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. B

Question 2

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. C

Question 3

Which of the following is more likely to be correct if market value of equity is less than book value of equity?

Accepted Answer

A)  investors anticipate excellent earning potential. 
B)  investors anticipate low earning potential relative to the level of risk. 
C)  assets have been fully depreciated. 
D)  the company is bankrupt. 
A)  investors anticipate excellent earning potential. 
B)  investors anticipate low earning potential relative to the level of risk. 
C)  assets have been fully depreciated. 
D)  the company is bankrupt. B

Question 4

Accounting practices are currently standardized across all countries.

Accepted Answer

A) True 
 B)False

Question 5

Which one of these would not be paid from free cash flow?

Accepted Answer

A)  cash dividends. 
B)  repayment of principal on a long-term debt. 
C)  repurchase of outstanding shares of common stock. 
D)  new equipment purchase. 
A)  cash dividends. 
B)  repayment of principal on a long-term debt. 
C)  repurchase of outstanding shares of common stock. 
D)  new equipment purchase.

Question 6

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 7

Dhaliwall Groceries has a net loss for the year of $5100,depreciation expense of $25,500,increase in operations (excluding depreciation)of $4,750,and the purchase of capital assets for $3525,there was also a net cash inflow from financing of $7000.What is the amount of net free cash flow?

Accepted Answer

A)  $29,325 
B)  $35,675 
C)  $19,125 
D)  -$20,075 
A)  $29,325 
B)  $35,675 
C)  $19,125 
D)  -$20,075

Question 8

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 9

An increase in depreciation expense will (other things equal):

Accepted Answer

A)  increase net income. 
B)  decrease net income. 
C)  increase taxable income. 
D)  decrease the market value of assets. 
A)  increase net income. 
B)  decrease net income. 
C)  increase taxable income. 
D)  decrease the market value of assets.

Question 10

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 11

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 12

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 13

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 14

The gathering of related revenues and expenses into the same period,regardless of when they were incurred,is:

Accepted Answer

A)  cash-basis accounting. 
B)  market-value accounting. 
C)  book-value accounting. 
D)  accrual accounting. 
A)  cash-basis accounting. 
B)  market-value accounting. 
C)  book-value accounting. 
D)  accrual accounting.

Question 15

Assume tax rates on single individuals are 10% on taxable income up to $9,075,15% on income of $9,076 to $36,900 and 25% on income of $36,901 to $89,350.What is the tax liability for a single individual with $52,000 of taxable income

Accepted Answer

A)  $8,856.25 
B)  $9,103.50 
C)  $8,603.50 
D)  $8,356.25 
A)  $8,856.25 
B)  $9,103.50 
C)  $8,603.50 
D)  $8,356.25

Question 16

Which of the following forms of income can individuals defer from taxation?

Accepted Answer

A)  dividends 
B)  interest 
C)  realized capital gains 
D)  unrealized capital gains 
A)  dividends 
B)  interest 
C)  realized capital gains 
D)  unrealized capital gains

Question 17

Which of the following statements about depreciation is correct?

Accepted Answer

A)  depreciation is subtracted from cost of goods sold to calculate net income. 
B)  when depreciation expense is incurred, cash balances are reduced. 
C)  depreciation expense does not affect net income. 
D)  depreciation reduces the book value of assets. 
A)  depreciation is subtracted from cost of goods sold to calculate net income. 
B)  when depreciation expense is incurred, cash balances are reduced. 
C)  depreciation expense does not affect net income. 
D)  depreciation reduces the book value of assets.

Question 18

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 19

In which of the following asset accounts are you least likely to find a difference between market value and book value?

Accepted Answer

A)  cash 
B)  inventory 
C)  land 
D)  shareholders' equity 
A)  cash 
B)  inventory 
C)  land 
D)  shareholders' equity

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?

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

Which of the following is more likely to be correct if market value of equity is less than book value of equity?

Accounting practices are currently standardized across all countries.

Which one of these would not be paid from free cash flow?

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

Dhaliwall Groceries has a net loss for the year of $5100,depreciation expense of $25,500,increase in operations (excluding depreciation)of $4,750,and the purchase of capital assets for $3525,there was also a net cash inflow from financing of $7000.What is the amount of net free cash flow?

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

An increase in depreciation expense will (other things equal):

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

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

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?

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

The gathering of related revenues and expenses into the same period,regardless of when they were incurred,is:

Assume tax rates on single individuals are 10% on taxable income up to $9,075,15% on income of $9,076 to $36,900 and 25% on income of $36,901 to $89,350.What is the tax liability for a single individual with $52,000 of taxable income

Which of the following forms of income can individuals defer from taxation?

Which of the following statements about depreciation is correct?

In which of the following asset accounts are you least likely to find a difference between market value and book value?

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 and Payout 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