Chapter 5 Multiple Choice Test Questions

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Which of the following is a limitation of the balance sheet?
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All of these answer choices are correct
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The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as
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liquidity
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The net assets of a business are equal to
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none of these answer choices are correct
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The correct order to present current assets is
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cash, accounts receivable, inventories, prepaid items
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The basis for classifying assets as current or noncurrent is conversion to cash within
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the operating cycle or one year, whichever is longer.
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The current assets section of the balance sheet should include
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inventory.
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Current assets are presented in the balance sheet in
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order of their liquidity
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Receivables are valued based on their
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estimated amount collectible
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Which item below is not a current liability?
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Stock dividends distributable
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Working capital is
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none of these answer choices are correct
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Treasury stock should be reported as a(n)
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reduction of stockholders’ equity.
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Which of the following should be reported for capital stock
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All of these answer choices are correct
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The stockholders’ equity section is usually divided into what three parts?
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Capital stock, additional paid-in capital, retained earnings
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Which of the following is not an acceptable major asset classification
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Deferred charges
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The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the
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statement of cash flows
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The statement of cash flows provides answers to all of the following questions except
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what is the impact of inflation on the cash balance at the end of the year
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In preparing a statement of cash flows, cash flows from operating activities
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can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash
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The cash debt coverage is computed by dividing net cash provided by operating activities
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average total liabilities
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The current cash debt coverage is often used to assess
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liquidity
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A measure of a company’s financial flexibility is the
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cash debt coverage and free cash flow
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Free cash flow is calculated as net cash provided by operating activities less
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capital expenditures and dividends
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One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the following explanations is a description of financial flexibility
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The firm’s ability to respond and adapt to financial adversity and unexpected needs and opportunities
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Net cash provided by operating activities divided by average total liabilities equals the
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cash debt coverage
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Significant accounting policies may not be
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omitted from financial-statement disclosure
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For Grimmett Company, the following information is available: Intangible
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$245,000
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Houghton Company has the following items: common stock, $800,000; treasury stock, $105,000; deferred income taxes, $125,000 and retained earnings, $390,000. What total amount should Houghton Company report as stockholders’ equity
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$1,085,000
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Lohmeyer Corporation reports
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$420,000
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During 2014 the DLD Company had a net income of $75,000
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$74,500
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Harding Corporation reports the following information
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$560,000
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Packard Corporation reports the following information: Packard’s cash debt coverage is
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1.14
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Packard Corporation reports the following information: Packard’s free cash flow is
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$115,000
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Stine Corp.’s trial balance reflected the following account balances at December 31, 2014: In Stine’s December 31, 2014 balance sheet, the current assets total is
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$73,000
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In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from
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investing activities
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In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for
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operating activities

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