Answer the following multiple-choice questions:
Required
a. Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting. The notes should not be used to
1. Describe significant accounting policies.
2. Describe depreciation methods employed by the company.
3. Describe principles and methods peculiar to the industry in which the company operates when these principles and methods are predominately followed in that industry.
4. Disclose the basis of consolidation for consolidated statements.
5. Correct an improper presentation in the financial statements.
b. Which one of the following would be a source of funds under a cash concept of funds but would not be listed as a source under the working capital concept?
1. Sale of stock
2. Sale of machinery
3. Sale of treasury stock
4. Collection of accounts receivable
5. Proceeds from long-term bank borrowing
c. The concept of conservatism is often considered important in accounting. The application of this concept means that in the event some doubt occurs as to how a transaction should be recorded, it should be recorded so as to
1. Understate income and overstate assets.
2. Overstate income and overstate assets.
3. Understate income and understate assets.
4. Overstate income and understate assets.
5. Overstate cash and overstate assets.
d. Early in a period in which sales were increasing at a modest rate and plant expansion and startup costs were occurring at a rapid rate, a successful business would likely experience
1. Increased profits and increased financing requirements because of an increasing cash shortage.
2. Increased profits and decreased financing requirements because of an increasing cash surplus.
3. Increased profits and no change in financing requirements.
4. Decreased profits and increased financing requirements because of an increasing cash shortage.
5. Decreased profits and decreased financing requirements because of an increasing cash surplus.
e. Which of the following ratios would best disclose effective management of working capital by a given firm relative to other firms in the same industry?
1. A high rate of financial leverage relative to the industry average
2. A high number of days’ sales uncollected relative to the industry average
3. A high turnover of net working capital relative to the industry average
4. A high number of days’ sales in inventory relative to the industry average
5. A high proportion of fixed assets relative to the industry average