Question 1

Net working capital is calculated by taking the difference between:

Accepted Answer

A)  total assets and total liabilities. 
B)  inventory and accounts payable. 
C)  current assets and current liabilities. 
D)  cash and accounts payable. 
A)  total assets and total liabilities. 
B)  inventory and accounts payable. 
C)  current assets and current liabilities. 
D)  cash and accounts payable.

Question 2

Increases to Retained earnings result from:

Accepted Answer

A)  the sale of additional shares of stock to investors. 
B)  income not paid to shareholders. 
C)  an excess of assets over liabilities. 
D)  market values that exceed book values. 
A)  the sale of additional shares of stock to investors. 
B)  income not paid to shareholders. 
C)  an excess of assets over liabilities. 
D)  market values that exceed book values.

Question 3

Perhaps the best method for estimating the market value of shareholders' equity is to:

Accepted Answer

A)  review the firm's balance sheet. 
B)  review the firm's income statement. 
C)  multiply number of shares outstanding by the current price of each share. 
D)  add the retained earnings to the total liabilities. 
A)  review the firm's balance sheet. 
B)  review the firm's income statement. 
C)  multiply number of shares outstanding by the current price of each share. 
D)  add the retained earnings to the total liabilities.

Question 4

To calculate free cash flow,you must deduct capital expenditures from the cash flow from operations.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

In a statement of cash flows,which category includes depreciation expense as a line item?

Accepted Answer

A)  operations 
B)  investments 
C)  financing 
D)  None of these; depreciation is a noncash expense. 
A)  operations 
B)  investments 
C)  financing 
D)  None of these; depreciation is a noncash expense.

Question 8

Which type of income is subject to "double taxation"?

Accepted Answer

A)  dividends and wages 
B)  capital gains 
C)  dividends 
D)  wages 
A)  dividends and wages 
B)  capital gains 
C)  dividends 
D)  wages

Question 9

Which of the following could account for a firm that has a negative net income,yet has a positive amount of cash provided by operations?

Accepted Answer

A)  the net loss was greater than the amount of depreciation expense. 
B)  inventory increased significantly more than accounts payable. 
C)  accounts receivable decreased by significantly more than accounts payable. 
D)  the cash balance increased significantly. 
A)  the net loss was greater than the amount of depreciation expense. 
B)  inventory increased significantly more than accounts payable. 
C)  accounts receivable decreased by significantly more than accounts payable. 
D)  the cash balance increased significantly.

Question 10

An individual's income for the year includes both dividend and interest payments.Which of these statements correctly applies to that individual's tax liability?

Accepted Answer

A)  dividends are taxed; tax on interest payments is paid at the corporate level. 
B)  interest is taxed; tax on dividend payments is paid at the corporate level. 
C)  both dividend and interest payments are taxed at the personal level. 
D)  all taxes on dividend and interest payments are paid at the corporate level. 
A)  dividends are taxed; tax on interest payments is paid at the corporate level. 
B)  interest is taxed; tax on dividend payments is paid at the corporate level. 
C)  both dividend and interest payments are taxed at the personal level. 
D)  all taxes on dividend and interest payments are paid at the corporate level.

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

What happens to the market value of a firm's equity as the book value of the firm's equity increases?

Accepted Answer

A)  it increases by the same amount. 
B)  it decreases by the same amount. 
C)  it remains constant. 
D)  there is no set relationship to determine this outcome. 
A)  it increases by the same amount. 
B)  it decreases by the same amount. 
C)  it remains constant. 
D)  there is no set relationship to determine this outcome.

Question 13

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 14

Both the dividends and interest payments that companies paid to individuals are subject to personal tax.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 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

A reduction in accounts receivable uses cash,reducing the firm's net cash balance.

Accepted Answer

A) True 
 B)False

Question 19

Suppose Dee's just acquired the assets of Flo's Flowers.The book value of Flo's Flowers assets was $68,000 but Dee's paid a total of $75,000.The additional $7,000 paid by Dee's will be recorded on Dee's balance sheet as:

Accepted Answer

A)  accounts payable. 
B)  goodwill. 
C)  other current assets. 
D)  property, plant, and equipment. 
A)  accounts payable. 
B)  goodwill. 
C)  other current assets. 
D)  property, plant, and equipment.

Question 20

All items in the common-size balance sheet are expressed as a percentage of total assets.

Accepted Answer

A) True 
 B)False

Exam 3: Accounting and Finance

Net working capital is calculated by taking the difference between:

Increases to Retained earnings result from:

Perhaps the best method for estimating the market value of shareholders' equity is to:

To calculate free cash flow,you must deduct capital expenditures from the cash flow from operations.

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

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

In a statement of cash flows,which category includes depreciation expense as a line item?

Which type of income is subject to "double taxation"?

Which of the following could account for a firm that has a negative net income,yet has a positive amount of cash provided by operations?

An individual's income for the year includes both dividend and interest payments.Which of these statements correctly applies to that individual's tax liability?

What is the fundamental difference between IFRS and GAAP?

What happens to the market value of a firm's equity as the book value of the firm's equity increases?

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

Both the dividends and interest payments that companies paid to individuals are subject to personal tax.

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?

Who pays taxes on earnings distributed as dividends?

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

A reduction in accounts receivable uses cash,reducing the firm's net cash balance.

Suppose Dee's just acquired the assets of Flo's Flowers.The book value of Flo's Flowers assets was $68,000 but Dee's paid a total of $75,000.The additional $7,000 paid by Dee's will be recorded on Dee's balance sheet as:

All items in the common-size balance sheet are expressed as a percentage of total 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 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