ABM 435 Exam 1
In practice, you can estimate the owner's equity from the balance sheet using the following: a) Liabilities - Assets b) Value of Liabilities c) Value of assets d) Assets - Liabilities
D
A TIE ratio less than one indicates that a business cannot pay its interest expense using EBIT. T or F?
True
Bankruptcy laws are part of the U.S. Constitution. T or F?
True
Depreciation is considered a noncash expense T or F?
True
If the total assets of a business equal the total liabilities, then the total equity must be equal to zero. T or F?
True
Statement of cash flows questions shows the flows of sources and uses from the beginning of a period to the ending of a period. T or F?
True
Typically, the IRS will publish or establish acceptable depreciation rates as they apply to U.S. Taxes. T or F?
True
Assume accounts receivable increased by $1000 but cash receipts decreased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the Change in Cash Position on the Statement of Cash Flows to change? a) Decrease b) Increase c) No change
a
Challenge Question: In the coordinated financial statement (CFS), what happen to the change in cash position from the statement of cash flow? a) It gets combined with the cash and marketable securities from the prior period b) It gets combined with the retained earnings from the prior period c) If goes on the accrual incomes statement under total revenue d) It determines the amount of taxes the firm has to pay
a
If depreciation expense increased, how would you expect retained earnings to change assuming all other exogenous variables (and taxes paid) stayed the same? a) Decrease b) No change c) Increase
a
If the purchase price of a piece of equipment was $5000 and the accumulated depreciation was $5000, what is the book value of this long-term assets? a) $0 b) $5,000 c) You cannot calculate the book value with this information d) $10,000
a
In the SUAF, what does the beginning balance of the next period equal? a) Ending balance in the previous period b) Beginning balance in the previous period c) Ending balance minus beginning balance d) Sources minus uses
a
On an accrual income statement, assume (1) accounts receivable increased by $1000 but (2) cash receipts decreased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the EBT to change? a) No change b) Decrease c) Increase
a
On an accrual income statement, assume (1) accounts receivable increased by $1000 but (2) cash receipts decreased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the EBT to change? a) No change b) Decrease c) Increase
a
On an accrual income statement, assume accounts receivable increased by $1000 but cash receipts decreased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the EBIT to change? a) No change b) Increase c) Decrease
a
On an accrual income statement, assume accounts receivable increased by $1000 but cash receipts decreased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the EBT to change? a) No change b) Increase c) Decrease
a
What is one example of Accrued Liabilities? a) Property taxes b) Machinery loan payments c) Mortgage payment d) Value of production inputs
a
What is the key difference between an accrual income statement and a cash income statement? a) When sales and expenses are settled (or changes hands) b) The tax rate used c) No difference, they are the same d) Based on using credit only versus cash only
a
What ratio would allow you to make the following conclusion: "a value less than one implies the firm cannot meet short-term debt obligations." a) Current ratio b) DA ratio c) Profit margin d) TIE ratio
a
Which financial ratios are associated with looking at a firm's use of debt to operate business? a) Leverage b) Solvency c) Efficiency d) Liquidity
a
Assume a firm has a current ratio of 2.5 and a quick ratio of 0.3. Without any additional information, what is a safe assumption you can make about the business? a) The business is out of cash b) Inventory accounts for a large share of the current assets value c) Accounts receivable is down year to year d) The business is insolvent and in bankruptcy
b
Assume accounts receivable increased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the Change in Cash Position on the Statement of Cash Flows to change? a) Decrease b) No change c) Increase
b
Assume accounts receivable increased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the EBT to change? a) Decrease b) Increase c) No change
b
Assume the depreciable assets in the beginning period were valued at $1995, the depreciation for the current period was $100, and $200 worth of depreciable assets were sold. What would you expect the value of depreciable assets to be at the ending of the current period? a) $2,095 b) $1,695 c) $1,795 d) $1,895
b
If depreciation expense increased, how would you expect the TIE ratio to change assuming all other exogenous variables (and taxes paid) stayed the same? a) No change b) Decrease c) Increase
b
On an accrual income statement, assume accounts receivable increased by $1000 but cash receipts decreased by $1000. Now assume all other exogenous variables stay the same. Based on this, how would you expect the taxes paid to change? a) Increase b) No change c) Decrease
b
Production materials, such as, seed and fertilizer, hourly labor associated with harvesting, and equipment fuel expenses are examples of: a) Account receivable b) Cost of Goods Sold c) Current Assets d) Overhead expenses
b
Recall that the balance sheet equation is, Assets = Liabilities + Equity. So, what is the main function of contributed capital on the balance sheet? a) It shows how much debt the owner has taken out b) Reconcile mismatches between Assets and Liabilities c) It shows the total cash the owner invested d) Indicator of firm's financial well being
b
Taxes, interest, and salaries that have not been paid, but have to be paid are examples of: a) Owners draw b) Accrued liabilities c) Current assets d) Equity
b
What does the accumulated depreciation of a long-term asset reflect? a) Production value b) Loss in value over time c) Market value d) Book value
b
What happen to the total revenue on an accrual income statement if inventory from the balance sheet decreases in the ending period. a) Total expenses decrease b) Total revenue decreases c) No change d) Total revenue increases
b
What happen to the total revenue on an accrual income statement if notes receivable from the balance sheet decreases in the ending period. a) Total expenses decrease b) No change c) Total revenue decreases d) Total revenue increases
b
What is not an example of the ratios that look at the firm's ability to generate profits from its assets or equity? a) Profit margin b) Equity multiplier c) Return on assets d) Return on equity
b
What is the primary difference between accounts receivable and notes receivable? a) They are interchangeable/identical assets b) Notes are loans made while accounts are completed sales c) Notes are completed sales while accounts are loans made d) Only accounts receivable can generate interest
b
What ratio would allow you to make the following conclusion: "a value less than one implies the firm cannot meet long-term debt obligations." a) DA ratio b) TIE ratio c) Current ratio d) Profit margin
b
Which financial ratios are associated with looking at a firm's units of output used to generate a unit of input? a) Leverage b) Efficiency c) Solvency d) Profitability
b
EBIT is used to calculate the after-tax rate for what? a) Return on Equity b) Interest c) Return on Assets d) Owners draw
c
EBT is used to calculate the after-tax rate for what? a) Interest b) Owners draw c) Return on Equity d) Return on Assets
c
How long does a bankruptcy stay on your individual credit report? a) 7 years b) 12 years c) 10 years d) 5 years
c
If depreciation expense increased, how would you expect the taxes paid to change assuming all other exogenous variables stayed the same? a) No change b) Increase c) Decrease
c
Now assume the depreciable assets in the beginning period were valued at $1995, the depreciation for the current period was $100, and $200 worth of depreciable assets were purchased. What would you expect the value of depreciable assets to be at the ending of the current period? a) $1,795 b) $1,895 c) $2,095 d) $1,695
c
Rent, manager salaries, property taxes, and office utilities are examples of: a) Current Assets b) Cost of Goods Sold c) Overhead expenses d) Account receivable
c
What happen to the total expenses on an accrual income statement if accounts payable from the balance sheet decreases in the ending period. a) No change b) Total expenses increases c) Total expenses decrease d) Total revenue decreases
c
What happen to the total expenses on an accrual income statement if accrued liabilities from the balance sheet increases in the ending period. a) Total expenses decrease b) Total revenue decreases c) Total expenses increases d) No change
c
What type of legal business structure is impacted by "double taxation?" a) Partnership b) S-Corporation c) C-Corporation d) Sole Proprietor
c
When developing more complex financial documents, like an income statement, how should property taxes be categories? a) Grouped with other variables costs b) Grouped with all taxes, including federal taxes c) Grouped with other overhead expenses d) Grouped with other "Cost of Goods Sold"
c
In the SWOT analysis, ____________ and ____________ are internal to the business; whereas; , ____________ and ____________ are external to the business. a) Strengths and Opportunities; Weaknesses and Threats b) Opportunities and Weaknesses; Threat and Strengths c) Opportunities and Threats; Strengths and Weaknesses d) Weaknesses and Strengths; Threats and Opportunities
d
What happen to the total expenses on an accrual income statement if notes payable from the balance sheet decreases in the ending period. a) Total revenue decreases b) Total expenses increases c) No change d) Total expenses decrease
d
What happens to the Net Income After Taxes? a) Used to pay owners draw b) Used to dividends c) Goes to Retained Earnings d) All of the above
d
What is an example of a capital gains? a) Selling property and receiving less than to book value b) Receiving a business loan for $20,000 c) Increase in sales revenue due to increased marketing d) Selling machinery for $1000 after it was fully depreciated
d
What is the main difference between the current ratio and quick ratio? a) Only the current ratio uses most recent values b) The quick ratio is easy to calculate c) Once uses depreciation the other does not d) Inclusion of inventory in calculation
d
What is the primary difference between current and non-current long-term liabilities? a) How they are counted to balance out assets b) There is not difference, they are due at the same time c) Current is paid on time, non-current means you are overdue d) The period (timing) when payments are due
d
In general, what are the two methods used to depreciate a capital expenditure the business is expected to use for more than one year? a) Modified accelerated cost recovery system b) Straight line c) Write of expense in full in the first year d) Write of based on actual use of equipment e) Both a and B
e
Regarding a Profit and Loss of P&L statement, which of the following is not true? a) A popular type of income statement b) Used frequently by small businesses c) May not show federal taxes paid d) May be organized in different ways e) All of these are true
e
Challenge Question: From the SUAF, how would you characterize rent? (Choose the best response from below) a) Variable cost b) Fixed Cost c) Overhead expense d) Cost of Good Sold e) Both A and D f) Both B and C g) None of the above
f
A low value for the DE ratio compared to the industry standards shows the firm this is using a lot more debt compared to peers to operate the business. T or F?
False
Adjusted gross income can be thought of as similar to net income for businesses. T or F?
False
After declaring bankruptcy, an individual will never be able to obtain credit again. T or F?
False
An increase in the cash and marketable securities of a business from one period to the next indicates that the change in cash position on the statement of cash flows was negative. T or F?
False
Depreciable assets become non-depreciable assets after fully depreciated. T or F?
False
Liquidity ratios consider a firm's ability to meet its long-term debt obligations. T or F?
False
Non-Current Long-Term Debt is debt that is past due. T or F?
False
Overhead expense, or OE, are typically easy to assign to a single production activity as they clearly align with a single project. T or F?
False
Solvency ratios consider a firm's ability to pay short-term obligations with its current assets. T or F?
False
Tax laws apply uniformly across all legal types of business, whether Sole Proprietor or C-Corporation. - T or F
False
The "What Is" analysis is mostly focused on external issues like opportunities and threats. T or F?
False
