Question 1

Noncash items refer to:
A)the credit sales of a firm.
B)the trade payables of a firm.
C)the costs incurred for the purchase of intangible non-current assets.
D)expenses charged against revenues that do not directly affect cash flow.
E)all accounts on the statement of financial position other than cash on hand.

Accepted Answer

Noncash items are expenses charged against revenues that do not directly affect cash flow. Examples include depreciation, amortization, and bad debt provisions. Noncash items are important to consider when analyzing a company's financial statements because they can have an impact on profitability and cash flow.

Question 2

The non-current liabilities of a firm are liabilities:
A)that come due within the next 12 months.
B)that do not come due for at least 12 months.
C)owed to the firm's suppliers.
D)owed to the firm's shareholders.
E)the firm expects to incur within the next 12 months.

Accepted Answer

Non-current liabilities are those that do not come due for at least 12 months. This includes long-term loans, bonds, and leases.

Question 3

_____ is calculated by adding back non-cash expenses to net income and adjusting for changes in current assets and liabilities.
A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from operations
E)Cash flow to creditors

Accepted Answer

Cash flow from operations (also known as operating cash flow) is calculated by adding back non-cash expenses (such as depreciation) to net income and adjusting for changes in current assets (such as accounts receivable and inventory) and liabilities (such as accounts payable and taxes payable). This measure provides insight into the cash generated or used by a company's core business operations.

Question 4

Dividends per share is equal to dividends paid:
A)divided by the par value of ordinary equity.
B)divided by the total number of shares outstanding.
C)divided by total shareholders' equity.
D)multiplied by the par value of the ordinary equity.
E)multiplied by the total number of shares outstanding.

Accepted Answer

Dividends per share is calculated by dividing the total amount of dividends paid by the company by the total number of outstanding shares. This calculation gives us the amount of dividend paid per share of stock. Both the par value of the stock and total shareholders' equity are not involved in this calculation. Therefore, option B is the correct answer.

Question 5

A current asset is:
A)an item currently owned by the firm.
B)an item that the firm expects to own within the next year.
C)an item currently owned by the firm that will convert to cash within the next 12 months.
D)the amount of cash on hand the firm currently shows on its statement of financial position.
E)the market value of all items currently owned by the firm.

Accepted Answer

A current asset is an item that is currently owned by the firm and is expected to be converted into cash within the next 12 months. This includes items like cash and cash equivalents, accounts receivable, inventory, and prepaid expenses. Choice A is too broad and does not specify the time frame for ownership, while choice B is incorrect as it refers to future ownership. Choice D is also incorrect as it only refers to the amount of cash on hand, not other current assets. Choice E is incorrect as it refers to market value, which may not be accurate for financial reporting purposes.

Question 6

Earnings per share is equal to:
A)net income divided by the total number of shares outstanding.
B)net income divided by the par value of the ordinary equity.
C)gross income multiplied by the par value of the ordinary equity.
D)operating income divided by the par value of the ordinary equity.
E)net income divided by total shareholders' equity.

Accepted Answer

Earnings per share is calculated by dividing the net income of a company by the total number of shares outstanding. This calculation gives the amount of net income attributed to each share of stock.

Question 7

Which of the following are included in current liabilities?
I.Note payable to a supplier in eighteen months.
II.Debt payable to a mortgage company in nine months.
III.Trade payables to suppliers.
IV.Loan payable to the bank in fourteen months.
A)I and III only.
B)II and III only.
C)III and IV only.
D)II,III,and IV only.
E)I,II,and III only.

Accepted Answer

Current liabilities are obligations a company expects to pay within one year. II (debt payable in nine months) and III (trade payables) fit this definition, while I and IV exceed the one-year timeframe.

Question 8

_____ refers to the difference between a firm's current assets and its current liabilities.
A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from assets
E)Cash flow to creditors

Accepted Answer

Net working capital refers to the difference between a firm's current assets (such as inventory and accounts receivable) and its current liabilities (such as accounts payable and short-term debt). It represents the amount of short-term liquidity that a firm has to fund day-to-day operations. A positive net working capital indicates that a firm has more current assets than current liabilities, while a negative net working capital means the opposite. It is an important metric for assessing a firm's short-term financial health and ability to meet its obligations.

Question 9

The financial statement showing a firm's accounting value on a particular date is the:
A)income statement.
B)statement of financial position.
C)statement of cash flows.
D)tax reconciliation statement.
E)shareholders' equity sheet.

Accepted Answer

The statement of financial position, also known as the balance sheet, shows the accounting value of a firm's assets, liabilities, and equity at a specific point in time. It provides a snapshot of the company's financial position and overall health. The income statement shows a firm's financial performance over a period of time, the statement of cash flows shows the inflows and outflows of cash, the tax reconciliation statement shows the difference between taxable income and accounting income, and the shareholders' equity sheet shows the changes in equity over time.

Question 10

_____ refers to the firm's interest payments less any net new borrowing.
A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from shareholders
E)Cash flow to creditors

Accepted Answer

Cash flow to creditors refers to the interest payments made to creditors minus any new borrowing. It is a component of the cash flow statement and is an important indicator of a company's ability to meet its debt obligations.

Question 11

Your _____ tax rate is the amount of tax payable on the next taxable euro you earn.
A)deductible
B)residual
C)total
D)average
E)marginal

Accepted Answer

Marginal tax rate is the tax rate applied to the next euro of income earned. This rate will usually be higher than the individual's average tax rate because it only applies to the additional income being earned.

Question 12

The financial statement summarizing a firm's accounting performance over a period of time is the:
A)income statement.
B)statement of financial position.
C)statement of cash flows.
D)tax reconciliation statement.
E)shareholders' equity sheet.

Accepted Answer

The income statement summarizes a firm's revenue, expenses, and net income (or loss) over a specific period of time. This is typically done on a quarterly or annual basis and is an important tool for evaluating a company's financial performance.

Question 13

_____ refers to the firm's dividend payments less any net new equity raised.
A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from creditors
E)Cash flow to shareholders

Accepted Answer

This refers to cash flows that are distributed to shareholders in the form of dividends or stock buybacks minus any cash flows received from issuing new equity. This is known as cash flow to shareholders.

Question 14

An increase in total assets:
A)means that net working capital is also increasing.
B)requires an investment in non-current assets.
C)means that shareholders' equity must also increase.
D)must be offset by an equal increase in liabilities and shareholders' equity.
E)can only occur when a firm has positive net income.

Accepted Answer

An increase in total assets must be balanced by an equal increase in liabilities and/or shareholders' equity according to the accounting equation: Assets = Liabilities + Shareholders' Equity.

Question 15

Net working capital is defined as:
A)total liabilities minus shareholders' equity.
B)current liabilities minus shareholders' equity.
C)non-current assets minus non-current liabilities.
D)total assets minus total liabilities.
E)current assets minus current liabilities.

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. This shows the amount of funds a company has available for day-to-day operations and investments after paying off its current liabilities.

Question 16

Which of the following are included in current assets?
I.Equipment
II.Inventory
III.Trade payables
IV.Cash
A)II and IV only.
B)I and III only.
C)I,II,and IV only.
D)III and IV only.
E)II,III,and IV only.

Accepted Answer

Current assets typically include items that are either cash, cash equivalents, or can be converted into cash within one year. Inventory and cash fit this definition, while equipment is usually a long-term asset and trade payables are a liability.

Question 17

_____ refers to the changes in net capital assets.
A)Operating cash flow
B)Cash flow from investing
C)Net working capital
D)Cash flow from assets
E)Cash flow to creditors

Accepted Answer

Changes in net capital assets are typically reflected in the cash flow from investing activities section of a company's cash flow statement. This section reports cash inflows and outflows related to the purchase and sale of long-term assets such as property, plant, and equipment, as well as investments in securities or other companies.

Question 18

a(n.____ asset is one which can be quickly converted into cash without significant loss in value.
A)current
B)non-current
C)intangible
D)liquid
E)non-current.

Accepted Answer

A liquid asset refers to an asset that can be easily converted into cash without a significant loss in value. Examples of liquid assets include cash, money market instruments, and marketable securities.

Question 19

_____ refers to the cash flow that results from the firm's ongoing,normal business activities.
A)Cash flow from operating activities
B)Capital spending
C)Net working capital
D)Cash flow from assets
E)Cash flow to creditors

Accepted Answer

Cash flow from operating activities is the cash generated or used by the firm's regular business operations, such as sales and production. It includes items such as net income, depreciation, changes in working capital, and other adjustments.

Question 20

Your _____ tax rate measures the total taxes you pay divided by your taxable income.
A)deductible
B)residual
C)total
D)average
E)marginal

Accepted Answer

The average tax rate measures the total taxes you pay divided by your taxable income, so D is the correct choice. A deductible is an expense that can be subtracted from taxable income, but it is not a tax rate. Residual and total are not commonly used terms to describe tax rates. The marginal tax rate is the rate paid on the next dollar of income earned, not the total taxes paid divided by taxable income.

Quiz 3: Financial Statement Analysis and Long-Term Planning

Noncash items refer to:

The non-current liabilities of a firm are liabilities:

_____ is calculated by adding back non-cash expenses to net income and adjusting for changes in current assets and liabilities.

Dividends per share is equal to dividends paid:

A current asset is:

Earnings per share is equal to:

Which of the following are included in current liabilities? I.Note payable to a supplier in eighteen months. II.Debt payable to a mortgage company in nine months. III.Trade payables to suppliers. IV.Loan payable to the bank in fourteen months.

_____ refers to the difference between a firm's current assets and its current liabilities.

The financial statement showing a firm's accounting value on a particular date is the:

_____ refers to the firm's interest payments less any net new borrowing.

Your _____ tax rate is the amount of tax payable on the next taxable euro you earn.

The financial statement summarizing a firm's accounting performance over a period of time is the:

_____ refers to the firm's dividend payments less any net new equity raised.

An increase in total assets:

Net working capital is defined as:

Which of the following are included in current assets? I.Equipment II.Inventory III.Trade payables IV.Cash

_____ refers to the changes in net capital assets.

a(n.____ asset is one which can be quickly converted into cash without significant loss in value.

_____ refers to the cash flow that results from the firm's ongoing,normal business activities.

Your _____ tax rate measures the total taxes you pay divided by your taxable income.