FINA 4300 Test 1
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?
Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.
Which one of the following is a use of cash?
increase in inventory
Depreciation expense:
reduces both taxes and net income
Current liabilities are defined as liabilities with a maturity of less than a year
TRUE
Which of the following is a reason why a company's market value of equity differs from its book value of equity?
Values of assets on the balance sheet typically reflect historical cost, adjusted for appropriate depreciation.
A balance sheet reports the value of a firm's assets, liabilities, and equity:
at any point in time
The book value of a firm is:
based on historical cost
Which one of the following is the financial statement that summarizes changes in the company's cash balance over a period of time?
cash flow statement
The sources and uses of cash over a stated period of time are reflected on the:
cash flow statement.
Which one of the following is a source of cash?
decrease in accounts receivable
Which of the following would NOT be considered a use of cash?
Depreciation
Annual reports of public companies can only be found on the SEC's EDGAR database.
False
The FASB was given Congressional authority to write accounting rules.
False
The SEC requires all companies, both public and private, to file annually a Form 10-K report.
False
The Sarbanes-Oxley Act eliminated the need for internal auditors.
False
The Sarbanes-Oxley Act of 2002 requires all members of management as well as directors to certify the accuracy of the financial statements.
False
The notes to financial statements, while helpful, are not an integral part of the statements.
False
The shareholders' letter from the CEO of a firm offers factual information needed to analyze the financial statements
False
United States accounting rules have been perceived as being less complex than international standards.
False
You can construct a sources and uses statement for 2014 if you have a company's year-end balance sheets for 2014 and 2015.
False
Which of the following is NOT a typical reason for differences between profits and cash flow?
Goodwill
Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
Income Statement
Which of the following statements concerning the cash flow-production cycle is true?
. The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle.
Which one of the following is a source of cash?
. increase in accounts payable
Which of the following statements concerning a firm's cash flows and profits is false?
A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production
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?
Balance Sheet
Conglomerates operating in diversified lines of business are required to create separate annual reports for each line of business.
False
Which of the following is NOT a major category on the cash flow statement?
Cash flows from selling activities
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?
Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.
A decline in the Net fixed assets account between year-end 2013 and year-end 2014 is a clear indication that fixed assets were sold during 2014.
FALSE
Accounting rules require U.S. companies to depreciate research and development (R&D) expenditures using the straight-line method.
FALSE
The accrual principle requires that revenue not be recognized until payment from a sale is received.
FALSE
A corporate annual report contains three basic financial statements.
False
Accounting choices and estimates rarely have a significant impact on financial statement numbers.
False
A basic understanding of financial statements is needed due to ongoing financial turmoil and major corporate failures.
True
A reduction in long-term debt is a use of cash.
True
An unqualified auditor's report states that the financial statements present fairly the financial position, results of operation, and the cash flows of the entity.
True
Despite the enactment of the Sarbanes-Oxley Act of 2002, corruption and unethical behavior continued in the 2000s.
True
Examples of discretionary items include repairs and maintenance, research and development and advertising.
True
Financial statements are currently prepared according to generally accepted accounting principles in the U.S.
True
In 2006, the IASB and the FASB agreed to work on all major projects jointly
True
Management is responsible for the preparation of the financial statements, including the notes, and the auditor's report attests to the fairness of the presentation.
True
Publicity in the media can impact a firm's financial performance.
True
The accrual basis of accounting means that revenues are recognized when the sale is made rather than when cash is received.
True
The goal of the International Accounting Standards Board is the adoption of uniform international accounting standards.
True
The management discussion and analysis is of potential interest to the analyst because it contains information that cannot be found in the financial data.
True
The management discussion and analysis should contain a discussion of the commitments for capital expenditures, the purpose of such commitments, and expected sources of funding.
True
The matching principle requires that expenses be matched with the generation of revenues in order to determine net income for an accounting period.
True
The proxy statement offers information about such items as corporate governance, audit-related matters, directors and executive compensation, and related party transactions.
True
When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method.
True
