MCQs_Chapter 3_FRA

The balance sheet provides a snapshot of a company’s:

• Revenue and expenses
• Assets, liabilities, and owner’s equity
• Cash inflows and outflows
• Profitability over time

The balance sheet equation is:

• Assets = Liabilities – Owners’ equity
• Assets = Owners’ equity – Liabilities
• Assets = Liabilities + Owners’ equity
• Liabilities = Assets + Owners’ equity

What is the primary difference between a classified balance sheet and a liquidity-based balance sheet?

• A classified balance sheet distinguishes between current and non-current items, while a liquidity-based balance sheet presents all assets and liabilities in order of liquidity
• A classified balance sheet organizes assets and liabilities by liquidity, while a liquidity-based balance sheet separates operating and investing activities
• A classified balance sheet is used only under IFRS, while a liquidity-based balance sheet is required under U.S. GAAP
• A classified balance sheet includes off-balance sheet items, while a liquidity-based balance sheet does not

Which of the following is a characteristic of a current asset?

• Held primarily for trading or expected to be converted into cash within one year
• Intended for long-term investment purposes
• Includes cash and cash equivalents, account receivables, inventories, goodwill and intangible assets

• Always reported at historical cost

Which of the following is considered a non-current asset?

• Cash and cash equivalents

• Accounts receivables

• Property, plant, and equipment (PPE)
• Inventory and investment properties

Cash equivalents typically include:

• Long-term investments
• Short-term investments with maturities of three months or less
• Goodwill and intangible assets
• Accounts receivable

Net working capital (NWC) is calculated as:

• Current liabilities – Current assets
• Non-current assets – Non-current liabilities
• Current assets – Current liabilities
• Total assets – Total liabilities

A liquid asset is one that:

• Has long maturity

• is difficult to sell

• can be easily converted into cash

• has high risk

Which of the following best describes accounts receivables?

• Money owed by the company to suppliers for products or services already purchased

• Amounts owed to a company by its customers for products or services already delivered
• Cash set aside for future investments
• The cost of goods sold by the company

An increase in accounts receivable can indicate:

• Higher credit sales and potentially lower cash flow
• An increase in cash reserves to improve liquidity

• A reduction in sales volume due to bad marketing

• A decline in inventory turnover due to out of stock