Question 1

_____ 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 a firm makes to its creditors, less any net new borrowing. This measure is important because it shows how much cash a firm has available to pay its creditors after taking into account its interest expenses.

Question 2

_____ 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

Cash flow from investing includes the changes in net capital assets, such as the acquisition or sale of property, plant, and equipment.

Question 3

Noncash items refer to:
A)the credit sales of a firm.
B)the accounts payable of a firm.
C)the costs incurred for the purchase of intangible fixed assets.
D)expenses charged against revenues that do not directly affect cash flow.
E)all accounts on the balance sheet other than cash on hand.

Accepted Answer

Noncash items are expenses charged against revenues that do not directly affect cash flow, such as depreciation and amortization expenses.

Question 4

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 balance sheet.
E)the market value of all items currently owned by the firm.

Accepted Answer

A current asset is an item that a firm currently owns and expects to convert to cash within the next 12 months. This includes items such as cash, accounts receivable, and inventory. Therefore, option C is the correct definition of a current asset.

Question 5

_____ is calculated by adding back noncash 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 is calculated by adding back noncash expenses such as depreciation to net income and adjusting for changes in current assets and liabilities. This provides a measure of the actual cash generated or used by the company's ongoing operations.

Question 6

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

Accepted Answer

The income statement summarizes a firm's revenues, expenses, and net income or loss over a period of time, typically a year or a quarter. It is also known as the profit and loss statement. The balance sheet is a snapshot of a firm's financial position at a specific point in time, while the statement of cash flows shows the inflows and outflows of cash over a period of time. The tax reconciliation statement and shareholders' equity sheet are not commonly used financial statements.

Question 7

_____ 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 cash, accounts receivable, and inventory) and its current liabilities (such as accounts payable and short-term debt). It represents the amount of funds available to a company to meet its day-to-day operating expenses.

Question 8

An increase in total assets:
A)means that net working capital is also increasing.
B)requires an investment in fixed 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

According to the accounting equation, Assets = Liabilities + Shareholders' Equity. Therefore, any increase in total assets must be offset by an equal increase in either liabilities or shareholders' equity or both. This means that no new investment is required, and an increase in total assets does not necessarily mean an increase in net working capital or shareholders' equity. Furthermore, it is not necessary for a firm to have positive net income to increase its total assets.

Question 9

_____ 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 stockholders

Accepted Answer

Cash flow to stockholders refers to the amount of cash paid out to stockholders through dividends less any additional funds raised from issuing new equity. This cash flow is important for investors who rely on dividend income and for analyzing a company's financial health and management's decision-making regarding capital allocation.

Question 10

Which of the following are included in current assets?
I.equipment
II.inventory
III.accounts payable
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 include inventory and cash, as they are expected to be converted into cash or used up within a year. Equipment is a long-term asset, and accounts payable is a liability.

Question 11

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 common stock.
C)gross income multiplied by the par value of the common stock.
D)operating income divided by the par value of the common stock.
E)net income divided by total shareholders' equity.

Accepted Answer

Earnings per share (EPS) is calculated as net income divided by the total number of shares outstanding. This indicates how much profit is generated per share, which is useful information for investors and analysts.

Question 12

_____ 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 refers to the cash flow that results from the firm's ongoing, normal business activities, such as revenues from sales and payments for expenses like salaries and rent.

Question 13

The long-term debts 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

Long-term debts of a firm are liabilities that do not come due for at least 12 months.

Question 14

Your _____ tax rate is 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 is the total amount of taxes paid divided by the taxable income. This is different from the marginal tax rate, which is the rate at which the last dollar earned is taxed. Deductible, residual, and total are not appropriate terms for describing tax rates.

Question 15

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

Accepted Answer

The given statement is describing the marginal tax rate. The marginal tax rate is the tax rate on the last dollar earned and is the most important tax rate for budgeting and decision-making purposes. Deductible, residual, and total tax rates are not relevant to the given statement. The average tax rate is the total amount of tax paid divided by taxable income, which is different from the marginal tax rate.

Question 16

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

Accepted Answer

The balance sheet is the financial statement that shows a firm's accounting value on a particular date, including its assets, liabilities, and shareholders' equity. The income statement shows a firm's financial performance over a period of time, while the statement of cash flows shows the inflows and outflows of cash during a period. The tax reconciliation statement is used to reconcile a company's accounting income with its taxable income for tax purposes. The shareholders' equity sheet is not a commonly used term and is not a standard financial statement.

Question 17

Dividends per share is equal to dividends paid:
A)divided by the par value of common stock.
B)divided by the total number of shares outstanding.
C)divided by total shareholders' equity.
D)multiplied by the par value of the common stock.
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 total number of shares outstanding. This gives the amount of dividends paid for each share of stock owned by shareholders.

Question 18

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

Accepted Answer

Liquid assets are those that can easily be converted into cash without significant loss in value. Current assets are also considered liquid, but not all current assets may be easily converted into cash. Fixed, intangible, and long-term assets are not considered liquid assets.

Question 19

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.accounts payable 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 due within one year. Debt payable in nine months and accounts payable are current liabilities.

Question 20

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

Accepted Answer

Net working capital is the difference between a company's current assets and current liabilities. This calculation provides insight into a company's liquidity and ability to pay off short-term debt obligations.

Quiz 2: Financial Statements and Cash Flow

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

_____ refers to the changes in net capital assets.

Noncash items refer to:

A current asset is:

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

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

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

An increase in total assets:

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

Which of the following are included in current assets? I.equipment II.inventory III.accounts payable IV.cash

Earnings per share is equal to:

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

The long-term debts of a firm are liabilities:

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

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

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

Dividends per share is equal to dividends paid:

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

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.accounts payable to suppliers IV.loan payable to the bank in fourteen months

Net working capital is defined as: