finance module 6

. Which of the following is not an operating expense? A. Interest expense B. Depreciation and amortization C. Selling, general, and administrative expenses D. Research and development

A. Interest expense

A 30-year mortgage loan is a A. Long-Term Liability. B. Current Liability. C. Current Asset. D. Long-Term Asset

A. Long-Term Liability.

Which of the following is the LEAST likely explanation for a firm's high ROE? A. The firm is growing. B. The firm is able to find investment opportunities that are very profitable. C. The firm has very efficient use of its assets. D. The firm enjoys high sales margins.

A. The firm is growing.

The firm's statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period. A. True B. False

A. True

Cash is a A. Long-Term Asset. B. Current Asset. C. Current Liability. D. Long-Term Liability

B. Current Asset.

In the United States, publicly traded companies can choose whether or not they wish to release periodic financial statements. A. True B. False

B. False

The balance sheet shows the assets, liabilities, and stockholders' equity of a firm over a given length of time (ignore preferred stock) . A. True B. False

B. False

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company? A. Investors may consider this firm to be a growth company. B. Investors believe the company's assets are not likely to be profitable its market value is worth less than its book value. C. The firm's market value is more than its book value. D. The value of the firm's assets is greater than their liquidation value

B. Investors believe the company's assets are not likely to be profitable its market value is worth less than its book value.

Which of the following is a way that the Operating Activity section of the statement of cash flows adjusts Net Income from the balance sheet? A. It subtracts all expenses and costs related to the firm's operating activities. B. It adds all non-cash entries related to the firm's operating activities. C. It adds the cash that flows from investors to the firm. D. It removes the cash used for investment purposes.

B. It adds all non-cash entries related to the firm's operating activities.

A delivery company is creating a balance sheet. Which of the following would most likely be considered a short-term liability on this balance sheet? A. The depreciation over the last year in the value of the vehicles owned by the company B. Revenue received for the delivery of items that have not yet been delivered C. A loan which must paid back in two years' time D. Prepaid rent on the offices occupied by the company

B. Revenue received for the delivery of items that have not yet been delivered

What is a firm's gross profit? A. The difference between the sales and other income generated by the firm, and all costs, taxes, and expenses incurred by the firm in a given period B. The difference between sales revenues and the costs associated with those sales. C. The difference between sales revenues and cash expenditures associated with those sales. D. All of the above

B. The difference between sales revenues and the costs associated with those sales

A printing company prints a brochure for a client, and then bills them for this service. At the time the printing company's financial disclosure statements are prepared, the client has not yet paid the bill for this service. How will this transaction be recorded? A. The sale will be added to Net Income on the income statement and retained in Net Income on the statement of cash flows. B. The sale will be added to Net Income on the income statement but deducted from Net Income on the statement of cash flows. C. The sale will not be added to Net Income on the income statement but added to Net Income on the statement of cash flows. D. The sale will neither be added to Net Income on the income statement nor used to adjust Net Income on the statement of cash flows

B. The sale will be added to Net Income on the income statement but deducted from Net Income on the statement of cash flows.

A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows? A. as an outflow under Operating Activities B. as an outflow under Investment Activities C. as an outflow under Financial Activities D. The acquisition would not be recorded on the statement of cash flows

B. as an outflow under Investment Activities

A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet? A. Commercial paper held by the company B. The inventory of chemicals used to produce the drugs made by the company C. A patent for a drug held by the company D. The cash reserves of the company

C. A patent for a drug held by the company

Which of the following balance sheet equations is INCORRECT (assume there is no preferred stock)? A. Assets - Liabilities = Shareholders' Equity B. Assets = Liabilities + Shareholders' Equity C. Assets - Current Liabilities = Long Term Liabilities D. Assets - Current Liabilities = Long Term Liabilities + Shareholders' Equity

C. Assets - Current Liabilities = Long Term Liabilities

WorldCom classified $3.85 billion in operating expenses as long-term investments. How would this make WorldCom's financial statements more attractive to investors? A. By decreasing depreciation B. By reducing capital expenditures C. By raising its reported earnings D. By boosting its cash flows

C. By raising its reported earnings

The major components of common stockholders' equity are: A. Cash, common stock, and paid-in surplus B. Common stock, paid-in surplus, and net income C. Common stock, paid-in surplus, and retained earnings D. Common stock, liabilities, and retained earnings

C. Common stock, paid-in surplus, and retained earnings

Which of the following amounts would NOT be included on the left side of a balance sheet? A. The value of government bonds held by the company B. The cash held by the company C. The amount of deferred tax liability held by the company D. The amount of money owed to the company by customers who have not yet paid for goods and services they have received

C. The amount of deferred tax liability held by the company

Gross profit is calculated as A. Total sales - Cost of sales - Selling, general, and administrative expenses - Depreciation and amortization B. Total sales - Cost of sales - Selling, general, and administrative expenses C. Total sales - Cost of sales D. none of the above

C. Total sales - Cost of sales

Which of the following best describes why firms produce financial statements? A. to use as a tool when planning future investments within the firm B. to provide a means of enticing new investors to a firm C. to provide interested parties, both inside and outside the company, with an overview of the short and long term financial condition of a business D. to show what activities the company has undertaken in the previous financial year, and what activities are planned for the near future

C. to provide interested parties, both inside and outside the company, with an overview of the short and long term financial condition of a business

What is a firm's net income? A. The difference between the sales and other income generated by the firm, and all costs, taxes, and expenses incurred by the firm in a given period B. The last or "bottom" line of the income statement C. A measure of the firm's profitability over a given period D. All of the above

D. All of the above

Accounts payable is a A. Long-Term Liability. B. Current Asset. C. Long-Term Asset. D. Current Liability

D. Current Liability

Which of the following statements regarding the balance sheet is INCORRECT? A. The balance sheet provides a snapshot of the firm's financial position at a given point in time. B. The balance sheet lists the firm's assets, liabilities, and equity. C. The balance sheet reports stockholders' equity on the right-hand side. D. The balance sheet reports liabilities on the left-hand side.

D. The balance sheet reports liabilities on the left-hand side