Acc II (1) – Flashcards
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To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting
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True
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Cash flows from investing activities, as part of the statement of cash flows, include receipts from the sale of land.
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True
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Cash flows from financing activities, as part of the statement of cash flows, include repaying long-term debt.
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True
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There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method.
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True
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The indirect method of preparing the operating activities section of the statement of cash flows is the method most commonly used by companies because the data is readily available and less costly to prepare than the direct method.
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True
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Rarely would the cash flows from operating activities, as reported on the statement of cash flows, be the same as the net income reported on the income statement due to the accrual basis of accounting.
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True
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In horizontal analysis, when comparing two years, the current year is the base year.
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False
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Solvency analysis focuses on the ability of a business to pay its current and long-term liabilities.
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True
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Which of the following is not one of the four basic financial statements?
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statement of changes in financial position
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The statement of cash flows provides useful information about a company's ability to do the following:
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All of the Above
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On the statement of cash flows, the cash flows from operating activities section would include
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cash receipts from sales activitities
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Cash paid to purchase long-term investments or fixed assets would be reported in the statement of cash flows in
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the investing activities section
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Cash received from borrowing money or issuing stock should be shown on the statement of cash flows under
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financing activities
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On the statement of cash flows, in which section is it most important to have a positive cash flow?
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operating section
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The order of presentation of activities on the statement of cash flows is
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Operating; Investing; Financing
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Which of the following would not be classified as an operating activity?
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payment of dividends
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The only financial statement analysis ratio required by GAAP to appear on a financial statement is the
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EPS
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An analysis in which all the components of an income statement are expressed as a percentage of net sales is called
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vertical analysis
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A common-size statement is a useful tool in financial analysis because it allows the user to
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make a better comparison of two companies of different sizes in the same industry
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The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as
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solvency/liquidity and profitability
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The ____________ measures how much of the company is financed by debt and how much by equity.
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ratio of liabilities to stockholders equity
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To asses the profitability of a company's total assets (earning power of assets), without considering how the assets are financed, one might use the
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rate earned on total assets
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Corporate annual reports summarize operating activities for the past year and plans for the future. These reports normally include
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All of the Above
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The operating section of the statement of cash flows for the current year always begins with the
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net income for the current year
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