QUIZ CHAPTER 5 WILEY

Ostriker Company uses IFRS and has property and equipment on an historical cost basis of $3,600,000. At the end of the year, Ostriker appraises its property and equipment and determines it had a revaluation increase of $67,000. Ostriker records this revaluation under IFRS with

an increase to property and equipment and an increase to a valuation reserve in equity.

Addison, Inc. reports: Cash provided by operating activities$2,300,000 Cash used by investing activities 640,000 Cash used by financing activities 220,000 Beginning cash balance 340,000 What is Addison's ending cash balance?

$1,780,000. Cash provided by operating activities, $2,300,000 less Cash used by investing activities, $640,000 less Cash used by financing activities, $220,000 = Net increase in Cash, $1,440,000. Then add: Net increase in Cash, $1,440,000 + Beginning cash balance, $340,000 = Addison's ending cash balance, $1,780,000.

Peterson Enterprises reports the following information: Net income $5,000,000 Depreciation expense 680,000 Loss on the sale of investments 154,000 Increase in accounts receivable 320,000 Peterson should report cash provided by operating activities of

$5,514,000 Net Income, $5,000,000 plus Depreciation Expense, $680,000 plus Loss on the sale of investments, $154,000 less Increase in accounts receivable, $320,000 equals $5,514,000, the cash provided by operating activities.

Trent Co. reports the following information: Net cash provided by operating activities$430,000 Average current liabilities300,000 Average long-term liabilities200,000 Dividends paid120,000 Capital expenditures220,000 Purchase of treasury stock22,000 Payments of debt70,000 Trent's free cash flow is

90,000 Net cash provided by operating activities, $430,000, less capital expenditures, $220,000, less dividends paid, $120,000 equals a free cash flow of $90,000.

Which of the following balance sheet formats lists the assets on the left side of the page and the liabilities and stockholders' equity on the right side? Single step form. Account form. Multiple step form. Report form.

Account form. The account form lists assets on the left and liabilities and stockholders' equity on the right.

Which of the following is not one of the classifications in owners' equity? Noncontrolling interest. Accumulated capital. Retained earnings. Capital stock.

Accumulated capital.

Which of the following ratios measures how effectively the company uses its assets? Liquidity ratios. Coverage ratios. Profitability ratios. Activity ratios.

Activity ratios.

Which of the following is an intangible asset? Prepaid pension costs. Customer lists. Restricted cash. Deferred income taxes.

Customer lists. Intangible assets include patents, copyrights, franchises, goodwill, trademarks, trade names, and customer lists. Deferred income taxes are considered as other assets.

The balance sheet is sometimes referred to as the Statement of Net Resources.

FALSE balance sheet reports on the financial position of a business enterprise and is sometimes referred to as the Statement of Financial Position, not the Statement of Net Resources.

Borrowing money from creditors is considered an investing activity on the statement of cash flows.

FALSE Financing, not investing, activities include obtaining resources from owners and providing them with a return on their investment, and borrowing money from creditors and repaying the amounts borrowed.

Payment of dividends would come under which activity on the statement of cash flows?

Financing Financing activities include obtaining resources from owners and providing them with a return on their investment (payment of dividends), and borrowing money from creditors and repaying the amounts borrowed.

Which of the following is not included in the summary of significant accounting policies? Inventory cost flow assumption. Depreciation methods. Length of operating cycle. Valuation method for investments.

Length of operating cycle. a Company discloses its accounting policies including depreciation methods used, inventory cost flow assumption used, and the basis for valuing investments. A company does not disclose the length of its operating cycle.

Which of the following is included in an owners' equity section reported in the balance sheet? Accumulated capital. Working capital. Noncontrolling interest. Dividends.

Noncontrolling interest. Classifications included in owners' equity include capital stock, retained earnings, additional paid-in capital (not accumulated capital), and noncontrolling interest (minority interest).

The balance sheet is useful for analyzing all of the following except

PROFITABILITY

Which of the following pairings of an item and a basis of valuation is incorrect? Receivables - Lower-of-cost-or-market. Cash - Fair value. Prepaid expenses - Cost. Short-term investments - Generally Fair value.

Receivables Receivables are valued at estimated amount collectible (not lower-of-cost-or-market), and inventories are valued at lower-of-cost-or-market.

Which of the following are acceptable balance sheet formats? Condensed form and multiple step form. Report form and account form. Condensed form and report form. Multiple step form and account form.

Report form and account form.

Return on assets is computed as: net cash provided by operating activities divided by Average total assets. net income divided by Average total assets. net sales divided by Average total assets. dividends divided by Average total assets.

Return on assets is computed as Net income divided by Average total assets.

Companies frequently use judgments and estimates in valuing items on the balance sheet.

TRUE

Indicators of poor financial flexibility include a low debt coverage ratio and negative free cash flow.

TRUE

The excess of current assets over current liabilities is referred to a net working capital.

TRUE

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

TRUE

Liquidity refers to the amount of time that is expected to elapse until a liability has to be paid.

TRUE . Liquidity describes the amount of time that is expected to elapse until an asset is realized or otherwise converted into cash or until a liability has to be paid.

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

TRUE 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.

The cash debt coverage ratio is equal to net cash provided by operating activities divided by average total liabilities.

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

Cash dividends divided by Net income describes which of the following ratios? Rate of return on common stock equity. Asset turnover. Profit margin on sales. Payout ratio.

The payout ratio is computed as Cash dividends divided by Net income.

Which of the following statements shows the amount of cash used to pay dividends or purchase treasury stock? statement of financial position. income statement. statement of stockholders' equity. all of these answer choices are correct

The statement of stockholders' equity shows the amount of cash used to pay dividends or purchase treasury stock.

Other assets include all of the following except: restricted cash. timberlands. property held for sale. assets in special funds.

Timberlands Other assets include restricted cash, property held for sale, and assets in special funds. Timberlands are reported as part of property, plant, and equipment.

Which of the following is a coverage ratio? Profit margin on sales. Payout ratio. Asset turnover. Times interest earned.

Times interest earned. Coverage ratios include debt to total assets, times interest earned, cash debt coverage ratio, book value per share, and free cash flow. The asset turnover is an activity ratio The payout ratio is a profitability ratio. The profit margin on sales is a profitability ratio.

Which of the following investments should always be reported as current assets? Held-to-maturity securities. Trading securities. Available-for-sale securities. Long-term investments.

Trading securities should always be reported as current assets. Available-for-sale securities and held-to-maturity securities would be classified as current or noncurrent depending on the circumstances. long-term investments would be classified as noncurrent.

Typical loss contingencies include all of the following except: government investigations. Environmental issues. Possible tax assessments. Tax operating-loss carryforwards.

Typical loss contingencies include possible tax assessments, government investigations, environmental issues, and litigation. Examples of gain contingencies include tax operating-loss carryforwards.

Which of the following is not a major disclosure technique for the balance sheet? Parenthetical explanations. Supporting schedules. Worksheets. Notes.

Worksheets

A company with a _________________ is better able to survive bad times, to recover from unexpected setbacks, and to take advantage of profitable and unexpected investment opportunities.

a high degree of financial flexibility

The correct order to present current assets is

cash, accounts receivable, inventories, and prepaid items.

Companies use a ____________ to show a direct relationship between an asset and a liability on the balance sheet? cross-reference note parenthetical explanation supporting schedule

cross-reference Companies use a "cross-reference" to show a direct relationship between an asset and a liability on the balance sheet.

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

current liabilities.

When comparing the account form and the report form of the balance sheet, the dollar amount of current assets will be higher under the report form, but total assets will be equal under both forms

false the only difference in balance sheets prepared using the report form or account form is the layout of the balance sheet. The account form lists assets on the left and liabilities and stockholders' equity on the right. The report form list the sections one above the other. Current assets and total assets will be the same in both formats.

Activities that involve the cash effects of making and collecting loans and acquiring and disposing of property, plant, and equipment are classified as: operating activities. investing activities. financing activities. noncash activities.

investing activities.

Assets include all of the following subclassifications except other long-term investments. intangibles. noncontrolling interest.

noncontrolling interest.

Major limitations of the balance sheet include all of the following except: most assets and liabilities are reported at historical cost. judgments and estimates are used to determine many of the items reported. it necessarily omits many items that are of financial value but cannot be recorded objectively. only amounts known with absolute certainty are reported.

only amounts known with absolute certainty are reported.

Receipt of interest from a Note Receivable would be reported as a cash inflow in which of the following sections: financing activities. investing activities. stock activities. operating activities.

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

The financial statement which summarizes the operating, investing, and financing activities of an entity for a period of time is the statement of financial position. income statement. statement of cash flows. retained earnings statement.

statement of cash flows. The statement of cash flows summarizes the operating, investing, and financing activities of an entity.

Companies are not required to disclose information about: depreciation methods. the use of estimates. inventory cost flow methods. the identity of all stockholders.

the identity of all stockholders Companies are required to disclose information about all of the options except the identity of all stockholders.