Question 1

An increase in the accounts receivable balance increases the cash flow of a firm.

Accepted Answer

A) True 
 B)False

Question 2

Calculate the EBIT (Operating Income) 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)

Question 3

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.

Question 4

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.

Question 5

Revenue increases by $200 and the cost of goods sold is 78%.What dollar amount of extra taxes will be owed if the marginal tax rate is 35%?

Accepted Answer

A) $70.00 
B) $44.00 
C) $54.60 
D) $15.40

Question 6

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.

Question 7

The purchase of new equipment is a use of cash, and it reduces the firm's net cash balance.

Accepted Answer

A) True 
 B)False

Question 8

If market interest rates have increased since a company last borrowed long-term funds, the market value of these already borrowed long-term funds will likely be:

Accepted Answer

A) greater than their book value. 
B) less than their book value. 
C) equal to their book value. 
D) unknown without knowing the maturity of the debt.

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.

Question 10

Current period depreciation expense is listed:

Accepted Answer

A) on the balance sheet. 
B) in the investment section of the cash flow statement. 
C) on the income statement. 
D) on neither the balance sheet nor the income statement; it is a noncash expense.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

There is generally a bigger difference between the book value and the market value of fixed assets as compared to cash.

Accepted Answer

A) True 
 B)False

Question 13

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.

Question 14

A balance sheet portrays the value of a firm's assets and liabilities:

Accepted Answer

A) over an annual period. 
B) over any stated period of time. 
C) at any stated point in time. 
D) only at the end of the calendar year.

Question 15

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.

Question 16

ABC Corp.'s balance sheet shows its long-term debt to be $20 million.The debt was issued with a 10% interest rate, and the current interest rate is 7%.Based on this information alone, the market value of this debt is most likely:

Accepted Answer

A) less than $20 million. 
B) more than $20 million. 
C) equal to $20 million. 
D) unknown without knowing the maturity of the debt.

Question 17

Interest expense appears in the operations section of the statement of cash flows because:

Accepted Answer

A) firms cannot operate without incurring interest expense. 
B) its payment is not within managerial discretion. 
C) it is paid to finance a firm's inventory. 
D) None of these; interest expense appears in the financing section of the statement of cash flows.

Question 18

What are the average and marginal tax rates for a corporation that has $97,648 of taxable income? The tax rates are as follows: $$\begin{array} { | c | c | } 
\hline \text { Corporate Taxable Income (S) } & \text { Tax Rate (") ) } \
\hline 0 - 50,000 & 15 \
\hline 50,001 - 75,000 & 25 \
\hline 75,001 - 100,000 & 34 \
\hline
\end{array}$$

Accepted Answer

A) 21.97%; 25% 
B) 21.97%; 34% 
C) 23.08%; 34% 
D) 34%; 34%

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 3: Accounting and Finance

An increase in the accounts receivable balance increases the cash flow of a firm.

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

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

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

Revenue increases by $200 and the cost of goods sold is 78%.What dollar amount of extra taxes will be owed if the marginal tax rate is 35%?

Net working capital is calculated by taking the difference between:

The purchase of new equipment is a use of cash, and it reduces the firm's net cash balance.

If market interest rates have increased since a company last borrowed long-term funds, the market value of these already borrowed long-term funds will likely be:

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?

Current period depreciation expense is listed:

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

There is generally a bigger difference between the book value and the market value of fixed assets as compared to cash.

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

A balance sheet portrays the value of a firm's assets and liabilities:

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?

ABC Corp.'s balance sheet shows its long-term debt to be $20 million.The debt was issued with a 10% interest rate, and the current interest rate is 7%.Based on this information alone, the market value of this debt is most likely:

Interest expense appears in the operations section of the statement of cash flows because:

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

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?