Question 1

If a firm pays taxes, which one of these will reduce net income but increase cash flow?

Accepted Answer

A)  Depreciation expense 
B)  Income taxes 
C)  Cash sales 
D) Interest expense

Question 2

If a firm's statement of cash flows 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 3

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 4

If market interest rates have increased since a company last borrowed long-term funds, the market value of these 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 5

Accounting practices are currently standardized across all countries.

Accepted Answer

A) True 
 B)False

Question 6

Assume a single taxpayer is taxed at 10% on the first $9,075 of taxable income, 15% on the next $27,825 of income, and at 25% for the following $52,450 of income. What is the average tax rate for that individual if her taxable income is $41,350?

Accepted Answer

A)  14.98% 
B)  16.67% 
C)  16.13% 
D) 19.98%

Question 7

Market-value balance sheets differ from book-value balance sheets in that market values:

Accepted Answer

A)  are higher than book values. 
B)  are lower than book values. 
C)  conform more to GAAP accounting. 
D) conform to investors' expectations.

Question 8

The payment of interest expense is considered a cash flow by a financing activity on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 9

Which of these statements related to free cash flow is correct?

Accepted Answer

A)  Free cash flow must be fully distributed to the firm's debtors and shareholders. 
B)  Free cash flow must be positive for a firm to acquire new fixed assets. 
C)  All, or part, of free cash flow can be used to increase a firm's cash reserves. 
D) When capital expenditures are positive, free cash flow will exceed the cash flow from operations.

Question 10

The net income figure on an income statement is calculated before deducting the:

Accepted Answer

A)  interest expense. 
B)  depreciation expense. 
C)  cash dividends. 
D) tax liability.

Question 11

Net working capital is a measure of a company's:

Accepted Answer

A)  goodwill. 
B)  short-term liabilities. 
C)  estimated cash reservoir. 
D) shareholders' equity.

Question 12

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 13

If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a negative amount of cash provided by operations?

Accepted Answer

A)  Current assets decrease more than current liabilities decrease. 
B)  Current assets increase more than current liabilities increase. 
C)  Current assets decrease more than current liabilities increase. 
D) A large addition is made to plant and equipment.

Question 14

Perhaps the best method for estimating the market value of shareholders' equity is to:

Accepted Answer

A)  review the firm's balance sheet. 
B)  review the firm's income statement. 
C)  multiply number of shares outstanding by the price of each share. 
D) add the retained earnings to the total liabilities.

Question 15

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold will be:

Accepted Answer

A)  recognized when the goods are produced. 
B)  recognized when the goods are sold. 
C)  recognized when payment is received. 
D) split between the production and the sale periods.

Question 16

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 17

What are the average and marginal tax rates for a corporation that has $97,648 of taxable income? The tax rates are as follows:

Accepted Answer

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

Question 18

Accrual accounting aims to provide a fairer measure of the firm's profitability.

Accepted Answer

A) True 
 B)False

Question 19

What is the overall change in cash resulting from: $300 increase in inventories, $150 increase in accounts payable, $120 decrease in accounts receivable, $60 decrease in other current assets, $150 decrease in other current liabilities?

Accepted Answer

A)  -$120 
B)  -$240 
C)  $180 
D) $120

Question 20

According to the statement of cash flows, cash flows from financing could be positive if:

Accepted Answer

A)  the firm repaid more debt than it added. 
B)  the firm added more debt than it repaid. 
C)  interest rates were low on outstanding debt. 
D) the firm sold portions of its plant and equipment.

Exam 3: Accounting and Finance

If a firm pays taxes, which one of these will reduce net income but increase cash flow?

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

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:

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

Accounting practices are currently standardized across all countries.

Assume a single taxpayer is taxed at 10% on the first $9,075 of taxable income, 15% on the next $27,825 of income, and at 25% for the following $52,450 of income. What is the average tax rate for that individual if her taxable income is $41,350?

Market-value balance sheets differ from book-value balance sheets in that market values:

The payment of interest expense is considered a cash flow by a financing activity on the statement of cash flows.

Which of these statements related to free cash flow is correct?

The net income figure on an income statement is calculated before deducting the:

Net working capital is a measure of a company's:

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

If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a negative amount of cash provided by operations?

Perhaps the best method for estimating the market value of shareholders' equity is to:

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold will 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?

What are the average and marginal tax rates for a corporation that has $97,648 of taxable income? The tax rates are as follows:

Accrual accounting aims to provide a fairer measure of the firm's profitability.

What is the overall change in cash resulting from: $300 increase in inventories, $150 increase in accounts payable, $120 decrease in accounts receivable, $60 decrease in other current assets, $150 decrease in other current liabilities?

According to the statement of cash flows, cash flows from financing could be positive if: