17. Which of the following statements about the statement of cash flows is not r
ID: 2472305 • Letter: 1
Question
17. Which of the following statements about the statement of cash flows is not right?
A. It does not replace the income instatement
B. It provides details as to how cash changed during a period
C. it provides information about cash receipt and cash payments over a period of time
D. it measures profitability
18. Which of the following is not included in the cash and cash equivalents amount reported on the balance sheet?
A. Money market funds
B. Checking accounts
C. Treasury bills
D. Notes receivable due in 90 days
19. During the year, the company recorded services provided to customers on account. What effect will this transaction have on the debt-to-assets and times interest earned ratios?
A. Debt-to-assets ratio will decrease and the times interest earned will increase
B. debt-to-asset ratio will increase and the times interest earned will not change
C. Both ratios will decrease
D. both ratios will increase.
20. John purchased 1 share of $10 par value common stock form Utah Corporation for $50 per share. John sold that share to Stan for $60 per share. As a result of the sale by John to Stan, Utah Corporation would:
A. debit cash and credit additional paid-in capital for $10
B. debit cash and credit common stock for $10
C. debit common stock and credit additional paid-in capital for $10
D. not debit or credit any of its accounts
Explanation / Answer
17. D is not right. The statement of cash flows does not measure profitability, it measures liquidity.
18.D is not included in cash and cash equivalent amounts reported on the balance sheet.
19.A is the correct option. When sales are made on credit, asset in the form of account receivable increases. So the denominator in debt to assets goes up, leading to a decrease in that ratio. Times interest earned is calculated as EBIT/ interest expense. If sales revenue goes up, EBIT will increase. Therefore this ratio increases.
20. D is the correct option. The transaction between John and Stan does not affect the financials of Utah Corporation.
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