Question 1

Depreciation expense is the cost of a firm's land and building, allocated over the asset's useful life.

Accepted Answer

A) True 
 B)False

Question 2

To determine his company's return on assets, Harold should divide the firm's operating profits by

Accepted Answer

A)  sales. 
B)  current liabilities. 
C)  total assets. 
D)  current assets. 
A)  sales. 
B)  current liabilities. 
C)  total assets. 
D)  current assets.

Question 3

Depreciation is added back on the statement of cash flows in which of the following sections?

Accepted Answer

A)  Financing Activities 
B)  Purchasing Activities 
C)  Investment Activities 
D)  Operating Activities 
A)  Financing Activities 
B)  Purchasing Activities 
C)  Investment Activities 
D)  Operating Activities

Question 4

Match the term with its definition.
-Operating expenses that have been incurred but not paid; shown as an expense in the income statement and as a liability in the balance sheet until paid

Accepted Answer

A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows 
A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows

Question 5

In order to determine the cash flows from day-to-day operations, the firm must convert the company's income statement from a cash basis to an accrual basis.

Accepted Answer

A) True 
 B)False

Question 6

Accounts payable, accrued expenses, 2-year notes payable, and 90-day notes are all short-term liabilities.

Accepted Answer

A) True 
 B)False

Question 7

Match the term with its definition.
-Borrowed money that must be repaid within 12 months

Accepted Answer

A) accounts payable (trade credit) 
B) accounts receivable 
C) accumulated depreciation 
D) common stock 
E) current assets (working capital)
F)current debt (short-term liabilities)
G)current ratio
H)fixed assets (property, plant, and equipment [PPE])
I)gross fixed assets
J)net fixed assets
K)other assets 
A) accounts payable (trade credit) 
B) accounts receivable 
C) accumulated depreciation 
D) common stock 
E) current assets (working capital)
F)current debt (short-term liabilities)
G)current ratio
H)fixed assets (property, plant, and equipment [PPE])
I)gross fixed assets
J)net fixed assets
K)other assets

Question 8

A conventional measure of a firm's liquidity is a comparison of current assets to current liabilities.

Accepted Answer

A) True 
 B)False

Question 9

Match the term with its definition.
-A measure of what percentage of a firm's assets is financed by debt, determined by dividing total debt by total assets

Accepted Answer

A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover 
A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover

Question 10

Match the term with its definition.
-Operating profits less interest expense

Accepted Answer

A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows 
A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows

Question 11

A profitable company will always have positive cash flows.

Accepted Answer

A) True 
 B)False

Question 12

Match the term with its definition.
-A financial report showing a firm's assets, liabilities, and owners' equity at a specific point in time

Accepted Answer

A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover 
A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover

Question 13

The balance sheet shows a firm's assets, liabilities, and owners' equity at a specific point in time.

Accepted Answer

A) True 
 B)False

Question 14

Match the term with its definition.
-A financial report showing a firm's sources of cash as well as its uses of cash

Accepted Answer

A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows 
A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows

Question 15

For Webster to understand how his company performed during calendar year 2018, he must begin with the firm's financial position on

Accepted Answer

A)  January 1, 2018. 
B)  July 1, 2018. 
C)  September 30, 2017. 
D)  June 30, 2017. 
A)  January 1, 2018. 
B)  July 1, 2018. 
C)  September 30, 2017. 
D)  June 30, 2017.

Question 16

Bernard has just learned that on the balance sheet, a company's total assets must equal the _____ plus the _____.

Accepted Answer

A)  money borrowed from others; money invested by the owners 
B)  accounts receivable; accounts payable 
C)  accumulated depreciation; asset value 
D)  net profit; retained earnings 
A)  money borrowed from others; money invested by the owners 
B)  accounts receivable; accounts payable 
C)  accumulated depreciation; asset value 
D)  net profit; retained earnings

Question 17

Jan's bank has asked her to show them how her firm's financial position has changed in the past year. She should provide the company's balance sheet.

Accepted Answer

A) True 
 B)False

Question 18

Match the term with its definition.
-Operating, investing, and financing activities that result in cash inflows or outflows

Accepted Answer

A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows 
A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows

Question 19

Match the term with its definition.
-Owners' cash investments in a company plus the net profits that have been retained in the firm

Accepted Answer

A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover 
A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover

Question 20

Lance is trying to decide whether to purchase a new bulldozer to expand his business. He is confident he has enough work to keep the bulldozer busy and that repaying the loan will not be a problem. What advice would you give Lance?

Accepted Answer

A)  If the interest rate on the loan is less than the return on this asset, buy. 
B)  If the return on this asset is more than the return on his equity, don't buy. 
C)  If his current return on equity is greater than the return on this asset, buy. 
D)  If his total asset turnover rate is greater than one, don't buy. 
A)  If the interest rate on the loan is less than the return on this asset, buy. 
B)  If the return on this asset is more than the return on his equity, don't buy. 
C)  If his current return on equity is greater than the return on this asset, buy. 
D)  If his total asset turnover rate is greater than one, don't buy.

Exam 10: Understanding a Firms Financial Statements

Depreciation expense is the cost of a firm's land and building, allocated over the asset's useful life.

To determine his company's return on assets, Harold should divide the firm's operating profits by

Depreciation is added back on the statement of cash flows in which of the following sections?

Match the term with its definition. -Operating expenses that have been incurred but not paid; shown as an expense in the income statement and as a liability in the balance sheet until paid

In order to determine the cash flows from day-to-day operations, the firm must convert the company's income statement from a cash basis to an accrual basis.

Accounts payable, accrued expenses, 2-year notes payable, and 90-day notes are all short-term liabilities.

Match the term with its definition. -Borrowed money that must be repaid within 12 months

A conventional measure of a firm's liquidity is a comparison of current assets to current liabilities.

Match the term with its definition. -A measure of what percentage of a firm's assets is financed by debt, determined by dividing total debt by total assets

Match the term with its definition. -Operating profits less interest expense

A profitable company will always have positive cash flows.

Match the term with its definition. -A financial report showing a firm's assets, liabilities, and owners' equity at a specific point in time

The balance sheet shows a firm's assets, liabilities, and owners' equity at a specific point in time.

Match the term with its definition. -A financial report showing a firm's sources of cash as well as its uses of cash

For Webster to understand how his company performed during calendar year 2018, he must begin with the firm's financial position on

Bernard has just learned that on the balance sheet, a company's total assets must equal the _____ plus the _____.

Jan's bank has asked her to show them how her firm's financial position has changed in the past year. She should provide the company's balance sheet.

Match the term with its definition. -Operating, investing, and financing activities that result in cash inflows or outflows

Match the term with its definition. -Owners' cash investments in a company plus the net profits that have been retained in the firm

Lance is trying to decide whether to purchase a new bulldozer to expand his business. He is confident he has enough work to keep the bulldozer busy and that repaying the loan will not be a problem. What advice would you give Lance?

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Bernard has just learned that on the balance sheet, a company's total assets must equal the _ plus the _.