CFAS - CHAPTER 8

Question 1

The major financial statements include all, except

a. Statement of financial position
b. Statement of changes in financial position.
c. Statement of comprehensive income
d. Statement of changes in equity

Answer 1

b. Statement of changes in financial position.

Question 2

The major financial statements include all, except

a. Statement of financial position
b. Income statement
c. Statement of cash flows
d. Statement of retained earnings

Answer 2

d. Statement of retained earnings

Question 3

What is the objective of financial statements?

a. To provide information about the financial position, financial performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

b. To present a statement of financial position and a statement of comprehensive income.

c. To present relevant, reliable, comparable and understandable information to investors.

d. To present financial statements in accordance with all applicable standards.

Answer 3

a. To provide information about the financial position, financial performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

Question 4

Financial statements must be prepared at least

a. Annually
b. Quarterly
c. Semiannually
d. Every two years

Answer 4

a. Annually

Question 5

When entity changed the end of reporting period longer or shorter than one year, the entity shall disclose all, except

a. Period covered by the financial statements
b. The reason for using a longer or shorter period
c. The fact that amounts presented are not entirely comparable
d. The fact that similar entities have done so

Answer 5

d. The fact that similar entities have done so

Question 6

The operating cycle is measured at

a. The mean value
b. The median value
c. Twelve months
d. Three years

Answer 6

c. Twelve months

Question 7

The operating cycle of an entity

a. Is the time between the acquisition of materials entering into a process and their realization in cash.
b. Is time in converting accounts receivable into cash.
c. Is a period of one year.
d. Is the seasonal variation experienced by entities.

Answer 7

a. Is the time between the acquisition of materials entering into a process and their realization in cash.

Question 8

An entity shall classify an asset as current under all, except

a. The entity expects to realize the asset or intends to sell or consume it within the normal operating cycle.

b. The entity holds the asset for the purpose of trading.

c. The entity expects to realize the asset within twelve months after the reporting period.

d. Cash restricted to settle a liability for more than twelve months after reporting period.

Answer 8

d. Cash restricted to settle a liability for more than twelve months after reporting period.

Question 9

An entity shall classify a liability as current, except

a. The entity expects to settle the liability within the entity’s normal operating cycle.

b. The entity holds the liability primarily for trading.

c. The liability is due to be settled within twelve months after the reporting period.

d. The entity has a right to defer settlement for at least twelve months after reporting period.

Answer 9

d. The entity has a right to defer settlement for at least twelve months after reporting period.

Question 10

In the Philippines, the common practice is to present in the statement of financial position

a. Current before noncurrent assets, current before noncurrent liabilities and equity after liabilities.

b. Noncurrent before current assets, noncurrent before current liabilities and equity after liabilities.

C. Current before noncurrent assets, noncurrent before current liabilities and equity after liabilities

d. Noncurrent before current assets, current before noncurrent liabilities and equity after liabilities.

Answer 10

a. Current before noncurrent assets, current before noncurrent liabilities and equity after liabilities.

Question 11

In analyzing an entity’s financial statements, which financial statement would a potential investor primarily use to assess liquidity and financial flexibility?

a. Statement of financial position
b. Income statement
c. Statement of retained earnings
d. Statement of cash flows

Answer 11

a. Statement of financial position

Question 12

Conceptually, asset valuation accounts are

a. Assets
b. Neither assets nor liabilities
c. Part of shareholders’ equity
d. Liabilities

Answer 12

b. Neither assets nor liabilities

Question 13

Working capital is

a. The group of assets needed to operate profitably.
b. Capital reinvested in business.
c. Unappropriated retained earnings.
d. Current assets less current liabilities.

Answer 13

d. Current assets less current liabilities.

Question 14

As generally used, the term net assets represents.

a. Retained earnings
b. Current assets less current liabilities
c. Total shareholders’ equity
d. Total assets less total liabilities

Answer 14

d. Total assets less total liabilities

Question 15

The basis for classifying assets as current or noncurrent is the period of time normally required to convert cash invested in

a. Inventory back into cash or 12 months, whichever is shorter.

b. Receivables back into cash or 12 months, whichever is longer.

c. Property, plant and equipment back into cash or 12 months, whichever is longer.

d. Inventory back into cash or 12 months, whichever is longer.

Answer 15

d. Inventory back into cash or 12 months, whichever is longer.

Question 16

Which of the following is not a noncurrent investment?

a. Cash surrender value of life insurance policy
b. Franchise
c. Land held for speculation
d. A sinking fund

Answer 16

b. Franchise

Question 17

Equity investments held to finance construction of additional plant should be classified as

a. Current assets
b. Property, plant, and equipment
c. Intangible assets
d. Noncurrent investments

Answer 17

d. Noncurrent investments

Question 18

Cash restricted for the settlement of a liability due 18 months after the reporting period should be presented as

a. Current asset
b. Equity
c. Noncurrent liability
d. Noncurrent asset

Answer 18

d. Noncurrent asset

Question 19

A loan due for repayment in six months’ time but the entity has the right to defer repayment two years later should be presented as.

a. Current liability
b. Current asset
c. Noncurrent liability
d. Noncurrent asset

Answer 19

c. Noncurrent liability

Question 20

A financial liability due within twelve months after the reporting period shall be classified as noncurrent

a. When it is refinanced on a long-term basis.

b. When the entity has no right to refinance:

c. When it is refinanced on a long-term basis after the end of reporting period.

d. When it is refinanced on a long-term basis on or before the end of reporting period.

Answer 20

d. When it is refinanced on a long-term basis on or before the end of reporting period.

Question 21

When an entity breaches a covenant under a long-term loan agreement on or before the end of the reporting period, the liability is classified as

a. Current under all circumstances

b. Noncurrent under all circumstances

c. Current or noncurrent at the discretion of the borrower

d. Noncurrent if the lender agreed at the end of reporting period to provide a grace period for at least twelve months after the reporting period.

Answer 21

d. Noncurrent if the lender agreed at the end of reporting period to provide a grace period for at least twelve months after the reporting period.

Question 22

Assets to be sold, consumed or realized as part of the normal operating cycle are

a. Current assets
b. Noncurrent assets
c. Classified as current or noncurrent in accordance with other criteria
d. Noncurrent investments

Answer 22

a. Current assets

Question 23

Liabilities that an entity expects to settle within the normal operating cycle are classified as

a. Noncurrent liabilities
b. Current or noncurrent liabilities in accordance with other criteria
c. Current liabilities
d. Equity

Answer 23

c. Current liabilities

Question 24

What is an example of an item which is not an element of working capital?

a. Accrued interest receivable
b. Goodwill
c. Goods in process
d. Trading investment

Answer 24

b. Goodwill

Question 25

Accrued revenue would normally appear in the statement of financial position under

a. Noncurrent assets
b. Current liabilities
c. Noncurrent liabilities
d. Current assets

Answer 25

d. Current assets

Question 26

Which of the following is usually classified as a noncurrent asset?

a. Plant expansion fund
b. Prepaid rent
c. Supplies unused
d. Trading investment

Answer 26

a. Plant expansion fund

Question 27

Which should be classified as current asset?

a. Trade installment accounts receivable normally collectible in 18 months

b. Cash designated for the redemption of callable preference shares

c. Cash surrender value of a life insurance policy

d. A deposit on machinery ordered, delivery of which will be made within six months

Answer 27

a. Trade installment accounts receivable normally
collectible in 18 months

Question 28

Which should not be considered as current asset?

a. Installment notes receivable due over 18 months in accordance with normal trade practice

b. Prepaid taxes

c. Financial asset held for trading

d. Cash surrender value of life insurance policy

Answer 28

d. Cash surrender value of life insurance policy

Question 29

Current assets should never include

a. A receivable not collectible within one year
b. Current tax asset
c. Goodwill arising in a business combination
d. Bond investment

Answer 29

c. Goodwill arising in a business combination

Question 30

Employment taxes that are due for settlement in 15 months’ time should be presented as

a. Current liability
b. Current asset
c. Noncurrent liability
d. Noncurrent asset

Answer 30

a. Current liability