ACC 303 WEEK 8 QUIZ 5
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ACC 303 WEEK 8 QUIZ 5
ACC 303 Week 7 Quiz 4
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TRUE FALSE—Conceptual
1. Liquidity refers to the ability of an enterprise to pay
its debts as they mature.
2. The balance sheet omits many items that are of financial
value to the business but cannot be recorded objectively.
3. Financial flexibility measures the ability of an
enterprise to take effective actions to alter the amounts and timing of cash
flows.
4. Companies frequently describe the terms of all long-term
liability agreements in notes to the financial statements.
5. An asset which is expected to be converted into cash,
sold, or consumed within one year of the balance sheet date is always reported
as a current asset.
6. Land held for speculation is reported in the property,
plant, and equipment section of the balance sheet.
7. The account form and the report form of the balance
sheet are both acceptable under GAAP.
8. Because of the historical cost principle, fair values
may not be disclosed in the balance sheet.
9. Companies have the option of disclosing information
about the nature of their operations and the use of estimates in preparing
financial statements.
10. Companies may use parenthetical explanations, notes,
cross references, and supporting schedules to disclose pertinent information.
11. The accounting profession has recommended that
companies use the word reserve only to describe amounts deducted from assets.
12. On the balance sheet, an adjunct account reduces
either an asset, a liability, or an owners’ equity account.
13. The primary purpose of a statement of cash flows is to
report the cash effects of operations during a period.
14. The statement of cash flows reports only the cash
effects of operations during a period and financing transactions.
15. Financial flexibility is a company’s ability to
respond and adapt to financial adversity and unexpected needs and
opportunities.
16. Collection of a loan is reported as an investing
activity in the statement of cash flows.
17. Companies determine cash provided by operating
activities by converting net income on an accrual basis to a cash basis.
18. Significant financing and investing activities that do
not affect cash are not reported in the statement of cash flows or any other place.
19. Financial statement readers often assess liquidity by
using the current cash debt coverage ratio.
20. Free cash flow is net income less capital expenditures
and dividends.
MULTIPLE CHOICE—Conceptual
21. 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
22. The balance sheet is useful for
analyzing all of the following except
a. liquidity.
b. solvency.
c. profitability.
d. financial flexibility.
23. Balance sheet information 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
24. Balance sheet information 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.
25. A limitation of the balance sheet
that is not also a limitation of the income statement is
a. the use of judgments and estimates
b. omitted items
c. the numbers are affected by the accounting
methods employed
d. valuation of items at historical cost
S26. The balance sheet contributes to
financial reporting by providing a basis for all of the followingexcept
a. computing rates of return.
b. evaluating the capital structure of the
enterprise.
c. determining the increase in cash due to
operations.
d. assessing the liquidity and financial flexibility
of the enterprise.
S27. One criticism not normally aimed at
a balance sheet prepared using current accounting and reporting standards is
a. failure to reflect current value information.
b. the extensive use of separate classifications.
c. an extensive use of estimates.
d. failure to include items of financial value that
cannot be recorded objectively.
P28. The amount of time that is expected
to elapse until an asset is realized or otherwise converted into cash is
referred to as
a. solvency.
b. financial flexibility.
c. liquidity.
d. exchangeability.
29. The net assets of a business are
equal to
a. current assets minus current liabilities.
b. total assets plus total liabilities.
c. total assets minus total stockholders’ equity.
d. none of these.
30. The correct order to present current
assets is
a. cash, accounts receivable, prepaid items,
inventories.
b. cash, accounts receivable, inventories, prepaid
items.
c. cash, inventories, accounts receivable, prepaid
items.
d. cash, inventories, prepaid items, accounts
receivable.
31. The basis for classifying assets as
current or noncurrent is conversion to cash within
a. the accounting cycle or one year, whichever is
shorter.
b. the operating cycle or one year, whichever is
longer.
c. the accounting cycle or one year, whichever is
longer.
d. the operating cycle or one year, whichever is
shorter.
32. The basis for classifying assets as
current or noncurrent is the period of time normally required by the accounting
entity to convert cash invested in
a. inventory back into cash, or 12 months, whichever
is shorter.
b. receivables 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 into cash, or 12 months, whichever
is longer.
33. The current assets section of the
balance sheet should include
a. machinery.
b. patents.
c. goodwill.
d. inventory.
34. Which of the following is a current
asset?
a. Cash surrender value of a life insurance policy
of which the company is the bene-ficiary.
b. Investment in equity securities for the purpose
of controlling the issuing company.
c. Cash designated for the purchase of tangible
fixed assets.
d. Trade installment receivables normally
collectible in 18 months.
35. Which of the following should not be
considered as a current asset in the balance sheet?
a. Installment notes receivable due over 18 months
in accordance with normal trade practice.
b. Prepaid taxes which cover assessments of the
following operating cycle of the business.
c. Equity or debt securities purchased with cash
available for current operations.
d. The cash surrender value of a life insurance
policy carried by a corporation, the beneficiary, on its president.
36. Equity or debt securities held to
finance future construction of additional plants should be classified on a balance
sheet as
a. current assets.
b. property, plant, and equipment.
c. intangible assets.
d. long-term investments.
37. When a portion of inventories has
been pledged as security on a loan,
a. the value of the portion pledged should be subtracted
from the debt.
b. an equal amount of retained earnings should be
appropriated.
c. the fact should be disclosed but the amount of
current assets should not be affected.
d. the cost of the pledged inventories should be
transferred from current assets to noncurrent assets.
38. Which of the following is not a long-term
investment?
a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
d. A sinking fund
39. A generally accepted method of
valuation is
1. trading securities at market value.
2. accounts receivable at net realizable value.
3. inventories at current cost.
a. 1
b. 2
c. 3
d. 1 and 2
40. Which item below is not a current
liability?
a. Unearned revenue
b. Stock dividends distributable
c. The currently maturing portion of long-term debt
d. Trade accounts payable
41. Working capital is
a. capital which has been reinvested in the
business.
b. unappropriated retained earnings.
c. cash and receivables less current liabilities.
d. none of these.
42. An example of an item which is not
an element of working capital is
a. accrued interest on notes receivable.
b. goodwill.
c. goods in process.
d. temporary investments.
43. Long-term liabilities include
a. obligations not expected to be liquidated within the
operating cycle.
b. obligations payable at some date beyond the
operating cycle.
c. deferred income taxes and most lease obligations.
d. all of these.
44. Which of the following should
be excluded from
long-term liabilities?
a. Obligations payable at some date beyond the
operating cycle
b. Most pension obligations
c. Long-term liabilities that mature within the
operating cycle and will be paid from a sinking fund
d. None of these
45. Treasury stock should be reported as
a(n)
a. current asset.
b. investment.
c. other asset.
d. reduction of stockholders’ equity.
46. Which of the following should be
reported for capital stock?
a. The shares authorized
b. The shares issued
c. The shares outstanding
d. All of these
47. Which of the following would be
classified in a different major section of a balance sheet from the others?
a. Capital stock
b. Common stock subscribed
c. Stock dividend distributable
d. Stock investment in affiliate
48. The stockholders’ equity section is
usually divided into what three parts?
a. Preferred stock, common stock, treasury stock
b. Preferred stock, common stock, retained earnings
c. Capital stock, additional paid-in capital,
retained earnings
d. Capital stock, appropriated retained earnings,
unappropriated retained earnings
49. Which of the following is not an acceptable major
asset classification?
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Deferred charges
P50. Which of the following is a contra
account?
a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation
S51. 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
52. The presentation of long-term
liabilities in the balance sheet should disclose
a. maturity dates.
b. interest rates.
c. conversion rights.
d. All of the above.
53. 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
54. Typical contractual situations that
are disclosed in the notes to the balance sheet include all of the following
except
a. debt covenants
b. lease obligations
c. advertising contracts
d. pension obligations
55. Accounting policies disclosed in the
notes to the financial statements typically include all of the following except
a. the cost flow assumption used
b. the depreciation methods used
c. significant estimates made
d. significant inventory purchasing policies
56. Which of the following best
exemplifies a contingency that is reported in the notes to the financial
statements?
a. Losses from potential future lawsuits
b. Loss from a lawsuit settled out of court prior to
the end of the fiscal year
c. Warranty claims on future sales
d. Estimated loss from an ongoing lawsuit
57. Which of the following is not a method of
disclosing pertinent information?
a. Supporting schedules
b. Parenthetical explanations
c. Cross reference and contra items
d. All of these are methods of disclosing pertinent
information.
58. 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.
59. A general description of the
depreciation methods applicable to major classes of depreci-able assets
a. is not a current practice in financial reporting.
b. is not essential to a fair presentation of
financial position.
c. is needed in financial reporting when company
policy differs from income tax policy.
d. should be included in corporate financial
statements or notes thereto.
60. It is mandatory that the essential
provisions of which of the following be clearly stated in the notes to the
financial statements?
a. Stock option plans
b. Pension obligations
c. Lease contracts
d. All of these
61. A generally accepted account title
is
a. Prepaid Revenue.
b. Appropriation for Contingencies.
c Earned Surplus.
d. Reserve for Doubtful Accounts.
62. 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.
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