CHAPTER 5 (REVIEW)
1) Current liabilities include all of the following except:

all of the above (all of the above items are current liabilities).
2) The primary purpose of a statement of cash flows is to report the:
 relevant information about the sources and uses of cash during a period
3) Free cash flow is calculated as net cash provided by operating activities less capital
expenditures and:
 Dividends.
4) Major limitations of the statement of financial position include all of the following except:
 It cannot be used to assess business risk and future cash flows.
5) Which of the following types of investments are always reported as current assets?
 Investments that management intends to liquidate within a year
6) Accumulated other comprehensive income includes all of the following items except:
 Gains or losses from certain related party transactions.
7) A contingency is:
 a material event that has an uncertain future.
8) All of the following are included in shareholders’ equity except:
 Contingencies.
9) Which of the following is not a type of information that typically requires supplemental note
disclosure?
 Comprehensive Income
10) If additional reported information cannot be conveniently shown via explanations in
parentheses, the information would most likely be disclosed through the use of:
 Notes.
11) Activities that involve the c11ash effects of transactions that enter into the determination of
net income are classified as:
 Operating activities.
12) The cash flow statement for Schroder Corporation shows the following information:
Net cash provided by operating activities:
Net cash used by investing activities:
Net cash provided by financing activities:
Cash balance at the beginning of the period:
$100,000
$(50,000)
$10,000
$30,000
13) The cash balance at the end of the period is:
 $30,000 + ($100,000 - $50,000 + $10,000) = $90,000
14) Making and collecting loans and disposing of property, plant, and equipment are
 Investing activities.
15) The issuance of shares and the payment of dividends are
 Financing activities.
16) The statement of financial position is useful for analyzing all of the following except
 Profitability.
17) An enterprise’s ability to pay its debts and related interest is called
 Solvency.
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18) Monetary assets include
 Cash, accounts and notes receivable.
19) Financial instruments do NOT include
 Inventory.
20) Non-monetary assets
 are often measured at historical cost
21) The basis for classifying assets as current or non-current is conversion to cash within
 The operating cycle or one year, whichever is longer.
22) The operating cycle is the time between
 Acquisition of assets for processing and the realization in cash or cash equivalents.
23) Which of the following is a current asset?
 Trade instalment receivables normally collectible in eighteen months.
24) Which of the following should NOT be considered current assets in the statement of financial
position?
 Franchises and copyrights.
25) Which of the following statements about intangible assets is INCORRECT?
 Intangibles with indefinite lives are not amortized but are tested for impairment.
26) Which of the following is NOT a current liability?
 Stock dividends distributable
27) Which of the following statements best describes a liability?
 A liability is an enforceable economic burden or obligation.
28) Which of the following should be EXCLUDED from long-term liabilities?
 Derivatives.
29) Polis Corp.’s trial balance at December 31, 2020 is properly adjusted except for the income tax
expense adjustment.
PolisCorp.
Trial Balance
December 31, 2020
Cash
Accounts receivable (net)
Inventory
Property, plant, and equipment (net)
Accounts payable and accrued liabilities
Income taxes payable
Future income tax liability
Common shares
Contributed surplus
Retained earnings, Jan 1, 2020
Net sales and other revenues
Costs and expenses
Income tax expenses
Dr.
$ 337,500
1,447,500
1,192,500
4,183,000
Cr.
$ 990,500
342,000
37,500
1,675,000
1,340,000
2,325,000
6,180,000
5,040,000
689,500
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$12,890,000
$12,890,000
Other financial data for the year ended December 31, 2020:
• Included in accounts receivable is $360,000 due from a customer and payable in quarterly
instalments of $45,000. The last payment is due December 29, 2022.
• The balance in the future income tax liability account relates to a temporary difference that arose in
a prior year, of which $15,000 is classified as a current liability.
• During the year, estimated tax payments of $330,000 were charged to income tax expense. The
current and future tax rate on all types of income is 35 percent.
In Polis’ December 31, 2020 statement of financial position, the current assets total is
 $337,500 + [$1,447,500 – ($45,000 x 4)] + $1,192,500 = $2,797,500
30) Polis Corp.’s trial balance at December 31, 2020 is properly adjusted except for the income tax
expense adjustment.
PolisCorp.
Trial Balance
December 31, 2020
Cash
Accounts receivable (net)
Inventory
Property, plant, and equipment (net)
Accounts payable and accrued liabilities
Income taxes payable
Future income tax liability
Common shares
Contributed surplus
Retained earnings, Jan 1, 2020
Net sales and other revenues
Costs and expenses
Income tax expenses
Dr.
$ 337,500
1,447,500
1,192,500
4,183,000
Cr.
$ 990,500
342,000
37,500
1,675,000
1,340,000
2,325,000
6,180,000
5,040,000
689,500
$12,890,000
$12,890,000
Other financial data for the year ended December 31, 2020:
• Included in accounts receivable is $360,000 due from a customer and payable in quarterly
instalments of $45,000. The last payment is due December 29, 2022.
• The balance in the future income tax liability account relates to a temporary difference that arose in
a prior year, of which $15,000 is classified as a current liability.
• During the year, estimated tax payments of $330,000 were charged to income tax expense. The
current and future tax rate on all types of income is 35 percent.
In Polis’ December 31, 2020 statement of financial position, the current liabilities total is
 Note the adjusted income tax expense will be $399,000 [($6,180,000 – $5,040,000) x
35%] = $399,000. When the expense is reduced by $290,500 ($689,500 – $399,000
= $290,500), the liability will also be reduced by the same amount to $51,500
($990,500 + $51,500) + $15,000 = $1,057,000
31) In Polis’ December 31, 2020 statement of financial position, the final retained earnings balance is
 $2,325,000 + $6,180,000 – $5,040,000 – $399,000 (income tax exp) = $3,066,000
On January 1, 2020, Neptune Inc. leased a building to SaturnCorp. for a ten-year term at an annual
rental of $200,000. At inception of the lease, Neptune received $800,000, which covered the first two
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years rent of $400,000 and a security deposit of $400,000. This deposit will not be returned to
Saturnupon expiration of the lease, but will be applied to payment of rent for the last two years of the
lease. What portion of the $800,000 should be shown as a current and long-term liability in Neptune’s
December 31, 2020 statement of financial position?
$200,000
$400,000
32) Which of the following facts concerning depreciable assets should be included in the summary of
significant accounting policies?
Depreciation Method
Composition
Yes
33) Which of the following is a contra account?

Accumulated depreciation
34) In preparing a statement of cash flows, which of the following transactions would
be considered an investing activity?

Sale of equipment at book value
35) In a statement of cash flows, receipts from sales of property, plant, and
equipment and other productive assets should be classified as cash inflows from

investing activities
36) A statement of cash flows prepared under the INDIRECT method adds and
subtracts certain items to the base number. Decreases in unearned revenues would
be shown as

a deduction from net income.
37) In preparing a statement of cash flows under the INDIRECT method, cash flows
from operating activities

can be calculated by appropriately adding to or deducting from net
income those items in the income statement that do not affect cash.
38) Sing Song Corporation reports the following information:
Net income
Depreciation expense
Increase in accounts receivable
$720,000
210,000
90,000
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N
39) Sing Song should report cash provided by operating activities of
 $720,000 + $210,000 – $90,000 = $840,000.
40) Free cash flow is calculated as net cash provided by operating activities less
 capital expenditures and dividends.
41) A company that follows IFRS
 is generally allowed to disclose cash flow per share.
42) When current debt is refinanced by the issue date of financial statements, it may
generally be presented as non-current
 if the company follows ASPE
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