Problem 8-8 (AICPA)

1. 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

2. Which is an essential characteristic of an asset?

a. The claims to an asset's benefits are legally

enforceable.

b. An asset is tangible.

c. An asset is obtained at a cost.

d. An asset provides future benefits.

3. The essential characteristics of an asset include all

of the following, except

a. The asset is the result of past event.

b. The asset provides future economic benefit.

c. The cost of the asset can be measured reliably.

d. The asset is tangible.

4. Conceptually, asset valuation accounts are

a. Assets

b. Neither assets nor liabilities

c. Part of shareholders' equity

d. Liabilities

5 Working capital is

a. The group of assets needed by the entity to

operate profitably.

b. Capital which has been reinvested in business.

c. Unappropriated retained earnings.

d. Current assets less current liabilities.

6 .As generally used, the term net assets represents

a. Retained earnings

b. Current assets less current liabilities

c. Total contributed capital

d. Total assets less total liabilities

7. Treasury shares should be reported as

a. Current asset

b. Investment

c. Other asset

d. Reduction of shareholders' equity

8 The term deficit refers to

a. An excess of current assets over current

liabilities.

b. An excess of current liabilities over current

assets.

c. A debit balance in retained earnings.

d. A prior period error.

9 When classifying assets as current and noncurrent

a. The amounts at which current assets are carried

and reported must reflect realizable cash value.

b. Prepayments are included in other assets.

c. Current assets are determined by the seasonal

nature.

d. Assets are classified as current if reasonably

expected to be realized in cash or consumed

during the normal operating cycle

10. 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.

Problem 8-9 (AICPA)

1. 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.

2. 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. Trading securities

d. Cash surrender value of life insurance policy

3. Current assets should never include

a. A receivable not collectible within one year

b. Current tax asset

c. Goodwill arising in business combination

d. Premium paid on a bond investment

4.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

5 . 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