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MCQs_Chapter 3_FRA

Total questions: 30

Worksheet time: 7mins

Name
Class
Date
1.
The balance sheet provides a snapshot of a company’s:
a)
Revenue and expenses
b)
Assets, liabilities, and owner’s equity
c)
Cash inflows and outflows
d)
Profitability over time
2.
The balance sheet equation is:
a)
Assets = Liabilities – Owners’ equity
b)
Assets = Owners’ equity – Liabilities
c)
Assets = Liabilities + Owners’ equity
d)
Liabilities = Assets + Owners’ equity
3.
What is the primary difference between a classified balance sheet and a liquidity-based balance sheet?
a)
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
b)
A classified balance sheet organizes assets and liabilities by liquidity, while a liquidity-based balance sheet separates operating and investing activities
c)
A classified balance sheet is used only under IFRS, while a liquidity-based balance sheet is required under U.S. GAAP
d)
A classified balance sheet includes off-balance sheet items, while a liquidity-based balance sheet does not
4.
Which of the following is a characteristic of a current asset?
a)
Held primarily for trading or expected to be converted into cash within one year
b)
Intended for long-term investment purposes
c)

Includes cash and cash equivalents, account receivables, inventories, goodwill and intangible assets

d)
Always reported at historical cost
5.
Which of the following is considered a non-current asset?
a)

Cash and cash equivalents

b)

Accounts receivables

c)
Property, plant, and equipment (PPE)
d)

Inventory and investment properties

6.
Cash equivalents typically include:
a)
Long-term investments
b)
Short-term investments with maturities of three months or less
c)
Goodwill and intangible assets
d)
Accounts receivable
7.
Net working capital (NWC) is calculated as:
a)
Current liabilities – Current assets
b)
Non-current assets – Non-current liabilities
c)
Current assets – Current liabilities
d)
Total assets – Total liabilities
8.

A liquid asset is one that:

a)

Has long maturity

b)

is difficult to sell

c)

can be easily converted into cash

d)

has high risk

9.
Which of the following best describes accounts receivables?
a)

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

b)
Amounts owed to a company by its customers for products or services already delivered
c)
Cash set aside for future investments
d)
The cost of goods sold by the company
10.
An increase in accounts receivable can indicate:
a)
Higher credit sales and potentially lower cash flow
b)

An increase in cash reserves to improve liquidity

c)

A reduction in sales volume due to bad marketing

d)

A decline in inventory turnover due to out of stock

11.

Allowance for doubtful accounts is used to:

a)

Increase revenue significantly

b)

Estimate uncollectible receivables

c)

Reduce liabilities to prevent from solvency risk

d)

increase assets

12.

Firm A low allowance vs Firm B high allowance:

a)

Firm A is more conservative

b)

Firm B is more conservative

c)

Firm A is more profitab;e

d)

No differences

13.
Which of the following is included in inventory?
a)
Cash reserves
b)
Property, plant, and equipment
c)
Raw materials, work-in-process, and finished goods
d)
Accounts payable
14.
Inventory turnover ratio is calculated as:
a)
Inventory / Sales
b)

Sales / Inventory

c)
Cost of Goods Sold (COGS) / Average Inventory
d)
Gross Profit / Inventory
15.

A company has high inventory in current assets. Best interpretation?

a)

Strong liquidity due to high carrying cost

b)

Liquidity overstated due to inventory

c)

Weak liquidity

d)

Insolvent

16.

High inventory relative to sales suggests:

a)

Efficiency

b)

Slow turnover

c)

High liquidity

d)

High profitability

17.

Goodwill arises when

a)

A company issues new equity shares

b)

A company acquires another company for more than the fair value of its net assets

c)

A company records an impairment loss on its assets

d)

A company invests in marketable securities

18.

What is the primary characteristic of investment property?

a)

It is used for operational purposes

b)

It is held to earn rental income or capital appreciation

c)

A company records an impairment loss on its assets

d)

It must be depreciated annually

19.

Which asset not amortized but tested impairment?

a)

Patent

b)

Inventory

c)

Goodwill

d)

Equipment

20.
What is a key characteristic of current liabilities?
a)
Expected to be settled within one year
b)
Related to long-term financing
c)
Always recorded at fair market value
d)
Includes goodwill and other intangible assets
21.
Deferred revenue represents:
a)
Revenue earned but not yet received in cash
b)
Cash received in advance for goods or services not yet delivered
c)
Long-term investments
d)
Expenses that have not yet been paid
22.

Accrued expenses are:

a)

Paid not recorded

b)

Recorded not paid

c)

Future costs

d)

Revenue

23.

Accounts payable arise from:

a)

Cash sales

b)

Credit purchases

c)

Loans

d)

Retained earnings

24.
Which of the following represents owners’ equity in a company?
a)
Trade payables
b)
Retained earnings
c)
Short-term borrowings
d)
Notes payable
25.

Treasury stock leads to:

a)

Decrease equity

b)

Increase equity

c)

Increase liabilities

d)

Increase revenue

26.
The common-size balance sheet expresses each line item as a percentage of:
a)
Total equity
b)
Total assets
c)
Total liabilities
d)
Net income
27.

Treasury repurchase increases D/E implies:

a)

Lower liquidity risk

b)

Higher leverage risk

c)

Higher liquidity

d)

Lower profit

28.
What does the cash ratio measure?
a)
A company’s ability to meet its current liabilities with its most liquid assets
b)
The proportion of cash in the company's total asset base
c)
The overall profitability of the firm
d)
The amount of cash flow generated by operating activities
29.
The debt-to-equity ratio is used to assess:
a)

A company’s liquidity position compared with peer's

b)

The proportion of debt and equity financing in the capital structure

c)
The efficiency of a company’s working capital management
d)

The revenue growth rate over time due to good debt management

30.

A high current ratio typically indicates

a)

Strong liquidity but potential inefficiency in using assets

b)

A company has high profitability and low efficiency

c)

A company has a strong competitive advantage

d)

A company has high levels of debt to equity

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