OLO1 Exam Questions 25–34

25. A company is reviewing its financial position and wants to increase liquidity. Which action should help?

• Converting cash into long-term investments

• Using cash to pay down debt

• Purchasing additional fixed assets

✓ Selling inventory for cash

26. Jaunty Coffee Co.’s balance sheet shows $750 million in assets and $200 million in short-term assets. What is the balance in long-term assets?

• $200 million

• $250 million

• $50 million

✓ $550 million

27. Whole Pine Inc. took out notes payable from the bank which are due four years from today. Where should this be classified on the balance sheet?

• Non-current asset

• Current liability

• Current asset

✓ Non-current liability

28. A company purchases equipment by taking out a bank loan. Why does this transaction keep the accounting equation balanced?

• The loan reduces owners’ equity to offset the new asset.

• The company’s expenses increase, balancing the purchase.

✓ The increase in assets is matched by an increase in liabilities.

• The company’s net income increases by the same amount.

29. A business secures a loan from a bank to finance its expansion efforts. Which section of the statement of cash flows is borrowing from the bank for this loan classified in?

• Operating activities

• Investing activities

✓ Financing activities

• Issuance of common stock

30. An organization’s board declares and pays dividends to shareholders. Which section of the cash flow statement is this transaction recorded in?

• Investing activities section

• Operating activities section

✓ Financing activities section

• Retained earnings section

31. Which basis of accounting is more efficient for small businesses that generate less than $80,000 in revenues annually?

• Accrual basis

✓ Cash basis

• Completed contract method

• Modified accrual basis

32. How does the purchase of $20,000 of inventory affect the statement of cash flows?

• Financing activities (use of cash)

• Investing activities (use of cash)

✓ Operating activities (use of cash)

• Operating activities (source of cash)

33. The income statement reports a net loss, but the statement of cash flows shows a positive cash flow from operating activities. What does this indicate?

✓ The company had significant non-cash expenses, like depreciation.

• The company paid down its long-term liabilities.

• The company received cash from issuing long-term debt.

• The company sold long-term assets during the period.

34. How would the purchase of a new piece of equipment be reflected in the statement of cash flows?

✓ As a cash outflow under investing activities

• As a cash inflow under operating activities

• As a cash inflow under financing activities

• As a cash outflow under financing activities

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