Exam 5: Foundations of Financial Reporting and the Classified Balance Sheet

The convention of consistency has led to an increase in the notes to financial statements.

To understand accounting information,users must be familiar with the accounting conventions,or rules of thumb,used in preparing financial statements.

It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year.

Return on assets is a measure of liquidity.

___________ is related to both the nature of an item and its size.

Use this information to answer the following question. The total amount of working capital is

Asset turnover measures how efficiently assets are used to produce revenues.

The investments category on the balance sheet normally includes investments that are intended to be held for a long period of time.

The following lettered items represent a classification scheme for a balance sheet,and the numbered items represent accounts.In the blank next to each account,write the letter indicating to which category it belongs.

Use the following information to calculate the liquidity and profitability ratios listed below.Round to two decimal places. a.Current ratio b.Working capital c.Return on equity d.Profit margin e.Debt to equity ratio f.Return on assets g.Asset turnover

Which of the following accounting conventions would an accountant most likely apply when facing major uncertainties?

Liabilities have which of the following two major categories?

Goodwill would appear in which balance sheet section?

Working capital measures

Investors and creditors use financial statements to evaluate a company's ability to pay dividends and interest.

In practice,accounting information is quite simple and precise.

Which accounting convention could cause an overload of information for the financial statement user?

State the definition of a current asset.

For accounting information to be useful,it must be both relevant and conservative.

Expensing a building in the year of purchase represents an abuse of which of the following accounting conventions?