CNA Financial Reporting and Analysis 3

Question 1

Which of the following best describes the quick ratio (acid-test ratio)?

Accepted Answer

(Current Assets − Inventory) ÷ Current Liabilities

Answer

The quick ratio excludes inventory (the least liquid current asset) from current assets before dividing by current liabilities, providing a stricter measure of short-term liquidity.

Question 2

Comprehensive income includes net income plus which of the following?

Accepted Answer

Other comprehensive income (OCI) items

Answer

Comprehensive income = Net Income + Other Comprehensive Income, which includes items like unrealized gains/losses on available-for-sale securities and foreign currency translation adjustments.

Question 3

Which accounting method is required for investments when an investor has significant influence (typically 20–50% ownership)?

Accepted Answer

Equity method

Answer

The equity method requires the investor to record its proportionate share of the investee's earnings or losses, adjusting the carrying value of the investment accordingly.

Question 4

What is the primary purpose of a footnote (note) disclosure in financial statements?

Accepted Answer

To provide additional detail and context that enhances understanding of the financials

Answer

Footnote disclosures supplement the financial statements by providing additional qualitative and quantitative information needed for a complete and transparent picture of the entity's financial position.

Question 5

Which of the following ratios measures how efficiently a company collects its receivables?

Accepted Answer

Accounts Receivable Turnover

Answer

Accounts Receivable Turnover = Net Credit Sales ÷ Average Accounts Receivable, measuring how many times per period the company collects its average receivable balance.

CNA - Certified National Accountant Practice Test

CNA - Certified National Accountant Practice Test

CNA Financial Reporting and Analysis 3