ACC 301 - Chapter 5 - True/False
1. Liquidity refers to the ability of an enterprise to pay its debts as they mature.
False
13. Significant financing and investing activities that do not affect cash are not reported in the statement of cash flows or any other place.
False
15. Free cash flow is net income less capital expenditures and dividends.
False
16. Because of the historical cost principle, fair values may not be disclosed in the balance sheet.
False
17. Companies have the option of disclosing information about the nature of their operations and the use of estimates in preparing financial statements.
False
19. The accounting profession has recommended that companies use the word reserve only to describe amounts deducted from assets.
False
20. On the balance sheet, an adjunct account reduces either an asset, a liability, or an owners' equity account.
False
5. An asset which is expected to be converted into cash, sold, or consumed within one year of the balance sheet date is always reported as a current asset.
False
6. Land held for speculation is reported in the property, plant, and equipment section of the balance sheet.
False
8. The primary purpose of a statement of cash flows is to report the cash effects of operations during a period.
False
9. The statement of cash flows reports only the cash effects of operations during a period and financing transactions.
False
10. Financial flexibility is a company's ability to respond and adapt to financial adversity and unexpected needs and opportunities.
True
11. Collection of a loan is reported as an investing activity in the statement of cash flows.
True
12. Companies determine cash provided by operating activities by converting net income on an accrual basis to a cash basis.
True
14. Financial statement readers often assess liquidity by using the current cash debt coverage ratio.
True
18. Companies may use parenthetical explanations, notes, cross references, and supporting schedules to disclose pertinent information.
True
2. The balance sheet omits many items that are of financial value to the business but cannot be recorded objectively.
True
3. Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows.
True
4. Companies frequently describe the terms of all long-term liability agreements in notes to the financial statements.
True
7. The account form and the report form of the balance sheet are both acceptable under GAAP.
True
