Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 1 of 8

0% (0 out of 28 correct)

Responses to questions are indicated by the

symbol.

1. If additional explanations cannot be conveniently shown as parenthetical explanations, the information should be disclosed by: A. cross reference. B. notes. C. supporting schedules. D. a contra account.

Notes are used when additional explanations cannot be conveniently shown as parenthetical explanations.

2. 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.

3. 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.

4. The last step in preparing the statement of cash flows is to: A. determine the cash provided by operations.

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012

Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 2 of 8

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.

5. The cash debt coverage ratio is computed by dividing net cash provided by operating activities by average A. current liabilities. B. total assets. C. total liabilities. D. total long-term liabilities.

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

6. 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.

7. Similarities between IFRS and U.S. GAAP requirements for balance sheet presentation include all of the following except: A. both require disclosure of significant accounting policies. B. both require that changes to the valuation reserve be disclosed in the notes to the financial statements. C. both generally require the use of the current/ non-current classification for both assets and liabilities. D. both require the preparation of financial statements annually.

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012

Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 3 of 8

Under IFRS, revaluations are recorded and reported as part of stockholders' equity.

8. The balance sheet is sometimes referred to as the Statement of Financial Position. A. True B. False

A balance sheet reports on the financial position of a business enterprise.

9. Solvency refers to the amount of time that is expected to elapse until a liability has to be paid. A. True B. False

Solvency refers to the ability to pay debts as they mature.

10. Current assets are presented in the balance sheet in their order of liquidity. A. True B. False

Current assets are presented in the order that they will be converted to cash or used up, which is their order of liquidity.

11. The financing section is the first section of the statement of cash flows. A. True B. False

The operating section is the first section of the statement of cash flows.

12. The current cash debt coverage ratio is equal to net cash provided by operating activities average total liabilities. A. True B. False

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012

Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 4 of 8

It is net cash provided by operating activities average current liabilities.

13. Indicators of strong financial flexibility include a low debt coverage ratio and negative free cash flow. A. True B. False

A lower debt coverage ratio and negative free cash flow are indicators of poor financial flexibility.

14. Companies rarely use estimates in valuing items on the balance sheet. A. True B. False

Companies use judgments and estimates to determine many of the items reported on the balance sheet.

15. A liability that is payable within the next year is sometimes included in long-term debt. A. True B. False

A liability that is payable within the next year is sometimes included in long-term debt if the company expects to refinance the debt through another long-term issue or to retire the debt out of non-current assets.

16. The excess of total assets over total liabilities is referred to a net working capital. A. True B. False

Net working capital is the excess of total current assets over total current liabilities.

17. Investing activities on the statement of cash flows include the purchase of debt and equity

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012

Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 5 of 8

securities. A. True B. False

The purchase of debt and equity securities is reported as an investing activity on the statement of cash flows.

18. The use of the term reserve is discouraged in both U.S. GAAP and IFRS. A. True B. False

While the use of the term reserve is discouraged in U.S. GAAP, there is no such prohibition in IFRS.

19. A balance sheet is useful for analyzing all of the following except: A. financial flexibility. B. liquidity. C. solvency. D. profitability.

Profitability is determined primarily by analyzing information from the income statement.

20. Assets can be divided into how many subclassifications? A. 5 B. 4 C. 3 D. 2

There are 5 subclassifications: current, long-term investments, PP & E, intangibles, and other.

21. Which of the following is not one of the portfolio groupings for investments in debt and equity securities?

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012

Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 6 of 8

A. Available-for-sale. B. Trading. C. Investments. D. Held to maturity.

Investments is a subcategory of assets, not a type of portfolio.

22. Which of the following would be reported in the investments section of the balance sheet? A. Trading securities. B. Land held for future development. C. Equipment held for sale. D. Patent.

Land held for future development is classified as an investment.

23. Which of the following would be reported as a long-term asset at December 31, 2012? A. Held to maturity securities maturing in 2015. B. Equipment used in the manufacturing process. C. Land held for speculative purposes. D. Building held for sale.

Equipment used in the manufacturing process would be classified as a long-term asset.

24. Which of the following is not an intangible asset? A. Patents. B. Wasting resources. C. Goodwill. D. Franchises.

Wasting resources are a type of property, plant & equipment asset.

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012

Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 7 of 8

25. How many different ways may pertinent information be disclosed in the financial statements? A. 4 B. 3 C. 2 D. 1

There are 4: parenthetical explanations, notes, cross-references and contra items, and supporting schedules.

26. Payment of interest expense would come under which activity on the statement of cash flows? A. Financing. B. Operating. C. Investing. D. None of the above.

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

27. Payment of a cash dividend would be reported as a cash outflow in which of the following sections: A. operating activities. B. financing activities. C. investing activities. D. stock activities.

Cash dividends are an outflow under the financing activities section.

28. Which of the following would be added back to net income in the operating activities section of the statement of cash flows? A. Payment of a cash dividend. B. Increase in inventory. C. Increase in accounts payable.

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012

Chapter 5 Balance Sheet and Statement of Cash Flows Results

Page 8 of 8

D. Gain on sale of equipment.

Increases in current liabilities are positive adjustments to net income in the operating activities section of the statement of cash flows.

Retake Test

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/addtl_selftests/ch05.html?...

2/15/2012