Represents the cash flow that a company is able to generate after considering the
maintenance or expansion of its assets and the payment of dividends. Match these terms
with their correct definition.
a. Cash flow adequacy ratio
b. Cash flows from financing activities
c. Cash flows from investing activities
d. Cash flow from operating activities
e. Direct method
f. Free cash flow
g. Income statement
h. Indirect method
i. Noncash investing & financing activities
j. Statement of cash flows
Depreciation is
a. an effort to achieve proper matching of the cost of operating assets with related
revenues.
b. an accumulation of funds to replace the related plant asset.
c. the difference between the original cost and salvage value of an asset.
d. the cash allocated each period to maintain a plant asset.
Device that facilitates combining the financial statements of the investor and investee
companies
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
Which one of the following would never be considered a cash equivalent?
a. U.S. Treasury bills
b. corporate commercial paper
c. money market funds
d. common stock issued by a corporation
On October 1st, a company borrowed $60,000 from Eighth National Bank on a 1-year,
7% note. If the company’s fiscal year ends on December 31st, a year-end adjusting
entry is required to increase
a. interest expense by $4,200.
b. notes payable by $1,050.
c. interest payable by $1,050.
d. prepaid interest by $3,150.
Which of the following would be correct if a company factored $2,500,000 of
receivables with a 2 percent fee?
a. $2,450,000 credit to cash
b. $50,000 debit to factoring fee expense
c. $2,500,000 debit to accounts receivable.
d. $50,000 debit to factoring fee receivable.
A calendar year company paid $24,000 on October 1, 2012 to purchase two years of
insurance coverage for its retail shop. The prepayment was initially recorded as an
asset. A) What adjusting journal entry is necessary at December 31, 2012?
B) How much will be reported on the balance sheet at December 31, 2012, for prepaid
insurance?
C) How much will be reported on the income statement for the year ended December
31, 2012, for insurance expense?
D) If the adjustment in part A is not recorded, by what amount will net income be over
or understated at December 31, 2012?
E) What adjusting journal entry is necessary at December 31, 2013?
F) How much will be reported on the balance sheet at December 31, 2013, for prepaid
insurance?
G) How much will be reported on the income statement for the year ended December
31, 2013, for insurance expense?
Which of the following is an example of a debit memo?
a. notice of a bank service charge
b. notice of interest earned on a checking account
c. outstanding checks
d. a company’s transposition error in the recording of a deposit
Mark would like to retire in 25 years. If he deposits $10,000 at the end of each of the
next 25 years into an account earning 7% interest, how much will he have in this
account at the end of 25 years?
a. $250,000
b. $758,292.17
c. $632,490.40
d. $291,339.50
Which of the following statements is not true? The information in the statement of cash
flows helps investors, creditors and others
a. assess a company’s ability to produce future cash inflows.
b. judge a company’s ability to meet it obligations and pay dividends.
c. estimate the company’s needs for external financing.
d. show the inflows and outflow of net income on the accrual basis.
Comprehensive income represents the increase in net assets resulting from all
transactions occurring during the accounting period except transactions with owners.
____________________ represents the cash flow that a company is able to generate
after considering the maintenance or expansion of its assets (capital expenditures) and
payment of dividends.
Adjusting entries are recorded at the end of each accounting period so that net income is
accurately reflected in the financial statements for the period.
Held-to-maturity securities are equity and debt investments that management intends to
sell in the future, but not necessarily in the near term.
Refer to Recovery Solutions, Inc. Assuming the company’s cash flow from operations
for 2015 is $323,847, calculate the operating cash flow ratio for 2015. Is the company
in danger of liquidity problems? Recovery Solutions, Inc.
Comparative financial statements are provided below:
To encourage prompt payment, sellers offer a(n) ____________________.
A revenue account has a normal ___________ balance.
Use the following selected financial information to compare these two companies at
December 31, 2015, and to answer the questions that follow.
Calculate working capital and the short-term liquidity ratios for these two companies
for 2015 and comment on their relative liquidity.
