Question 1

Which one of the following is the financial statement that shows a financial snapshot,taken at a point in time,of all the assets the company owns and all the claims against those assets?
A) income statement
B) creditor's statement
C) balance sheet
D) cash flow statement
E) sources and uses statement

Accepted Answer

The balance sheet shows the financial position of a company at a specific point in time, including all assets owned and all claims against those assets by creditors and shareholders. The income statement shows the company's financial performance over a period of time, while the cash flow statement shows the inflows and outflows of cash during a period. The creditor's statement and sources and uses statement are not commonly used financial statements.

Question 2

Which of the following statements concerning the cash flow production cycle is true?
A) The profits reported in a given time period equal the cash flows generated.
B) A company's operations and finances are independent of each other.
C) Financial statements have nothing to do with reality.
D) The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle.
E) A profitable company will always have sufficient cash to meet its obligations.

Accepted Answer

The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle. This cycle is a critical aspect of a company's operations and finances, and it affects the cash flow and profitability of the business. However, it is important to note that profits reported in a given time period do not always equal the cash flows generated, and a profitable company may still face cash flow problems if it has insufficient working capital. Financial statements are supposed to reflect the reality of a company's financial situation, but they are subject to interpretation and manipulation by management or other stakeholders.

Question 3

Which of the following tends to cause differences between market values and book values?
I.Accounting often creates a dichotomy between realized and unrealized income.
II.Accountants allocate goodwill when a firm is acquired for more than book value.
III.Many accounting values are transactions-based and hence backward-looking.
IV.The use of fair-value accounting.
V.Accountants refuse to assign a cost to equity capital.
A) I and II only
B) I and III only
C) II and IV only
D) I, III, and IV only
E) I, III, and V only
F) I, III, IV, and V only

Accepted Answer

E

Question 4

JM Case Inc.has a market value of $5 million with 500,000 shares outstanding.The book value of its equity is $1,750,000.What is JM Case's price per share?
A) $3.50
B) $5
C) $10
D) $25
E) $50
F) None of the above.

Accepted Answer

To find the price per share, we divide the market value of the company by the number of outstanding shares. 
Price per share = Market value / Number of shares outstanding 
Price per share = $5,000,000 / 500,000 
Price per share = $10

Question 5

JM Case Inc.has a market value of $5 million with 500,000 shares outstanding.The book value of its equity is $1,750,000.What is JM Case's book value per share?
A) $3.50
B) $5
C) $10
D) $25
E) $50
F) None of the above.

Accepted Answer

Book value per share is calculated by dividing the total book value of equity by the number of outstanding shares. 
Book Value per Share = Total Book Value of Equity / Number of Outstanding Shares 
Book Value per Share = $1,750,000 / 500,000 = $3.50 
Therefore, the correct answer is A) $3.50.

Question 6

Which one of the following is a use of cash?
A) increase in notes payable
B) increase in inventory
C) increase in long-term debt
D) decrease in accounts receivable
E) increase in common stock

Accepted Answer

An increase in inventory is a use of cash because purchasing more inventory requires spending cash, thereby reducing the company's cash balance.

Question 7

Which of the following statements concerning a firm's cash flows and profits is false?
A) Managers must be at least as concerned with cash flows as with profits.
B) A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production.
C) The cash flows generated in a given time period can differ from the profits reported.
D) Profits are no assurance that cash flow will be sufficient to maintain solvency.
E) Due to required cash investments in current assets, fast-growing and profitable companies can literally "grow broke".

Accepted Answer

While it is generally true that profits and cash flows are closely related, it is not always the case that profits will automatically result in sufficient cash flow. A company may sell merchandise at a profit, but if it is not collecting payment from customers quickly enough, it may not have the necessary cash flows to continue operations. Therefore, statement B is false as it assumes that profits automatically lead to sufficient cash flows.

Question 8

Depreciation expense:
A) reduces both taxes and net income.
B) increases the net fixed assets as shown on the balance sheet.
C) reduces both the net fixed assets and the costs of a firm.
D) is a noncash item that increases net income.
E) decreases current assets, net income, and operating cash flows.

Accepted Answer

Depreciation expense reduces taxable income, thereby reducing taxes, and it also reduces net income as it is an expense.

Question 9

JM Case Inc.has a market value of $5 million with 500,000 shares outstanding.The book value of its equity is $1,750,000.If the company repurchases 20 percent of its shares in the stock market,what will be the book value of equity if all else remains the same?
A) $750,000
B) $1,250,000
C) $1,000,000
D) $1,400,000
E) $4,000,000
F) None of the above.

Accepted Answer

The answer of JM Case Inc.has a market value of...

Question 10

Assuming that there were no financing cash flows during 2011 and basing your answer solely on the information provided,what were the cash flows from operations (in $ millions)for 2011?
A) 45
B) 106
C) 15
D) 76
E) 31
F) None of the above.

Accepted Answer

The answer of Assuming that there were no financing cash...

Question 11

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
A) income statement
B) balance sheet
C) cash flow statement
D) sources and uses statement
E) market value statement

Accepted Answer

The income statement summarizes a firm's revenue and expenses over a period of time (usually a year), also commonly referred to as the profit and loss statement. The balance sheet shows a company's assets, liabilities, and equity at a specific point in time. The cash flow statement shows a company's inflows and outflows of cash over a period of time. The sources and uses statement shows the sources of a company's funds and how they are being used. The market value statement is not a standard financial statement.

Question 12

Assuming the company neither sold nor salvaged any assets during the year,what were the company's capital expenditures during 2011?
A) 482
B) 78
C) 421
D) 61
E) 139
F) None of the above.

Accepted Answer

The answer of Assuming the company neither sold nor salvaged...

Question 13

Which one of the following is a source of cash?
A) decrease in accounts receivable
B) decrease in common stock
C) decrease in long-term debt
D) decrease in accounts payable
E) increase in inventory

Accepted Answer

A decrease in accounts receivable means that customers have paid their outstanding bills, resulting in a cash inflow.

Question 14

Which one of the following is the financial statement that summarizes changes in the company's cash balance over a period of time?
A) income statement
B) balance sheet
C) cash flow statement
D) shareholders' equity statement
E) market value statement

Accepted Answer

The cash flow statement summarizes changes in the company's cash balance over a period of time, including cash inflows and outflows from operating, investing, and financing activities. The income statement shows the company's revenues and expenses over a period of time, the balance sheet shows the company's assets, liabilities, and equity at a specific point in time, the shareholders' equity statement shows changes in equity due to investments, dividends, and net income, and there is no such thing as a market value statement in financial accounting.

Question 15

Selected information about South, Inc., a restaurant chain, follows.
 
-During 2011,how much cash (in $ millions)did South collect from sales?
A) 364
B) 277
C) 404
D) 324
E) 451
F) None of the above.

Accepted Answer

The answer of Selected information about South, Inc., a restaurant...

Question 16

The sources and uses of cash over a stated period of time are reflected on the:
A) income statement.
B) balance sheet.
C) shareholders' equity statement.
D) cash flow statement.
E) statement of operating position.

Accepted Answer

The cash flow statement summarizes the sources and uses of a company's cash over a given period of time, including its operating, investing, and financing activities. This statement reports on the inflows and outflows of cash and helps to provide insight into a company's liquidity and financial health.

Question 17

Noncash items refer to:
A) sales which are made on a credit basis.
B) inventory items purchased using credit.
C) intangible assets such as patents.
D) expenses, like depreciation, which do not directly affect cash flows.
E) administrative expenses.

Accepted Answer

Noncash items are generally expenses which do not impact cash flow, such as depreciation, amortization, and stock-based compensation. These items are recorded on the income statement but do not involve the exchange of cash.

Question 18

Selected information about South, Inc., a restaurant chain, follows.
 
-During 2011,what was the cost of goods (in $ millions)produced by the company?
A) 223
B) 194
C) 252
D) 228
E) 218
F) None of the above.

Accepted Answer

The answer of Selected information about South, Inc., a restaurant...

Question 19

Which one of the following is a source of cash?
A) increase in accounts receivable
B) decrease in notes payable
C) decrease in common stock
D) increase in inventory
E) increase in accounts payable

Accepted Answer

An increase in accounts payable indicates that a company is purchasing goods or services on credit, which increases its cash position because it is using supplier credit instead of immediate cash outflows.

Question 20

The book value of a firm is:
A) equivalent to the firm's market value provided that the firm has some fixed assets.
B) based on historical cost.
C) generally greater than the market value when fixed assets are included.
D) more of a financial than an accounting valuation.
E) adjusted to the market value whenever the market value exceeds the stated book value.

Accepted Answer

The book value of a firm is based on historical cost, meaning the original cost of assets minus accumulated depreciation and liabilities. It does not take into account changes in market value, so it may not necessarily be equivalent or greater than the market value of the firm. It is primarily an accounting valuation rather than a financial valuation. While adjustments may be made if the market value exceeds the stated book value, this is not common practice.

Quiz 1: Interpreting Financial Statements

Which one of the following is the financial statement that shows a financial snapshot,taken at a point in time,of all the assets the company owns and all the claims against those assets?

Which of the following statements concerning the cash flow production cycle is true?

JM Case Inc.has a market value of $5 million with 500,000 shares outstanding.The book value of its equity is $1,750,000.What is JM Case's price per share?

JM Case Inc.has a market value of $5 million with 500,000 shares outstanding.The book value of its equity is $1,750,000.What is JM Case's book value per share?

Which one of the following is a use of cash?

Which of the following statements concerning a firm's cash flows and profits is false?

Depreciation expense:

JM Case Inc.has a market value of $5 million with 500,000 shares outstanding.The book value of its equity is $1,750,000.If the company repurchases 20 percent of its shares in the stock market,what will be the book value of equity if all else remains the same?

Assuming that there were no financing cash flows during 2011 and basing your answer solely on the information provided,what were the cash flows from operations (in $ millions) for 2011?

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

Assuming the company neither sold nor salvaged any assets during the year,what were the company's capital expenditures during 2011?

Which one of the following is a source of cash?

Which one of the following is the financial statement that summarizes changes in the company's cash balance over a period of time?

Selected information about South, Inc., a restaurant chain, follows. -During 2011,how much cash (in $ millions) did South collect from sales?

The sources and uses of cash over a stated period of time are reflected on the:

Noncash items refer to:

Selected information about South, Inc., a restaurant chain, follows. -During 2011,what was the cost of goods (in $ millions) produced by the company?

Which one of the following is a source of cash?

The book value of a firm is: