Ch. 2

Which of the following accounting principles does the SEcurities and Exchange Commission require U.S. firms to use when filing their financial statments?

Generally Accepted Accounting Principles.

Which of the following financial statements summarizes the revenue generated and the expenses incurred by a firm during the accounting period?

Income statement.

Which of the following is considered a part of cash flow from a financing activity in a statement of cash flow?

Increase in corporate bonds.

Which of the following was created to develop & approve a set of common International Financial Reporting Standards?

International Accounting Standards Board.

All firms that are publicly traded in the U.S. will be required to adopt the ___________ in the near future.

International Financial Reporting Standards.

Which of the following is true about a common size balance sheet?

The assets, liabilities, and equities are reported as percentage of total assets.

Which of the following is true about book value & market value of a firm's debt?

The book value of a firm's debt will be EQUAL to the market value of the firm's debt.

Which of the following about the values recorded in the balance sheet of a firm?

The book values of a firm's debt will be very close to the market values of the firm's liabilities.

The firm's statement of retained earnings reports changes in:

The common equity accounts.

________________ is an example of cash flow from an investing activity in a cash flow statement.

Purchase of equipment.

Amber Devices has total assets worth $900 million and total liabilities worth $475 million at the end of December 31. What is the amount of money received by the stockholders, if Amber liquidates all of its assets for $850 million and pays off all of its outstanding debt?

$375 million.

Using the information below for WAM Inc., the market value per share is: Earnings after interest and taxes $200,000 Earnings per share $2.00 Stockholders' equity $2,000,000 Market/Book ratio 0.20

$4

The Charleston Company is a relatively small, privately owned firm. Last year the company had after-tax income of $15,000, and 10,000 shares were outstanding. The owners were trying to determine the market value for the stock, prior to taking the company public. A similar firm which is publicly traded had a price/earnings ratio of 5.0. Using only the information given, estimate the market value of one share of Charleston's stock.

$7.50

Determine the increase / decrease in cash, given the information: Decrease in securities: $25 Increase in A/R: $50 Increase in N/P: $30 Decrease in A/P: $20 Increase in wages: $14 Increase in inventories: $35 Retained earnings: $5

-$30

Which of the following transactions will not affect the quick ratio of a company?

Accounts receivable collected.

Other things held constant, which of the following will not affect the current ration, assuming an initial current ratio greater than 1.0?

Accounts receivables are collected.

Which of the following financial statements includes information about a firm's assets, equity, and liabilities?​

Balance sheet.

A comparison of a firm's ratios with those of other firms in the same industry at the same point in time is called:

Benchmarking.

How is the book value per share calculated?

Book value per share = common equity / total number of shares outstanding.

Which of the following accounts contains the actual money that can be spent by a firm?

Cash & equivalents.

What is the appropriate measure used to examine whether a management is maximizing the firm's stock price?

Cash flows.

Which of the following is a long-term debt?

Corporate bonds.

The percentage change in earnings before interest and tax (EBIT) associated with a given percentage change in sales is known as the _____.​

Degree of operating leverage.

Which of the following is an example of noncash item reported in the income statement of a firm?

Depreciation.

Which of the following information in an annual report describes the firm's performance during the past year & also provides information regarding new developments that will affect future performance of the firm?

Discussion of operations.

Which of the following dissects a single ratio into two or more related ratios?

DuPont analysis.

Which of the following is considered by analysts when comparing the operations of two firms that are financed differently?

Earnings before interest and taxes.

Which of the following statements is true regarding debt ratios?

Firms with relatively high debt ratios have higher expected returns when business is good.

If an analyst's goal is to determine how effectively a firm is managing its assets, which of the following sets of ratio swould they examine?

Inventory turnover ratio, days sales outstanding, fixed asset turnover ratio.

Assuming that other things are constant, the PE ratio:

Is higher for firms with high growth prospects and lower for riskier firms.

A firm obtains the funds needed to pay its current bills from its:

Liquid assets.

A firm's net income as reported on its income statement is known as:

Net sales.

The funds provided by common stockholders that consist of common stock, pain-in capital, and retained earnings are referred to as the firm's:

Net worth.

Emerald Corporation's current ratio is 0.5, while Ruby (Emerald's competitor) Company's current ratio is 1.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their window dressing strategy, each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions?​

Only Emerald Corporation's current ratio will be increased.

Which of the following ratios indicate how much investors are willing to pay for the firm's stock for each dollar of reported profits?

Price/Earnings ratio.

The first step in a financial analysis of a company includes:

Ratio analysis.

If a firm's existing quick ratio is 1.0, and all other variables remain unchanged, the quick ratio can be increased by:

Receiving interest income.

Pearl Automotive Ltd. has a current ratio of 2. The company wants to window dress its financial statements. Which of the following transactions will increase the current ratio of Pearl Automotive, assuming all other variables remain constant?

Repayment of short-term loans.

The equity section of a firm's balance sheet contain:

Retained earnings.

Which of the following financial statements is included in the annual reports of a company?

Statement of cash flows.

Which of the following financial statements show how funds were generated and how funds were used over a period of time?

Statement of cash flows.

The extent to which the operating income can decline before a firm is unable to meets its annual interest costs can be found in:

The TIE.

A low inventory turnover ratio suggests that:

The firm is holding excess stocks of inventory.

An inventory turnover ratio of 8.5 times indicates that:

The firm will restock its inventory every 42 days.

If a company has a quick ratio of 1.0 and a current ratio of 2.0, then:

The value of current liabilities is equal to the value of inventory.

An analysis of a firm's financial ratios over time used to determine the improvement or deterioration in its financial situation is called:

Trend analysis.

Market value ratios indicate:

What investors think of the company's future prospects based on its past performance.