2) Fixed assets includes which of the below?
A) Inventory
B) Patents
C) Land
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
4) Your firm has the following balance sheet statement items: total current liabilities of $805,000;
total assets of $2,655,000; fixed and other assets of $1,770,000; and long-term debt of $200,000.
What is the amount of the firm’s net working capital?
A) $25,000
B) $325,000
C) $770,000
D) $80,000
Topic: 3.4 The Balance Sheet
Keywords: net working capital
Principles: Principle 3: Cash Flows Are the Source of Value
5) Which of the following best describes a balance sheet?
A) Reports cash receipts and cash disbursements for a specific accounting period
B) Reports investment activities for a specified accounting period
C) Reports revenues and expenses for a specific accounting period
D) Reports the amount and composition of assets and liabilities at a specified point in time
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
18
6) Which of the following would NOT be included as an asset on a corporate balance sheet?
A) Accounts receivable
B) Common stock
C) Inventory
D) Buildings
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
7) Which of the following would NOT be included as a liability in a corporate balance sheet?
A) Accruals
B) Notes payable
C) Accounts payable
D) Bonds
E) Depreciation
Topic: 3.4 The Balance Sheet
Keywords: liability
Principles: Principle 3: Cash Flows Are the Source of Value
8) Which of the following would NOT be included as equity in a corporate balance sheet?
A) Cash
B) Paid in capital
C) Preferred stock
D) Retained earnings
E) Common stock
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
9) Which of the following is NOT considered a fixed asset?
A) Land
B) Equipment
C) Patents
D) Building
Topic: 3.4 The Balance Sheet
Keywords: fixed assets
Principles: Principle 3: Cash Flows Are the Source of Value
19
10) Holding all other variables constant, which of the following will decrease total equity? An
increase in:
A) common stock issued
B) dividends paid
C) net income
D) interest expense
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
11) Grass Gadgets had sales of $30 million and net income of $2 million in 2008. Grass paid a
dividend of $1.5 million. Assuming that their beginning balance for retained earnings was $3
million, calculate their ending balance for retained earnings.
A) $2.5 million
B) $3 million
C) $3.5 million
D) $4 million
Topic: 3.4 The Balance Sheet
Keywords: retained earnings
Principles: Principle 3: Cash Flows Are the Source of Value
12) Total equity on the balance sheet increases as dividends paid increases.
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
13) A balance sheet is a statement of the financial position of the firm on a given date, including
its asset holdings, liabilities, and equity.
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
14) Under current accounting rules, plant and equipment appear on a company’s balance sheet
valued at replacement value.
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
20
15) The balance sheet describes the financial position of a firm on a given date.
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
16) An advantage of balance sheet numbers is that assets reflect current market values.
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
17) A firm’s balance sheet provides a representation of the current market value of the company.
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
18) The balance sheet provides a statement of the firm’s financial position.
Topic: 3.4 The Balance Sheet
Keywords: balance sheet
Principles: Principle 3: Cash Flows Are the Source of Value
1) How does “free cash flow” differ from net profit?
A) It is determined by accrual basis accounting.
B) It takes into consideration a firm’s ongoing investment in working capital and fixed assets.
C) It ignores depreciation and taxes.
D) It is less expensive.
Topic: 3.5 The Cash Flow Statement
Keywords: cash flow
Principles: Principle 3: Cash Flows Are the Source of Value
21
2) Which of the following items is part of the computation of net operating working capital for
purposes of determining free cash flow?
A) Accounts payable
B) Fixed assets
C) Interest expense
D) Dividend payments
Topic: 3.5 The Cash Flow Statement
Keywords: free cash flow
Principles: Principle 3: Cash Flows Are the Source of Value
3) Which of the following does NOT represent cash outflows to the firm?
A) Taxes
B) Interest payments
C) Dividends
D) Purchase of plant and equipment
E) Depreciation
Topic: 3.5 The Cash Flow Statement
Keywords: cash flow
Principles: Principle 3: Cash Flows Are the Source of Value
4) Which of the following is NOT included in the calculation of free cash flows?
A) Interest expense
B) Operating income
C) Depreciation
D) Net operating working capital
Topic: 3.5 The Cash Flow Statement
Keywords: free cash flow
Principles: Principle 3: Cash Flows Are the Source of Value
5) Free cash flow will increase with a decrease in ________.
A) tax rate
B) accruals
C) depreciation expense
D) both A and C
Topic: 3.5 The Cash Flow Statement
Keywords: free cash flow
Principles: Principle 3: Cash Flows Are the Source of Value
22
6) Cash flows from assets will always be less than cash flows from financing due to dividends.
Topic: 3.5 The Cash Flow Statement
Keywords: cash flow
Principles: Principle 3: Cash Flows Are the Source of Value
23