Kindly answer the following questions in problems 8-6 and 8-7. AprimarilyProblem 8-6 Multiple choice (AICPA Adapted)1. In analyzing an entity's financial statements, whichfinancial statement would a potential investoruse to assess liquidity and financial flexibility?b.a. Statement of financial positionIncome statementStatement of retained earningsd. Statement of cash flowsC.2. Conceptually, asset valuation accounts area.Assetsb. Neither assets nor liabilitiesc. Part of shareholders' equityd. Liabilities3. Working capital isa. The group of assets needed to operate profitably.b. Capital reinvested in business.c. Unappropriated retained earnings.d. Current assets less current liabilities.4. As generally used, the term net assets representsa. Retained earningsb. Current assets less current liabilitiesc. Total shareholders' equityd. Total assets less total liabilities5. The basis for classifying assets as current or noncurrentis the period of time normally required to convert cashinvested ina. Inventory back into cash or 12 months, whichever isshorter.b. Receivables back into cash or 12 months, whicheveris longer.c. Property, plant and equipment back into cash or 12months, whichever is longer.d. Inventory back into cash or 12 months, whichever islonger.158Problem1. Which sa. Tracolleb. CaspreCasC.d. A dwil2. Whicha. Insaccb. PrFiC.d. Ca3. Currea. Ab. Cc. Gd. B4. Equiaddita. Cb. Ec. Id. L5. Whia.b.C.d. Problem 8-7 Multiple choice (AICPA Adapted)1. Which should be classified as current asset?a. Trade installment accounts receivable normallycollectible in 18 monthsb. Cash designated for the redemption of callablepreference sharesc. Cash surrender value of a life insurance policyd. A deposit on machinery ordered, delivery of whichwill be made within six months2. Which should not be considered as current asset?a.Installment notes receivable due over 18 months inaccordance with normal trade practiceb. Prepaid taxesc. Financial asset held for tradingd. Cash surrender value of life insurance policy3. Current assets should never includea. A receivable not collectible within one yearb. Current tax assetc. Goodwill arising in a business combinationd. Bond investment4. Equity investments held to finance construction ofadditional plant should be classified asa. Current assetsb. Property, plant, and equipmentc. Intangible assetsd. Noncurrent investments5. Which of the following is not a noncurrent investment?a. Cash surrender value of life insurance policyb. FranchiseC. Land held for speculationd. A sinking fund159

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Problem 8-6 Multiple 1. In analyzing an entity's financial statements, which financial statement would a potential investor primarily use to assess liquidity and financial flexibility? a. Statement of financial position b. Income statement c. Statement of retained earnings d. Statement of cash flows accounts are