FAC Finance and Accounting Reporting & Analysis 2

Question 1

Under ASC 230, which of the following is classified as a financing activity on the statement of cash flows?

Accepted Answer

Payment of dividends to shareholders

Answer

Dividend payments to shareholders are financing activities under ASC 230 because they represent distributions to equity providers.

Question 2

A company reports a current ratio of 0.8. Which of the following best describes this situation?

Accepted Answer

The company has more current liabilities than current assets

Answer

A current ratio below 1.0 means current liabilities exceed current assets, indicating potential short-term liquidity concerns.

Question 3

Which financial statement metric is used to assess how efficiently a company collects its receivables?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

Days Sales Outstanding measures the average number of days a company takes to collect payment after a sale has been made.

Question 4

Under GAAP, when should a contingent liability be recorded on the balance sheet?

Accepted Answer

When it is probable and the amount can be reasonably estimated

Answer

ASC 450 requires recording a contingent liability when the loss is probable and the amount can be reasonably estimated.

Question 5

Which of the following best describes the purpose of horizontal analysis in financial reporting?

Accepted Answer

Comparing financial data across time periods to identify trends

Answer

Horizontal analysis compares financial statement data across multiple periods to identify growth trends or anomalies.

(FAC) Finance and Accounting Certification Practice Test