Question 1

What is a liquid asset and why is it necessary for a firm to maintain a reasonable level of liquid assets?

Accepted Answer

The answer of What is a liquid asset and why...

Question 2

XYZ Company had a net income of $40 million in 2018. The firm paid no dividends. If there were no further changes to the stockholders' equity accounts, then ____________ by $40 million.

Accepted Answer

Retained earnings increase when a company earns profit and does not distribute it as dividends. Since XYZ Company had a net income of $40 million and paid no dividends, its retained earnings would have increased by $40 million.

Question 3

Discuss how financial statement accounts are inter-connected along with the order that financial statements should be prepared.

Accepted Answer

The answer of Discuss how financial statement accounts are inter-connected...

Question 4

Loss carry-forward is best described as:

Accepted Answer

Loss carry-forward allows businesses to apply current year losses against future profits, reducing taxable income in those future years.

Question 5

Which of the following are characteristics of a liquid asset?

Accepted Answer

Liquid assets can be quickly converted into cash with little or no loss in value and generally earn low returns.

Question 6

Which one of the following statements concerning liquidity is correct?

Accepted Answer

Liquidity refers to how quickly and easily an asset can be converted into cash without significant loss in value. The statement of financial position (balance sheet) typically lists assets in order of decreasing liquidity, starting with the most liquid assets (e.g., cash and cash equivalents) and moving towards less liquid assets (e.g., inventory, property, plant, and equipment). This arrangement helps in assessing the company's liquidity position.

Question 7

Net acquisitions is best described as:

Accepted Answer

Net acquisitions refer to the total cost of new capital assets a company has acquired within a specific period, minus any disposals of its assets. This calculation helps in understanding the net addition to the company's capital assets over time, which is essential for assessing investment and divestment activities.

Question 8

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

Accepted Answer

Your marginal tax rate is the rate at which your last dollar of income is taxed, indicating the rate applied to your next dollar of income.

Question 9

Discuss the difference between book values and market values on the statement of financial position and explain which is more important to the financial manager and why.

Accepted Answer

The answer of Discuss the difference between book values and...

Question 10

Terminal loss is best described as:

Accepted Answer

Terminal loss occurs when the undepreciated capital cost (UCC) of an asset is greater than the proceeds from its disposal, resulting in a loss that can be deducted for tax purposes.

Question 11

Realized capital gains is best described as:

Accepted Answer

Realized capital gains refer to the increase in value of an investment when it is actually sold (converted to cash), as opposed to unrealized gains which represent the potential increase in value while still holding the investment.

Question 12

Which one of the following situations will cause cash flow to creditors to be negative?

Accepted Answer

Cash flow to creditors becomes negative when the company borrows more than it repays, including both principal and interest. In option B, if the amount of a new loan exceeds the combined total of interest and principal payments made, it means the company has received more from borrowing than it has paid out to creditors, resulting in negative cash flow to creditors.

Question 13

To estimate the amount of cash which could be received if an asset were sold today, you should use the asset's:

Accepted Answer

Market value is the best estimate of the amount of cash that could be received if an asset were sold today, as it reflects the current value of the asset in the market.

Question 14

Which of the following statements about liquidity is true?

Accepted Answer

The answer of Which of the following statements about liquidity...

Question 15

Which of the following is/are true regarding the statement of financial position and statement of comprehensive income?

Accepted Answer

A) The statement of comprehensive income indeed reflects the company's financial performance over a period (like a year or a quarter), showing revenues, expenses, and other items affecting the company's net income. The statement of financial position, on the other hand, is a snapshot of the company's financial condition at a specific point in time, detailing assets, liabilities, and shareholders' equity.

Question 16

An impairment loss is defined as the amount by which the carrying value of an asset or cash-generating unit exceeds its recoverable amount. What is the implication of an impairment loss on a firm's financial statements?

Accepted Answer

The answer of An impairment loss is defined as the...

Question 17

Average tax rate is best described as:

Accepted Answer

The average tax rate is calculated by dividing the total amount of taxes paid by the total income, which gives the percentage of income that goes to pay taxes.

Question 18

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

Accepted Answer

Your average tax rate is calculated by dividing the total amount of taxes you pay by your taxable income, providing a percentage that represents the average rate at which your income is taxed.

Question 19

Recaptured depreciation is best described as:

Accepted Answer

Recaptured depreciation refers to the process where the tax authority collects taxes on the portion of the sale price of an asset that exceeds its undepreciated capital cost (UCC), but only up to the amount of depreciation previously claimed on that asset. This occurs when an asset is sold for more than its UCC, but not necessarily more than its original cost.

Question 20

Marginal tax rate is best described as:

Accepted Answer

The marginal tax rate refers to the rate at which the next dollar of taxable income would be taxed, essentially the tax rate that applies to each additional dollar of income.

Quiz 2: Financial Statements, Cash Flow, and Taxes