econ 4 midterm 2

which of the following elements account for some of the difference between current assets and current liabilities? a.) inventory b.) accounts receivable c.) accounts payable d.) all of the above

all of the above

under IFRS, dividends paid can be classified as a.) operating activities b.) investing activities c.) financial activities d.) all of the above are legitimate

all of the above are legitimate

under IFRS, interest paid can be classified as a.) operating activities b.) investing activities c.) financial activities d.) all of the above are legitimate

all of the above are legitimate

GAAP and IFRS could generally disagree on the cash flow classifications of a.) interest payments received b.) dividend payments received c.) interest payments made d.) all of the above are sources of potential disagreement

all of the above are sources of potential disagreements

ratios can be used to identify sources of a.) competitive advantages b.) potential problems c.) profitability d.) all of the above

all of the above

each of the following are correct about EBITDA EXCEPT a.) it doesnt measure cash flow if there are large changers in working captial b.) can be manipulated by channel stuffing c.) EBTIDA must be reported per GAAP regulation on the SCF d.) none - all of the above are true

EBTIDA must be reported per GAAP regulation on the SCF

each of the following are considered measures of free cash flows except a.) NOPLAT b.) NOPAT c.) NOLUNCH d.) EBITDA

NOLUNCH

when you sell PP&E which of the following statements is true regarding the indirect method a.) the entire book value of the PPE is considered an Op cash flow b.) a gain from selling above book value shows up as an operating cash flow and not in net income c.) a loss on the PPE will result in adjusting operating cash flows upward from net income d.) none of the above

a loss on the PPE will result in adjusting operating cash flows upward from net income

a proxy is a.) a clone b.) a manager's aide c.) a type of variable d.) none of the above

a type of variable

a company raises 100 from shareholders and borrows 50 from the bank to purchase 150 worth of assets that generate 50 income. the ROE, ROA, and FLR are then a.) ROE= 50%, ROA= 33%, FLR= 150% b.) ROE= 33.33%, ROA= 50%, FLR= 66.66% c.) ROE= 50%, ROA= 33.33%, FLR= 66.66% d.) ROE= 50%, ROA= 66.66%, FLR= 33.33%

a.) ROE= 50%, ROA= 33%, FLR= 150%

a company's hardware has a book value of 1200 and will fully depreciate over 36 months, what is the adjustment that needs to be done when using the indirect method to reconcile operating cash flows and net income for a single fiscal year? a.) add 400 to net income b.) add 100 to net income c.) subtract 100 from net income d.) subtract 400 from net income

add 400 to net income

the step iin the accounting cycle that verifies that credits equal debits after making adjusting entries is a.) preparation of financial balance b.) unadjusted trial balance c.) adjusted trial balance d.) closing entries

adjusted trial balance

ROE can be calculated as the product of a.) ROA and the financial leverage ratio (FLR) b.) ROS, ATR, FLR c.) profitability, efficiency, and leverage metrics d.) all of the above

all of the above

cash flows from operations excludes which of the following income statement items a.) depreciation b.) amortization c.) gains (losses) on PP&E d.) all of the above

all of the above

income taxes a.) are classified as operating activities under GAAP b.) could be associated with investing financing activities c.) must be disclosed on the SCF and FASB regulation d.) all of the above

all of the above

one problem with using cross sectional analysis is that a.) differences in business strategies distort the analysis b.) difference in capital structure distort the analysis c.) differences in accounting methods distort the analysis d.) all of the above

all of the above

when there is a change in accounts receivable, in order to understand the effect this change has on cash flows, we often look to the a.) income statement b.) balance sheet equation c.) net cash from financing d.) none of the above

balance sheet equation

suppose your accountant made an error when reconciling net income with operating cash flows when considering a recent $5 gain on property that was sold for $60, the gain actually turned out to be $10 instead of $5, what effect will correcting this error have? a.) net income will increase by $5 b.) cash flows from operations will decrease by $5 c.) both a.) and b.) d.) none of the above

both a.) and b.)

which of the following payments is considered a cash outflow a.) dividends received b.) receipts from customers c.) buying stock d.) all of the above

buying stock

each of the following will distort attempts at cross sectional analysis for GAAP compliant firms except a.) changes in business strategy b.) changes in capital structure c.) changes in business segments d.) changes in GAAP ruleset

changes in GAAP ruleset

debiting the retained earnings account at the end of an accounting cycle is consistent with each of the following operations EXCEPT a.) paying dividends to shareholders b.) closing out an expense account c.) crediting a revenue account d.) none of the above

crediting a revenue account

if we wanted to look at how much income is returned per dollar of asset acquired without the distortion of the effects of the firms financing decisions, then an appropriate measure would be a.) ROI b.) ROA c.) de-levered net income d.) de-levered ROA

de-levered ROA

when bob renovates his $2 million dollar warehouse, extending the capacity by %50, and the renovations cost bob 500k, then the transaction generally involves a.) debiting the warehouse account 500k b.) crediting accumulated depreciation 1 million c.) crediting the warehouse account 500k d.) crediting a separate renovaton expense account for 500k

debiting the warehouse account 500k

financial leverage is a measure of the degree to which a firm's capital structure is dominated by a.) tangible assets b.) debt c.) net income d.) none of the above

debt

which of the following are considered cash inflows? a.) payments to employees b.) dividends paid on investments owned by the company c.) taxes d.) dividends paid to the company's shareholders

dividends paid on investments owned by the company

in class, we argued that a key element that explained the difference between the (DuPont) decomposition of the ROE between typical high end (low volume) and low end (high volume) retailers come down to comparing a.) efficiency of sales vs efficiency of assets b.) efficiency of assets vs degree of financial leverage c.) degree of financial leverage vs efficiency of sales d.) none of the above comparisons were capable of explaining differences

efficiency of sales vs efficiency of assets

which of the following are examples of temporary accounts a.) expenses b.) retained earnings c.) accumulated depreciation d.) assets

expenses

each of the following are components of return on assets (ROA) except a.) return on sales b.) asset turnover rate c.) financial leverage d.) none of these because they are all components of ROA

financial leverage

according to GAAP, paying dividend is an example of a.) operating cash flows b.) investing cash flows c.) financing cash flows d.) none of the above

financing cash flows

if bob used the direct method to prepare the operating, investing, and financial sections of the statement of cash flows (SCF), then which of the following actions must bob take to remain GAAP compliment with his financial document preparation before filing? a.) he must prepare the investing section of the SCF using the indirect method b.) he must prepare the financing section of the SCF using the indirect method c.) he must prepare the operating section of the SCF using the indirect method d.) none of the above - bob is already GAAP compliant

he must prepare the operating section of the SCF using the indirect method

ratios are useful a.) for making key financial decisions b.) and required for reporting on the three major financial statements for GAAP compliance c.) in a purely contextual application d.) all of the above

in a purely contextual application

one downside to increasing a leveraged position by taking on more debt to finance asset acquisitions is a.) a reduced ROE b.) decreased liquidity c.) increased risk of default / bankruptcy d.) all of the above

increased the risk of default / bankruptcy

when it comes to the disagreement between IFRS and GAAp treatment of cash flow classifications, the main discrepancy comes in when dealing with a.) interest and dividends b.) taxes and interes c.) working capital d.) shareholders equity

interest and dividends

which of the following is considered a working capital account a.) common stock b.) revenue c.) inventory d.) long term debt

inventory

the start up phase is typically dominated by which of the following classifications of cash outflows? a.) operating b.) investing c.) financing d.) noncash transactions

investing

the direct method should always be applied to prepare which of the following sections of SCF a.) operating an investing b.) investing and financial c.) operating and financial d.) none of the above

investing and financial

each of the following are a reason why change in a balance sheet item would not match the corresponding element on the statement of cash flows except a.) noncash investing and financial activities b.) acquisitions and divestitures of businesses c.) subsidiaries in different industries d.) large cash transfer between a firm and its supplier

large cash transfer between a firm and its supplier

when listing assets and liabilities on the balance sheet, we typically order them according to a.) alphabetical order b.) transaction date c.) liquidity d.) none of the above

liquidity

the classical dichotomy is an idea from __________ that suggests there is a separation between ___________ and ____________ variables a.) macroeconomics... real... nominal b.) microeconomics... short run... long run c.) macroeconomics... short run... long run d.) microeconomics... real... nominal

macroeconomics... real... nominal

a tax shield is created when a firm a.) pays dividends b.) receives interest payments c.) makes interest payments d.) all of the above

makes interest payments

investing activities tend to dominate a typical retail firm's net cash flows during each of the following phases of the life cycle except a.) startup b.) early growth c.) mature d.) none of the above

mature

one rationale for arguing why interest payments should be classified as an operation activity is due to the fact that they are an expense associated with service of a.) a tax deduction b.) more liquidity c.) less liquidity d.) free checking

more liquidity

the direct and indirect method should yield identical a.) net income b.) depreciation adjustments c.) net operating cash flows d.) none of the above

net operating cash flows

each of the following metrics must be reported on a t least one of the three major financial statements to comply with GAAP except a.) EBITDA b.) free cash flows c.) EBITDARGLE d.) none of the above

none of the above

if bob takes a loan from the bank and uses some of the cash funds to acquire a property and the remainder to pay for the last month of accrued salary of his employees, then this transaction has elements that could fall into each of the following categories except a.) operating b.) investing c.) financing d.) none of the above

none of the above

when benchmarking one firm against other similar firms in the industry, the analysis is considered to be a.) time series analysis b.) benchmark analysis c.) dynamic analysis d.) none of the above

none of the above

which of the following operations is consistent with the final step in the accounting cycle? a.) crediting revenue account b.) crediting dividends accounts c.) closing (zeroing) out permanent accounts d.) none of the above

none of the above

each of the following have their own section on the statement of cash flows except: a.) operating activities b.) disclosure of non-cash acquisitions or divestitures c.) financing activities d.) none of the above are correct answers

none of the above are correct answers

each of the following are correct about EBTIDA except a.) it doesnt measure cash flow well if there are large changes in noncash working capital b.) can be manipulated by channel surfing c.) it is a proxy for operating cash flows d.) none of the above since all are true

none of the above since all are true

each of the following must be disclosed on the statement of cash flows except a.) non-cash asset acquisition b.) cash interest payments c.) cash tax payments d.) none of the above since all must be disclosed on the SCF

none of the above since all must be disclosed on the SCF

when bob purchases inventory with cash for his business, the cash flow for that transaction would be classified as a.) operating b.) investing c.) financial d.) not enough information provided to make the assessment

not enough information provided to make the assessment

a startup phase firm likely has cash flow characteristics by relatively high levels of each of the following except a.) investing balance sheet b.) financing activities c.) operating activities d.) none of the above

operating activities

the direct method is always used for preparing each of the following sections of the statement of cash flows except a.) operating activities b.) investing activities c.) financial activities d.) none of the above are correct

operating activities

under GAAP, interest receivable is considered a.) operating activities b.) investing activities c.) financial activities d.) all of the above are legitimate

operating activities

according to GAAP, receiving dividend payments is an example a.) operating cash flows b.) investing cash flows c.) financing cash flows d.) none of the above

operating cash flows

each of the following are examples of cash outflows from investing activities except a.) acquisition of a business b.) acquisition of PP&E c.) buying stocks in other companies d.) paying dividends

paying dividends

return of sales, asset turnover, and financial leverage decompose the return on equity into metrics that respectively measure a.) efficiency, leverage, & profitability b.) profitability, efficiency, & leverage c.) efficiency, profitability, & leverage d.) leverage, profitability, & efficiency

profitability, efficiency, & leverage

ratios are a.) the most informative metric about businesses operations b.) purely contextual c.) not easy to manipulate d.) none of the above

purely contextual

which of the following transactions is considered to be an operating cash flow a.) purchasing inventory from a supplier on account b.) bringing money in by selling stock c.) receipts from customers d.) none of the above

receipts from customers

the balance sheet line time that "links" it to the preparation of the income statement is a.) current assets b.) net income c.) retained earnings d.) none of the above

retained earnings

each of the following are examples of working capital except a.) accounts receivable b.) accounts payable c.) prepaid expenses d.) revenue

revenue

which of the following is considered to be cash flow a.) payment of interest b.) selling stock c.) paying dividends d.) payment of principal on a loan

selling stock

due to distortions caused by growth in assets and sales, analyst typically apply normalization to each of the financial statements except a.) statement of income b.) statement of cash flows c.) balance sheet d.) none of the above since all are used to generate common-sized financial statements

statement of cash flows

the financial statement with the most complexities in terms of how it is put together according to GAAP compliance is most likely a.) statement of stock holders equity b.) statement of cash flows c.) the balance sheet d.) statement of incomes

statement of cash flows

the financial statement that should be prepared first towards the end of part of the accounting cycle is a.) statement of stockholders equity b.) statement of cash flows c.) the balance sheet d.) statement of income

statement of income

an example of a strategic asset for firms that utilize a "leveraged position" in formation of their capital structure is called a a.) levered sword b.) debt insulation c.) tax shield d.) none of the above

tax shield

when using the indirect method, a useful relationship for understanding how changed in non cash working capital accounts should translate into adjusting operating cash flows is given by the a.) DuPont decomposition b.) the balance sheet identity c.) capital structure equality d.) none of the above

the balance sheet identity

when a typical retail operation is exhibiting a relatively large level of investing cash outflows, it is most likely at a.) the early growth phase of the operating horizon b.) the declining phase of the operating horizon c.) the end of the operating horizon d.) none of the above

the early growth phase of the operating horizon

the operating activities portion of the cash flow statement is supposed to be analogous to a.) the income statement b.) the asset portion of the balance sheet c.) the statement of shareholders equity d.) the liabilities portion of the balance sheet

the income statement

GAAP requires that a.) the direct method must be used to prepare the operating section of the SCF b.) the indirect method must be used to prepare the operating section of the SCF c.) both indirect and direct method must be used to prepare the operating section of the SCF d.) you can use any method you want to prepare the operating section of the SCF

the indirect method must be used to prepare the operating section of the SCF

the reason we utilized a net PPE account when property was sold in class was because we didnt know a.) the book value of the asset being sold b.) if the asset was being sold for a gain or a loss c.) the information on the accumulated depreciation on the specific asset d.) all of the above

the information on the depreciation on the specific asset

when a typical retail operation is exhibiting a relatively large level of financing cash outflows, it is most likely at a.) the startup phase of the operating horizon b.) the early growth phase of the operating horizon c.) the maturing phase in the operating horizon d.) the end of the operating horizon

the maturing phase in the operating horizon

in the relic spotter case, the purchase of the metal detectors were considered an investing cash flow rather than an operating cash flow had to do with the fact that a.) the metal detectors didnt depreciate quickly b.) park purchased land in the same transaction c.) they were rented out instead of sold d.) all of the above

they were rented out instead of sold

benchmarking the same firm against its own historical performance is an example of a.) cross-sectional analysis b.) time series analysis c.) none of thesw d.) milestoning

time series analysis

the best predictor of future operating cash flows is a.) present operating cash flows b.) past operating cash flows c.) present earnings d.) using all of the above together provide the best prediction

using all of the above together provide the best prediction

karen noticed that for a particular level of net income, taking a larger depreciation expense increases operating cash flows using the indirect method. she advised that the company take as much depreciation expense early on to maximize operating cash flows. karen most likely neglected the fact that a.) when depreciation increases, it has an offsetting effect on net income b.) interest expenses are tax deductible c.) she could generate more operating cash flow selling the tangibles that are depreciating d.) all of the above

when depreciation increases, it has an offsetting effect on net income

the non cash accounts that managers exercise the most control over are referred to as a.) current assets b.) current liabilities c.) working capital d.) working assets

working capital

a foreign currency translation is most likely an issue if a.) you own entities in multiple countries b.) you own entities in multiple lines of business c.) you are trying to measure real economic activity in the operating section of the SCF d.) none of the above

you own entities in multiple countries

each of the following are considered investing cash flows except a.) you purchase a new factory to expand your operations b.) you sell some shares of another companies stock c.) you sell some shares of your company stock d.) none since all are considered investing cash flow

you sell some shares of you company s stock

when using the indirect method to prepare the SCF, which of the following will generally result in having to adjust operating cash flows upward (relative to net income)? a.) your cost of goods sold should include a depreciation expense, which you had not yet accounted for on your income statement but will correct b.) your cost of goods included a depreciation expense, which you had already accounted for in your income statement c.) your revenues include accounts receivable d.) all of the above

your cost of goods sold include a depreciation expense, which you had already accounted for in your income statement