BUSM 560 Quiz 01

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A) income statement B) balance sheet C) cash flow statement D) sources and uses statement

A

A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company's balance sheet? A) Equity rises $250,000; net plant and equipment falls $250,000. B) Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000. C) Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000. D) Cash rises $250,000; net plant and equipment falls $250,000.

B

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's price per share? A) $5 B) $10 C) $25 D) $50

B

Suppose an acquiring firm pays $100 million for a target firm, and the target's assets have a book value of $70 million and an estimated replacement value of $80 million. What amount would be allocated to the acquiring firm's goodwill account? A) $0 million B) $ 20 million C) $30 million D) $70 million

B

The book value of a firm is A) equivalent to the firm's market value provided that the firm has some fixed assets. B) based on historical cost C) more of a financial than an accounting valuation. D) adjusted to the market value whenever the market value exceeds the stated book value.

B

A balance sheet reports the value of a firm's assets, liabilities, and equity. A) over an annual period B) over any period of time C) at any point of time D) at the end of the year

C

Which of the following statements concerning the cash flow production cycle is true? A) A company's operations and finances are independent of each other. B) Financial statements have nothing to do with reality. C) The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle. D) A profitable company will always have sufficient cash to meet its obligations E) The profits reported in a given time period equal the cash flows generated.

C

Which of the following would NOT be considered a use of cash? A) dividends paid B) a decrease in accounts payable C) depreciation D) an increase in the cash and marketable securities account

C

Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets? A) income statement B) creditor's balance C) balance sheet D) cash flow statement

C

A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this transaction affect the company's balance sheet? A) Net plant and equipment rise $10 million; cash falls $10 million; bank debt rises $5 million. B) Net plant and equipment rises $5 million; cash falls $10 million; bank debt rises $5 million. C) Net plant and equipment rises $5 million; cash falls $5 million; bank debt rises $5 million. D) Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.

D

The sources and uses of cash over a stated period of time are reflected in the A) income statement B) balance sheet C) shareholders' equity statement D) cash flow statement

D

Which of the following is a reason why a company's market value of equity differs from its book value of equity? A) Shareholders are keenly aware of book values but have little interest in market values. B) Accountants' charges for the cost of equity are often higher than they should be. C) Fair value accounting is becoming more widely used. D) Values of assets on the balance sheet typically reflect historical cost, adjusted for appropriate depreciation.

D

Which one of the following is a source of cash? A) increase in accounts accountable B) decrease in common stock C) decrease in notes payable D) increase in accounts payable

D

An increase in cash and cash equivalents should appear as a source of cash on the sources and uses statement. T/F

F

The accrual principle requires that revenue not be recognized until payment from a sale is received. T/F

F

A cash flow statement places each source or use of cash into one of three broad categories: operating activities, investing activities, or financing activities. T/F

T

A reduction in long-term debt is a use of cash. T/F

T

Current liabilities are defined as liabilities with a maturity of less than one year. T/F

T

When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method. T/F

T