Chapter 03 Test Bank – Static Key
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 sheet at their current market value.
4.
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 financing activity in 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 statements about depreciation is correct
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?
50.
If market interest rates have increased since a company last borrowed long-term funds, the market value of these long-term
funds will likely be:
51.
Which of the following values would most likely interest a shareholder?
52.
What happens to the market value of a firm’s equity as the book value of the firm’s equity increases?
53.
Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market value
of assets, and 1,000 shares of outstanding stock?
54.
Which of the following is more likely to be correct if market value of equity is less than book value of equity?
55.
Market-value balance sheets differ from book-value balance sheets in that market values:
56.
If market values of equity exceed book values of equity, then:
57.
Perhaps the best method for estimating the market value of shareholders’ equity is to:
58.
In which of the following balance-sheet entries are you least likely to find a difference between market value and book
value?
59.
Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most easily
provides the information she is seeking?
60.
Which one of the following expense categories is subtracted from total revenues to help arrive at a firm’s EBIT?
61.
Which one of the following does not reduce a firm’s net income?
62.
Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense,
and $120,000 interest expense.
63.
The net income figure on an income statement is calculated before deducting the:
64.
An increase in depreciation expense will (other things equal):
65.
Current period depreciation expense is listed:
66.
Retained earnings result from:
67.
The gathering of related revenues and expenses into the same period, regardless of when they were incurred, is:
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