Question 1

Which of the following categories of a statement of cash flows is affected by the payment of interest expense?

Accepted Answer

A)  Cash flows from operations 
B)  Cash flows from noncash expenses 
C)  Cash flows from investments 
D) Cash flows from financing 
A)  Cash flows from operations 
B)  Cash flows from noncash expenses 
C)  Cash flows from investments 
D) Cash flows from financing

Question 2

Why does accounting income differ from cash flow?

Accepted Answer

Income differs from cash flow for two pr

Question 3

Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a period in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500?

Accepted Answer

A)  Cash provided by financing increases by $6,500. 
B)  Cash used by financing decreases by $1,000. 
C)  Debt increases by more than cash dividends paid. 
D) Debt is reduced by more than cash dividends paid. 
A)  Cash provided by financing increases by $6,500. 
B)  Cash used by financing decreases by $1,000. 
C)  Debt increases by more than cash dividends paid. 
D) Debt is reduced by more than cash dividends paid.

Question 4

Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense.

Accepted Answer

A)  $500,000 
B)  $380,000 
C)  $0 
D) ($120,000) 
A)  $500,000 
B)  $380,000 
C)  $0 
D) ($120,000)

Question 5

Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most easily provides the information she is seeking?

Accepted Answer

A)  Statement of cash flows 
B)  Balance sheet 
C)  Common-size balance sheet 
D) Income statement 
A)  Statement of cash flows 
B)  Balance sheet 
C)  Common-size balance sheet 
D) Income statement

Question 6

Discuss the premise of accrual accounting. Why is it considered preferable over cash-basis accounting?

Accepted Answer

Accrual accounting attempts to gather al

Question 7

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 8

Why should corporate financial managers be concerned about the taxation of interest, dividends, or capital gains since these are taxed at the personal level?

Accepted Answer

Financial managers need to worry about t

Question 9

Congress passed the Sarbanes-Oxley Act in 2001. The act attempts to ensure that the firm's financial reports accurately represent its financial condition. However, the general consensus is that accounting rules still give firms considerable leeway when preparing their financial statements. List three examples of gray areas that allow for judgment calls.

Accepted Answer

• Cookie-jar reserves. Firms know that i

Question 10

The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment.

Accepted Answer

A) True 
 B)False

Question 11

Which one of the following best explains the combination of a high level of net income combined with a low level of cash flow during an accounting period?

Accepted Answer

A)  High depreciation expense 
B)  Reduction of inventory levels 
C)  Acquisition of equipment 
D) Increase in accounts payable 
A)  High depreciation expense 
B)  Reduction of inventory levels 
C)  Acquisition of equipment 
D) Increase in accounts payable

Question 12

According to GAAP, assets and liabilities 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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Question 16

A company may deduct the interest paid to debtholders and the dividends paid to shareholders when calculating its taxable income.

Accepted Answer

A) True 
 B)False

Question 17

Johnson's Nursery has net income of $42,500, depreciation expense of $1,800, interest expense of $900, taxes of $1,600, additions to net working capital of $2,300, and capital expenditures of $11,700. What is the amount of the free cash flow?

Accepted Answer

A)  $30,300 
B)  $34,400 
C)  $31,200 
D) $28,700 
A)  $30,300 
B)  $34,400 
C)  $31,200 
D) $28,700

Question 18

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.

Question 19

Describe the practice of double taxation of corporate earnings in the United States.

Accepted Answer

Each dollar of taxable income that a cor

Question 20

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.

Exam 3: Accounting and Finance

Which of the following categories of a statement of cash flows is affected by the payment of interest expense?

Why does accounting income differ from cash flow?

Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a period in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500?

Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense.

Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most easily provides the information she is seeking?

Discuss the premise of accrual accounting. Why is it considered preferable over cash-basis accounting?

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?

Why should corporate financial managers be concerned about the taxation of interest, dividends, or capital gains since these are taxed at the personal level?

The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment.

Which one of the following best explains the combination of a high level of net income combined with a low level of cash flow during an accounting period?

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

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

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

The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its investments and financing activities.

A company may deduct the interest paid to debtholders and the dividends paid to shareholders when calculating its taxable income.

Johnson's Nursery has net income of $42,500, depreciation expense of $1,800, interest expense of $900, taxes of $1,600, additions to net working capital of $2,300, and capital expenditures of $11,700. What is the amount of the free cash flow?

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

Describe the practice of double taxation of corporate earnings in the United States.

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:

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

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