Chapter 18 - Financial Statements

Which of the following best describes a balance sheet?

A snapshot of a company's financial situation at a point in time

The purpose of private sector accounting is different than that of the public sector, in that private sector accounting:

Is focused solely on profit

Which of the following is NOT true about the indirect method?

It converts each item on the income statement to a cash basis

Which of the following is NOT true about income statements?

It represents a single moment in time

Which of the following is NOT a purpose of financial accounting?

To organize information for management

Suppose you are analyzing financial statements of a client. You should take into account which of the following factors?

All of these answers -Economic conditions -Industry trends -Changes in price levels

The information in the statement of cash flows allows people to understand:

All of these answers -The company's needs for external financing -The company's ability to pay dividends -The company's ability to meet its debt

Assuming you wanted to compare earnings separately from the influence of the financial leverage to the assets of the company. Which profitability ratio would you use?

Basic earning power

Which stock performance ratio is the fraction of net income a firm pays to its stockholders in dividends?

Dividend payout ratio

Assume that the total debt for Bounded Inc. was 9000 instead of 6500. How would this affect the implications of the debt ratio?

Risk would increase

Travel expenses for sales force would be placed under what category of the income statement?

Selling expenses

In many countries other than the United States, the profit calculated for tax purposes is:

Similar to the profit defined by GAAP

Analyzing which financial statement statement will tell you about the financial health of a firm?

The balance sheet

Which of the following is NOT an implication of high debt ratio?

The firm has a lot of debt

Assume you are doing a liquidity test of a client before lending the client firm money. You realize that the quick ratio is .45. This indicates that:

The firm may not be able to meet current obligations