Question 1

It is possible for two companies to have the same financial performance,but their financial statements can be different,depending on how and when the managers choose to report certain transactions.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following best describes cash flow from financing activities?

Accepted Answer

A)  Interest income, plus dividend income, minus taxes 
B)  Interest expense, minus dividends paid 
C)  Interest paid, plus dividends paid, plus increase (or minus decrease) in stock, plus increase (or minus decrease) in debt 
D)  Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid, minus dividends paid

Question 3

The Colorado Jet Boat Company had a cash balance of $3 million at the beginning of 2010.During 2010,Sales were $8 million and expenses were $7 million.Therefore,

Accepted Answer

A)  the cash balance at the end of 2010 is $4 million. 
B)  the cash balance at the end of 2010 must be greater than $3 million. 
C)  the cash balance at the end of 2010 must be less than $11 million. 
D)  the cash balance at the end of 2010 cannot be determined from the information given.

Question 4

Common-sized income statements restate the numbers in the income statement as a percentage of sales to assist in the comparison of a firm's financial performance across time and with competitors.

Accepted Answer

A) True 
 B)False

Question 5

California Retailing Inc.has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000.What is California Retailing's EBIT?

Accepted Answer

A)  $850,000 
B)  $875,000 
C)  $900,000 
D)  $1,300,000

Question 6

Net working capital is equal to

Accepted Answer

A)  total assets minus total liabilities. 
B)  current assets minus total liabilities. 
C)  total operating capital minus net income. 
D)  current assets minus current liabilities.

Question 7

What are the limitations of financial statements?

Accepted Answer

The answer of What are the limitations of financial statements?...

Question 8

Siskiyou,Inc.has total current assets of $1,200,000; total current liabilities of $500,000; long-term assets of $800,000; and long-term debt of $600,000.How much is the firm's total equity?

Accepted Answer

A)  $1,200,000 
B)  $800,000 
C)  $900,000 
D)  $2,000,000

Question 9

Finished goods held for sale are inventory,but raw materials to be used in the production process are considered other assets.

Accepted Answer

A) True 
 B)False

Question 10

Accounting rules specify that assets on the balance sheet must be reported at current market value,because this is the valuation most useful to potential investors.

Accepted Answer

A) True 
 B)False

Question 11

Inventories are considered fixed assets because inventory levels remain fairly constant throughout the year.

Accepted Answer

A) True 
 B)False

Question 12

Please refer to Table 3-2 for the following questions.
Table 3-2
Enigma has the following financial information:
  
No changes were made in interest payable or taxes payable.
-A firm has after-tax cash flow from operations equal to $100,000.Operating working capital increased by $20,000,and the firm purchased $30,000 of fixed assets.The firm's free cash flow was

Accepted Answer

A)  $50,000. 
B)  $90,000. 
C)  $110,000. 
D)  $150,000.

Question 13

Cash flows between investors and the firm,what we call financing cash flows,occur in one of four ways EXCEPT:

Accepted Answer

A)  Pay stock dividend. 
B)  Pay interest to lenders. 
C)  Pay dividends to stockholders. 
D)  Increase or decrease interest-bearing debt.

Question 14

The increase in owners' equity for a given period is equal to

Accepted Answer

A)  positive net cash flow minus dividends. 
B)  net income minus dividends. 
C)  sales minus dividends. 
D)  gross profit minus distributions to shareholders.

Question 15

A firm's income statement reports the results from operating the business for a period of time,while the firm's balance sheet provides a snapshot of the firm's financial position at a specific point in time.

Accepted Answer

A) True 
 B)False

Question 16

Please refer to Table 3-1 for the following questions.
Table 3-1
Jones Company
Financial Information
 
-Based on the information in Table 3-1,assuming that no assets were disposed of during 2010,the amount of depreciation expense was

Accepted Answer

A)  $375. 
B)  $500. 
C)  $2,500. 
D)  $3,500.

Question 17

Gross profit is equal to

Accepted Answer

A)  profits plus depreciation. 
B)  revenues - expenses. 
C)  earnings before taxes minus taxes payable. 
D)  sales - cost of goods sold.

Question 18

All of the following are income statement items EXCEPT

Accepted Answer

A)  accrued expenses. 
B)  depreciation expense. 
C)  cost of goods sold. 
D)  interest expense.

Question 19

Given the following financial statements for ARGON Corporation,and assuming that ARGON paid a common dividend of $80,000 in 2010,what is the company's financing cash flow for 2010?

Accepted Answer

A)  -$10,000 
B)  -$15,000 
C)  -$65,000 
D)  -$70,000

Question 20

Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000.Rogue's net profit margin is equal to

Accepted Answer

A)  25.67%. 
B)  35.67%. 
C)  36.67%. 
D)  50.00%.

Exam 3: Understanding Financial Statements and Cash Flows

It is possible for two companies to have the same financial performance,but their financial statements can be different,depending on how and when the managers choose to report certain transactions.

Which of the following best describes cash flow from financing activities?

The Colorado Jet Boat Company had a cash balance of $3 million at the beginning of 2010.During 2010,Sales were $8 million and expenses were $7 million.Therefore,

Common-sized income statements restate the numbers in the income statement as a percentage of sales to assist in the comparison of a firm's financial performance across time and with competitors.

California Retailing Inc.has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000.What is California Retailing's EBIT?

Net working capital is equal to

What are the limitations of financial statements?

Siskiyou,Inc.has total current assets of $1,200,000; total current liabilities of $500,000; long-term assets of $800,000; and long-term debt of $600,000.How much is the firm's total equity?

Finished goods held for sale are inventory,but raw materials to be used in the production process are considered other assets.

Accounting rules specify that assets on the balance sheet must be reported at current market value,because this is the valuation most useful to potential investors.

Inventories are considered fixed assets because inventory levels remain fairly constant throughout the year.

Cash flows between investors and the firm,what we call financing cash flows,occur in one of four ways EXCEPT:

The increase in owners' equity for a given period is equal to

A firm's income statement reports the results from operating the business for a period of time,while the firm's balance sheet provides a snapshot of the firm's financial position at a specific point in time.

Please refer to Table 3-1 for the following questions. Table 3-1 Jones Company Financial Information -Based on the information in Table 3-1,assuming that no assets were disposed of during 2010,the amount of depreciation expense was

Gross profit is equal to

All of the following are income statement items EXCEPT

Given the following financial statements for ARGON Corporation,and assuming that ARGON paid a common dividend of $80,000 in 2010,what is the company's financing cash flow for 2010?