Question 1

In general, what is changing as you read down the left-hand side of a balance sheet?

Accepted Answer

A) the assets are becoming more fully depreciated. 
B) the assets are increasing in value. 
C) the assets are increasing in maturity. 
D) the assets are becoming less liquid. 
A) the assets are becoming more fully depreciated. 
B) the assets are increasing in value. 
C) the assets are increasing in maturity. 
D) the assets are becoming less liquid.

Question 2

According to GAAP, fixed assets are typically recorded on the balance sheet at:

Accepted Answer

A) historical cost plus depreciation. 
B) market value. 
C) salvage value. 
D) historical cost less depreciation. 
A) historical cost plus depreciation. 
B) market value. 
C) salvage value. 
D) historical cost less depreciation.

Question 3

If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance sheet as:

Accepted Answer

A) a current liability. 
B) long-term debt. 
C) cash. 
D) interest expense. 
A) a current liability. 
B) long-term debt. 
C) cash. 
D) interest expense.

Question 4

Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period.Based solely on this information, cash flow will increase by:

Accepted Answer

A) $2,500. 
B) $2,000. 
C) $1,500. 
D) $500. 
A) $2,500. 
B) $2,000. 
C) $1,500. 
D) $500.

Question 5

You have gathered this information on a firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods sold, $20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $10,000 purchase of productive equipment, no changes in working capital, and a tax rate of 35%.What is the free cash flow?

Accepted Answer

A) $141,000 
B) $168,000 
C) $78,000 
D) $142,000 
A) $141,000 
B) $168,000 
C) $78,000 
D) $142,000

Question 6

If the market value of assets is high, then the market value of liabilities must be high also.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following cannot be used to reduce taxable corporate income?

Accepted Answer

A) cash dividends 
B) depreciation expense 
C) interest expense 
D) administrative expenses 
A) cash dividends 
B) depreciation expense 
C) interest expense 
D) administrative expenses

Question 8

Who pays taxes on earnings distributed as dividends?

Accepted Answer

A) the issuing corporation. 
B) the shareholder receiving the dividend. 
C) both the issuing corporation and the shareholder. 
D) neither the issuing corporation nor the shareholder. 
A) the issuing corporation. 
B) the shareholder receiving the dividend. 
C) both the issuing corporation and the shareholder. 
D) neither the issuing corporation nor the shareholder.

Question 9

Market-value balance sheets differ from book-value balance sheets in that market values:

Accepted Answer

A) are higher than book values. 
B) are lower than book values. 
C) conform more to GAAP accounting. 
D) conform to investors' expectations. 
A) are higher than book values. 
B) are lower than book values. 
C) conform more to GAAP accounting. 
D) conform to investors' expectations.

Question 10

Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT (Operating Income)?

Accepted Answer

A) cash dividends 
B) depreciation expense 
C) interest expense 
D) tax liability 
A) cash dividends 
B) depreciation expense 
C) interest expense 
D) tax liability

Question 11

The income statement resembles a snapshot of the firm at a specific time.

Accepted Answer

A) True 
 B)False

Question 12

The net income figure on an income statement is calculated before deducting the:

Accepted Answer

A) interest expense. 
B) depreciation expense. 
C) cash dividends. 
D) tax liability. 
A) interest expense. 
B) depreciation expense. 
C) cash dividends. 
D) tax liability.

Question 13

Assuming at the $50,000 income level that the corporate tax rate increases from 15% to 25%, which of the following statements is correct for a firm with $75,000 of taxable income?

Accepted Answer

A) its marginal tax rate is 15%. 
B) its average tax rate is 25%. 
C) its marginal tax rate is 18.33%. 
D) its average tax rate is 18.33%. 
A) its marginal tax rate is 15%. 
B) its average tax rate is 25%. 
C) its marginal tax rate is 18.33%. 
D) its average tax rate is 18.33%.

Question 14

Depreciation charge is a cash payment.

Accepted Answer

A) True 
 B)False

Question 15

What is the marginal tax rate for a corporation with $60,000 of taxable income and an average tax rate of 18% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $50,000?

Accepted Answer

A) 15% 
B) 33% 
C) 18% 
D) 25% 
A) 15% 
B) 33% 
C) 18% 
D) 25%

Question 16

The difference between the market values of assets and liabilities is the market value of the shareholders' equity claim.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following will occur in a statement of cash flows as a result of paying cash dividends?

Accepted Answer

A) cash flows from operations will increase. 
B) cash flows from investments will decrease. 
C) cash flows from financing will decrease. 
D) cash balances will not be affected. 
A) cash flows from operations will increase. 
B) cash flows from investments will decrease. 
C) cash flows from financing will decrease. 
D) cash balances will not be affected.

Question 18

If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm has:

Accepted Answer

A) no retained earnings. 
B) long-term debt. 
C) no accumulated depreciation. 
D) current assets. 
A) no retained earnings. 
B) long-term debt. 
C) no accumulated depreciation. 
D) current assets.

Question 19

Which of these statements related to free cash flow is correct?

Accepted Answer

A) free cash flow must be fully distributed to the firm's debtors and shareholders. 
B) free cash flow must be positive for a firm to acquire new fixed assets. 
C) all, or part, of free cash flow can be used to increase a firm's cash reserves. 
D) when capital expenditures are positive, free cash flow will exceed the cash flow from operations. 
A) free cash flow must be fully distributed to the firm's debtors and shareholders. 
B) free cash flow must be positive for a firm to acquire new fixed assets. 
C) all, or part, of free cash flow can be used to increase a firm's cash reserves. 
D) when capital expenditures are positive, free cash flow will exceed the cash flow from operations.

Question 20

Which of the following items should not be included in a listing of current assets?

Accepted Answer

A) marketable securities 
B) accounts payable 
C) accounts receivable 
D) inventories 
A) marketable securities 
B) accounts payable 
C) accounts receivable 
D) inventories

Exam 3: Accounting and Finance

In general, what is changing as you read down the left-hand side of a balance sheet?

According to GAAP, fixed assets are typically recorded on the balance sheet at:

If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance sheet as:

Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period.Based solely on this information, cash flow will increase by:

If the market value of assets is high, then the market value of liabilities must be high also.

Which of the following cannot be used to reduce taxable corporate income?

Who pays taxes on earnings distributed as dividends?

Market-value balance sheets differ from book-value balance sheets in that market values:

Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT (Operating Income)?

The income statement resembles a snapshot of the firm at a specific time.

The net income figure on an income statement is calculated before deducting the:

Assuming at the $50,000 income level that the corporate tax rate increases from 15% to 25%, which of the following statements is correct for a firm with $75,000 of taxable income?

Depreciation charge is a cash payment.

What is the marginal tax rate for a corporation with $60,000 of taxable income and an average tax rate of 18% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $50,000?

The difference between the market values of assets and liabilities is the market value of the shareholders' equity claim.

Which of the following will occur in a statement of cash flows as a result of paying cash dividends?

If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm has:

Which of these statements related to free cash flow is correct?

Which of the following items should not be included in a listing of current assets?

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