73% (11 out of 15 correct)

Responses to questions are indicated by the

symbol.

1. Which of the following statements about the statement of financial position is incorrect?
A. It reports the assets, liabilities, and equity of a company for a period of time.
B. It is sometimes referred to as the balance sheet.
C. It provides information about the nature and amounts of investments in resources,
obligations to creditors, and the owners' equity in net resources.
D. It helps in predicting the amounts, timing, and uncertainty of future cash flows.

The statement of financial position reports information as of a specific date, not for a
period of time.

2. Major limitations of the statement of financial position include all of the following
except:
A. most assets and liabilities are stated at historical cost.
B. judgments and estimates are used in determining many of the items reported.
C. it necessarily omits many items that are of financial value but cannot be recorded
objectively.
D. only amounts known with certainty are reported.

All of the options are major limitations of the statement of financial position except only
amounts known with certainty are reported.

3. Current assets are generally presented in the statement of financial position in the
following order:
A. Cash, short-term investments prepaid expenses, receivables, and inventories.
B. inventories, receivables, prepaid expenses, short-term investments, and cash.
C. cash, short-term investments, receivables, inventories, and prepaid expenses.
D. prepaid expenses, inventories, receivables, short-term investments, and cash.

Current assets are generally presented in the statement of financial position as

inventories, receivables, prepaid expenses, short-term investments and cash.

4. Which of the following investments should always be reported as current assets?

A. Available-for-sale securities.
B. Held-to-maturity securities.
C. Long-term investments.
D. Trading securities.

Trading securities should always be reported as current assets.

5. Current liabilities include:

A. accrued warranty costs.
B. advances received from customers.
C. current portion of long-term debt.
D. All of the options are current liabilities.

Current liabilities include all of the options.

6. Which of the following are equity sections:

A. share premium.
B. share capital.
C. retained earnings.
D. All of the options are equity sections.

All of the options are sections of equity.

7. The statement of financial position format listing liabilities and equity directly below
assets is called the:
A. account form.
B. financial position form.

C. report form.
D. solvency form.

The report form lists liabilities and equity below assets on the same page.

8. The primary purpose of a statement of cash flows is to report the:

A. cash effects of operations during a period.
B. net increase or decrease in cash during the period.
C. investing and financing transactions.
D. relevant information about the cash receipts and cash payments during a period.

The primary purpose of a statement of cash flows is to provide relevant information

about the cash receipts and cash payments during a period.

9. Activities that involve the cash effects of transactions entering into the determination of
net income are classified as:
A. operating activities.
B. investing activities.
C. financing activities.
D. noncash activities.

Operating activities involve the cash effects of transactions that enter into the
determination of net income.

10. The last step in preparing the statement of cash flows is to:
A. determine the cash provided by operations.
B. determine the cash provided by or used in investing and financing activities.
C. determine the change in cash during the period.
D. reconcile the change in cash with the beginning and the ending cash balances.

Reconciling the change in cash with the beginning and ending cash balances is the last
step in preparing the statement.

11. The cash debt coverage ratio is computed by dividing net cash provided by operating
activities by:
A. average current liabilities.
B. average total assets.
C. average total liabilities.
D. total liabilities.

The cash debt coverage ratio is computed by dividing net cash provided by operating
activities by average total liabilities.

12. Free cash flow is calculated as net cash provided by operating activities less:
A. capital expenditures.
B. capital expenditures and dividends.
C. capital expenditures and interest.
D. dividends.

Net cash provided by operating activities less capital expenditures and dividends is
called free cash flow.

13. Companies are not required to disclose information about:

A. inventory cost flow methods.
B. depreciation methods.
C. the identity of all shareholders.
D. the disaggregated amounts of provisions for employee benefits and other items.

Companies are required to disclose information about all of the options except the
identity of all shareholders.

14. Which of the following is an acceptable disclosure technique for financial statements?
A. Contra items.
B. Cross reverences.
C. Parenthetical explanations.

D. All of the choices are acceptable disclosure techniques.

All of the options are acceptable disclosure techniques for financial statements.

15. The major types of ratios include all of the following, except:
A. coverage ratios.
B. activity ratios.
C. profitability ratios.
D. solvency ratios.

All of the options are major types of ratios except for solvency ratios.

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