Fin 3100 Chapter 2
1) The annual report of a company is ________. A) printed and mailed to owners and the SEC B) not available online C) not mailed to owners but only to the SEC D) always available online in more details
A
1) Which of the sections below is NOT contained in the annual report? A) Prediction of competitors' returns B) Company highlights C) President's letter to the shareholders D) Description of the company's activities (usually with pictures and graphs)
A
10) Which of the below statements is FALSE? A) Typically, income statements are prepared quarterly and annually for distribution outside the company, but usually semi-annually for internal managers. B) Typically, income statements are prepared quarterly and annually for distribution outside the company. C) The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes (EBIT). D) The income statement reports the performance of the firm over the past period. It summaries and categorizes a company's revenues and expenses for that period.
A
13) Cash flow from assets is derived from ________. A) cash flow from operating activities and cash flow from investing activities B) cash flow from operating activities and cash flow from financing activities C) cash flow from financing activities and cash flow from investing activities D) cash flow from creditors and cash flow from investing activities
A
14) Net income is ________. A) not cash flow B) the cash flow from the operations of the company during the period C) the increase or decrease in cash flow for the period D) earnings before interest and taxes
A
15) Net income is ________. A) the accounting profit from the operations of the company during the period B) cash flow C) the accounting profit from the non-operating assets of the company during the period D) always the dividends paid shareholders
A
26) Debts to be paid more than one year from now are claims against the firm's assets: in other words, they are long-term liabilities. These claims are from ________ who have provided capital to the firm but whose entire repayment is not due during the coming year or operating cycle. A) banks and bondholders B) banks and stockholders C) stockholders and bondholders D) all long-term lenders
A
27) Which of the statements below is TRUE? A) The ownership accounts or owners' equity section of the balance sheet reflects the owners' stake in the firm. B) The ownership accounts or owners' equity section of the balance sheet is made up of common stock but not retained earnings. C) The retained earnings amount on the balance sheet really reflect retained earnings and other stockholder equity, but not treasury stock. D) The Statement of Retained Earnings is used to show the distribution of the interest paid for the past period.
A
3) Which of the following identities is TRUE? A) Operating Cash Flow = EBIT + Depreciation - Taxes B) Net Capital Spending = Ending Net Fixed Assets - Depreciation C) Change in Net Working Capital (NWC) = Current Assets - Current Liabilities D) Cash Flow from Assets = Operating Cash Flow + Net Capital Spending
A
4) The fundamental starting point of all the accounting statements is the ________. A) accounting identity B) computing identity C) investing identity D) financing identity
A
4) Which of the statements below is FALSE? A) Officers of a company or others who have a fiduciary responsibility to the owners can trade on their acquired private information about the company prior to the information being made public. B) One potential problem in the world of finance can arise when some owners or potential owners have access to more information about a company than do others. C) Regulation Fair Disclosure (or Reg FD) requires companies to release all material information to all investors at the same time. D) The 10-K must be filed within sixty days after the end of the company's fiscal year.
A
6) Which of the following identities is FALSE? A) Change in Equity = Paid-in-Surplus - Net New Borrowing from Creditors B) Net New Borrowing = Ending Long-term Liabilities - Beginning Long-Term Liabilities C) Cash Flow to Owners = Dividends - Net New Borrowing from Owners D) Net New Borrowing from Owners = Change in Equity
A
6) Which of the following items may be included on all income statements at yahoo.finance.com, even though they may not be part of an individual company's income statement for that year? A) Cost of Revenue and Extraordinary Items B) Goodwill and Effect of Accounting Changes C) Effect of Accounting Changes and Deferred Long-Term Asset Charges D) Cost of Revenue and Treasury Stock
A
7) Cash and Equivalents are $1,561, Short-Term Investments are $1,052, Accounts Receivables are $3,616, Accounts Payable is $5,173, Short-Term Debt is $288, Inventories are $1,816, Other Current Liabilities are $1,401, and Other Current Assets are $707. What are the Total Current Assets? A) $8,752 B) $6,936 C) $6,862 D) $5,136
A
7) In regards to the Cash Flow Statement, assume we want to break down Yahoo! Finance's cost of revenue into its two major components, cost of goods sold (COGS) and depreciation. To do so, we would need to look at ________ for the depreciation amount. A) the Statement of Cash Flow B) both the Income Statement and the Statement of Cash Flow C) both the Balance Sheet and the Statement of Cash Flow D) the Income Statement
A
1) The purpose of studying financial statements is ________. A) to mechanically build portfolio analysis B) to understand those portions of the statements that have relevance for financial decision making C) to primarily investigate all portions of the statements that have relevance for dividend policy D) to mechanically learn how to read and understand footnotes
B
17) One of the key components to making financial decisions is to ________. A) understand the timing and amount of dividends B) understand the timing and amount of cash flow C) understand the timing of EBIT D) understand the amount of net income
B
18) Which of the statements below is FALSE? A) The textbook uses the framework of the income statement to find the operating income of the company (an accounting measure) and then makes adjustments to find the true cash flow from operations. B) In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash. C) Three fundamental issues separate net income and cash flow: accrual-based accounting, non-cash expense items, and interest expense. D) Generally Accepted Accounting Principles (GAAP) in the United States allow the use of accrual accounting to record revenue.
B
19) Three fundamental issues separate net income and cash flow. Which of the answers below is NOT one of these three fundamental issues? A) Accrual accounting B) Non-cash accounting C) Non-cash expense items D) Interest expense
B
25) Which of the statements below is FALSE? A) The cash account is much like your individual checkbook, because it tells you how much money you currently have for paying bills or spending on new items. B) Long-term assets are accounts that will normally be turned into cash over the course of the operating or business cycle of the firm, and current liabilities are the accounts that will come due for payment over the operating or business cycle. C) The long-term capital asset accounts of the balance sheet represent the capital investment of the company and reflect assets that the company owns and that provide the basis for producing goods and services for sale. D) The Plant, Property and Equipment account is straightforward in its description, yet it really contains two pieces: the original value (purchase price) of the equipment and the accumulated depreciation.
B
5) Which of the statements below is TRUE? A) Accounting Identity is: Assets ≡ Liabilities - Owners' Equity. B) Accounting Identity is: Assets ≡ Liabilities + Owners' Equity. C) Accounting Identity is: Assets ≡ Owners' Equity - Liabilities. D) Accounting Identity is: Liabilities ≡ Assets + Owners' Equity.
B
9) Net Working Capital for 2007 is $3,597 and Net Working Capital for 2008 is $1,890. What is the change in Net Working Capital? A) $1,707 B) -$1,707 C) -$1,727 D) -$2,527
B
1) Which of the statements below is FALSE? A) The cash that the firm generates from its operating decisions (use of its assets) is used to either pay creditors or the owners of the company. B) Cash flow from assets shows the success or failure of the operating decisions. C) Cash flow to owners shows cash paid to owners plus any new borrowing from owners. D) Cash flow to creditors shows a portion of how the firm is financing the operations.
C
10) Which of the statements below is FALSE? A) Understanding the underpinnings of the accounting identity and the relationship across the primary financial statements provides a springboard for projecting cash flow for future periods for both the company in general and for individual projects within a company. B) The right hand side of the balance sheet represents all the claims to the assets of the company, with these claims representing two types of lenders: creditors and owners. C) Change in net working capital looks at both long-term assets and long-term liabilities. D) Cash flow from assets examines the success or failure of the operating decisions, while cash flow to creditors examines a portion of how the firm is financing the operations.
C
13) The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the taxable income for the period. Then the appropriate taxes are calculated and subtracted. We finally arrive at the ________ , the so-called bottom line of the income statement. A) after-tax income B) before-tax income C) net income D) EBIT
C
14) Stimulus Industries Inc has 2011 total current assets of $14,871,000. Last year the total current assets were equal to $12,462,000, The change in total current assets is a ________ of cash in the amount of ________. A) source; $14,871,000 B) source; $2,409,000 C) use; $2,409,000 D) There is not enough information to answer this question.
C
16) Cash flow is ________. A) the increase but not decrease in cash for the period B) the decrease but not increase in cash for the period C) the increase or decrease in cash for the period D) the net income for the period
C
2) Which of the sections below is NOT contained in the annual report? A) Notes to financial statements B) Management's analysis of the company's performance C) Prediction of gross national product D) Auditor's Report
C
2) Which one of the answers below is NOT one of the three components of the "Cash Flow from Assets"? A) Operating Cash Flow B) Net Capital Spending C) Noncash expenses D) Change in Net Working Capital
C
20) Which of the following statements is true? A) The finance manager uses the framework of the income statement to find the operating income of the company (an accounting measure), which is also the true cash flow from operations. B) In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash. C) Three fundamental issues separate net income and cash flow: accrual accounting, noncash expense items, and interest expense. D) Generally accepting accounting principles (GAAP) in the United States do not allow the use of accrual accounting to record revenue.
C
21) In finance, we separate operating decisions from financing decisions and thus exclude ________ as a part of operating income from the income statement. A) cash flow B) dividends C) interest expense D) earnings
C
22) Which of the following statements is FALSE? A) The income statement is put together at a specific point in time (end of a business quarter, or business year) and so the sale could be in one period and the cash received in another period. B) The income statement contains the set of expenses associated with the products or services sold during the current operating period, with those expenses not associated with current cash flow labeled as non-cash expense items. C) Depreciation is a current expense of a cash outflow in the current period. D) Companies depreciate fixed assets (such as office furniture, equipment, machinery, and buildings) over an assigned time period, but the initial cash outlay for the fixed asset typically occurs at the time the asset is acquired by the firm.
C
23) To find operating cash flow for the business for the year, add depreciation expense to EBIT and then ________. A) subtract the interest expenses B) add the taxes C) subtract the taxes D) add interest expenses
C
3) If you query a company at yahoo.finance.com, you will see a menu that includes a section on financial statements and provides ________. A) the past six years of each of the primary financial statements B) provides, at a cost, on-line access to limited information on a company's financial reports C) the past three years of each of the primary financial statements D) provides an on-line tutorial on how to understand the government's role in affecting stock prices
C
3) Understanding the sources and uses of cash in the recent past will enable a manager to ________ the cash flow for a potential project of the firm. A) determine with perfect precision B) forecast with perfect precision C) predict more accurately D) know today
C
4) Which of the following identities is TRUE? A) Operating Cash Flow = EBIT - Depreciation + Taxes B) Net Capital Spending = Ending Net Fixed Assets - Depreciation C) Net Working Capital (NWC) = Current Assets - Current Liabilities D) Cash Flow from Assets = Operating Cash Flow - Net Capital Spending
C
5) Which of the following identities is FALSE? A) Cash Flow to Creditors = Interest Expense - Net New Borrowing from Creditors B) Net New Borrowing = Ending Long-term Liabilities - Beginning Long-Term Liabilities C) Cash Flow to Owners = Dividends + Net New Borrowing from Owners D) Net New Borrowing from Owners = Change in Equity
C
5) Which of the following items may be included on all balance sheets at yahoo! Finance, even though they may not be part of an individual company's balance sheet for that year? A) Effect of Accounting Changes, Extraordinary Items, and Treasury Stock B) Deferred Long-Term Asset Charges, Treasury Stock, and Extraordinary Items C) Goodwill, Deferred Long-Term Asset Charges, and Treasury Stock D) Cost of Revenue, Goodwill, and Treasury Stock
C
8) Cash and Equivalents are $1,561; Short-Term Investments are $1,052; Accounts Receivables are $3,616; Accounts Payable are $5,173; Short-Term Debt is $288; Inventories are $1,816; Other Current Liabilities are $1,401; and Other Current Assets are $707. What is the amount of Total Current Liabilities? A) $8,752 B) $6,974 C) $6,862 D) $6,574
C
9) In the years following the global economic recession of 2007 - 2009, the unemployment rate for college graduates is approximately ________ high school graduates. A) the same as B) twice as large as C) half the rate of D) one-quarter the rate of
C
11) The income statement begins with revenue and subtracts various operating expenses until arriving at ________. A) earning after taxes B) net income C) taxable income D) EBIT
D
12) The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the ________ for the period. A) EBIT B) after-tax income C) net income D) taxable income
D
15) Free cash flow is the ________. A) cash flow from assets. B) the remaining cash free to distribute to creditors and owners of the firm C) cash that a a company generates to to operate the company D) All of the above
D
2) The SEC has a site named EDGAR that ________. A) provides, at a cost, on-line access to a company's financial reports B) offers investors free advice on what stocks to pick C) provides an on-line tutorial on how to understand the government's role in affecting stock prices D) provides an on-line tutorial that will help new viewers find a company and its financial statements
D
2) Which of the statements below is FALSE? A) The purpose of studying financial statements is to understand those portions of the statements that have relevance for financial decision making. B) We need to understand how to interpret and use the information presented in financial statements to form a picture of the financial profile of the firm. C) Accounting, it has been said, looks back to where a company has been — somewhat like looking through a rear view mirror. D) Accounting and finance view the numbers in the same way.
D
24) Which of the statements below is FALSE? A) The cash account is much like your individual checkbook, because it tells you how much money you currently have for paying bills or spending on new items. B) Current assets are accounts that will normally be turned into cash over the course of the operating or business cycle of the firm, and current liabilities are the accounts that will come due for payment over the operating or business cycle. C) The long-term capital asset accounts of the balance sheet represent the capital investment of the company and reflect assets that the company owns and that provide the basis for producing goods and services for sale. D) The Plant, Property and Equipment account is straightforward in its description, yet it cannot tell you the accumulated depreciation.
D
3) Which of the statements below is FALSE? A) The report filed annually with the SEC is known as the 10-K Report. B) The 10-K Report contains the annual report, as well as additional information about company history, organizational structure, subsidiaries, and equity holdings. C) Officers of a company or others who have a fiduciary responsibility to the owners can not trade on their acquired private information about the company prior to the information being made public. D) The 10-K must be filed within one week after the end of the company's fiscal year.
D
4) Which of the items below may be included on all income statements at yahoo.finance.com, even though they may not be part of an individual company's income statement for that year? A) Cost of Revenue and Minority Interest B) Minority Interest and Effect of Accounting Changes C) Effect of Accounting Changes and Extraordinary Items D) All of the above
D
5) Notes to the financial statements help explain many of the details necessary to gain a more complete picture of the firm's performance. Some of the items often disclosed in the financial notes includes which of the following? A) How a specific item was computed B) Additional information on a company's financial condition C) Methods used to prepare the financial statements D) All of these items are often included.
D
6) Notes to the financial statements help explain many of the details necessary to gain a more complete picture of the firm's ________. A) capital budget B) choice of management C) dividend policy D) performance
D
6) There are four primary financial statements that are used to measure the performance of a firm. Which of the choices below are included among these four? A) The balance statement and income statement B) The income sheet and statement of retained earnings C) The statement of cash flow and statement of balance D) The balance sheet and statement of cash flow
D
7) It is important to remember that the fundamental ________ of accounting is the debit and credit recording activity where debits always equal credits. A) effect B) end product C) outcome D) identity
D
8) It is important to remember that the fundamental identity of accounting is the debit and credit recording activity where debits ________ equal credits. A) never B) seldom C) sometimes D) always
D
8) Which of the following statements is FALSE? A) Financial data on the Internet or via company annual reports provide a wealth of knowledge about the operations of the firm. B) Knowing the relationship of the primary financial statements and how to utilize the data in each are important tools for all financial managers. C) Although the annual report of a company is printed and mailed to owners and the SEC, much of the financial statement information is available at various financial web sites. D) EDGAR stands for Electronic Data Gathering Analysis and Retribution.
D
9) Which of the statements below is FALSE? A) The income statement summaries and categorizes a company's revenues and expenses for that period. B) Typically, income statements are prepared quarterly and annually for distribution outside the company, but usually monthly for internal managers. C) The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes (EBIT). D) The balance sheet reports the performance of the firm over the past period. It summarizes and categorizes a company's revenues and expenses for that period.
D
