Finance Ch 2

Which financial statement reports a firm’s assets, liabilities, and equity at a particular point in time? A. Balance SheetB. Income StatementC. Statement of Retained EarningsD. Statement of Cash Flows A. Balance Sheet
Which financial statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time—generally one year? A. Balance SheetB. Income StatementC. Statement of Retained EarningsD. Statement of Cash Flows B. Income Statement
Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period? A. Balance SheetB. Income StatementC. Statement of Retained EarningsD. Statement of Cash Flows D. Statement of Cash Flows
. Which financial statement reconciles net income earned during a given period and any cash dividends paid within that period using the change in retained earnings between the beginning and end of the period? A. Balance SheetB. Income StatementC. Statement of Retained EarningsD. Statement of Cash Flows C. Statement of Retained Earnings
On which of the four major financial statements would you find the common stock and paid-in surplus? A. Balance SheetB. Income StatementC. Statement of Cash FlowsD. Statement of Retained Earnings A. Balance Sheet
On which of the four major financial statements would you find the increase in inventory? A. Balance SheetB. Income StatementC. Statement of Cash FlowsD. Statement of Retained Earnings C. Statement of Cash Flows
On which of the four major financial statements would you find net plant and equipment? A. Balance SheetB. Income StatementC. Statement of Cash FlowsD. Statement of Retained Earnings A. Balance Sheet
For which of the following would one expect the book value of the asset to differ widely from its market value? A. CashB. Accounts receivableC. InventoryD. Fixed assets D. Fixed assets
Common stockholders’ equity divided by number of shares of common stock outstanding is the formula for calculating A. Earnings per share (EPS)B. Dividends per share (DPS)C. Book value per share (BVPS)D. Market value per share (MVPS) C. Book value per share (BVPS)
This is the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns. A. Average tax rateB. Marginal tax rateC. Progressive tax systemD. Earnings before tax B. Marginal tax rate
An equity-financed firm will A. pay more in income taxes than a debt-financed firm.B. pay less in income taxes than a debt-financed firm.C. pay the same in income taxes as a debt-finance firm.D. not pay any income taxes. A. pay more in income taxes than a debt-financed firm.
This is cash flow available for payments to stockholders and debt holders of a firm after the firm has made investments in assets necessary to sustain the ongoing operations of the firm. A. Net income available to common stockholdersB. Cash flow from operationsC. Net cash flowD. Free cash flow D. Free cash flow
Which of the following activities result in an increase in a firm’s cash? A. Decrease fixed assetsB. Decrease accounts payableC. Pay dividendsD. Repurchase of common stock A. Decrease fixed assets
These are cash inflows and outflows associated with buying and selling of fixed or other long-term assets. A. Cash flows from operationsB. Cash flows from investing activitiesC. Cash flows from financing activitiesD. Net change in cash and cash equivalents B. Cash flows from investing activities
If a company reports a large amount of net income on its income statement during a year, the firm will have A. positive cash flow.B. negative cash flow.C. zero cash flow.D. Any of these scenarios are possible. D. Any of these scenarios are possible.
Free cash flow is defined as A. Cash flows available for payments to stockholders of a firm after the firm has made payments to all others will claims against it.B. Cash flows available for payments to stockholders and debt holders of a firm after the firm has made payments necessary to vendors.C. Cash flows available for payments to stockholders and debt holders of a firm after the firm has made investments in assets necessary to sustain the ongoing operations of the firm.D. Cash flows available for payments to stockholders and debt holders of a firm that would be tax-free to the recipients. C. Cash flows available for payments to stockholders and debt holders of a firm after the firm has made investments in assets necessary to sustain the ongoing operations of the firm.
The Sarbanes-Oxley Act requires public companies to ensure that these individuals have considerable experience applying generally accepted accounting principles (GAAP) for financial statements. A. External auditorsB. Internal auditorsC. Chief Financial OfficersD. Corporate boards’ audit committees D. Corporate boards’ audit committees
All of the following would be a result of changing to the MACRS method of depreciation except _______. A. Higher depreciation expenseB. Lower taxes in the early years of a project’s lifeC. Lower taxable income in the early years of a project’s lifeD. All of these. D. All of these.
Which of the following is NOT a source of cash? A. The firm reduces its inventory.B. The firm pays off some of its long-term debt.C. The firm has positive net income.D. The firm sells more common stock. B. The firm pays off some of its long-term debt.
Which of the following is a use of cash? A. The firm takes its depreciation expense.B. The firm sells some of its fixed assets.C. The firm issues more long-term debt.D. The firm decreases its accrued wages and taxes D. The firm decreases its accrued wages and taxes
Is it possible for a firm to have positive net income and yet to have cash flow problems? A. No, this is impossible since net income increases the firm’s cash.B. Yes, this can occur when a firm is growing very rapidly.C. Yes, this is possible if the firm window-dressed its financial statements.D. No, this is impossible since net income and cash are highly correlated. B. Yes, this can occur when a firm is growing very rapidly.
All of the following are cash flows from operations except _____________. A. Increases or decreases in cashB. Net IncomeC. DepreciationD. Increases or decreases in accounts payable A. Increases or decreases in cash
All of the following are cash flows from financing except a(n) _________. A. Increase in accounts payableB. Issuing stockC. Stock repurchasesD. Paying dividends A. Increase in accounts payable
Cash flows available to pay the firm’s stockholders and debt holders after the firm has made the necessary working capital investments, fixed asset investments, and developed the necessary new products to sustain the firm’s ongoing operations is referred to as _________________. A. Operating cash flowB. Net operating working capitalC. Free cash flowD. None of these. C. Free cash flow
Investment in operating capital is __________________________. A. The change in assets plus the change in current liabilitiesB. The change in gross fixed assets plus depreciationC. The change in gross fixed assets plus the change in free cash flowD. None of these. D. None of these.
. Which of the following is an example of a capital structure? A. 15% current assets and 85% fixed assetsB. 10% current liabilities and 90% long-term debtC. 20% debt and 80% equityD. None of these. C. 20% debt and 80% equity
All of the following are reasons that one should be cautious in interpreting financial statements except ____________. A. Firms can take steps to over- or understate earnings at various times.B. It is difficult to compare two firms that use different depreciation methods.C. Financial managers have quite a bit of latitude in using accounting rules to manage their reported earnings.D. All of these are reasons to be cautious in interpreting financial statements. D. All of these are reasons to be cautious in interpreting financial statements.
Which of the following statements is correct? A. The bottom line on the statement of cash flows equals the change in the retained earnings on the balance sheet.B. The reason the statement of cash flows is important is because cash is what pays the firm’s obligations, not accounting profit.C. If a firm has accounting profit, its cash account will always increase.D. All of these statements are correct. B. The reason the statement of cash flows is important is because cash is what pays the firm’s obligations, not accounting profit.

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