1) The market will not be efficient if it does not have access to relevant information or
if fraudulent information is provided.
2) To get a better indication of a firm’s ability to cover interest payments in the long run,
the noncash charges for depreciation, depletion, and amortization can be added back to
the times interest earned ratio.
3) A basic issue, still unresolved, relates to whether oil and gas exploration cost should
be expensed or capitalized.
4) A joint venture can add significant potential liabilities to the parent company that are
not on the face of the balance sheet.
5) The statement of cash flows consists of two sections: cash flows from operating
activities and cash flows from financing activities.
6) For personal financial statements, the statement of changes in net worth replaces the
income statement.
7) Stock options do not require a cash outlay from the company, while stock
appreciation rights often do require a cash outlay.
8) The operating ratios may give significantly different results from net earnings ratios
if a firm has large amounts of nonoperating assets generating income.
9) Accounts store the monetary information from the recording of transactions.
10) A cash outflow will be generated by an increase in a liability.
11) Book value per share measures the current value of the net assets on a per share
basis.
12) The 1933 and 1934 U.S. federal securities laws virtually gave the Securities and
Exchange Commission (SEC) authority and responsibility for the development of
generally accepted accounting principles.
13) The provision for loan losses for a bank is the same as the allowance for doubtful
accounts.