Finance 300: Module 2

Earnings / share are ……. divided by………. and dividends per share are……… divided by ………… -net income-the # of shares outstanding -dividends -the # of shares outstanding
An income statement reports a firm’s cumulative revenues and expenses from the inception firm through the income statement date false
Owners equity increases each period by the amount of the corporation’s positive net cash flow false
If 2 companies have the same revenues and operating expenses, their net incomes will still be different if one company finances its assets with more debt and the other company with more equity true
Common-sized income statements restate the numbers in the income statement as a percentage sales to assist in the comparison of a firm’s financial performance across time and with competitors true
Net profit margin is equal to the gross profit margin times the operating profit margin false
Earnings before taxes, or taxable income, is equal to operating income minus financing costs true
Earnings available to common shareholders represents income that may be reinvested in the firm or distributed to its owners true
Company A and Company B both report the same level of sales and net income. Therefore, both A and B will report the same Net Profit Margin
The basic format of an income statement is sales-expenses= profits
Which of the following statements concerning net income is MOST correct? net income represents income that may be reinvested in the firm or distributed to its owners
Gross profit is equal to sales- cost of goods sold
T/F: The common-sized balance sheet shows how the firm’s assets have been allocated and how the assets have been financed in terms of debt versus equity true
What are profit​ margins? What are the different types of profit​ margins? The profit margins are the​ profits-to-sales relationships. Three types are gross profit​ margin, operating profit​ margin, and net profit margin
T/F: The accounting book value of an asset represents the historical cost of the asset rather than it current market value or replacement cost true
A firm’s income statement reports the results from operating the business for a period of time, while the firm’s balance sheet provides a snapshot of the firm’s financial position at a specific point in time true
If a company’s cash balance increases during the year, and the company also reports positive net income, then the company’s retained earnings balance must increase false
Fixed assets are assets whose balances will remain the same throughout the year false
Accounting rules specify that assets on the balance sheet must be reported at current market value, because this is the valuation most useful to potential investors false
Liquidity refers to the ability to quickly convert an asset into cash without lowering the selling price true
All of the following would result in an increase in stockholders equity EXCEPTA.the company had positive net income greater than dividends paid.B.the company purchased treasury stock. Your answer is correct.C.the company sold common stock above par value.D.the company sold common stock at par value B. the company purchased treasury stock
All of the following are equity accounts on a balance sheet EXCEPTA.paid-in capital. B.retained earnings.C.cash. D.common stock. cash
The two principal sources of financing for corporations are debt and equity
Net working capital is equal to current assets minus current liabilities
Which of the following accounts belongs on the asset side of a balance sheet?A.depreciation expenseB.inventory C.accrualsD.accounts payable inventory
Which of the following accounts does NOT belong in the liability section of a balance sheet?A.long- term debtB.accrualsC.additional paid-in capital D.short-term debt additional paid – in capital
Which of the following accounts belongs in the equity section of a balance sheet?A.dividendsB.retained earningsC.cash D.long-term debt retained earnings
The statement of cash flow explains the changes that took place in the firm’s cash balance over the period of interest true
A company with negative net income will also have negative operating cash flow false
When a company sells a piece of equipment or land, any gain (sales price less the book value of the asset or residual value) is thought to be a capital gain false
It is possible for 2 companies to have the same financial performance, but their financial statements can be different, depending on how and when the managers choose to report certain transactions true
The balance sheet reflects the accounting equation: Assets= Liabilities + Owner’s Equity true
Which of the following statements about Generally Accepted Accounting Principles​ (GAAP) is NOT​ true?A.GAAP is​ complex, providing more than 150​ “pronouncements” as to how to account for different types of transactions.B.GAAP is a set of ruleminusbased accounting standards established by the Financial Accounting Standards Board​ (FASB).C.GAAP sets out the​ standards, conventions, and rules that accountants must follow when preparing audited financial statements.D.All of the statements above are true D. All of the statements above are true
Which of the following represents an attempt to measure the net results of the firm’s operations (revenues versus expenses) over a given time period? income statement
Common-sized balance sheets show each account as a percentage of total sales to help analysts in comparing companies of different sizes false
What information does a firm’s statement of cash flows provide to the viewing public? a report documenting a​ firm’s cash inflows and cash outflows from​ operating, financing, and investing activities for a defined period of time
Which of the following accounts does NOT belong on the asset side of a balance sheet? accruals
Generally Accepted Accounting Principles (GAAP) is a set of principle-based accounting standards established by the Financial Accounting Standards Board (FASB) false
Earnings available to common shareholders is equal to a corporation’s positive net cash flow over a given period, typically one year false
The more debt a company uses to finance its assets, the lower will be its operating income due to higher interest expense false
Two companies have identical assets and operating activities. Which of the following statements is true? The company with more debt will have lower net income due to interest expense
The increase in owners’ equity for a given period is equal to net income minus dividends
Which of the following accounts belongs in the liability section of a balance sheet? accounts payable
All of the following statements about balance sheets are true EXCEPT balance sheets show average asset balances over a one year period
Changes in depreciation expense do not affect operating income because depreciation is a non-cash expense false
What financial statement explains the changes that took place in the firm’s cash balance over a period? statement of cash flow
An income statement may be represented as follows: sales-expenses= profits
In the United States, financial statements are prepared following the Financial Accounting Standards Board’s generally accepted accounting principles (GAAP) true
All of the following are income statement items EXCEPTA.depreciation expense.B.accrued expenses.C.interest expense.D.cost of goods sold. B. Accrued expenses
The A corporation has an operating profit margin of 20%, operating expenses of $500,000 and financing costs of $15,000. Therefore, the corporation’s gross profit margin is greater than 20%
The statement of cash flow explains the changes that took place in the firm’s cash balance over the period of interest true
International Financial Reporting Standards (IFRS) is a set of principle- based accounting standards that were established by the International Accounting Standards Board (IASB) true
Common-sized income statements are used to compare companies that have the same amount of revenues false
A balance sheet is a statement of the financial position of the firm on a given date, including its asset holding, liabilities, and equity true
The balance sheet equation is Total Assets= Total Revenue – Total Liabilities false
Which of the following accounts does NOT belong in the equity section of a balance sheet? A.preferred stock B.long- term debtC.paid-in-surplusD.retained earnings B. long-term debt
Profits-to-Sales relationships are defined profit margins true
A company with negative net income will also have negative operating cash flow false
Examples of uses of cash include paying cash dividends to stockholders

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