FIN 300
All of the following are equity accounts on a balance sheet EXCEPT
Cash
A corporation's operating profit margin is equal to
EBIT divided by sales.
A balance sheet reflects the current market value of a firm's assets and liabilities.
False
A company with negative net income will also have negative operating cash flow.
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
Additional Paid in Capital on the balance sheet equals the amount paid by investors for the company's common stock that exceeds the market price of the stock at the time of purchase.
False
An income statement reports a firm's cumulative revenues and expenses from the inception of the firm through the income statement date.
False
Changes in depreciation expense do not affect operating income because depreciation is a non−cash expense.
False
Common stockholders' equity equals common stock issued minus treasury stock.
False
Common−sized balance sheets show each account as a percentage of total sales to help analysts in comparing companies of difference sizes.
False
Common−sized income statements are used to compare companies that have the same amount of revenues.
False
Earnings available to common shareholders is equal to a corporation's positive net cash flow over a given period, typically one year.
False
Net profit margin is equal to the gross profit margin times the operating profit margin.
False
The income statement describes the financial position of a firm on a given date.
False
Which of the following best describes cash flow from financing activities?
Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid, minus dividends paid
Which of the following accounts belongs on the asset side of a balance sheet?
Inventory
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.
Cash flows between investors and the firm, what we call financing cash flows, occur in one of four ways EXCEPT:
Pay stock dividend.
An income statement may be represented as follows:
Sales − Expenses = Profits.
The basic format of an income statement is
Sales − Expenses = Profits.
A balance sheet is a statement of the financial position of the firm on a given date, including its asset holdings, liabilities, and equity.
True
According to accrual accounting, revenues are recognized when earned and expenses are recognized when incurred.
True
If two 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
In the United States, financial statements are prepared following the Financial Accounting Standards Board's generally accepted accounting principles (GAAP).
True
Liquidity refers to the ability to quickly convert an asset into cash without lowering the selling price.
True
What information does a firm's income statement provide to the viewing public?
a report of revenues and expenses for a defined period of time
All of the following are income statement items EXCEPT
accrued expenses.
Net working capital is equal to
current assets minus current liabilities.
The two principal sources of financing for corporations are
debt and equity.
A firm's financing costs include
interest expense
Which of the following accounts does NOT belong in the equity section of a balance sheet?
long−term debt
Examples of uses of cash include
paying cash dividends to stockholders.
Gross profit is equal to
sales − cost of goods sold.
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 belongs in the liability section of a balance sheet?
accounts payable
Which of the following accounts does NOT belong in the liability section of a balance sheet?
additional paid−in capital
What information does a firm's balance sheet provide to the viewing public?
an itemization of all of a firm's assets, liabilities, and equity as of the balance sheet date
All of the following statements about balance sheets are true EXCEPT
balance sheets show average asset balances over a one−year period.
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.
A company borrows $2,000,000 and uses the money to purchase high technology machinery for its operations. These are examples of
cash flow from financing and cash flow from investing.
Which of the following accounts does NOT belong on the asset side of a balance sheet?
common stock
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
The increase in owners' equity for a given period is equal to
net income minus dividends.
Which of the following accounts belongs in the equity section of a balance sheet?
retained earnings
What financial statement explains the changes that took place in the firm's cash balance over a period?
statement of cash flow
All of the following would result in an increase in stockholders equity EXCEPT
the company purchased treasury stock.
Financing activities have no impact on the income statement, but rather are reflected in changes in long−term debt and short−term debt on the balance sheet.
False
Finished goods held for sale are inventory, but raw materials to be used in the production process are considered other assets.
False
Fixed assets are assets whose balances will remain the same throughout the year.
False
Generally Accepted Accounting Principles (GAAP) is a set of principle−based accounting standards established by the Financial Accounting Standards Board (FASB).
False
Generally accepted accounting principles (GAAP) require finance statements prepared on a cash basis because these statements are most useful for investors and managers.
False
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
In order to be conservative, accrual accounting requires that expenses be recorded when incurred, but revenues are recorded only after the cash has been received.
False
Intangible assets such as copyrights and goodwill are not included on the balance sheet because they are impossible to value objectively.
False
Inventories are considered fixed assets because inventory levels remain fairly constant throughout the year.
False
Net working capital is equal to gross working capital minus depreciation.
False
On an accrual basis income statement, revenues equal cash receipts and expenses equal cash expenditures.
False
Owners equity increases each period by the amount of the corporation's positive net cash flow.
False
The balance sheet equation is Total Assets = Total Revenues − Total Liabilities.
False
The more debt a company uses to finance its assets, the lower will be its operating income due to higher interest expense.
False
The profit and loss (income) statement is compiled on a cash basis.
False
The retained earnings balance on IBM's balance sheet at the end of 2010 is equal to IBM's 2010 net income minus dividends paid in 2010.
False
Two companies have identical assets and operating activities. Which of the follow statements is true?
The company with more debt will have lower net income due to interest expense.
An income statement reports the firm's revenues and expenses for a specific period of time such as one year.
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
Common−sized income statements restate the numbers in the income statement as a percentage of sales to assist in the comparison of afirm's financial performance across time and with competitors.
True
Earnings available to common shareholders represents income that may be reinvested in the firm or distributed to its owners.
True
Earnings before taxes, or taxable income, is equal to operating income minus financing costs.
True
It is possible for two 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
Profits−to−Sales relationships are defined as profit margins.
True
The accounting book value of an asset represents the historical cost of the asset rather than its current market value or replacement cost.
True
The balance sheet reflects the accounting equation: Assets = Liabilities + Owners' Equity.
True
The statement of cash flow explains the changes that took place in the firm's cash balance over the period of interest.
True
Under current accounting rules, the plant and equipment account shows the historical cost (purchase price) of, plus any subsequent improvements to, the plant and equipment.
True