Question 1

The balance sheet equation is Total Assets = Total Revenues - Total Liabilities.

Accepted Answer

A) True 
 B)False

Question 2

Generally Accepted Accounting Principles (GAAP).GAAP is a set of principle-based accounting standards established by the Financial Accounting Standards Board (FASB).

Accepted Answer

A) True 
 B)False

Question 3

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 4

Common-sized balance sheets show each account as a percentage of total sales to help analysts in comparing companies of difference sizes.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following accounts belong in the liability section of a balance sheet?

Accepted Answer

A) interest expense 
B) accumulated depreciation 
C) accounts payable 
D) preferred stock

Question 6

If two companies have the same revenues and operating expenses,their net incomes will still be different if one company finances its assets with more debt and the other company with more equity.

Accepted Answer

A) True 
 B)False

Question 7

The statement of cash flow explains the changes that took place in the firm's cash balance over the period of interest.

Accepted Answer

A) True 
 B)False

Question 8

Under current accounting rules,the plant and equipment account shows the historical cost (purchase price)of,plus any subsequent improvements to,the plant and equipment.

Accepted Answer

A) True 
 B)False

Question 9

Changes in depreciation expense do not affect operating income because depreciation is a non-cash expense.

Accepted Answer

A) True 
 B)False

Question 10

Racing Horse Corporation reported net income for 2010 of $200,000,sales of $540,000,expenses (excluding depreciation)of $180,000,and depreciation expense of $60,000.The company's accounts receivable balance increased by $40,000 during the year and its accounts payable balance remained the same.The company's change in cash for the year is estimated to be

Accepted Answer

A) $100,000. 
B) $160,000. 
C) $220,000. 
D) $380,000.

Question 11

Common-sized income statements are used to compare companies that have the same amount of revenues.

Accepted Answer

A) True 
 B)False

Question 12

In the United States,financial statements are prepared following the Financial Accounting Standards Board's generally accepted accounting principles (GAAP).

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) $2,500,000 
B) $1,300,000 
C) $2,000,000 
D) $1,800,000

Question 14

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 operating income is equal to

Accepted Answer

A) $770,000. 
B) $1,070,000. 
C) $1,100,000. 
D) $1,500,000.

Question 15

Wheeler Corporation had retained earnings as of 12/31/10 of $15 million.During 2011,Wheeler's net income was $7 million.The retained earnings balance at the end of 2011 was equal to $20 million.Therefore

Accepted Answer

A) Wheeler paid a dividend in 2010 of $5 million. 
B) Wheeler paid a dividend in 2010 of $2 million. 
C) Wheeler sold common stock during 2010 for $5 million. 
D) Wheeler purchased treasury stock in 2010 for $2 million.

Question 16

The income statement for Simpson,Inc.indicates that tax expense was $30,000.The balance sheet indicates that taxes payable for the same year increased by $5,000.What amount did Simpson,Inc.actually pay in taxes during this year?

Accepted Answer

A) $15,000 
B) $20,000 
C) $25,000 
D) Cannot be determined without the cash balance

Question 17

Earnings available to common shareholders is equal to a corporation's positive net cash flow over a given period,typically one year.

Accepted Answer

A) True 
 B)False

Question 18

Profits-to-Sales relationships are defined as profit margins.

Accepted Answer

A) True 
 B)False

Question 19

Generally accepted accounting principles (GAAP)require finance statements prepared on a cash basis because these statements are most useful for investors and managers.

Accepted Answer

A) True 
 B)False

Question 20

All of the following are equity accounts on a balance sheet EXCEPT

Accepted Answer

A) retained earnings. 
B) cash. 
C) common stock. 
D) paid-in capital.

Exam 3: Understanding Financial Statements and Cash Flows

The balance sheet equation is Total Assets = Total Revenues - Total Liabilities.

Generally Accepted Accounting Principles (GAAP).GAAP is a set of principle-based accounting standards established by the Financial Accounting Standards Board (FASB).

Common-sized balance sheets show each account as a percentage of total sales to help analysts in comparing companies of difference sizes.

Which of the following accounts belong in the liability section of a balance sheet?

If two companies have the same revenues and operating expenses,their net incomes will still be different if one company finances its assets with more debt and the other company with more equity.

The statement of cash flow explains the changes that took place in the firm's cash balance over the period of interest.

Under current accounting rules,the plant and equipment account shows the historical cost (purchase price)of,plus any subsequent improvements to,the plant and equipment.

Changes in depreciation expense do not affect operating income because depreciation is a non-cash expense.

Common-sized income statements are used to compare companies that have the same amount of revenues.

In the United States,financial statements are prepared following the Financial Accounting Standards Board's generally accepted accounting principles (GAAP).

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

Wheeler Corporation had retained earnings as of 12/31/10 of $15 million.During 2011,Wheeler's net income was $7 million.The retained earnings balance at the end of 2011 was equal to $20 million.Therefore

The income statement for Simpson,Inc.indicates that tax expense was $30,000.The balance sheet indicates that taxes payable for the same year increased by $5,000.What amount did Simpson,Inc.actually pay in taxes during this year?

Earnings available to common shareholders is equal to a corporation's positive net cash flow over a given period,typically one year.

Profits-to-Sales relationships are defined as profit margins.

Generally accepted accounting principles (GAAP)require finance statements prepared on a cash basis because these statements are most useful for investors and managers.

All of the following are equity accounts on a balance sheet EXCEPT