Chapter 3 Fina 3313

22. Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense.

$0 Sales $4,000,000 Costs -$3,500,000 Depreciation expense-$500,000 ______________ EBIT $0

If a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period, based on these two categories, cash flow will increase by:

$1,500

Which of the following terms is out of place as a typical form of inventory

A. Raw materials inventory B. Current goods inventory<------------ C. Finished goods inventory D. Work in process

which of the following items should NOT be included in a listing of current assets?

Accounts Payable

Which of the following could account for a firm that has a negative net income, yet has a positive amount of cash provided by operations?

Accounts receivable decreased by a significantly more than accounts payable

Which of the following best explains the combination of a high level of sales combined with a low cash flow during an accounting period?

Acquisition of equipment

Depreciation expense is used to

Allocate historical cost over the life of an asset

A balance sheet portrays the value of a firm's assest and liabilities

At any stated point in time

In which of the following asset accounts are you least likely to find a difference between market value and book value?

Cash

The net income figure on an income statement is calculated before deducting

Cash dividends

What happens when moving from net income to cash flows as the result of an increase in inventory balances

Cash flow decrease

Which of the following will occur in a statement of cash flows as a result of paying cash dividends?

Cash flows from financing will decrease.

Which of the following categories of a statement of cash flows is affected by the payment of interest expense?

Cash flows from operations

If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a negative amount of cash provided by operations

Current assets increase more than current liabilities increase

Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a period in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500?

Debt increases by more than cash dividends paid

An increase in depreciation expense will (all other things equal):

Decrease net income

Which of the following statements about net working capital (NWC) is correct

Decreases in NWC can increase the firm's risk

Which of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT?

Depreciation expense

Which of the following statements about depreciation is correct

Depreciation reduces the book value of assets

Which of the following cash outflows does not reduce a firm's net income

Dividends

Which of the following is not a typical reason for differences between profit and cash flow

Income taxes

Which of the following changes in working capital will result in an increase in cash flows?

Increase in accounts payable

What balancing entry is most likely to be called for if previously excluded intangible assets were added to a firm's balance sheet?

Increase shareholders' equity

Interest expense appears in the operations section of the cash-flow statement because:

Its payment is not within managerial discretion

Which of the following assets is likely to be considered the most liquid

Marketable securities

What happens to a firm's net worth as it uses cash to repay accounts payable?

Net worth remains constant

In a statement of cash flows, which category includes depreciation expense?

Operations

Which of the firm's financial statements most clearly recognizes the payment for new equipment

Statement of cash flows

According to the statement of cash flows, cash flows from financing could be positive if:

The firm added more debt than it repaid

What occurs when the value of a firm's debt exceeds the value of shareholders' equity?

The firm is financed more through debt than through equity.

What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and has negative cash flows from both operations and financing?

The firm sold more equipment than it purchased

The gathering of related revenues and expenses into the same period, regardless of when cash is actually received or paid, is

accrual accounting

When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:

book value of the asset

Net working capital is calculated by taking the difference between

current assets and current liabilities.

Net working capital is a measure of the company's:

estimated liquidity

If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm

has long-term debt.

According to GAAP, assets and liabilities are typically recorded on the balance sheet at

historical cost less depreciation.

Retained earnings result from

income not paid to shareholders

The existence of goodwill on a corporate balance sheet indicates that the corporation has

intangible assets from past acquisitions

A balance sheet may be considered backward-looking from the perspective that:

it records historic, not current values

If a payment of principal is due in 13 months on a long-term liability, that payment will now appear as

long-term debt

Perhaps the best method for estimating the market value of shareholders' equity is to:

multiply number of shares outstanding by the price of each share

If a firm's cash-flow statement shows that cash was used for investments, which of the following would seem most likely?

new machines were acquired

Current period depreciation expense is listed

on the income statement

If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are

one-half depreciated

Accrual accounting, which attempts to match sales revenues and the expenses associated with the production of the goods, is conducted in an attempt to:

reduce bias in reported profitability measures

In general, what is changing as you read down the left-hand side of a balance sheet

the assests are becoming less liquid

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold:

will be recognized in the second period