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 non-cash expenses 
C) Cash flows from investments 
D) Cash flows from financing

Question 2

Depreciation expense is used to:

Accepted Answer

A) Allocate costs to all departments of the firm 
B) Determine when an asset is fully paid off 
C) Allocate historical cost over the life of an asset 
D) Equate the historical cost and market values of an asset

Question 3

CumChan Corporation had operating income (EBIT) of $2,500,000 in 2005, depreciation expenses of $500,000, and dividends paid of $400,000.What is CumChan's operating cash flow (EBITDA) for 2005?

Accepted Answer

A) $3,000,000 
B) $6,000,000 
C) 300 percent 
D) $3,300,000

Question 4

If a firm's cash-flow statement shows that cash was used for investments, which of the following would seem most likely?

Accepted Answer

A) The inventory balance increased 
B) Common stock was repurchased 
C) New machines were acquired 
D) Cash dividends were paid

Question 5

Fixed assets can be either tangible or intangible assets.

Accepted Answer

A) True 
 B)False

Question 6

If the market value of assets is high, then the market value of liabilities must be high also.

Accepted Answer

A) True 
 B)False

Question 7

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) At the end of the calendar year

Question 8

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

Question 9

Who pays the taxes on earnings distributed as dividends?

Accepted Answer

A) The corporation 
B) The investor receiving the dividend 
C) Both the corporation and the investor 
D) Neither the corporation nor the investor

Question 10

For all Canadian corporations except those in the lowest and highest tax brackets, it is the case that their:

Accepted Answer

A) Marginal tax rate exceeds their average tax rate 
B) Average tax rate exceeds their marginal tax rate 
C) Marginal tax rate equals their average tax rate 
D) Marginal tax rate equals 15 percent

Question 11

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

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 12

What are two problems inherent in comparing accounting statements across firms or even across countries?

Accepted Answer

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Question 13

For a corporation in the 25 percent marginal tax bracket that incurs $70.00 in labour and materials expense, plus $15.00 in depreciation expense while generating an incremental revenue of $100, tax liability will increase by:

Accepted Answer

A) $3.75 
B) $7.50 
C) $13.75 
D) $25.00

Question 14

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

Accepted Answer

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Question 15

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

Accepted Answer

A) Historical cost 
B) Market value 
C) Salvage value 
D) Historical cost less depreciation

Question 16

Calculate cash inflow or outflow from operating activities given the following information: profit before tax $11,250; depreciation expense $1,250; interest paid $725; tax paid $1,050; decrease in AR $125; increase in inventory $900; decrease in AP $700.

Accepted Answer

A) Inflow of $10,375 
B) Inflow of $8,850 
C) Outflow of $14,650 
D) Outflow of $6,150

Question 17

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 $3,500 
B) Cash used by financing decreases by $1,000 
C) Debt increased by more than cash dividends paid 
D) Debt was reduced by more than cash dividends paid

Question 18

What are a firm's cash flows?

Accepted Answer

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Question 19

Determine the net cash flows for periods 1 through 3 for a firm with the following transactions: $1,000 spent in period 1 and $2,000 spent in period 2 to produce goods to be sold in the following periods, sales of $2,000 in period 2 and $4,000 in period 3, one-half of all sales are in cash with the other half collected in the following period.

Accepted Answer

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Question 20

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

Accepted Answer

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Exam 3: Accounting and Finance