4 min
Updated: Sep 2, 2023
A) Income statement.
B) cash flow statement.
C) Balance Sheet.
Correct Answer: A
Explanation: The income statement of a company summarizes the company's revenues for a given reporting period. They can be classified as operating and no operating revenues, but they are not required to be classified as such. Because revenue may be recognized in a different period than cash is collected, cash from operating activities is presented on the company's statement of cash flows, but it is not always the same as operating revenues on the company's balance sheet. It shows the financial position of a company at a specific point in time, known as the balance sheet date.
A. Financial statement footnotes.
B. Supplementary schedules.
C. Management Discussion & Analysis.
Correct Answer: C
Explanation: It is customary for management discussion and analysis to include information on extraordinary items, as well as unusual or infrequent occurrences.
A. Deferred tax assets.(DTA)
B. Deferred tax liabilities.(DTL)
C. Permanent differences.
Correct Answer: C
Explanation: Permanent differences include tax credits that reduce taxes in a direct and immediate manner.
A. With the cash to income ratio, you can determine the ability of a business to generate cash from its operations.
B. With the debt coverage ratio, you can see how well a company is doing at covering its interest expenses.
C. This ratio assesses a company's ability to acquire long-term assets by investing cash flows generated from operations.
Correct Answer: A
Explanation: The debt coverage ratio is a financial risk indicator that measures leverage. The reinvestment ratio measures a company's ability to purchase long-term assets that generate operating cash flows.
A) Whenever a gain on the sale of fixed assets is recognized, the amount recognized is deducted from operating cash flows.
B) An additional schedule is required for the indirect method in order to reconcile net income to cash flow.
C) If you choose to use the indirect method, each line item on the income statement is converted to its cash equivalent before being recorded.
Correct Answer: A
Explanation: Whenever a gain on the sale of fixed assets is recognized, the amount recognized is deducted from operating cash flows. This is due to the fact that the gain would be reported twice, once in the investing section and once in net income. As a result, the gain must be deducted from the net income statement. The direct method of cash flow calculation, rather than the indirect method, converts income statement items to their cash equivalents. Aside from that, when using the indirect method, depreciation is added to net income in order to calculate CFO.
A. Understate replacement costs.
B. Understate profits.
C. Understate inventory.
Correct Answer: B
Explanation: If the first-in, first-out (FIFO) method is used, inventory will be appropriately valued (regardless of whether prices are rising or falling). Replacement costs will be overstated in the cost of goods sold (COGS), while profits will be underestimated.
A. Number of days of payables
B. Number of days of inventory
C. Number of days of receivables
Correct Answer: A
Explanation: Cash conversion cycle = DSO + DOH − Days of payables.
A) liabilities.
B) assets.
C) equity.
Correct Answer: B
Explanation: An asset is a resource that is expected to provide future benefits and that is controlled as a result of transactions that have occurred in the past. Liabilities are financial obligations resulting from past events that are expected to necessitate the expenditure of resources in the future. After liabilities have been deducted from assets, equity represents the remaining interest in those assets.
A. Assets + Liabilities = Contributed capital + Beginning retained earnings + Revenue – Expenses – Dividends
B. Assets – Contributed capital – Beginning retained earnings – Revenue + Expenses + Dividends declared = Liabilities
C. Assets – Liabilities = Contributed capital – Beginning retained earnings + Revenue – Expenses – Dividends declared
Correct Answer: B
Explanation: The accounting equation is: Assets = Liabilities + Contributed capital + Beginning retained earnings + Revenue – Expenses – Dividends declared
A. Increase in total assets.
B. Decrease in shareholders’ equity.
C. Increase in income tax expense.
Correct Answer: A
Explanation: If the valuation allowance decreases, it implies that the company's DTA (assets) is increasing. An increase in DTA lowers ITE and raises retained earnings at the same time (equity).
A) earnings before income taxes.
B) gross profit.
C) operating profit.
Correct Answer: C
Explanation: Operating profit = earnings before interest and taxes (EBIT)
Gross profit = net sales – COGS
Net income = earnings after taxes = EA
A. Increasing cost of goods sold
B. Increasing accounts payables
C. Decreasing payables turnover
Correct Answer: A
Explanation: Increasing cost of goods sold will increase the company’s purchases, which will lead to a decrease in the number of days of payables.
A) operating profitability.
B) solvency.
C) investing and financing activities
Correct Answer: B
Explanation: The balance sheet can be used by an analyst to determine the solvency and liquidity of a company. The income statement can be used to determine the profitability of an operation's operations. Detailed information about a company's investing and financing activities can be found in the company's statement of cash flows.
A. Assets
B. Liabilities
C. Equity
Correct Answer: B
Explanation: Provisions are typically presented under liabilities on the balance sheet.
A. Retained earnings.
B. Long-term debt.
C. Other comprehensive income.
Correct Answer: B
Explanation: In contrast, retained earnings and other comprehensive income are included in owners' equity, whereas long-term debt is included in noncurrent liabilities.