The following questions dealing with balance sheet presentation, financial disclosures, and liquidity ratios are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants (www.imanet.org) provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions.
1. The Financial Accounting Standards Board has provided guidance on disclosures of transactions between related parties, for example, transactions between subsidiaries of a common parent. GAAP regarding related-party transactions requires all of the following disclosures except
a. The nature of the relationship involved.
b. A description of the transactions for each period an income statement is presented.
c. The dollar amounts of transactions for each period an income statement is presented.
d. The effect on the cash flow statement for each period a cash flow statement is presented.
2. The Management's Discussion and Analysis (MD&A) section of an annual report
a. Includes the company president's letter.
b. Covers three financial aspects of a firm's business: liquidity, capital resources, and results of operations.
c. Is a technical analysis of past results and a defense of those results by management.
d. Covers marketing and product line issues.
3. Windham Company has current assets of $400,000 and current liabilities of $500,000. Windham Company's current ratio would be increased by
a. The purchase of $100,000 of inventory on account.
b. The payment of $100,000 of accounts payable.
c. The collection of $100,000 of accounts receivable.
d. Refinancing a $100,000 long-term loan with short-term debt.