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 a​firm'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