QUESTION: 1713

The balance sheet of firm A shows the following:

Cash & Cash equivalents 386
Receivables 119
Inventories 204
Marketable securities 143
Short-term loans 649
Current portion of long-term debt 312

The cash ratio of the firm equals ________.

0.55
0.82
1.82
0.63

Answer(s): A

Explanation:

The cash ratio is the most conservative liquidity ratio calculated using only cash and marketable securities relative to current liabilities. Thus, Cash ratio = (cash + marketable securities)/current liabilities In this case, Cash ratio = (386+143)/(649+312) = 0.55

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QUESTION: 1714

Which of the following are considered when applying generally accepted accounting principles.

When income is recognized as earned.
When expenses and losses accrue.
How assets are measured.
All of these answers are correct.
When liabilities are incurred.

Answer(s): D

Explanation:

The rules or standards of accounting determine such matters as how assets are measured, when liabilities are incurred, when income is recognized as earned, and when expenses and losses accrue.

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QUESTION: 1715

A capital lease is recorded as ________.

an asset and a liability
a temporary asset
an off-balance-sheet item
a liability

Answer(s): A

Explanation:

According to the GAAP, leases that transfer substantially all of the benefits and risks of the property to the lessee be treated as an asset acquisition and an assumption of liability. Hence, capital leases generate an asset and a liability.

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QUESTION: 1716

Which of the following best describes a statement of cash flows?

A statement of cash flows details the cash inflows and outflows that are related to a company's operating, investing, and financing activities over a period of time.
A statement of cash flows summarizes the financial position of a company at a given point in time.
A statement of cash flows measures a company's financial performance over a specified period of time.
A statement of cash flows reports changes over a period of time in component accounts that comprise the ownership of a firm.
None of these answers.

Answer(s): A

Explanation:

Under accrual accounting, net income does not typically equal net cash flow. While net income is important to identify, accrued income does not pay wages, payables, or dividends. Cash flows are important to identify since it is cash that repays loans, etc.

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Free CFA-Level-I Exam Braindumps (page: 429)

QUESTION: 1713

Explanation:

QUESTION: 1714

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QUESTION: 1715

Explanation:

QUESTION: 1716

Explanation: