CHAPTER 2
1. Which of the following is classified as a non-current asset?
a) Cash
b) Accounts receivable
c) Property, plant, and equipment
d) Inventory
2. Current assets are presented in the statement of financial position generally in order
of:
a) Historical cost
b) Fair value
c) Liquidity
d) Alphabetical order
3. Which of the following is not considered a current liability?
a) Accounts payable
b) Salaries payable
c) Notes payable due in 3 years
d) Unearned revenue (within 1 year)
4. Which of the following is an intangible asset?
a) Equipment
b) Patents
c) Inventory
d) Accounts receivable
5. Which of the following is part of shareholders’ equity?
a) Accounts payable
b) Retained earnings
c) Bonds payable
d) Prepaid expenses
6. Which of the following is not reported as part of property, plant, and equipment?
a) Land
b) Buildings
c) Machinery
d) Patents
7. Which of the following best describes liquidity?
a) The ability to generate net income
b) The ability to convert assets to cash quickly
c) The ability to pay long-term obligations
d) The ability to use resources efficiently
8. Which measurement basis is most commonly used in preparing the statement of
financial position?
a) Fair value
b) Historical cost
c) Replacement cost
d) Net realizable value
9. Non-controlling interest in subsidiaries is presented in the statement of financial
position under:
a) Liabilities
b) Non-current assets
c) Equity
d) Intangible assets
10. Which of the following items would not appear in equity?
a) Share capital
b) Retained earnings
c) Bonds payable
d) Accumulated other comprehensive income
11. Which of the following is a limitation of the statement of financial position?
a) Many items are reported at historical cost
b) It reflects judgments and estimates
c) It omits items of financial value that cannot be recorded objectively
d) All of the above
12. Which of the following items would be classified as a current asset?
a) Prepaid rent for the next 12 months
b) Land held for future use
c) Equipment
d) Goodwill
13. Contingent liabilities that are probable and can be reasonably estimated are:
a) Not disclosed
b) Reported in equity
c) Reported as liabilities
d) Only disclosed in notes
14. Which of the following best defines financial flexibility?
a) Ability to generate profit
b) Ability to adapt and respond to unexpected needs and opportunities
c) Ability to convert assets into cash quickly
d) Ability to reduce operating costs
15. Which of the following items would be classified as “other comprehensive income”
in equity?
a) Net income
b) Unrealized gains on revaluation of property
c) Dividends declared
d) Proceeds from issuing shares
16. Which of the following best describes solvency?
a) Ability to meet long-term obligations
b) Ability to convert assets into cash
c) Ability to generate net profit
d) Ability to reduce expenses
17. A company purchases equipment for €100,000. In the statement of financial
position, the equipment is reported at:
a) Historical cost less accumulated depreciation
b) Current fair value
c) Net realizable value
d) Replacement cost
18. Which of the following items would not be reported in the statement of financial
position?
a) Contingent liabilities that cannot be reasonably estimated
b) Property, plant, and equipment
c) Intangible assets
d) Accounts payable
