Question 1

Current assets are expected to be converted to cash or sold or consumed within ________.

Accepted Answer

A)  one year or operating cycle if longer than one month 
B)  one year or operating cycle if longer than one year 
C)  one year or operating cycle if shorter than one year 
D)  one fiscal year

Question 2

Selected items from the financial statements for Lorna Company are listed below:
$\begin{array} { l  }
 \text { Paid in capital, December 31,2014}&\$100,000\
 \text {Retained earnings, December 31, 2014 }&\$75,000\
 \text {Commonstock dividends declared in 2014 }&\$75,000\
\text { Net income for the year ended December } 31,2014&\$100,000\
\end{array}$

Lorna Company has 5,000 common shares outstanding during the year.What are the earnings per share for the year ended December 31,2014?

Accepted Answer

A)  $12.00 
B)  $15.00 
C)  $20.00 
D)  $25.00

Question 3

Goodwill remains on a company's books until ________.

Accepted Answer

A)  accountants amortize it 
B)  accountants depreciate it 
C)  management sells it 
D)  management determines its value is impaired

Question 4

The indirect method of preparing the statement of cash flows is the most popular method in the United States.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following assets is NOT classified as a short-term investment?

Accepted Answer

A)  corporate stocks 
B)  corporate bonds 
C)  debt securities issued by governments 
D)  checking account balance

Question 6

When reconciling net income to net cash provided by operating activities,a(n)________ is an addition to net income.

Accepted Answer

A)  increase in inventories 
B)  increase in accounts receivable 
C)  increase in wages payable 
D)  decrease in taxes payable

Question 7

When calculating the net cash provided by operating activities,which procedure should NOT be carried out? Assume the indirect method is used.

Accepted Answer

A)  add depreciation expense 
B)  subtract a decrease in accounts payable 
C)  subtract a decrease in prepaid expenses 
D)  add a decrease in inventories

Question 8

A company's operating cycle can be longer than one year.

Accepted Answer

A) True 
 B)False

Question 9

California Company reports the following information:
$\begin{array}{lll}&12/31/14&12/31/15\
\text { Fixed Assets } & \$ 330 & \$ 581 \
\text { Less: Accumulated Depreciation } &{(110)} &(127)\
\text { Net Fixed Assets } &{\$ 220}&{\$ 454} \
\end{array}$
Depreciation expense for the year ending December 31,2015 is $17.No fixed assets were sold during 2015.What is the net cash flow from investing activities for the year ending December 31,2015?

Accepted Answer

A)  $17 cash inflow 
B)  $251 cash inflow 
C)  $251 cash outflow 
D)  $268 cash outflow

Question 10

Which of the following statements about depreciation is FALSE?

Accepted Answer

A)  Depreciation does not generate cash. 
B)  Depreciation is an allocation of the original cost of an asset to the periods in which the asset is used. 
C)  Depreciation does not entail an outflow of cash. 
D)  Depreciation is a means of setting aside cash for the replacement of an asset.

Question 11

In periods of inflation,FIFO leads to ________ gross profit than LIFO.

Accepted Answer

A)  lower 
B)  the same 
C)  higher 
D)  not enough information

Question 12

Which of the following is NOT a current asset?

Accepted Answer

A)  Inventories 
B)  Prepaid Insurance 
C)  Supplies 
D)  Land

Question 13

Analysts focus on free cash flow from the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 14

The last line item on an income statement is earnings per share.

Accepted Answer

A) True 
 B)False

Question 15

Utah Corporation reports the following data:
$\begin{array}{lll}&12/31/14&12/31/15\
\text { Fixed Assets } & \$ 330 & \$ 581 \
\text { Less: Accumulated Depreciation } &{(110)} &(127)\
\text { Net Fixed Assets } &{\$ 220}&{\$ 454} \
\end{array}$
Depreciation expense for the year ending December 31,2015 is $27.The company sold a fixed asset for $10 cash on December 1,2015.The cost of the fixed asset sold was $20 and the accumulated depreciation on the fixed asset sold was $10.What is the net cash flow from investing activities for the year ending December 31,2015?

Accepted Answer

A)  $241 cash outflow 
B)  $251 cash outflow 
C)  $261 cash outflow 
D)  $271 cash outflow

Question 16

Some intangible assets are depreciated.

Accepted Answer

A) True 
 B)False

Question 17

When reconciling net income to net cash provided by operating activities,a(n)________ is a deduction from net income.

Accepted Answer

A)  decrease in inventories 
B)  increase in unearned revenues 
C)  decrease in prepaid rent 
D)  decrease in accounts payable

Question 18

Joe Anthony Company recently issued 20,000 shares of $1.00 par value common stock for $40,000.This transaction will increase the ________.

Accepted Answer

A)  Common stock account by $20,000 
B)  Common stock account by $40,000 
C)  Paid in capital in excess of par account by $40,000 
D)  Retained earnings account by $40,000

Question 19

Working capital is equal to current assets plus current liabilities.

Accepted Answer

A) True 
 B)False

Question 20

A unit of ending inventory has a cost of $100 per unit.The selling price per unit is $200.The replacement cost per unit is $90.What value is reported for this inventory on the balance sheet?

Accepted Answer

A)  $90 
B)  $100 
C)  $110 
D)  $200

Exam 16: Understanding Corporate Annual Reports: Basic Financial Statements

Current assets are expected to be converted to cash or sold or consumed within ________.

Goodwill remains on a company's books until ________.

The indirect method of preparing the statement of cash flows is the most popular method in the United States.

Which of the following assets is NOT classified as a short-term investment?

When reconciling net income to net cash provided by operating activities,a(n) ________ is an addition to net income.

When calculating the net cash provided by operating activities,which procedure should NOT be carried out? Assume the indirect method is used.

A company's operating cycle can be longer than one year.

Which of the following statements about depreciation is FALSE?

In periods of inflation,FIFO leads to ________ gross profit than LIFO.

Which of the following is NOT a current asset?

Analysts focus on free cash flow from the statement of cash flows.

The last line item on an income statement is earnings per share.

Some intangible assets are depreciated.

When reconciling net income to net cash provided by operating activities,a(n) ________ is a deduction from net income.

Joe Anthony Company recently issued 20,000 shares of $1.00 par value common stock for $40,000.This transaction will increase the ________.

Working capital is equal to current assets plus current liabilities.

A unit of ending inventory has a cost of $100 per unit.The selling price per unit is $200.The replacement cost per unit is $90.What value is reported for this inventory on the balance sheet?