Question 1

If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a negative amount of cash provided by operations?

Accepted Answer

A) current assets decrease more than current liabilities decrease. 
B) current assets increase more than current liabilities increase. 
C) current assets decrease more than current liabilities increase. 
D) a large addition is made to plant and equipment. 
A) current assets decrease more than current liabilities decrease. 
B) current assets increase more than current liabilities increase. 
C) current assets decrease more than current liabilities increase. 
D) a large addition is made to plant and equipment.

Question 2

Net working capital is a measure of a company's:

Accepted Answer

A) goodwill. 
B) short-term liabilities. 
C) estimated cash reservoir. 
D) shareholders' equity. 
A) goodwill. 
B) short-term liabilities. 
C) estimated cash reservoir. 
D) shareholders' equity.

Question 3

If a firm pays taxes, which one of these will reduce net income but increase cash flow?

Accepted Answer

A) depreciation expense 
B) income taxes 
C) cash sales 
D) interest expense 
A) depreciation expense 
B) income taxes 
C) cash sales 
D) interest expense

Question 4

Assume a firm increases its revenue by $100 while increasing its cost of goods sold by $85.How much additional tax will the firm owe if its marginal tax rate is 25%?

Accepted Answer

A) $3.75 
B) $7.50 
C) $13.75 
D) $25.00 
A) $3.75 
B) $7.50 
C) $13.75 
D) $25.00

Question 5

Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market value of assets, and 1,000 shares of outstanding stock?

Accepted Answer

A) market value of liabilities exceeds book value of liabilities. 
B) market value of liabilities equals $1 million. 
C) book value per share equals $1,000. 
D) market value per share equals $2,000. 
A) market value of liabilities exceeds book value of liabilities. 
B) market value of liabilities equals $1 million. 
C) book value per share equals $1,000. 
D) market value per share equals $2,000.

Question 6

If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are:

Accepted Answer

A) new. 
B) fully depreciated. 
C) one-half depreciated. 
D) equal in value to the firm's current assets. 
A) new. 
B) fully depreciated. 
C) one-half depreciated. 
D) equal in value to the firm's current assets.

Question 7

An expenditure on new capital equipment is a cash payment.

Accepted Answer

A) True 
 B)False

Question 8

If market values of equity exceed book values of equity, then:

Accepted Answer

A) equity has been depreciated too rapidly. 
B) the firm uses accrual-based accounting. 
C) profit potential is expected to be attractive relative to the level of risk. 
D) the firm is holding too much cash. 
A) equity has been depreciated too rapidly. 
B) the firm uses accrual-based accounting. 
C) profit potential is expected to be attractive relative to the level of risk. 
D) the firm is holding too much cash.

Question 9

Which of the following changes in working capital will result in an increase in cash flows?

Accepted Answer

A) increase in accounts payable 
B) increase in inventories 
C) increase in accounts receivable 
D) decrease in other current liabilities 
A) increase in accounts payable 
B) increase in inventories 
C) increase in accounts receivable 
D) decrease in other current liabilities

Question 10

One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life.

Accepted Answer

A) True 
 B)False

Question 11

What is the fundamental difference between IFRS and GAAP?

Accepted Answer

A) GAAP relies more on general principles but ignores the spirit of those principles. 
B) GAAP relies more on specific rules and the spirit of the rules. 
C) GAAP relies more on specific rules but not the spirit of the rules. 
D) GAAP relies more on general principles as well as the spirit of those rules. 
A) GAAP relies more on general principles but ignores the spirit of those principles. 
B) GAAP relies more on specific rules and the spirit of the rules. 
C) GAAP relies more on specific rules but not the spirit of the rules. 
D) GAAP relies more on general principles as well as the spirit of those rules.

Question 12

Which of the following statements correctly compares international accounting standards?

Accepted Answer

A) the standards are becoming less similar over time. 
B) the standards are typically more lenient in the United States. 
C) the standards are stricter in the United States in some regards. 
D) balance sheets differ, but income statements are similar in all countries. 
A) the standards are becoming less similar over time. 
B) the standards are typically more lenient in the United States. 
C) the standards are stricter in the United States in some regards. 
D) balance sheets differ, but income statements are similar in all countries.

Question 13

Which of the following assets is likely to be considered the most liquid?

Accepted Answer

A) marketable securities 
B) net fixed assets 
C) accounts payable 
D) inventories 
A) marketable securities 
B) net fixed assets 
C) accounts payable 
D) inventories

Question 14

Fixed assets can be either tangible or intangible.

Accepted Answer

A) True 
 B)False

Question 15

What happens to a firm's net worth as it uses cash to repay accounts payable?

Accepted Answer

A) net worth increases. 
B) net worth decreases. 
C) net worth remains constant. 
D) net worth decreases temporarily, until cash is replenished. 
A) net worth increases. 
B) net worth decreases. 
C) net worth remains constant. 
D) net worth decreases temporarily, until cash is replenished.

Question 16

Which one of the following does not reduce a firm's net income?

Accepted Answer

A) income taxes 
B) interest expense 
C) dividends Paid 
D) depreciation expense 
A) income taxes 
B) interest expense 
C) dividends Paid 
D) depreciation expense

Question 17

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold will be:

Accepted Answer

A) recognized when the goods are produced. 
B) recognized when the goods are sold. 
C) recognized when payment is received. 
D) split between the production and the sale periods. 
A) recognized when the goods are produced. 
B) recognized when the goods are sold. 
C) recognized when payment is received. 
D) split between the production and the sale periods.

Question 18

The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is correct for a fully depreciated asset?

Accepted Answer

A) market value is zero. 
B) market value is greater than book value. 
C) book value is greater than market value. 
D) the relationship between market and book values is indeterminable. 
A) market value is zero. 
B) market value is greater than book value. 
C) book value is greater than market value. 
D) the relationship between market and book values is indeterminable.

Question 20

The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its investments and financing activities.

Accepted Answer

A) True 
 B)False

Exam 3: Accounting and Finance

If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a negative amount of cash provided by operations?

Net working capital is a measure of a company's:

If a firm pays taxes, which one of these will reduce net income but increase cash flow?

Assume a firm increases its revenue by $100 while increasing its cost of goods sold by $85.How much additional tax will the firm owe if its marginal tax rate is 25%?

Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market value of assets, and 1,000 shares of outstanding stock?

If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are:

An expenditure on new capital equipment is a cash payment.

If market values of equity exceed book values of equity, then:

Which of the following changes in working capital will result in an increase in cash flows?

One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life.

What is the fundamental difference between IFRS and GAAP?

Which of the following statements correctly compares international accounting standards?

Which of the following assets is likely to be considered the most liquid?

Fixed assets can be either tangible or intangible.

What happens to a firm's net worth as it uses cash to repay accounts payable?

Which one of the following does not reduce a firm's net income?

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold will be:

The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment.

Which of the following is correct for a fully depreciated asset?

The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its investments and financing activities.

Goals and Governance of the Firm

Financial Markets and Institutions

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters