Question 1

Long-term investments appear in the property, plant, and equipment section of the statement of financial position.

Accepted Answer

Long-term investments are typically listed in a separate section of the statement of financial position (balance sheet) from property, plant, and equipment, as they represent different types of assets.

Question 2

The investment classification on the statement of financial position normally includes investments that are intended to be held for a short period of time (less than one year).

Accepted Answer

The investment classification on the statement of financial position normally includes investments that are intended to be held for a long period of time (more than one year), not for a short period of time. Short-term investments would be classified as current assets.

Question 3

Special rights and privileges that provide a future economic benefit to the company are classified as intangible assets.

Accepted Answer

Intangible assets are identified as non-physical assets that have value to a company because they offer long-term economic benefit or competitive advantage. Special rights and privileges, such as patents and trademarks, are examples of intangible assets.

Question 4

Intracompany comparisons are based on comparisons with competitors in the same industry.

Accepted Answer

Intracompany comparisons are comparisons made within the same company, such as comparing financial performance between different divisions or departments. Comparing with competitors in the same industry is called intercompany comparisons.

Question 5

Listing assets and liabilities in reverse order of liquidity is not permitted in Canada.

Accepted Answer

In Canada, financial statements, including the listing of assets and liabilities, must adhere to either International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE), both of which allow for flexibility in the presentation order, as long as the information is presented clearly and consistently. There is no specific rule that prohibits listing assets and liabilities in reverse order of liquidity.

Question 6

Mortgages and pension liabilities are examples of non-current liabilities.

Accepted Answer

Mortgages and pension liabilities are examples of non-current liabilities, which are obligations that are not expected to be settled within the next 12 months.

Question 7

The statement of financial position is normally presented as follows, when ordered in order of liquidity: Current assets, current liabilities, non-current assets, non-current liabilities, and shareholders' equity.

Accepted Answer

The answer of The statement of financial position is normally...

Question 8

Cash and office supplies are both classified as current assets.

Accepted Answer

Both cash and office supplies are expected to be used or converted into cash within the next accounting period and therefore are classified as current assets on the balance sheet.

Question 9

Analysis of financial statements is enhanced with the use of comparative data.

Accepted Answer

Comparative data allows for a comparison of financial information from different periods, which can help identify trends, changes, and areas of strength or weakness within a company's financial statements. Without comparative data, it can be difficult to make meaningful observations or draw accurate conclusions about a company's financial performance.

Question 10

The main difference between intangible assets and property, plant, and equipment is the length of the asset's life.

Accepted Answer

The answer of The main difference between intangible assets and...

Question 11

The statement of financial position is normally presented as follows, when ordered in order of reverse liquidity: Non-current assets, current assets, shareholders' equity, non-current liabilities, and current liabilities.

Accepted Answer

This is the correct order in which the statement of financial position (balance sheet) is presented, starting with non-current assets (which are the least liquid assets) and ending with current liabilities (which are the most immediate obligations to be paid).

Question 12

All long-lived assets including land have estimated useful lives over which they are expected to generate revenue.

Accepted Answer

The answer of All long-lived assets including land have estimated...

Question 13

Shareholders' equity consists of two parts: common and preferred shares.

Accepted Answer

The answer of Shareholders' equity consists of two parts: common...

Question 14

Inventories and prepaid expenses are classified as long-term investments.

Accepted Answer

Inventories and prepaid expenses are not classified as long-term investments. They are classified as current assets. Long-term investments would include items such as stocks, bonds, and real estate held for an extended period of time.

Question 15

Solvency ratios measure the entity's ability to survive over a long period.

Accepted Answer

Solvency ratios, such as debt-to-equity and interest coverage ratios, assess the entity's ability to meet long-term obligations and remain financially stable over an extended period of time.

Question 16

Shareholders' equity is divided into at least two parts: share capital and retained earnings.

Accepted Answer

Shareholders' equity is typically divided into two main components, which are share capital (the amount of money raised through the sale of shares) and retained earnings (the portion of a company's profits that have not been distributed as dividends but are instead kept within the company for future use).

Question 17

A liability is normally classified as a current liability if it is to be paid within the coming year.

Accepted Answer

A current liability is a debt that is expected to be paid within one year or within the normal operating cycle of a business.

Question 18

Calculating financial ratios can give clues to underlying conditions that may not be noticed by examining each financial statement item separately.

Accepted Answer

Financial ratios provide a way to evaluate the relationship between different financial statement items and can reveal insights into the financial health and performance of a company. By examining multiple ratios together, a more complete picture of the company's financial situation can be formed.

Question 19

All long-lived assets are depreciated over their estimated useful lives.

Accepted Answer

The answer of All long-lived assets are depreciated over their...

Question 20

Liquidity ratios are concerned with the frequency and amounts of dividend payments.

Accepted Answer

Liquidity ratios measure a company's ability to meet its short-term obligations, such as its ability to pay its bills or debts due in the near future. They do not relate to dividend payments.

Quiz 2: A Further Look at Financial Statements