Question 1

On the Statement of Cash Flows,which of the following are considered financing activities?
I.increase in long-term debt
II.decrease in accounts payable
III.interest paid
IV.dividends paid
A)I and IV only
B)III and IV only
C)II and III only
D)I, III, and IV only
E)I, II, III, and IV

Accepted Answer

An increase in long-term debt is a financing activity as it represents the company borrowing money to finance its operations. Dividends paid are also a financing activity as they represent a distribution of profits to the company's shareholders. Decrease in accounts payable and interest paid are considered operating activities as they are related to the company's day-to-day operations.

Question 2

Which of the following ratios are measures of a firm's liquidity?
I.cash coverage ratio
II.interval measure
III.debt-equity ratio
IV.quick ratio
A)I and III only
B)II and IV only
C)I, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Accepted Answer

II (interval measure) and IV (quick ratio) are measures of a firm's liquidity. The interval measure assesses how long a company can operate using its current liquid assets, while the quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets.

Question 3

A firm uses 2011 as the base year for its financial statements.The common-size,base-year statement for 2012 has an inventory value of 1.08.This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?
A)2011 inventory
B)2011 total assets
C)2012 total assets
D)2011 inventory expressed as a percent of 2011 total assets
E)2012 inventory expressed as a percent of 2012 total assets

Accepted Answer

D

Question 4

On the Statement of Cash Flows,which of the following are considered operating activities?
I.costs of goods sold
II.decrease in accounts payable
III.interest paid
IV.dividends paid
A)I and III only
B)III and IV only
C)I, II, and III only
D)I, III, and IV only
E)I, II, III, and IV

Accepted Answer

Costs of goods sold (I) and interest paid (III) are considered operating activities because they relate to the primary operations of the business. A decrease in accounts payable (II) is also an operating activity as it reflects changes in working capital associated with operations. Dividends paid (IV) are not considered an operating activity; they are classified as financing activities.

Question 5

Activities of a firm which require the spending of cash are known as:
A)sources of cash.
B)uses of cash.
C)cash collections.
D)cash receipts.
E)cash on hand.

Accepted Answer

Uses of cash refer to any activities that require a firm to spend its cash, including buying inventory, paying salaries, and purchasing fixed assets. Sources of cash refer to any activities that result in cash inflows for the firm, such as selling products, issuing bonds, or receiving payments from customers. Cash collections and cash receipts both refer to the actual process of receiving cash from customers or other sources, while cash on hand simply refers to the amount of cash a firm currently has available.

Question 6

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

Accepted Answer

The answer of Which one of the following is a...

Question 7

Which one of the following is a source of cash?
A)repurchase of common stock
B)acquisition of debt
C)purchase of inventory
D)payment to a supplier
E)granting credit to a customer

Accepted Answer

Acquisition of debt is a source of cash because when a company borrows money, it receives cash from the lender.

Question 8

According to the Statement of Cash Flows,a decrease in accounts receivable will _____ the cash flow from _____ activities.
A)decrease; operating
B)decrease; financing
C)increase; operating
D)increase; financing
E)increase; investment

Accepted Answer

A decrease in accounts receivable is considered a positive adjustment in the operating activities section of the cash flow statement because it represents cash inflow that was previously recorded as revenue but not yet received.

Question 9

A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
A)total assets.
B)total equity.
C)net income.
D)taxable income.
E)sales.

Accepted Answer

A common-size income statement expresses all expenses as a percentage of sales, which allows for easier comparison between companies of different sizes.

Question 10

On a common-size balance sheet all accounts are expressed as a percentage of:
A)sales for the period.
B)the base year sales.
C)total equity for the base year.
D)total assets for the current year.
E)total assets for the base year.

Accepted Answer

On a common-size balance sheet, all accounts are expressed as a percentage of total assets for the current year. This standardizes the balance sheet and allows for easier comparison across companies and time periods.

Question 11

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

Accepted Answer

A decrease in inventory is a source of cash because it means the company is selling off its inventory without immediately replacing it, thus freeing up cash that was previously tied up in inventory.

Question 12

An increase in current liabilities will have which one of the following effects,all else held constant? Assume all ratios have positive values.
A)increase in the cash ratio
B)increase in the net working capital to total assets ratio
C)decrease in the quick ratio
D)decrease in the cash coverage ratio
E)increase in the current ratio

Accepted Answer

The quick ratio only considers the most liquid assets which are cash and accounts receivable. An increase in current liabilities without an increase in cash or accounts receivable will decrease the quick ratio.

Question 13

The U.S.government coding system that classifies a firm by the nature of its business operations is known as the:
A)NASDAQ 100.
B)Standard & Poor's 500.
C)Standard Industrial Classification code.
D)Governmental ID code.
E)Government Engineered Coding System.

Accepted Answer

The Standard Industrial Classification code is a U.S. government coding system used to classify firms by the nature of their business operations. It has since been replaced by the North American Industry Classification System (NAICS), but some government agencies still use SIC codes.

Question 14

The formula which breaks down the return on equity into three component parts is referred to as which one of the following?
A)equity equation
B)profitability determinant
C)SIC formula
D)Du Pont identity
E)equity performance formula

Accepted Answer

The formula which breaks down the return on equity into three component parts is called the Du Pont identity, named after the Du Pont Corporation which first used this formula in the 1920s.

Question 15

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 accounts payable
E)increase in inventory

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 16

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

Accepted Answer

The statement of cash flows is the only financial statement that specifically reflects the sources and uses of cash over a stated period of time. The income statement reflects revenues, expenses, and net income, but does not show cash inflows and outflows. The balance sheet reflects the financial position of the company at a specific point in time, but does not show cash flows. The tax reconciliation statement and statement of operating position are not commonly used financial statements.

Question 17

On a common-base year financial statement,accounts receivables will be expressed relative to which one of the following?
A)current year sales
B)current year total assets
C)base-year sales
D)base-year total assets
E)base-year accounts receivables

Accepted Answer

In a common-base year financial statement, all items are expressed relative to a base year, making E (base-year accounts receivables) the correct answer. This allows for comparison of financial data over time by setting a common reference point.

Question 18

According to the Statement of Cash Flows,an increase in interest expense will _____ the cash flow from _____ activities.
A)decrease; operating
B)decrease; financing
C)increase; operating
D)increase; financing
E)increase; investment

Accepted Answer

An increase in interest expense indicates that the company is paying more interest on its loans or other borrowing activities, which falls under financing activities. As interest expense is an outflow of cash, an increase in interest expense will decrease the cash flow from operating activities, which only includes cash inflows and outflows related to the company's primary business operations.

Question 19

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?
A)statement of standardization
B)statement of cash flows
C)common-base year statement
D)common-size statement
E)base reconciliation statement

Accepted Answer

A common-base year statement standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time, typically the base year. This allows for easier comparison of financial statements across different periods. The other options listed, such as the statement of standardization or base reconciliation statement, are not commonly used or recognized accounting statements. The statement of cash flows and common-size statement standardize items in different ways, with the former focusing on cash inflows and outflows, and the latter expressing items as a percentage of a common denominator (such as total assets).

Question 20

Relationships determined from a firm's financial information and used for comparison purposes are known as:
A)financial ratios.
B)identities.
C)dimensional analysis.
D)scenario analysis.
E)solvency analysis.

Accepted Answer

Financial ratios are used to determine relationships between different financial information of a firm, and are used for comparison purposes with other firms or industry standards. Identity refers to an equation that is true regardless of values used for variables, dimensional analysis is a method of converting units, scenario analysis involves evaluating possible future events, and solvency analysis is a type of financial analysis that looks at a firm's ability to meet its debt obligations.

Quiz 3: Working With Financial Statements

On the Statement of Cash Flows,which of the following are considered financing activities? I.increase in long-term debt II.decrease in accounts payable III.interest paid IV.dividends paid

Which of the following ratios are measures of a firm's liquidity? I.cash coverage ratio II.interval measure III.debt-equity ratio IV.quick ratio

A firm uses 2011 as the base year for its financial statements.The common-size,base-year statement for 2012 has an inventory value of 1.08.This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?

On the Statement of Cash Flows,which of the following are considered operating activities? I.costs of goods sold II.decrease in accounts payable III.interest paid IV.dividends paid

Activities of a firm which require the spending of cash are known as:

Which one of the following is a use of cash?

Which one of the following is a source of cash?

According to the Statement of Cash Flows,a decrease in accounts receivable will _ the cash flow from _ activities.

A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:

On a common-size balance sheet all accounts are expressed as a percentage of:

Which one of the following is a source of cash?

An increase in current liabilities will have which one of the following effects,all else held constant? Assume all ratios have positive values.

The U.S.government coding system that classifies a firm by the nature of its business operations is known as the:

The formula which breaks down the return on equity into three component parts is referred to as which one of the following?

Which one of the following is a source of cash?

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

On a common-base year financial statement,accounts receivables will be expressed relative to which one of the following?

According to the Statement of Cash Flows,an increase in interest expense will _ the cash flow from _ activities.

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?

Relationships determined from a firm's financial information and used for comparison purposes are known as: