Question 1

Which of the following is NOT true of liabilities?
A) Liabilities are future obligations of economic benefits.
B) Liabilities must be legally owed debts.
C) Liabilities must involve either the future sacrifice of assets,or the future performance of services.
D) Liabilities can be estimates of future payments based on past agreements.

Accepted Answer

Although liabilities often involve legally owed debts, they can also include non-contractual obligations and future responsibilities for which there may not be a legal agreement in place.

Question 2

Which of the following items is normally classified as a current asset?
A) inventories
B) prepayments
C) intangibles
D) accounts receivable.

Accepted Answer

A

Question 3

To which balance sheet grouping does the item 'paid rent' belong?
A) current asset
B) noncurrent asset
C) current liability
D) noncurrent liability.

Accepted Answer

A

Question 4

Which of the following CANNOT be classified as a current liability?
A) accounts payable
B) provision for long service leave
C) loans
D) wages owing.

Accepted Answer

The answer of Which of the following CANNOT be classified...

Question 5

The purpose of dividing assets and liabilities into current and noncurrent classes is to help the reader of the balance sheet to determine:
A) the short-term financial position of the firm
B) the long-term financial position of the firm
C) the likely future financial performance of the firm
D) none of the above.

Accepted Answer

Dividing assets and liabilities into current and noncurrent classes helps the reader of the balance sheet to determine the short-term financial position of the firm. Current assets and liabilities are those that are expected to be converted to cash or paid within one year, while noncurrent assets and liabilities are those that will last longer than one year. This information is important for assessing a company's ability to meet its short-term obligations and manage its cash flow.

Question 6

Which of the following questions CANNOT be answered from a balance sheet?
A) What has caused the changes in cash held during the period?
B) Is the company soundly financed?
C) Can the company pay its bills on time?
D) Should a dividend be declared?

Accepted Answer

Changes in cash held during the period are shown on the cash flow statement, not the balance sheet.

Question 7

Which of the following statements is NOT true?
A) If total assets owned by a business total $110 000 and owners' equity totals $30 000,then liabilities total $80 000.
B) If total assets decreased by $30 000 during a specific period and owners' equity decreased by $35 000 during the same period,the period's change in total liabilities was a $65 000 increase.
C) If total assets decreased by $50 000 during a specific period and owners' equity decreased by $40 000 during the same period,the period's change in total liabilities was a $10 000 decrease.
D) If total assets increased by $75 000 during a specific period and liabilities decreased by $10 000 during the same period,the period's change in total owners' equity was an
$85 000 increase.

Accepted Answer

The accounting equation states that Assets = Liabilities + Owners' Equity. For choice B, if assets decreased by $30,000 and owners' equity decreased by $35,000, liabilities would have to decrease, not increase, to balance the equation. Therefore, the statement in choice B is not true.

Question 8

Which of the following questions CANNOT be answered by reference to a single balance sheet?
A) Can the enterprise pay its bills on time?
B) Should a dividend be declared?
C) If a dividend is declared,how large should it be?
D) How profitable was the company during the year?

Accepted Answer

The answer of Which of the following questions CANNOT be...

Question 9

Which of the following is NOT an asset?
A) accounts payable
B) inventory
C) land
D) work in progress.

Accepted Answer

Accounts payable is a liability, not an asset. Assets are items that a company owns and that have value, such as inventory, land, and work in progress. Liabilities are debts or obligations that a company owes to others.

Question 10

To which balance sheet grouping does the item 'bank overdraft' belong?
A) current asset
B) noncurrent asset
C) current liability
D) noncurrent liability.

Accepted Answer

Bank overdraft is a current liability because it is a short-term borrowing arrangement where a company has drawn more money than it has in its bank account, resulting in a negative balance. It is expected to be repaid within a short period, making it a current liability.

Question 11

To which balance sheet grouping does the item 'accumulated depreciation on equipment' belong?
A) current asset
B) noncurrent asset
C) current liability
D) noncurrent liability.

Accepted Answer

Accumulated depreciation on equipment is a contra-asset account that represents the cumulative amount of depreciation expense recognized on equipment over time. As a contra-asset account, it offsets the balance of the equipment asset account, which is a noncurrent asset. Therefore, accumulated depreciation on equipment belongs to the noncurrent asset balance sheet grouping.

Question 12

Which of the following is NOT a liability?
A) provision for long service leave
B) interest payable
C) share capital
D) creditors.

Accepted Answer

Share capital is a form of equity, not a liability. Liabilities are debts or obligations that a company owes to others, whereas equity represents ownership in the company. The other options (A, B, and D) are all examples of liabilities. Provision for long service leave represents the amount of money that a company expects to pay out in future for employee long service leave. Interest payable is the amount of interest that a company owes to its creditors for borrowing funds. Creditors are the companies or individuals that a company owes money to.

Question 13

Which of the following statements about assets is NOT true?
A) Assets provide future economic benefits.
B) Assets are economic resources controlled by an organisation.
C) Assets result from past transactions or other events.
D) Assets are items which can be physically identified.

Accepted Answer

Assets can be tangible or intangible, so not all assets can be physically identified.

Question 14

Which of the following is NOT an intangible asset?
A) prepayment
B) goodwill
C) copyright
D) brand name.

Accepted Answer

Prepayment is a type of current asset as it represents an advance payment made for goods or services to be received in the future. Goodwill, copyright, and brand name are all examples of intangible assets.

Question 15

Which of the following statements about a balance sheet is NOT true?
A) A balance sheet is included in the annual report of a company.
B) A balance sheet lists the set of resources and sources of the enterprise.
C) A balance sheet relates to a particular point in time.
D) A balance sheet indicates exactly which source produced which assets.

Accepted Answer

A balance sheet shows the assets, liabilities, and equity of a company at a particular point in time but does not indicate exactly which source produced which assets.

Question 16

Working capital equals:
A) noncurrent assets less noncurrent liabilities
B) cash on hand
C) current assets less current liabilities
D) shareholders' equity

Accepted Answer

Working capital is defined as current assets minus current liabilities. This calculation shows a company's liquidity position and ability to meet its short-term liabilities with its current assets. Option A refers to the calculation of net noncurrent assets, which is not related to working capital. Option B refers only to cash on hand, and Option D refers to the residual claim of shareholders after all liabilities are paid off, which is not related to working capital.

Question 17

Which of the following statements about a balance sheet is true?
A) A balance sheet presents the financial performance of a company for a period of time.
B) A balance sheet presents the company's financial position at a point in time.
C) A balance sheet shows which source of finance produced each asset.
D) A balance sheet includes all the resources of a company.

Accepted Answer

A balance sheet is a financial statement that presents a company's financial position at a specific point in time. It shows the company's assets, liabilities, and equity. It does not present the financial performance of the company over a period of time, nor does it show which source of finance produced each asset. While a balance sheet includes many of the resources of a company, it may not include all of them, as some assets may not be able to be quantified or may not meet the definition of an asset.

Question 18

The balance sheet:
A) indicates financial performance over a period of time
B) shows the relationship between receipts and payments
C) reflects changes in the assets and liabilities over a period of time
D) presents the financial position at a point in time.

Accepted Answer

The balance sheet presents the financial position of a company at a specific point in time. It shows the assets, liabilities, and equity of the company on that particular date. It does not indicate financial performance over a period of time, nor does it show the relationship between receipts and payments. It simply reflects the company's financial position at one specific moment.

Question 19

Which of the following is a liability?
A) retained profits
B) prepaid advertising
C) accumulated depreciation
D) expenses payable.

Accepted Answer

Expenses payable is a liability as it represents the amount owed by a company to its creditors for goods or services received but not yet paid for. Retained profits, prepaid advertising, and accumulated depreciation are all assets or equity accounts.

Question 20

Which of the following statements about a balance sheet is NOT true?
A) A balance sheet directly states how management has performed in using assets to earn profits.
B) Good profit performance is reflected by increased assets and retained profits.
C) A balance sheet provides a useful picture of the state of the company.
D) Many outsiders use the balance sheet to evaluate the quality of management's decisions on obtaining,deploying and financing assets.

Accepted Answer

A balance sheet does not directly state how management has performed in using assets to earn profits. It provides a snapshot of the company's financial position at a specific point in time, including assets, liabilities, and equity. Profit performance can be indirectly inferred from the balance sheet by analyzing changes in assets and retained earnings over time, but it is not a direct statement on management's performance.

Quiz 2: Measuring and Evaluating Financial Position and Financial Performance

Which of the following is NOT true of liabilities?

Which of the following items is normally classified as a current asset?

To which balance sheet grouping does the item 'paid rent' belong?

Which of the following CANNOT be classified as a current liability?

The purpose of dividing assets and liabilities into current and noncurrent classes is to help the reader of the balance sheet to determine:

Which of the following questions CANNOT be answered from a balance sheet?

Which of the following statements is NOT true?

Which of the following questions CANNOT be answered by reference to a single balance sheet?

Which of the following is NOT an asset?

To which balance sheet grouping does the item 'bank overdraft' belong?

To which balance sheet grouping does the item 'accumulated depreciation on equipment' belong?

Which of the following is NOT a liability?

Which of the following statements about assets is NOT true?

Which of the following is NOT an intangible asset?

Which of the following statements about a balance sheet is NOT true?

Working capital equals:

Which of the following statements about a balance sheet is true?

The balance sheet:

Which of the following is a liability?

Which of the following statements about a balance sheet is NOT true?