Question 1

After transactions have been recorded and summarized, reports are prepared for users; the accounting reports that provide this information are called:

Accepted Answer

Financial statements provide a summary of a company's financial transactions and position, including the balance sheet, income statement, and cash flow statement. The other options either refer to a specific type of financial statement (income statement and cash flow statement) or are not a commonly used term in accounting (accounting statement).

Question 2

A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a month or a year is called:

Accepted Answer

A balance sheet provides a snapshot of a company's financial position at a specific point in time by listing its assets, liabilities, and owner's equity. The other options given (income sheet, report sheet, and retained earnings sheet) do not provide this complete picture of financial position.

Question 3

The relationship between credit sales and accounts receivable may be stated as:

Accepted Answer

The relationship between credit sales and accounts receivable is known as accounts receivable turnover. This ratio measures how quickly a company collects its outstanding accounts receivable. Therefore, option C is the best choice. Option A and B are not relevant to the given relationship.

Question 4

What is a measure of operating cash flow available for corporate purposes after providing sufficient fixed asset additions to maintain current productive capacity and dividends?

Accepted Answer

The measure described is the definition of free cash flow, which is the cash generated by a company's operations that is available for reinvestment in the business, payment of dividends, or reduction of debt. It is calculated as operating cash flow minus capital expenditures for fixed assets.

Question 5

Cash and other assets that are expected to be converted to cash or sold or used up usually within one year or less, through the normal operations of the business, are called:

Accepted Answer

Current assets are assets that can be easily converted into cash within a short period of time, usually one year or less, and are expected to be used up or sold in the normal course of business operations. Examples include cash, accounts receivable, inventory, and prepaid expenses. Fixed assets, on the other hand, are long-term assets that are expected to provide benefits to the business for a period of more than one year, such as property, plant, and equipment. Streamlined and set assets are not commonly used terms in accounting and finance.

Question 6

In the statement of cash flows, which of the following is NOT the activity of reporting cash flows?

Accepted Answer

Cash flows from inventory activities is not a recognized activity in the statement of cash flows.

Question 7

The ratio of variable assets to long-term liabilities is a solvency measure that indicates the margin of safety of the note-holders or bondholders.

Accepted Answer

The ratio of variable assets to long-term liabilities is a liquidity measure, not a solvency measure. Solvency measures typically involve the ratio of total assets to total liabilities or equity to assess long-term financial stability.

Question 8

The percentage analysis of increases and decreases in related items in comparative financial statements is called:

Accepted Answer

Percentage analysis of increases and decreases in related items in comparative financial statements is known as horizontal analysis.

Question 9

Liabilities that will not be due for a long time are known as:

Accepted Answer

Long-term liabilities are those obligations that do not need to be paid off or settled within one year from the date of the balance sheet. Examples include long-term loans, bonds payable, lease liabilities, and deferred revenue. Fixed liabilities and variable liabilities are not recognized accounting terms.

Question 10

The ability of a business to meet its financial obligations is called:

Accepted Answer

Solvency refers to a company's ability to pay its debts and meet its financial obligations. This is a critical aspect of a company's financial health, as it directly affects its long-term viability and ability to continue operating.

Question 11

Which of the following is NOT used in analysis in accessing profitability?

Accepted Answer

Time interest earned charges is a measure of a company's ability to meet its debt obligations, not directly a measure of profitability.

Question 12

The ratios that are much higher than the market averages are generally associated with companies with fast-growing profits are called:

Accepted Answer

Price-earnings ratios (P/E ratios) measure the current stock price of a company in relation to its earnings per share. When a P/E ratio is much higher than the market average, it suggests that investors have high expectations for the company's future earnings growth. This is often seen in companies with fast-growing profits, making A the best choice.

Question 13

The relationship between the volume of goods sold and inventory may be stated as inventory turnover.

Accepted Answer

The inventory turnover ratio measures the number of times a company sells and replaces its inventory during a certain period. It is calculated as the cost of goods sold divided by the average inventory value. Therefore, the relationship between the volume of goods sold (cost of goods sold) and inventory is used to calculate the inventory turnover ratio.

Question 14

What is the owner's equity created by the business operations?

Accepted Answer

Owner's equity is created through Retained Earnings, which are the profits that are kept within the business after all expenses, taxes, and dividends have been paid. This represents the cumulative total of earnings that have been reinvested back into the business over time. Log-on earnings and transactional earnings are not relevant terms in accounting, and sale earnings may also involve expenses and taxes that reduce the amount of profit that contributes to owner's equity.

Question 15

If received an asset and incurred a liability to pay a future bill, this type of transaction is called:

Accepted Answer

This transaction is called a "purchase on account" because an asset is received and a liability is incurred to pay for it in the future.

Question 16

The excess of the current assts of a business over its current liabilities is called:

Accepted Answer

Working capital is the amount by which a business's current assets exceed its current liabilities. It represents the funds available for day-to-day operations and is a key indicator of a company's financial health. A is incorrect as it is a general term that can refer to any type of capital invested in a business. C is not a commonly used term. D is incorrect as market capital refers to the value of a company's outstanding shares of stock, not its current assets and liabilities.

Question 17

Cash flow to creditors is computed from the interest paid minus net new borrowings and cash flow to owners is computed from the dividends paid minus net new equity.

Accepted Answer

This statement is true. Cash flow to creditors is calculated by subtracting net new borrowings from the interest paid, and cash flow to owners is calculated by subtracting net new equity from the dividends paid.

Question 18

Stock issued to owners is referred to as:

Accepted Answer

Stock issued to owners is commonly referred to as capital stock.

Question 19

Instead of requiring the payment of cash at the time services are provided or goods are sold, a business may accept payment at a later date, such revenues are called:

Accepted Answer

The answer of Instead of requiring the payment of cash...

Question 20

A ratio that measures the instant debt-paying ability of a company is called:

Accepted Answer

The acid-test or quick ratio is a liquidity ratio that measures the company's ability to pay off its current liabilities using only its most liquid assets such as cash, accounts receivable, and short-term investments. It is a more stringent measure of the firm's instant debt-paying ability compared to the current ratio, which includes inventories and prepaid expenses in the calculation. The higher the acid-test ratio, the better the company's short-term financial position.

Exam 1: Certified Business Manager