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

(a)  

22. The balance sheet is useful for analyzing all of the following, except a. liquidity. b. solvency. c. profitability. d. financial flexibility.

(a)  

S23. The balance sheet contributes to financial reporting by providing a basis for all of the following except 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.

(a)  

S24. 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.

(a)  

P25. 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.

(a)  

26. 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.

(a)  

27. 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.

(a)  

28. 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.

(a)  

29. 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.

(a)  

30. The current assets section of the balance sheet should include a. machinery. b. patents. c. goodwill. d. inventory.

(a)  

31. 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.

(a)  

32. 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.

(a)  

33. 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.

(a)  

34. 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.

(a)  

35. 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

(a)  

36. 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

(a)  

37. Which item below is NOT a current liability? a. Unearned revenue b. Stock dividends payable/distributable c. The currently maturing portion of long-term debt d. Trade accounts payable

(a)  

38. 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.

(a)  

39. 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.

(a)  

40. 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.

(a)  

41. 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

(a)  

42. Treasury stock should be reported as a(n) a. current asset. b. investment. c. other asset. d. reduction of stockholders' equity.

(a)  

43. 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

(a)  

44. 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

(a)  

45. 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

(a)  

46. 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

(a)  

P47. Which of the following is a contra account? a. Premium on bonds payable b. Unearned revenue c. Patents d. Accumulated depreciation

(a)  

S48. 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

(a)  

49. 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.

(a)  

50. 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.

(a)  

51. 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.

(a)  

52. 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

(a)  

53. A generally accepted account title is a. Prepaid Revenue. b. Appropriation for Contingencies. c Earned Surplus. d. Reserve for Doubtful Accounts.

(a)  

54. 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.

(a)  

S55. The statement of cash flows provides answers to all of the following questions except a. Where did the cash come from during the period? b. What was the cash used for during the period? c. What is the impact of inflation on the cash balance at the end of the year? d. What was the change in the cash balance during the period?

(a)  

56. Making and collecting loans and disposing of property, plant, and equipment are a. operating activities. b. investing activities. c. financing activities. d. liquidity activities.

(a)  

57. In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost would be classified as a(n) a. operating activity. b. financing activity. c. extraordinary activity. d. investing activity.

(a)  

58. In preparing a statement of cash flows, cash flows from operating activities a. are always equal to accrual accounting income. b. are calculated as the difference between revenues and expenses. c. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash. d. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

(a)  

59. In preparing a statement of cash flows, which of the following transactions would be considered an investing activity? a. Sale of equipment at book value b. Sale of merchandise on credit c. Declaration of a cash dividend d. Issuance of bonds payable at a discount

(a)  

60. Preparing the statement of cash flows involves all of the following except determining the a. cash provided by operations. b. cash provided by or used in investing and financing activities. c. change in cash during the period. d. cash collections from customers during the period

(a)  

61. The cash debt coverage ratio is computed by dividing net cash provided by operating activities by a. average long-term liabilities. b. average total liabilities. c. ending long-term liabilities. d. ending total liabilities.

(a)  

62. The current cash debt coverage ratio is often used to assess a. financial flexibility. b. liquidity. c. profitability. d. solvency.

(a)  

63. A measure of a company’s financial flexibility is the a. cash debt coverage ratio. b. current cash debt coverage ratio. c. free cash flow. d. cash debt coverage ratio and free cash flow.

(a)  

64. Free cash flow is calculated as net cash provided by operating activities less a. capital expenditures. b. dividends. c. capital expenditures and dividends. d. capital expenditures and depreciation

(a)  

S65. One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the following explanations is a description of financial flexibility? a. The nearness to cash of assets and liabilities. b. The firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities. c. The firm's ability to pay its debts as they mature. d. The firm's ability to invest in a number of projects with different objectives and costs.

(a)  

P66. Net cash provided by operating activities divided by average total liabilities equals the a. current cash debt coverage ratio. b. cash debt coverage ratio. c. free cash flow. d. current ratio.

(a)  

67. Garret Company owns the following investments: Trading securities (fair value) $60,000 Available-for-sale securities (fair value) 35,000 Held-to-maturity securities (amortized cost) 47,000 Garret will report investments in its current assets section of a. $0. b. exactly $60,000. c. $60,000 or an amount greater than $60,000, depending on the circumstances. d. exactly $95,000.

(a)  

68. For Nicholson Company, the following information is available: Capitalized leases $200,000 Trademarks 65,000 Long-term receivables 75,000 In Nicholson’s balance sheet, intangible assets should be reported at a. $65,000. b. $75,000. c. $265,000. d. $275,000.

(a)  

69. Sam Hurd Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000 and retained earnings, $313,000. What total amount should Sam Hurd Company report as stockholders’ equity? a. $848,000. b. $948,000. c. $1,048,000. d. $1,118,000.

(a)  

70. Horton Company owns the following investments: Trading securities (fair value) $ 60,000 Available-for-sale securities (fair value) 35,000 Held-to-maturity securities (amortized cost) 47,000 Horton will report securities in its long-term investments section of a. exactly $95,000. b. exactly $107,000. c. exactly $142,000. d. $82,000 or an amount less than $82,000, depending on the circumstances.

(a)  

71. For Mitchell Company, the following information is available: Capitalized leases $280,000 Trademarks 90,000 Long-term receivables 105,000 In Mitchell’s balance sheet, intangible assets should be reported at a. $90,000. b. $105,000. c. $370,000. d. $385,000.

(a)  

72. Stanton Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000 and retained earnings, $363,000. What total amount should Stanton Company report as stockholders’ equity? a. $898,000. b. $998,000. c. $1,098,000. d. $1,198,000.

(a)  

73. Quince Holman Corporation reports: Cash provided by operating activities $250,000 Cash used by investing activities 110,000 Cash provided by financing activities 140,000 Beginning cash balance 70,000 What is Holman’s ending cash balance? a. $280,000. b. $350,000. c. $500,000. d. $570,000.

(a)  

74. Gordman Corporation reports: Cash provided by operating activities $200,000 Cash used by investing activities 110,000 Cash provided by financing activities 140,000 Beginning cash balance 70,000 What is Gordman’s ending cash balance? a. $230,000. b. $300,000. c. $450,000. d. $520,000.

(a)  

75. Craig Rusch Corporation reports the following information: Net income $500,000 Depreciation expense 140,000 Increase in accounts receivable 60,000 Rusch should report cash provided by operating activities of a. $300,000. b. $420,000. c. $580,000. d. $700,000

(a)  

76. Porter Corporation reports the following information: Net income $250,000 Depreciation expense 70,000 Increase in accounts receivable 30,000 Porter should report cash provided by operating activities of a. $150,000. b. $210,000. c. $290,000. d. $350,000.

(a)  

77. Joe Novak Corporation reports the following information: Net cash provided by operating activities $215,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends declared 60,000 Capital expenditures 110,000 Payments of debt 35,000 Joe Novak’s cash debt coverage ratio is a. 0.86. b. 1.43. c. 2.15. d. 4.78.

(a)  

78. Joe Novak Corporation reports the following information: Net cash provided by operating activities $215,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends paid 60,000 Capital expenditures 110,000 Payments of debt 35,000 Joe Novak’s free cash flow is a. $10,000. b. $45,000. c. $105,000. d. $155,000.

(a)  

79. Lincoln Corporation reports the following information: Net cash provided by operating activities $255,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends paid 60,000 Capital expenditures 110,000 Payments of debt 35,000 Lincoln’s cash debt coverage ratio is a. 1.02. b. 1.70. c. 2.55. d. 3.00.

(a)  

80. Morgan Corporation reports the following information: Net cash provided by operating activities $255,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends paid 60,000 Capital expenditures 110,000 Payments of debt 35,000 Morgan’s free cash flow is a. $50,000. b. $85,000. c. $145,000. d. $195,000.

(a)  

81. Reese Corp.'s trial balance reflected the following account balances at December 31, 2007: Accounts receivable (net) $24,000 Trading securities 6,000 Accumulated depreciation on equipment and furniture 15,000 Cash 11,000 Inventory 30,000 Equipment 25,000 Patent 4,000 Prepaid expenses 2,000 Land held for future business site 18,000 In Reese's December 31, 2007 balance sheet, the current assets total is a. $90,000. b. $82,000. c. $77,000. d. $73,000.

(a)  

87. In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from a. operating activities. b. financing activities. c. investing activities. d. selling activities.

(a)  

88. In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for a. operating activities. b. borrowing activities. c. lending activities. d. financing activities.

(a)  

89. In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from a. lending activities. b. operating activities. c. investing activities. d. financing activities.

(a)  

90. In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash equivalents) should be classified as cash outflows for a. operating activities. b. investing activities. c. financing activities. d. lending activities.

(a)