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MULTIPLE CHOICE 1. Which of the following is a limitation of the balance sheet? a. Many items that are of financial value are omitted. b. Judgments and estimates are used. c. Current fair value is not reported. d. All of these 2. The balance sheet is useful for analyzing all of the following except a. liquidity. b. solvency. c. profitability. d. financial flexibility. 3. Balance sheet information is useful for all of the following except to a. compute rates of return b. analyze cash inflows and outflows for the period c. evaluate capital structure d. assess future cash flows 4. Balance sheet information is useful for all of the following except a. assessing a company’s risk b. evaluating a company’s liquidity c. evaluating a company’s financial flexibility d. determining free cash flows. 5. A limitation of the balance sheet that is not also a limitation of the income statement is a. the use of judgments and estimates b. omitted items c. the numbers are affected by the accounting methods employed d. valuation of items at historical cost 6. The balance sheet contributes to financial reporting by providing a basis for all of the following except a. computing rates of return. b. evaluating the capital structure of the enterprise. c. determining the increase in cash due to operations. d. assessing the liquidity and financial flexibility of the enterprise. 7. One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is a. failure to reflect current value information. b. the extensive use of separate classifications. c. an extensive use of estimates. d. failure to include items of financial value that cannot be recorded objectively. 8. The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability. 9. The net assets of a business are equal to a. current assets minus…

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