1、Chapter 02 Financial Statements and Cash Flow Answer Key Multiple Choice Questions1.The financial statement showing a firms accounting value on a particular date is the:A.income statement.B.balance sheet.C.statement of cash flows.D.tax reconciliation statement.E.shareholders equity sheet.Difficulty

2、level: EasyTopic: BALANCE SHEETType: DEFINITIONS2.A current asset is:A.an item currently owned by the firm.B.an item that the firm expects to own within the next year.C.an item currently owned by the firm that will convert to cash within the next 12 months.D.the amount of cash on hand the firm curre

3、ntly shows on its balance sheet.E.the market value of all items currently owned by the firm.Difficulty level: EasyTopic: CURRENT ASSETSType: DEFINITIONS3.The long-term debts of a firm are liabilities:A.that come due within the next 12 months.B.that do not come due for at least 12 months.C.owed to th

4、e firms suppliers.D.owed to the firms shareholders.E.the firm expects to incur within the next 12 months.Difficulty level: EasyTopic: LONG-TERM DEBTType: DEFINITIONS4.Net working capital is defined as:A.total liabilities minus shareholders equity.B.current liabilities minus shareholders equity.C.fix

5、ed assets minus long-term liabilities.D.total assets minus total liabilities.E.current assets minus current liabilities.Difficulty level: EasyTopic: NET WORKING CAPITALType: DEFINITIONS5.A(n) _ asset is one which can be quickly converted into cash without significant loss in value.A.currentB.fixedC.

6、intangibleD.liquidE.long-termDifficulty level: EasyTopic: LIQUID ASSETSType: DEFINITIONS6.The financial statement summarizing a firms accounting performance over a period of time is the:A.income statement.B.balance sheet.C.statement of cash flows.D.tax reconciliation statement.E.shareholders equity

7、sheet.Difficulty level: EasyTopic: INCOME STATEMENTType: DEFINITIONS7.Noncash items refer to:A.the credit sales of a firm.B.the accounts payable of a firm.C.the costs incurred for the purchase of intangible fixed assets.D.expenses charged against revenues that do not directly affect cash flow.E.all

8、accounts on the balance sheet other than cash on hand.Difficulty level: EasyTopic: NONCASH ITEMSType: DEFINITIONS8.Your _ tax rate is the amount of tax payable on the next taxable dollar you earn.A.deductibleB.residualC.totalD.averageE.marginalDifficulty level: EasyTopic: MARGINAL TAX RATESType: DEF

9、INITIONS9.Your _ tax rate is the total taxes you pay divided by your taxable income.A.deductibleB.residualC.totalD.averageE.marginalDifficulty level: EasyTopic: AVERAGE TAX RATESType: DEFINITIONS10._ refers to the cash flow that results from the firms ongoing, normal business activities.A.Cash flow

10、from operating activitiesB.Capital spendingC.Net working capitalD.Cash flow from assetsE.Cash flow to creditorsDifficulty level: MediumTopic: CASH FLOW FROM OPERATING ACTIVITIESType: DEFINITIONS11._ refers to the changes in net capital assets.A.Operating cash flowB.Cash flow from investingC.Net work

11、ing capitalD.Cash flow from assetsE.Cash flow to creditorsDifficulty level: MediumTopic: CASH FLOW FROM INVESTINGType: DEFINITIONS12._ refers to the difference between a firms current assets and its current liabilities.A.Operating cash flowB.Capital spendingC.Net working capitalD.Cash flow from asse

12、tsE.Cash flow to creditorsDifficulty level: EasyTopic: NET WORKING CAPITALType: DEFINITIONS13._ is calculated by adding back noncash expenses to net income and adjusting for changes in current assets and liabilities.A.Operating cash flowB.Capital spendingC.Net working capitalD.Cash flow from operati

13、onsE.Cash flow to creditorsDifficulty level: MediumTopic: CASH FLOW FROM OPERATIONSType: DEFINITIONS14._ refers to the firms interest payments less any net new borrowing.A.Operating cash flowB.Capital spendingC.Net working capitalD.Cash flow from shareholdersE.Cash flow to creditorsDifficulty level:

14、 MediumTopic: CASH FLOW TO CREDITORSType: DEFINITIONS15._ refers to the firms dividend payments less any net new equity raised.A.Operating cash flowB.Capital spendingC.Net working capitalD.Cash flow from creditorsE.Cash flow to stockholdersDifficulty level: MediumTopic: CASH FLOW TO STOCKHOLDERSType

15、: DEFINITIONS16.Earnings per share is equal to:A.net income divided by the total number of shares outstanding.B.net income divided by the par value of the common stock.C.gross income multiplied by the par value of the common stock.D.operating income divided by the par value of the common stock.E.net

16、 income divided by total shareholders equity.Difficulty level: MediumTopic: EARNINGS PER SHAREType: DEFINITIONS17.Dividends per share is equal to dividends paid:A.divided by the par value of common stock.B.divided by the total number of shares outstanding.C.divided by total shareholders equity.D.mul

17、tiplied by the par value of the common stock.E.multiplied by the total number of shares outstanding.Difficulty level: MediumTopic: DIVIDENDS PER SHAREType: DEFINITIONS18.Which of the following are included in current assets?I. equipmentII. inventoryIII. accounts payableIV. cashA.II and IV onlyB.I an

18、d III onlyC.I, II, and IV onlyD.III and IV onlyE.II, III, and IV onlyDifficulty level: MediumTopic: CURRENT ASSETSType: CONCEPTS19.Which of the following are included in current liabilities?I. note payable to a supplier in eighteen monthsII. debt payable to a mortgage company in nine monthsIII. acco

19、unts payable to suppliersIV. loan payable to the bank in fourteen monthsA.I and III onlyB.II and III onlyC.III and IV onlyD.II, III, and IV onlyE.I, II, and III onlyDifficulty level: MediumTopic: CURRENT LIABILITIESType: CONCEPTS20.An increase in total assets:A.means that net working capital is also

20、 increasing.B.requires an investment in fixed assets.C.means that shareholders equity must also increase.D.must be offset by an equal increase in liabilities and shareholders equity.E.can only occur when a firm has positive net income.Difficulty level: MediumTopic: BALANCE SHEETType: CONCEPTS21.Whic

21、h one of the following assets is generally the most liquid?A.inventoryB.buildingsC.accounts receivableD.equipmentE.patentsDifficulty level: MediumTopic: LIQUIDITYType: CONCEPTS22.Which one of the following statements concerning liquidity is correct?A.If you sold an asset today, it was a liquid asset

22、.B.If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid.C.Trademarks and patents are highly liquid.D.The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties.E.Balance sheet accounts are listed in order of

23、decreasing liquidity.Difficulty level: MediumTopic: LIQUIDITYType: CONCEPTS23.Liquidity is:A.a measure of the use of debt in a firms capital structure.B.equal to current assets minus current liabilities.C.equal to the market value of a firms total assets minus its current liabilities.D.valuable to a

24、 firm even though liquid assets tend to be less profitable to own.E.generally associated with intangible assets.Difficulty level: MediumTopic: LIQUIDITYType: CONCEPTS24.Which of the following accounts are included in shareholders equity?I. interest paidII. retained earningsIII. capital surplusIV. lo

25、ng-term debtA.I and II onlyB.II and IV onlyC.I and IV onlyD.II and III onlyE.I and III onlyDifficulty level: MediumTopic: SHAREHOLDERS EQUITYType: CONCEPTS25.Book value:A.is equivalent to market value for firms with fixed assets.B.is based on historical cost.C.generally tends to exceed market value

26、when fixed assets are included.D.is more of a financial than an accounting valuation.E.is adjusted to market value whenever the market value exceeds the stated book value.Difficulty level: MediumTopic: BOOK VALUEType: CONCEPTS26.When making financial decisions related to assets, you should:A.always

27、consider market values.B.place more emphasis on book values than on market values.C.rely primarily on the value of assets as shown on the balance sheet.D.place primary emphasis on historical costs.E.only consider market values if they are less than book values.Difficulty level: MediumTopic: MARKET V

28、ALUEType: CONCEPTS27.As seen on an income statement:A.interest is deducted from income and increases the total taxes incurred.B.the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses.C.depreciation is shown as an expense but does n

29、ot affect the taxes payable.D.depreciation reduces both the pretax income and the net income.E.interest expense is added to earnings before interest and taxes to get pretax income.Difficulty level: MediumTopic: INCOME STATEMENTType: CONCEPTS28.The earnings per share will:A.increase as net income inc

30、reases.B.increase as the number of shares outstanding increase.C.decrease as the total revenue of the firm increases.D.increase as the tax rate increases.E.decrease as the costs decrease.Difficulty level: MediumTopic: EARNINGS PER SHAREType: CONCEPTS29.Dividends per share:A.increase as the net incom

31、e increases as long as the number of shares outstanding remains constant.B.decrease as the number of shares outstanding decrease, all else constant.C.are inversely related to the earnings per share.D.are based upon the dividend requirements established by Generally Accepted Accounting Procedures.E.a

32、re equal to the amount of net income distributed to shareholders divided by the number of shares outstanding.Difficulty level: MediumTopic: DIVIDENDS PER SHAREType: CONCEPTS30.Earnings per shareA.will increase if net income increases and number of shares remains constant.B.will increase if net incom

33、e decreases and number of shares remains constant.C.is number of shares divided by net income.D.is the amount of money that goes into retained earnings on a per share basis.E.None of the above.Difficulty level: MediumTopic: EARNINGS PER SHAREType: CONCEPTS31.According to Generally Accepted Accountin

34、g Principles, costs are:A.recorded as incurred.B.recorded when paid.C.matched with revenues.D.matched with production levels.E.expensed as management desires.Difficulty level: MediumTopic: MATCHING PRINCIPLEType: CONCEPTS32.Depreciation:A.is a noncash expense that is recorded on the income statement

35、.B.increases the net fixed assets as shown on the balance sheet.C.reduces both the net fixed assets and the costs of a firm.D.is a non-cash expense which increases the net operating income.E.decreases net fixed assets, net income, and operating cash flows.Difficulty level: MediumTopic: NONCASH ITEMS

36、Type: CONCEPTS33.When you are making a financial decision, the most relevant tax rate is the _ rate.A.averageB.fixedC.marginalD.totalE.variableDifficulty level: MediumTopic: MARGINAL TAX RATEType: CONCEPTS34.An increase in which one of the following will cause the operating cash flow to increase?A.d

37、epreciationB.changes in the amount of net fixed capitalC.net working capitalD.taxesE.costsDifficulty level: MediumTopic: OPERATING CASH FLOWType: CONCEPTS35.A firm starts its year with a positive net working capital. During the year, the firm acquires more short-term debt than it does short-term ass

38、ets. This means that:A.the ending net working capital will be negative.B.both accounts receivable and inventory decreased during the year.C.the beginning current assets were less than the beginning current liabilities.D.accounts payable increased and inventory decreased during the year.E.the ending

39、net working capital can be positive, negative, or equal to zero.Difficulty level: MediumTopic: CHANGE IN NET WORKING CAPITALType: CONCEPTS36.The cash flow to creditors includes the cash:A.received by the firm when payments are paid to suppliers.B.outflow of the firm when new debt is acquired.C.outfl

40、ow when interest is paid on outstanding debt.D.inflow when accounts payable decreases.E.received when long-term debt is paid off.Difficulty level: MediumTopic: CASH FLOW TO CREDITORSType: CONCEPTS37.Cash flow to stockholders must be positive when:A.the dividends paid exceed the net new equity raised

41、.B.the net sale of common stock exceeds the amount of dividends paid.C.no income is distributed but new shares of stock are sold.D.both the cash flow to assets and the cash flow to creditors are negative.E.both the cash flow to assets and the cash flow to creditors are positive.Difficulty level: Med

42、iumTopic: CASH FLOW TO STOCKHOLDERSType: CONCEPTS38.Which equality is the basis for the balance sheet?A.Fixed Assets = Stockholders Equity + Current AssetsB.Assets = Liabilities + Stockholders EquityC.Assets = Current Long-Term Debt + Retained EarningsD.Fixed Assets = Liabilities + Stockholders Equi

43、tyE.None of the aboveDifficulty level: MediumTopic: BALANCE SHEETType: CONCEPTS39.Assets are listed on the balance sheet in order of:A.decreasing liquidity.B.decreasing size.C.increasing size.D.relative life.E.None of the above.Difficulty level: MediumTopic: BALANCE SHEETType: CONCEPTS40.Debt is a c

44、ontractual obligation that:A.requires the payout of residual flows to the holders of these instruments.B.requires a repayment of a stated amount and interest over the period.C.allows the bondholders to sue the firm if it defaults.D.Both A and B.E.Both B and C.Difficulty level: MediumTopic: DEBTType:

45、 CONCEPTS41.The carrying value or book value of assets:A.is determined under GAAP and is based on the cost of the asset.B.represents the true market value according to GAAP.C.is always the best measure of the companys value to an investor.D.is always higher than the replacement cost of the assets.E.

46、None of the above.Difficulty level: MediumTopic: CARRYING VALUEType: CONCEPTS42.Under GAAP, a firms assets are reported at:A.market value.B.liquidation value.C.intrinsic value.D.cost.E.None of the above.Difficulty level: MediumTopic: GAAPType: CONCEPTS43.Which of the following statements concerning

47、the income statement is true?A.It measures performance over a specific period of time.B.It determines after-tax income of the firm.C.It includes deferred taxes.D.It treats interest as an expense.E.All of the above.Difficulty level: MediumTopic: INCOME STATEMENTType: CONCEPTS44.According to generally

48、 accepted accounting principles (GAAP), revenue is recognized as income when:A.a contract is signed to perform a service or deliver a good.B.the transaction is complete and the goods or services are delivered.C.payment is requested.D.income taxes are paid.E.All of the above.Difficulty level: MediumT

49、opic: GAAP INCOME RECOGNITIONType: CONCEPTS45.Which of the following is not included in the computation of operating cash flow?A.Earnings before interest and taxesB.Interest paidC.DepreciationD.Current taxesE.All of the above are includedDifficulty level: MediumTopic: OPERATING CASH FLOWType: CONCEP

50、TS46.Net capital spending is equal to:A.net additions to net working capital.B.the net change in fixed assets.C.net income plus depreciation.D.total cash flow to stockholders less interest and dividends paid.E.the change in total assets.Difficulty level: MediumTopic: NET CAPITAL SPENDINGType: CONCEP

51、TS47.Cash flow to stockholders is defined as:A.interest payments.B.repurchases of equity less cash dividends paid plus new equity sold.C.cash flow from financing less cash flow to creditors.D.cash dividends plus repurchases of equity minus new equity financing.E.None of the above.Difficulty level: M

52、ediumTopic: CASH FLOW TO STOCKHOLDERSType: CONCEPTS48.Free cash flow is:A.without cost to the firm.B.net income plus taxes.C.an increase in net working capital.D.cash that the firm is free to distribute to creditors and stockholders.E.None of the above.Difficulty level: MediumTopic: FREE CASH FLOWTy

53、pe: CONCEPTS49.The cash flow of the firm must be equal to:A.cash flow to stockholders minus cash flow to debtholders.B.cash flow to debtholders minus cash flow to stockholders.C.cash flow to governments plus cash flow to stockholders.D.cash flow to stockholders plus cash flow to debtholders.E.None o

54、f the above.Difficulty level: MediumTopic: CASH FLOWType: CONCEPTS50.Which of the following are all components of the statement of cash flows?A.Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activitiesB.Cash flow from operating activities, cash flow from investing activities, and cash flow from divesting activitiesC.Cash