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ACC 303 Week 11 Final Exam Review: Financial Reporting Concepts and Balance Sheet Analysis

Final exam review covering financial reporting and balance sheets.

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    ACC 303 Week 11 Final Exam Review: Financial Reporting Concepts and Balance Sheet Analysis ACC 303 WEEK 11 FINAL EXAM STRAYER UNIVERSITY NEW TRUE FALSE — CONCEPTUAL 1. Liquidity refers to the ability of an enterprise to pay its debts as they mature. 2. The balance sheet omits many items that are of financial value to the business but cannot be recorded objectively. 3. Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows. 4. Companies frequently describe the terms of all long - term liability agreements in notes to the financial statements. 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. 6. Land held for speculation is reported in the property, plant, and equipment section of the balance sheet. 7. The account form and the report form of the balance sheet are both acceptable under GAAP. 8. Because of the historical cost principle, fair values may not be disclosed in the balance sheet. 9. Companies have the option of disclosing information about the nature of their operations and the use of estimates in preparing financial statements. 10. Companies may use parenthetical explanations, notes, cross references, and supporting schedules to disclose pertinent information. 11. The accounting profession has recommended that companies use the word reserve only to describe amounts deducted from assets. 12. On the balance sheet, an adjunct account reduces either an asset, a liability, or an owners’ equity account. 13. The primary purpose of a statement of cash flows is to report the cash effects of operations during a period. 14. The statement of cash flows reports only the cash effects of operations during a period and financing transactions. 15. Financial flexibility is a company’s ability to respond and adapt to financial adversity and unexpected needs and opportunities. 16. Collection of a loan is reported as an investing activity in the statement of cash flows. 17. Companies determine cash provided by operating activities by converting net income on an accrual basis to a cash basis. 18. Significant financing and investing activities that do not affect cash are not reported in the statement of cash flows or any other place. 19. Financial statement readers often assess liquidity by using the current cash debt coverage ratio. 20. Free cash flow is net income less capital expenditures and dividends. MULTIPLE CHOICE — CONCEPTUAL

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    21. Which of the following is a limitation of the balance sheet? a. Many items that are of financial value are omitted. b. Judgments and estimates are used. c. Current fair value is not reported. d. All of these 22. The balance sheet is useful for analyzing all of the following except a. liquidity. b. solvency. c. profitability. d. financial flexibility. 23. Balance sheet information is useful for all of the following except to a. compute rates of return b. analyze cash inflows and outflows for the period c. eval capital structure d. assess future cash flows 24. Balance sheet information is useful for all of the following except a. assessing a company's risk b. evaluating a company's liquidity c. evaluating a company's financial flexibility d. determining free cash flows. 25. A limitation of the balance sheet that is not also a limitation of the income statement is a. the use of judgments and estimates b. omitted items c. the numbers are affected by the accounting methods employed d. valuation of items at historical cost 26. The balance sheet contributes to financial reporting by providing a basis for all of the following except a. computing rates of return. b. evaluating the capital structure of the enterprise. c. determining the increase in cash due to operations. d. assessing the liquidity and financial flexibility of the enterprise. 27. One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is a. failure to reflect current value information. b. the extensive use of separate classifications. c. an extensive use of estimates. d. failure to include items of financial value that cannot be recorded objectively. 28. The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability. 29. The net assets of a business are equal to

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