FIN 3400 Chapter 02 Assignment Questions and Answers- Florida International University
Which one of these is not one of the four basic financial
... [Show More] statements?
Multiple choice question.
Statement of ratios
Balance sheet
Statement of cash flows
Income statement
Which one of these correctly defines the balance sheet identity?
Multiple choice question.
Liabilities - Equity = Assets
Equity = Assets - Liabilities
Liabilities = Assets + Equity
Equity = Assets + Liabilities
A firm has fixed assets of $28,000, long-term debt of $12,000, current
liabilities of $4,000, current assets of $5,000 and equity of $17,000. What is
the total of the assets side of the balance sheet of the firm?
Multiple choice question.
$28,000
$17,000
$29,000
$33,000
Which of these examples best defines a liquid asset?
Multiple choice question.
Mia sold 100 shares of stock today at the going market price.
Dell sold a car today and received less than the market value.
Courtney sold her used textbook valued at $50 to her best friend for $25
today.
Ernst tried to sell his used truck today but had no success.
Select all that apply
Which of these assets are generally converted into cash within one year?
Select all that apply.
Multiple select question.
Accounts receivable
Inventory
Equipment
Patents and trademarks
A financial statement provides an _______-based picture of a firm's financial
condition.
Multiple choice question.
management
accounting
market
marketing
What is the balance sheet identity formula?
Multiple choice question.
Assets + Equity = Liabilities
Assets = Liabilities + Equity
Assets + Liabilities = Equity
Assets = Liabilities - Equity
Select all that apply
Which of these are equity accounts? Select all that apply.
Multiple select question.
Common stock
Accounts payable
Retained earnings
Preferred stock
Click and drag on elements in order
Rank these assets in order of liquidity with the most liquid asset listed first.
Instructions
Drag and drop application.
1. Cash
2. Accounts receivable
3. Inventory
4. Plant and equipment
What is the definition of liabilities?
Multiple choice question.
Liabilities are funds invested in the firm by the firm's shareholders.
Liabilities are monies owed to a firm by its customers.
Liabilities are funds provided by lenders to a firm.
Liabilities are funds which a firm invests for the long-term.
What is the definition of liquidity?
Multiple choice question.
Liquidity is the time required to sell an asset at a profit.
Liquidity is the time it takes to convert an asset into cash at any price.
Liquidity is the ease of conversion of an asset into cash at a fair value.
Liquidity is the speed at which an asset can be converted into cash.
Select all that apply
Which of these assets have useful lives exceeding one year and are classified
as fixed assets? Select all that apply.
Multiple select question.
Inventory
Machinery
Building
Land
Which one of these is a current liability?
Multiple choice question.
20-year mortgage loan
6-month note payable
3-year bank loan
10-year bonds
Which one of these is not one of the four basic financial statements?
Multiple choice question.
Balance sheet
Statement of cash flows
Statement of ratios
Income statement
Which one of these questions can be answered by monitoring a firm's
balance sheets?
Multiple choice question.
Percentage increase in sales
Level of net working capital
Change in profitability
Market value of firm
Which one of these reports the amount of money a firm owes its creditors
within the next year?
Multiple choice question.
Long-term debt
Current liabilities
Current assets
Fixed asset
Which one of these actions meets the definition of a liability?
Multiple choice question.
Corner Bank loans $100,000 to the Corner Bakery for two years.
Georgia purchased 100 shares of a firm's common stock.
Sal's suits sells a suit to Al on credit.
A firm purchased $300 of goods from a supplier for cash.
Which one of these statements correctly applies to straight-line depreciation?
Multiple choice question.
Straight-line depreciation is most commonly used when computing a
firm's taxes.
Straight-line depreciation is commonly used when compiling financial
statements.
Straight-line depreciation decreases a firm's taxes more in the early years
than does MACRS depreciation.
Straight-line depreciation provides a greater tax deduction over the life of
an asset than does MACRS depreciation.
Select all that apply
Which of these accounts are included in net working capital? Select all that
apply.
Multiple select question.
Equipment
Inventory
Notes payable
Long-term debt payable
Select all that apply
Which of these accounts are current liabilities? Select all that apply.
Multiple select question.
Accrued wages
Bonds payable
Notes payable
Accounts payable
Balance sheets list assets in declining order of liquidity. Which of these
orders best illustrates this?
Multiple choice question.
Cash, inventory, accounts receivable, plant and equipment
Accounts receivable, cash, inventory, plant and equipment
Cash, accounts receivable, inventory, plant and equipment
Cash, accounts receivable, plant and equipment, inventory
Select all that apply
Which of these questions can be answered by monitoring a firm's balance
sheets for last year and this year? Select all that apply.
Multiple select question.
Is the firm more or less liquid than last year?
Did the firm's taxes increase or decrease since last year?
Did the firm earn more or less profit per dollar of sales than it did last
year?
Did the firm issue additional shares of stock this year?
Select all that apply
Which of these are equity accounts? Select all that apply.
Multiple select question.
Accounts payable
Preferred stock
Retained earnings
Common stock
True or false: Net working capital is a measure of a firm's ability to pay its
bills for the next year.
True false question.
True
False
Which type of depreciation offers the greatest tax deferral benefit in the
early years of an asset's life?
Multiple choice question.
Straight-line depreciation
MACRS depreciation
MACRS and straight-line depreciation offer the same tax deferral benefits
each year.
Neither MACRS nor straight-line depreciation offer any tax deferral
benefits.
Which relationship of liquidity is correct?
Multiple choice question.
The liquidity of an asset is inversely related to the profitability of that
asset.
The liquidity of an asset is unrelated to the profitability of that asset.
The liquidity of an asset is directly related to the profitability of that asset.
Select all that apply
Which of these accounts are included in net working capital? Select all that
apply.
Multiple select question.
Accounts payable
Accounts receivable
Retained earnings
Cash
Which one of these assets is considered to be the most liquid?
Multiple choice question.
Plant and equipment
Inventory
Accounts receivable
Land
Which account is the least liquid of the current asset accounts?
Multiple choice question.
Cash
Patent
Inventory
Accounts receivable
Which one of these questions can be answered by monitoring a firm's
balance sheets?
Multiple choice question.
Market value of firm
Level of net working capital
Percentage increase in sales
Change in profitability
True or false: An increase in the financial leverage of a firm reduces both the
firm's profits and its losses.
True false question.
True
False
What is the definition of net working capital?
Multiple choice question.
Net working capital is the sum of a firm's cash and marketable securities
accounts.
Net working capital is the amount of cash a firm has on hand as of a
specific date.
Net working capital is the difference between a firm's current assets and
current liabilities.
Net working capital is the value of a firm's assets that can be converted
into cash in one year or less.
What is the definition of an income statement?
Multiple choice question.
An income statement reports total revenues and expenses as of a specific
date.
An income statement reports the cash inflows and outflows of a firm as of
a specific date.
An income statement reports total revenues and expenses over a specific
period of time.
An income statement reports the cash inflows and outflows of a firm over
a specific period of time.
Which one of these relationships regarding liquidity is correct?
Multiple choice question.
As the liquidity of assets increases, so does the firm's probability of
experiencing financial distress.
As the liquidity of assets increases, so does the firm's profits on those
assets.
As the liquidity of assets increases, both the firm's probability of financial
distress and its profits on those assets increase.
As the liquidity of assets increases, both the firm's probability of financial
distress and its profits on those assets decrease.
Which one of the following best illustrates a highly liquid asset?
Multiple choice question.
Sale of a $100 asset by tomorrow at a price of $100.
Sale of a $100 asset today at a price of $90.
Sale of a $100 asset within 10 days at a price of $100.
Sale of a $100 asset within the hour at a price of $85.
Which of these statements regarding the structure of an income statement is
(are) correct? Select all that apply.
Multiple select question.
EBIT= Gross profit - Depreciation - Other operating expenses
EBIT = Addition to retained earnings + Taxes + Interest
EBT = Dividends paid + Addition to retained earnings + Taxes
Gross profit = Net sales - Cost of goods sold
Balance sheets list assets in declining order of liquidity. Which of these
orders best illustrates this?
Multiple choice question.
Accounts receivable, cash, inventory, plant and equipment
Cash, inventory, accounts receivable, plant and equipment
Cash, accounts receivable, plant and equipment, inventory
Cash, accounts receivable, inventory, plant and equipment
Which party has a residual claim to a firm's cash flows?
Multiple choice question.
Stockholders
Employees
Managers
Debt holders
A change in financial leverage does which one of the following?
Multiple choice question.
An increase in financial leverage reduces a firm's total debt.
A decrease in financial leverage decreases the risks faced by the firm.
An increase in financial leverage can decrease both a firm's profits and its
losses.
A decrease in financial leverage decreases the amount of a firm financed
with equity.
An income statement is best defined by which one of these statements?
Multiple choice question.
An income statement reflects the profits, but not the losses generated by
a firm's revenues and expenses.
An income statement reflects the total revenues that a firm earns over a
period of time and the total expenses incurred to generate those sales.
An income statement reflects values as of a single date.
An income statement reflects the total costs incurred to produce net sales
for a given date.
Which of one of these statements best illustrates the definition of a marginal
tax rate?
Multiple choice question.
Don paid $28,000 in taxes on his $100,000 income, or 28 percent.
Antonio will pay $0.28 more in taxes if his taxable income increases by
$1, or 28 percent.
Fredrico paid no tax on his $16,400 income, or zero percent.
Suenette paid $13,400 in taxes on a taxable income of $52,000, or 25.8
percent.
Which relationship of liquidity is correct?
Multiple choice question.
The liquidity of an asset is inversely related to the profitability of that
asset.
The liquidity of an asset is unrelated to the profitability of that asset.
The liquidity of an asset is directly related to the profitability of that asset.
Which one of these statements related to the recording of financial
statement items based on GAAP is (are) correct?
Multiple choice question.
Expenses related to the production of a product are recorded on the
income statement when cash is used to pay those expenses.
The cost of a fixed asset is expensed when payment for the asset is
made.
Expenses related to the production of a product are recorded on the
income statement when that product is sold, not when the expenses are
paid.
The cost of salaries are recorded on the income statement when those
wages are paid.
The operating profit is equal to earnings before interest and taxes.
True false question.
True
False
Fill in the Blank Question
holders have first claim to the cash flows of the firm.
Which one of these accounts is a noncash expense?
Multiple choice question.
Wages
Depreciation
Dividends paid
Rent
True or false: An increase in the financial leverage of a firm reduces both the
firm's profits and its losses.
True false question.
True
False
Which one of the following is a use of cash?
Multiple choice question.
Sale of common stock
Increase in a current liability
Increase in a fixed asset
Net income
What is the definition of a marginal tax rate?
Debt
Multiple choice question.
The marginal tax rate is the percentage of each dollar of taxable income
that the firm pays in taxes.
The marginal tax rate is the percentage of every additional dollar of sales
that a firm must pay out in taxes.
The marginal tax rate is the amount of additional taxes a firm must pay
out for every additional dollar of taxable income it earns.
The marginal tax rate is defined as the total tax liability stated as a
percentage of the total taxable income.
Explain why following GAAP to record sales on an income statement may
differ from the cash flows generated by those sales.
Multiple choice question.
GAAP requires the revenue from a sale be recorded only when all the
costs of that sale have been paid, not when the cash flow from the sale
occurs.
GAAP requires the revenue from a sale be recorded at the time of sale,
which may not coincide with the cash flow from the sale.
GAAP allows each firm to determine when it will record a sale. Cash flows
from sales may occur at a different time.
GAAP requires the revenue from a sale be recorded when payment is
received, so there are no differences.
True or false: A decrease in a long-term asset account balance is a cash flow
from investing activity.
True false question.
True
False
Which one of these is a subtraction from the cash flows from investing
activities?
Multiple choice question.
Decrease in a fixed asset
Decrease in other long-term assets
Increase in a fixed asset
Increase in inventory
Which one of these accounts is a noncash expense?
Multiple choice question.
Employee benefits
Amortization
Utilities
Legal expense
Which one of these is a cash flow from a financing activity?
Multiple choice question.
Decrease in loans payable
Increase in accounts payable
Decrease in accounts payable
Increase in fixed assets
Select all that apply
Which of these is (are) a source of cash? Select all that apply.
Multiple select question.
Decrease in inventory
Increase in accounts receivable
Decrease in accounts payable
Increase in long-term debt
Which one of these is a subtraction from the cash flows from financing
activities?
Multiple choice question.
Buying back common stock
Borrowing money for five years
Obtaining a mortgage
Selling preferred stock
Which of one of these statements best illustrates the definition of a marginal
tax rate?
Multiple choice question.
Don paid $28,000 in taxes on his $100,000 income, or 28 percent.
Fredrico paid no tax on his $16,400 income, or zero percent.
Suenette paid $13,400 in taxes on a taxable income of $52,000, or 25.8
percent.
Antonio will pay $0.28 more in taxes if his taxable income increases by
$1, or 28 percent.
Cash flows from financing activities are defined as the cash flows resulting
from which one of the following?
Multiple choice question.
Marketable securities transactions
Debt and equity financing transactions
Purchases and sales of long-term assets
Production and sales of products
Which one of these is a cash flow from an investing activity?
Multiple choice question.
Increase/decrease in preferred stock
Increase/decrease in fixed assets
Increase/decrease in notes payable
Increase/decrease in inventory
A firm has an operating cash flow of $600, a net change in gross fixed assets
of $100, and a change in net operating working capital of $50. What is the
firm's free cash flow (FCF)?
Multiple choice question.
$550
$650
$450
$750
Which one of these is an addition to the cash flows from investing activities?
Multiple choice question.
Increase in fixed assets
Dividend paid
Decrease in other long-term assets
Increase in common stock
Assume net income is $32, cash dividends paid are $20, and the ending
retained earnings balance is $44. What is the change in retained earnings for
the period?
Multiple choice question.
$32
$56
$24
$12
Select all that apply
Which of these are cash flows from financing activities? Select all that apply.
Multiple select question.
Increase in common stock
Increase in accounts payable
Preferred stock dividend
Decrease in long-term debt
The Sarbanes-Oxley Act of 2002 requires senior management of a firm to do
which one of these?
Multiple choice question.
Certify the financial statements are accurate and representative of the
firm's earnings
Pay all profits immediately to shareholders in the form of dividends
Maintain a constant stock price so investors will avoid future losses
Manipulate the accounting rules to maximize profits for each period
Select all that apply
Which of these are additions to the cash flows from financing activities?
Select all that apply.
Multiple select question.
Common stock dividend paid
Increase in long-term debt
Decrease in notes payable
Increase in common stock
What is the definition of a statement of cash flows?
Multiple choice question.
A statement of cash flows is a financial statement that reflects a firm's
cash flows as of a specific date.
A statement of cash flows is a financial statement that shows the firm's
cash flows over a period of time.
A statement of cash flows is a statement which reflects the changes in
current assets over a period of time.
A statement of cash flows is a statement which reflects changes in
operating activities only as of a specific date.
True or false: The cash flows that result from debt and equity financing
transactions are cash flows from financing activities.
True false question.
True
False
A firm has EBIT of $600, depreciation of $200, and a tax rate of 34 percent.
What is the operating cash flow?
Multiple choice question.
$264
$404
$596
$528
A statement of retained earnings showed a beginning retained earnings
balance of $24 and an ending balance of $22. Net income was positive. What
do you know given this information?
Multiple choice question.
Net income exceeded cash dividends paid.
Cash dividends paid exceeded net income.
No dividends were paid.
Common stock dividends exceeded preferred stock dividends.
Which of these is a requirement of the Sarbanes-Oxley Act of 2002?
Multiple choice question.
Public corporations are required to use MACRS for financial statement
purposes.
All public firms in the same industry must apply the same method of
depreciation.
Public corporations are required to artificially smooth their earnings.
A corporate board's audit committee must have considerable experience
with GAAP.
Which one of these is the best definition of a statement of cash flows?
Multiple choice question.
A statement of cash flows reconciles the noncash balance sheet items to
the noncash income statement items.
A statement of cash flows summarizes the sources and uses of cash by
type of cash flow.
A statement of cash flows recaps the cash flows affecting the balance
sheet of a firm.
A statement of cash flows reconciles the cash balance sheet items to the
cash income statement items. [Show Less]