FIN202_True_False_P3
A
Note: Incorrect answer 8. The book value of an asset is the historical cost of the asset less the accumulated depreciation. A) True B) False
A
15. The average tax rate is the total taxes divided by taxable income. It takes into account the taxes paid at all levels of income, and therefore it will usually be lower than the marginal tax rate, which is the rate that is paid on the last dollar of income earned. A) True B) False
A
17. Cash flows from operations are the net cash flows that support a firm's principal business activities. A) True B) False
B
18. Rent and insurance are examples of depletion expenses. A) True B) False
B
19. Cash flows from operating activities relate to the buying and selling of long-term assets. A) True B) False
B
2. GAAP principles determine the rules for how a company can issue stock to raise money. A) True B) False
B
20. Making and collecting loans, issuing and paying out on insurance contracts, and buying and selling debt or equity instruments of other firms are examples of financing activities. A) True B) False
A
21. Typical financing activities include cash payments on the principal of long-term debt, cash payments of dividends to shareholders, and cash purchases of treasury stock. A) True B) False
B
22. The going concern assumption states that a business will be shutting down its operation in the near future. A) True B) False
A
23. In a rising price environment, a company using the LIFO method assumes that the sale of a product is from the newest, highest-cost inventory. A) True B) False
B
24. If a company values its inventory using the FIFO method, when the firm makes a sale in a rising price environment, it assumes the sale is from the newest, highest-cost inventory. A) True B) False
B
3. The cost principle assumes that both parties to a transaction are economically rational and are free to act independently of each other. A) True B) False
A
4. The balance sheet identifies the productive resources (assets) that a firm uses to generate income, as well as the sources of funding from creditors (liabilities) and owners (shareholders' equity) that were used to buy the assets. A) True B) False
A
5. The balance sheet identity can be stated as Total assets = Total liabilities + Total stockholders' equity. A) True B) False
A
6. The balance sheet identity can be stated as Total assets - Total liabilities = Total stockholders' equity. A) True B) False
A
7. Book value is the amount a firm paid for its assets at the time of purchase. A) True B) False
A
9. The current market value of an asset is the amount that a firm would receive for the asset if it was sold on the open market. A) True B) False
A
1. GAAP represents a set of rules and procedures that define accounting practice at a particular point in time. A) True B) False
B
10. Preparing a market-value balance sheet is rather straightforward because it is easy to obtain market values for all assets and liabilities. A) True B) False
B
11. The net cash flow from operating activities (NCFOA) is another term for net income. A) True B) False
A
12. The income statement identifies the major sources of revenues generated by the firm and the corresponding expenses that were needed to generate those revenues. A) True B) False
A
13. Accounting profits include noncash revenues (e.g., prepaid rent) and noncash expenses (e.g., depreciation), whereas cash flows do not include these items. A) True B) False
A
14. The key financial statement that ties the other three statements together is the balance sheet, which summarizes the firm's investment and financing activities at a point in time. A) True B) False
B
16. Depreciation and amortization are examples of prepaid expenses. A) True B) False