Question 1

Depreciation charge is a cash payment.

Accepted Answer

A) True 
 B)False

Question 2

Dividends paid are treated as a financing activity on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

Professor Diehard found an effective antibiotic for the DEPRESS bacteria, and patented the drug. He believes that he can sell the patent for $20 million. He then formed a corporation and invested $400,000 in setting up a production plant. There are 2 million shares of stock outstanding. If the professor's belief is correct, what would be the price per share and the book value per share?

Accepted Answer

A)  $10.20; $.20 
B)  $10.00; $.20 
C)  $9.80; $.40 
D) $9.80; $.20 
A)  $10.20; $.20 
B)  $10.00; $.20 
C)  $9.80; $.40 
D) $9.80; $.20

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

Discuss reasons why a market-value balance sheet may be distinctly different from a book-value balance sheet.

Accepted Answer

For some assets, depreciation expense is

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

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 12

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 13

An expenditure on new capital equipment is a cash payment.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  Income taxes 
B)  Interest expense 
C)  Dividends 
D) Depreciation expense 
A)  Income taxes 
B)  Interest expense 
C)  Dividends 
D) Depreciation expense

Question 15

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 16

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. 
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. 
D) the firm is holding too much cash.

Question 17

If net income is positive, then cash flow from operations must be positive for that period.

Accepted Answer

A) True 
 B)False

Question 18

Which one of these will increase a firm's cash balance?

Accepted Answer

A)  An increase in inventory 
B)  A decrease in accounts payable 
C)  An increase in common stock 
D) An increase in new equipment 
A)  An increase in inventory 
B)  A decrease in accounts payable 
C)  An increase in common stock 
D) An increase in new equipment

Question 19

Accrual accounting, which attempts to match sales revenues and the expenses associated with the production of the goods, is conducted in an attempt to:

Accepted Answer

A)  reduce income-tax liability. 
B)  reduce bias in reported profitability measures. 
C)  speed up the receipt of accounts receivable. 
D) reduce the time necessary to depreciate assets. 
A)  reduce income-tax liability. 
B)  reduce bias in reported profitability measures. 
C)  speed up the receipt of accounts receivable. 
D) reduce the time necessary to depreciate assets.

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

Depreciation charge is a cash payment.

Dividends paid are treated as a financing activity on the statement of cash flows.

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

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

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:

Discuss reasons why a market-value balance sheet may be distinctly different from a book-value balance sheet.

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

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

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

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

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

An expenditure on new capital equipment is a cash payment.

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

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:

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

If net income is positive, then cash flow from operations must be positive for that period.

Which one of these will increase a firm's cash balance?

Accrual accounting, which attempts to match sales revenues and the expenses associated with the production of the goods, is conducted in an attempt to:

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

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters