ABA Financial Reporting and Analysis 2

Question 1

A company reports accounts receivable of $500,000 with an allowance for doubtful accounts of $25,000. What is the net realizable value of accounts receivable?

Accepted Answer

$475,000

Answer

Net realizable value equals gross accounts receivable minus the allowance for doubtful accounts: $500,000 - $25,000 = $475,000.

Question 2

Under the indirect method of preparing the cash flow statement, how is depreciation expense treated?

Accepted Answer

Added back to net income

Answer

Depreciation is a non-cash expense deducted in computing net income, so it is added back to reconcile net income to operating cash flows.

Question 3

Which financial statement best reflects a company's ability to meet short-term obligations?

Accepted Answer

Balance sheet

Answer

The balance sheet shows current assets and current liabilities, which are used to assess short-term liquidity at a point in time.

Question 4

An analyst calculates a company's inventory turnover ratio as 8. What does this indicate?

Accepted Answer

Inventory is sold and replaced 8 times per year

Answer

Inventory turnover of 8 means the company sells and replaces its average inventory approximately 8 times during the period.

Question 5

When a company issues bonds at a premium, the carrying value of the bonds will:

Accepted Answer

Decrease each period until maturity

Answer

When bonds are issued at a premium (above face value), the premium is amortized over the bond's life, reducing the carrying value toward face value at maturity.

(ABA) Accredited Business Accountant Practice Test

(ABA) Accredited Business Accountant Practice Test

ABA Financial Reporting and Analysis 2