Question 1

How is net income calculated in an income statement?

Accepted Answer

A)  Net income = Net operating income + Interest 
B)  Net income = Gross profit - Retained earnings 
C)  Net income = Net sales - Variable operating costs 
D)  Net income = Earnings before taxes - Taxes 
E)  Net income = Net cash flow + Depreciation 
A)  Net income = Net operating income + Interest 
B)  Net income = Gross profit - Retained earnings 
C)  Net income = Net sales - Variable operating costs 
D)  Net income = Earnings before taxes - Taxes 
E)  Net income = Net cash flow + Depreciation

Question 2

A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:

Accepted Answer

A)  48 days. 
B)  52 days. 
C)  39 days. 
D)  82 days. 
E)  67 days. 
A)  48 days. 
B)  52 days. 
C)  39 days. 
D)  82 days. 
E)  67 days.

Question 3

A simple approach to trend analysis is to construct graphs.

Accepted Answer

A) True 
 B)False

Question 4

A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 5

The information contained in the annual report is used by investors to form expectations about future earnings and dividends.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following financial statements includes information about a firm's assets, equity, and liabilities?

Accepted Answer

A)  Income statement 
B)  Cash flow statement 
C)  Balance sheet 
D)  Statement of retained earnings 
E)  Statement of changes in long-term financing 
A)  Income statement 
B)  Cash flow statement 
C)  Balance sheet 
D)  Statement of retained earnings 
E)  Statement of changes in long-term financing

Question 7

How is net cash flow calculated if depreciation is the only noncash item in a firm's income statement?

Accepted Answer

A)  Net cash flow = Net income + Depreciation and amortization 
B)  Net cash flow = Accounting profit - Depreciation and amortization 
C)  Net cash flow = Accounting profit - Operating cash flow 
D)  Net cash flow = Fixed assets + Depreciation and amortization 
E)  Net cash flow = Operating cash flow - Depreciation and amortization 
A)  Net cash flow = Net income + Depreciation and amortization 
B)  Net cash flow = Accounting profit - Depreciation and amortization 
C)  Net cash flow = Accounting profit - Operating cash flow 
D)  Net cash flow = Fixed assets + Depreciation and amortization 
E)  Net cash flow = Operating cash flow - Depreciation and amortization

Question 8

Which of the following is true about a common size balance sheet?

Accepted Answer

A)  The assets, liabilities, and equities are reported at its market value. 
B)  The assets, liabilities, and equities are reported as a percentage of common stock. 
C)  The assets, liabilities, and equities are reported as a percentage of total assets. 
D)  The assets, liabilities, and equities are arranged in the alphabetical order. 
E)  The assets, liabilities, and equities are reported as a percentage of the assets, liabilities, and equities of a competing firm. 
A)  The assets, liabilities, and equities are reported at its market value. 
B)  The assets, liabilities, and equities are reported as a percentage of common stock. 
C)  The assets, liabilities, and equities are reported as a percentage of total assets. 
D)  The assets, liabilities, and equities are arranged in the alphabetical order. 
E)  The assets, liabilities, and equities are reported as a percentage of the assets, liabilities, and equities of a competing firm.

Question 9

Which of the following is the formula to calculate a firm's inventory turnover ratio?

Accepted Answer

A)  Inventory Turnover = Sales ÷ Inventory 
B)  Inventory Turnover = Cost of goods sold ÷ Inventory 
C)  Inventory Turnover = Inventory ÷ Current assets 
D)  Inventory Turnover = Inventory ÷ Accounts receivables 
E)  Inventory Turnover = (Sales - Cost of goods sold) ÷ Inventory 
A)  Inventory Turnover = Sales ÷ Inventory 
B)  Inventory Turnover = Cost of goods sold ÷ Inventory 
C)  Inventory Turnover = Inventory ÷ Current assets 
D)  Inventory Turnover = Inventory ÷ Accounts receivables 
E)  Inventory Turnover = (Sales - Cost of goods sold) ÷ Inventory

Question 10

_____ is an example of cash flow from an investing activity in a cash flow statement.

Accepted Answer

A)  Payment of dividends 
B)  Repurchase of stock 
C)  Purchase of equipment 
D)  Purchase of inventory 
E)  Repayment of debt 
A)  Payment of dividends 
B)  Repurchase of stock 
C)  Purchase of equipment 
D)  Purchase of inventory 
E)  Repayment of debt

Question 11

The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules.

Accepted Answer

A) True 
 B)False

Question 12

The book value per share of Topaz General Ltd. is $10 per share and the company has a total of 4 million shares. Calculate the total book value of common equity of the company.

Accepted Answer

A)  $4 million 
B)  $10 million 
C)  $400 million 
D)  $40 million 
E)  $100 million 
A)  $4 million 
B)  $10 million 
C)  $400 million 
D)  $40 million 
E)  $100 million

Question 13

The values or accounting numbers that are reported on the balance sheet are market values.

Accepted Answer

A) True 
 B)False

Question 14

All firms that are publicly traded in the United States will be required to adopt the _____ in the near future.

Accepted Answer

A)  Generally Accepted Accounting Principles (GAAP) 
B)  Financial Accounting Standards Rules (FASR) 
C)  Governmental Accounting Standards Principles (GASP) 
D)  International Financial Reporting Standards (IFRS) 
E)  National Advisory Accounting Standards (NAAS) 
A)  Generally Accepted Accounting Principles (GAAP) 
B)  Financial Accounting Standards Rules (FASR) 
C)  Governmental Accounting Standards Principles (GASP) 
D)  International Financial Reporting Standards (IFRS) 
E)  National Advisory Accounting Standards (NAAS)

Question 15

Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities?

Accepted Answer

A)  $750,000 
B)  $1,000,000 
C)  $450,000 
D)  $262,500 
E)  $153,200 
A)  $750,000 
B)  $1,000,000 
C)  $450,000 
D)  $262,500 
E)  $153,200

Question 16

Which of the following statements is true about net worth?

Accepted Answer

A)  A firm's net worth should be higher than the stockholders' equity. 
B)  A firm's net worth should be equal to 50 percent of the value of the total assets of the firm. 
C)  A firm's net worth is equal to total assets minus total liabilities. 
D)  On liquidation of a firm, the common stockholders' will receive the exact amount shown in the equity section of the balance sheet. 
E)  The net worth of a firm is the amount to be paid by the shareholders to the firm on liquidation of the firm. 
A)  A firm's net worth should be higher than the stockholders' equity. 
B)  A firm's net worth should be equal to 50 percent of the value of the total assets of the firm. 
C)  A firm's net worth is equal to total assets minus total liabilities. 
D)  On liquidation of a firm, the common stockholders' will receive the exact amount shown in the equity section of the balance sheet. 
E)  The net worth of a firm is the amount to be paid by the shareholders to the firm on liquidation of the firm.

Question 17

Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0?

Accepted Answer

A)  Fixed assets are sold for cash. 
B)  Long-term debt is issued to pay off current liabilities. 
C)  Accounts receivable are collected. 
D)  Cash is used to pay off accounts payable. 
E)  A bank loan is obtained, and the proceeds are credited to the firm's checking account. 
A)  Fixed assets are sold for cash. 
B)  Long-term debt is issued to pay off current liabilities. 
C)  Accounts receivable are collected. 
D)  Cash is used to pay off accounts payable. 
E)  A bank loan is obtained, and the proceeds are credited to the firm's checking account.

Question 18

Which of the following actions can be considered a source of cash when constructing a statement of cash flows?

Accepted Answer

A)  Decrease in equity 
B)  Decrease in accounts payable 
C)  Increase in inventory 
D)  Increase in long-term bonds 
E)  Increase in fixed assets 
A)  Decrease in equity 
B)  Decrease in accounts payable 
C)  Increase in inventory 
D)  Increase in long-term bonds 
E)  Increase in fixed assets

Question 19

Funds supplied by common stockholders mainly include capital stock, paid-in capital, and retained earnings, while total equity is comprised of common equity plus preferred stock.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true regarding debt ratios?

Accepted Answer

A)  Firms with relatively low debt ratios have higher expected returns when business is good. 
B)  Firms with relatively low debt ratios are exposed to risk of loss when business is poor. 
C)  Firms with relatively high debt ratios have higher expected returns when business is bad. 
D)  Firms with relatively high debt ratios have higher expected returns when business is good. 
E)  Firms with relatively low debt ratios have higher expected returns when business is poor. 
A)  Firms with relatively low debt ratios have higher expected returns when business is good. 
B)  Firms with relatively low debt ratios are exposed to risk of loss when business is poor. 
C)  Firms with relatively high debt ratios have higher expected returns when business is bad. 
D)  Firms with relatively high debt ratios have higher expected returns when business is good. 
E)  Firms with relatively low debt ratios have higher expected returns when business is poor.

How is net income calculated in an income statement?

A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:

A simple approach to trend analysis is to construct graphs.

A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows.

The information contained in the annual report is used by investors to form expectations about future earnings and dividends.

Which of the following financial statements includes information about a firm's assets, equity, and liabilities?

How is net cash flow calculated if depreciation is the only noncash item in a firm's income statement?

Which of the following is true about a common size balance sheet?

Which of the following is the formula to calculate a firm's inventory turnover ratio?

_____ is an example of cash flow from an investing activity in a cash flow statement.

The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules.

The book value per share of Topaz General Ltd. is $10 per share and the company has a total of 4 million shares. Calculate the total book value of common equity of the company.

The values or accounting numbers that are reported on the balance sheet are market values.

All firms that are publicly traded in the United States will be required to adopt the _____ in the near future.

Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities?

Which of the following statements is true about net worth?

Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0?

Which of the following actions can be considered a source of cash when constructing a statement of cash flows?

Funds supplied by common stockholders mainly include capital stock, paid-in capital, and retained earnings, while total equity is comprised of common equity plus preferred stock.

Which of the following statements is true regarding debt ratios?

An Overview of Managerial Finance

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 2: Analysis of Financial Statements

How is net income calculated in an income statement?

A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:

A simple approach to trend analysis is to construct graphs.

A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows.

The information contained in the annual report is used by investors to form expectations about future earnings and dividends.

Which of the following financial statements includes information about a firm's assets, equity, and liabilities?

How is net cash flow calculated if depreciation is the only noncash item in a firm's income statement?

Which of the following is true about a common size balance sheet?

Which of the following is the formula to calculate a firm's inventory turnover ratio?

_____ is an example of cash flow from an investing activity in a cash flow statement.

The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules.

The book value per share of Topaz General Ltd. is $10 per share and the company has a total of 4 million shares. Calculate the total book value of common equity of the company.

The values or accounting numbers that are reported on the balance sheet are market values.

All firms that are publicly traded in the United States will be required to adopt the _____ in the near future.

Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities?

Which of the following statements is true about net worth?

Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0?

Which of the following actions can be considered a source of cash when constructing a statement of cash flows?

Funds supplied by common stockholders mainly include capital stock, paid-in capital, and retained earnings, while total equity is comprised of common equity plus preferred stock.

Which of the following statements is true regarding debt ratios?

An Overview of Managerial Finance

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters