Financial Statements II: The Balance Sheet and the Cash Flows

1. 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

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

• a. Financial flexibility.

• b. Solvency.

• c. Liquidity.

• d. Profitability

3. 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. 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 to cash or 12 months, whichever is longer

3. 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.

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

3. 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.

3. 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

3. 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

3. 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

3. 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