activity.

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

Accepted Answer

The answer of When preparing a funds statement using the...

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

Accepted Answer

Making and collecting loans and disposing of property, plant, and equipment are examples of investing activities as they involve the acquisition and disposal of long-term assets for the purpose of generating revenue or reducing expenses in the future. Financing activities involve obtaining and repaying funds from creditors or investors, while operating activities involve the day-to-day business activities of the company. Liquidity activities involve managing short-term assets and liabilities to ensure the company has enough cash on hand to meet its obligations.

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

Accepted Answer

The answer of Which of the following should theoretically be...

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

Accepted Answer

Conversion of long-term debt to common stock and conversion of preferred stock to common stock should be presented in the statement of cash flows as they involve changes in the company's capital structure and thus affect its cash flows.

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

Accepted Answer

Both the Cash format and Quick Assets format are theoretically acceptable formats for presenting a statement of changes in financial position. Therefore, the best choice is D because both formats are 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

Accepted Answer

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 inventory back to cash or 12 months, whichever is longer. Therefore, option D is the best choice as it correctly states that assets are classified based on the time taken to convert inventory back to cash, which is the most common current asset.

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

Accepted Answer

The acquisition of property, plant, and equipment with an issue of common stock would not appear as an application of funds on a statement using the traditional working capital concept because it does not affect current assets or liabilities. However, it would appear on a statement using the all-financial-resources concept because it involves the use of equity to acquire long-term assets. The other options (A, B, and D) would appear on both statements as applications of funds because they involve the use of cash or reacquisition of bonds, which would affect current assets or liabilities.

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

Accepted Answer

The answer of The valuation basis used in conventional financial...

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

Accepted Answer

The basic objective of the statement of cash flows is to provide essential information for financial statements users in making economic decisions. It does not supplant the income statement and balance sheet but rather provides additional information on the sources and uses of cash during the period. While it does disclose changes in certain asset and liability accounts, it focuses specifically on changes in cash and cash equivalents. Finally, while the statement of cash flows does indirectly disclose changes in working capital, this is not its primary objective.

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

Accepted Answer

The answer of A gain on the sale of plant...

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

Accepted Answer

A statement of cash flows should be issued whenever a balance sheet and a statement of income and retained earnings are issued. It provides important information about the cash inflows and outflows of the business during the period and helps users of financial statements to assess the company's liquidity and ability to generate cash from operations.

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

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

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

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

The balance sheet discloses

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 measure of a company's financial flexibility is

Current assets are presented on the balance sheet in

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

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

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

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

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

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

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

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 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

The valuation basis used in conventional financial statements is

A basic objective of the statement of cash flows is to

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