Goals Achievement: Chapter Sixteen
Select the appropriate response.
Which of the following is excluded in calculating the quick ratio?
short-term investments or merchandise inventory
Which type of ratio is useful for measuring the ability of a business to meet current debts as they come due?
liquidity ratio or profitability ratio
Inventory turnover and accounts receivable turnover are examples of:
coverage ratios or activity ratios
What is included in the numerator of the inventory turnover ratio?
average inventory or cost of goods sold
The numerator for the return on assets ratio includes:
net income and preferred dividends or interest expense
The times interest earned ratio consists of income before income taxes and interest divided by:
The statement of cash flows reveals the cash generated or consumed by a firm's operating, investing, and financing activities.
Cash flow information provides signals about the maturity of a business, as well as information about looming financial problems.
The statement of cash flows is primarily designed to explain the changes in retained earnings.
Which activities relate primarily to the production and sale of goods and services and enter into the determination of income?
operating activities or financing activities
Which of the following would constitute a typical cash inflow from an investing activity?
sale of stocks of other firms or issuance of stock
Only transactions that directly generate or consume cash are reported on a statement of cash flows.
Which of the following would constitute a noncash investing/financing transaction?
exchanging land for stock or issuing a stock dividend
Significant noncash investing/financing transactions are reported on a statement of cash flows prepared using either the direct method or:
the indirect method or investing method
Which of the following approaches to preparing the statement of cash flows translates income from the accrual basis to the cash basis?
direct method or indirect method
Cash received from customers can be calculated by starting with accrual basis sales and adding:
decreases in accounts receivable or increases in accounts receivable
To calculate cash flow from operating activities under the indirect method, nonoperating gains should be:
added or subtracted
With the indirect approach to calculating cash flow from operating activities, increases in current assets related to operations should be subtracted from the accrual basis income figure.
In preparing a statement of cash flows, the proceeds from a disposal of equipment should be reported as a cash inflow from investing activities.
Cash dividends paid are reported as a financing cash:
Both the direct and indirect methods are acceptable for external financial reporting.