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1. An asset's liquidity is determined by how readily the asset can be converted to an
appropriate amount of cash.
2. The principal reason for excluding many intangible assets from the balance sheet is that
they are difficult to value.
3. Based on generally accepted accounting principles, assets are recorded on the balance at
their current market value.
4. Fixed assets can be either tangible or intangible.
5. There is generally a bigger difference between the book value and the market value of
fixed assets as compared to cash.
6. All items in the common-size balance sheet are expressed as a percentage of total
assets.
7. The income statement resembles a snapshot of the firm at a specific time.
8. If the market value of assets is high, then the market value of liabilities must be high also.
9. One reason for the difference between profits and cash is that the cost of capital
equipment is spread over the forecast life.
10. Accrual accounting aims to provide a fairer measure of the firm's profitability.
11. If net income is positive, then cash flow from operations must be positive for that period.
12. Dividends paid are treated as a financing activity on the statement of cash flows.
13. An increase in the accounts receivable balance increases the cash flow of a firm.
14. The payment of interest expense is considered a cash flow by a financing activity on the
statement of cash flows.
15. Accounting practices are currently standardized across all countries.
16. Businesses that aggressively exploit any means possible to increase current earnings may
cross over into fraudulent account practices.
17. A company may deduct the interest paid to debtholders and the dividends paid to
shareholders when calculating its taxable income.
18. Both the dividends and interest payments that companies make to individuals are subject
to personal tax.
19. The balance sheet presents a snapshot of the firm's assets and liabilities at one particular
moment.
20. Book values are "forward-looking" measures of value.
21. The difference between the market values of assets and liabilities is the market value of
the shareholders' equity claim.
22. To calculate free cash flow, you must deduct capital expenditures from the cash flow from
operations.
23. Depreciation charge is a cash payment.
24. An expenditure on new capital equipment is a cash payment.
25. The statement of cash flows shows the firm's cash inflows and outflows from operations
as well as from its investments and financing activities.
26. An increase in inventories uses cash, reducing the firm's net cash balance.
27. A reduction in accounts receivable uses cash, reducing the firm's net cash balance.
28. The purchase of new equipment is a use of cash, and it reduces the firm's net cash
balance.
29. In general, what is changing as you read down the left-hand side of a balance sheet?
30. A balance sheet portrays the value of a firm's assets and liabilities:
31. Which of the following items should
not
be included in a listing of current assets?
32. Which of the following assets is likely to be considered the most liquid?
33. If the value of a firm's net fixed assets equals the value of the accumulated depreciation,
from an accounting context the fixed assets are:
34. If the balance sheet of a firm indicates that total assets exceed current liabilities plus
shareholders' equity, then the firm has:
35. Which one of the following is an intangible asset?
36. Suppose Dee's just acquired the assets of Flo's Flowers. The book value of Flo's Flowers
assets was $68,000 but Dee's paid a total of $75,000. The additional $7,000 paid by Dee's will be
recorded on Dee's balance sheet as:
37. What happens to a firm's net worth as it uses cash to repay accounts payable?
38. If a payment of principal is due in 13 months on a long-term liability, that payment will
now appear on the balance sheet as:
39. Net working capital is a measure of a company's:
40. Net working capital is calculated by taking the difference between:
41. Which of the following statements about net working capital (NWC) is correct?
42. The existence of goodwill on a corporate balance sheet indicates that the corporation
has:
43. A balance sheet may be considered backward-looking from the perspective that it:
44. According to GAAP, assets and liabilities are typically recorded on the balance sheet at:
45. Which of the following is correct for a fully depreciated asset?
46. Depreciation expense is used to:
47. When subtracting an asset's accumulated depreciation from its historic cost, the resulting
value is termed the:
48. ABC Corp.'s balance sheet shows its long-term debt to be $20 million. The debt was
issued with a 10% interest rate, and the current interest rate is 7%. Based on this information
alone, the market value of this debt is most likely:
49. Which of the following statements about depreciation is correct?
