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Chapter 5 Multiple Choice

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

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