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Horton Company owns the following investments:  Trading securities (fair value)  $60,000 Available-for-sale securities (fair value)  35,000 Held-to-maturity securities (amortized cost)  47,000\begin{array} { l r } \text { Trading securities (fair value) } & \$ 60,000 \\\text { Available-for-sale securities (fair value) } & 35,000 \\\text { Held-to-maturity securities (amortized cost) } & 47,000\end{array} Horton will report securities in its long-term investments section of


A) exactly $95,000.
B) exactly $107,000.
C) exactly $142,000.
D) $82,000 or an amount less than $82,000, depending on the circumstances.

Correct Answer

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The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the


A) retained earnings statement.
B) income statement.
C) statement of cash flows.
D) statement of financial position.

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The account form and the report form of the balance sheet are both acceptable under GAAP.

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The cash debt coverage ratio is computed by dividing net cash provided by operating activities by


A) average long-term liabilities.
B) average total liabilities.
C) ending long-term liabilities.
D) ending total liabilities.

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Garret Company owns the following investments:  Trading securities (fair value)  $60,000 Available-for-sale securities (fair value)  35,000 Held-to-maturity securities (amortized cost)  47,000\begin{array} { l r } \text { Trading securities (fair value) } & \$ 60,000 \\\text { Available-for-sale securities (fair value) } & 35,000 \\\text { Held-to-maturity securities (amortized cost) } & 47,000\end{array} Garret will report investments in its current assets section of


A) $0.
B) exactly $60,000.
C) $60,000 or an amount greater than $60,000, depending on the circumstances.
D) exactly $95,000.

Correct Answer

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Which of the following would be classified in a different major section of a balance sheet from the others?


A) Capital stock
B) Common stock subscribed
C) Stock dividend distributable
D) Stock investment in affiliate

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Which of the following should be excluded from long-term liabilities?


A) Obligations payable at some date beyond the operating cycle
B) Most pension obligations
C) Long-term liabilities that mature within the operating cycle and will be paid from a sinking fund
D) None of these

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Financial statement readers often assess liquidity by using the current cash debt coverage ratio.

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The balance sheet contributes to financial reporting by providing a basis for all of the following except


A) computing rates of return.
B) evaluating the capital structure of the enterprise.
C) determining the increase in cash due to operations.
D) assessing the liquidity and financial flexibility of the enterprise.

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In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from


A) lending activities.
B) operating activities.
C) investing activities.
D) financing activities.

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Long-term liabilities include


A) obligations not expected to be liquidated within the operating cycle.
B) obligations payable at some date beyond the operating cycle.
C) deferred income taxes and most lease obligations.
D) all of these.

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Treasury stock should be reported as a(n)


A) current asset.
B) investment.
C) other asset.
D) reduction of stockholders' equity.

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The stockholders' equity section is usually divided into what three parts?


A) Preferred stock, common stock, treasury stock
B) Preferred stock, common stock, retained earnings
C) Capital stock, additional paid-in capital, retained earnings
D) Capital stock, appropriated retained earnings, unappropriated retained earnings

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Reese Corp.'s trial balance reflected the following account balances at December 31, 2007:  Accounts receivable (net)  $24,000 Trading securities 6,000 Accumulated depreciation on equipment and furniture 15,000 Cash 11,000 Inventory 30,000 Equipment 25,000 Patent 4,000 Prepaid expenses 2,000 Land held for future business site 18,000\begin{array} { l r } \text { Accounts receivable (net) } & \$ 24,000 \\\text { Trading securities } & 6,000 \\\text { Accumulated depreciation on equipment and furniture } & 15,000 \\\text { Cash } & 11,000 \\\text { Inventory } & 30,000 \\\text { Equipment } & 25,000 \\\text { Patent } & 4,000 \\\text { Prepaid expenses } & 2,000 \\\text { Land held for future business site } & 18,000\end{array} In Reese's December 31, 2007 balance sheet, the current assets total is


A) $90,000.
B) $82,000.
C) $77,000.
D) $73,000.

Correct Answer

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Which item below is not a current liability?


A) Unearned revenue
B) Stock dividends distributable
C) The currently maturing portion of long-term debt
D) Trade accounts payable

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When a portion of inventories has been pledged as security on a loan,


A) the value of the portion pledged should be subtracted from the debt.
B) an equal amount of retained earnings should be appropriated.
C) the fact should be disclosed but the amount of current assets should not be affected.
D) the cost of the pledged inventories should be transferred from current assets to noncurrent assets.

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Which of the following should be reported for capital stock?


A) The shares authorized
B) The shares issued
C) The shares outstanding
D) All of these

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Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows.

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One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is


A) failure to reflect current value information.
B) the extensive use of separate classifications.
C) an extensive use of estimates.
D) failure to include items of financial value that cannot be recorded objectively.

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The statement of cash flows reports only the cash effects of operations during a period and financing transactions.

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