C213 Accounting for Decision Makers Practice Questions - Set 4 - Part 3

Correct Answer: A company’s ability to meet its long-term obligations

Solvency refers to a company’s ability to meet its long-term obligations. It's an important measure of financial health and stability.

Correct Answer: Income Statement

The income statement summarizes a company’s revenues and expenses over a specific period, providing insights into its profitability and financial performance.

Correct Answer: Collecting cash from customers

Collecting cash from customers is classified as an operating activity because it is part of the company’s day-to-day business operations. Paying dividends and issuing stock are financing activities, while purchasing equipment is an investing activity.

Correct Answer: Purchasing a new building

Purchasing a new building is an investing activity because it involves acquiring long-term assets that will be used in the company’s operations. Paying wages is an operating activity, while collecting cash and issuing bonds are other classifications.

Correct Answer: To provide insight into a company’s liquidity and cash flows

The statement of cash flows shows how cash is generated and used in operating, investing, and financing activities, which helps assess the liquidity of a company.

Correct Answer: Cash

Cash is classified as a current asset because it is the most liquid asset and is expected to be used or converted into cash within a year.

Correct Answer: Changes in share capital, retained earnings, and other comprehensive income during a period

The statement of changes in equity reflects all transactions affecting equity, such as changes in share capital, retained earnings, and any other comprehensive income during the reporting period.

Correct Answer: Financial Accounting Standards Board (FASB)

The FASB is responsible for establishing and improving financial accounting and reporting standards in the United States for the private sector.

Correct Answer: To show a company’s revenues and expenses over a period

The income statement summarizes the revenues and expenses, leading to the net income or loss for a specific period, providing insights into the company’s profitability.

Correct Answer: Purchasing equipment

Purchasing equipment is classified as an investing activity because it involves acquiring long-term assets that will be used in the company’s operations, while paying wages and collecting cash are operating activities, and issuing shares is a financing activity.