Question 1

Reducing a firm's debt will increase its cash flow.

Accepted Answer

Reducing a firm's debt typically involves paying off existing loans, which uses the firm's existing cash reserves, thus decreasing its immediate cash flow. However, over time, less debt can lead to lower interest payments, potentially improving cash flow in the future.

Question 2

A balance sheet is a statement of the financial position of the firm on a given date,including its asset holdings,liabilities,and equity.

Accepted Answer

This statement accurately describes what a balance sheet is - a snapshot of a company's financial standing at a particular moment in time, showing its assets, liabilities, and equity.

Question 3

The change between a firm's beginning cash balance and ending cash balance would equal
A)cash flow from operations + cash flow from investing activities + cash flow from financing activities.
B)the change in current assets minus the change in current liabilities.
C)net income plus new borrowing minus asset purchases.
D)total assets minus total liabilities minus total stockholders' equity.

Accepted Answer

The statement "cash flow from operations + cash flow from investing activities + cash flow from financing activities" represents the total change in cash for a firm during a given period, as reported on the statement of cash flows. Therefore, the difference between a firm's beginning cash balance and ending cash balance would be equal to this value.

Question 4

In a growing business,negative cash flow from investing activities is normal.

Accepted Answer

When a business is growing, it is likely that it will need to invest in new equipment, facilities, or other assets in order to support its expansion. This can result in negative cash flow from investing activities, as the business spends more money on these investments than it receives from selling off any old or unused assets. This is a normal part of the growth process, and as long as the business is able to generate positive cash flow from its operations (i.e. from selling its products or services), it should be able to eventually recover from any short-term negative impacts on cash flow.

Question 5

Operating cash flow will increase with a decrease in
A)inventories.
B)current liabilities.
C)depreciation expense.
D)capital expenditures.

Accepted Answer

The answer of Operating cash flow will increase with a...

Question 6

An advantage of balance sheet numbers is that assets reflect current market values.

Accepted Answer

Balance sheet numbers do not necessarily reflect current market values for assets. The values of assets on the balance sheet may be based on historical cost, which does not always reflect current market conditions.

Question 7

Under current accounting rules,plant and equipment appear on a company's balance sheet valued at replacement value.

Accepted Answer

Under current accounting rules, plant and equipment appear on a company's balance sheet valued at their historical cost, not replacement value.

Question 8

Which of the following does NOT represent cash outflows to the firm?
A)Taxes
B)Interest payments
C)Dividends
D)Depreciation

Accepted Answer

Depreciation represents the decrease in value of an asset over time and is a non-cash expense. Therefore, it does not represent a cash outflow to the firm. Taxes, interest payments, and dividends are all cash outflows to the firm.

Question 9

Gross plant and equipment minus accumulated depreciation represents the fair market value of a company's fixed assets.

Accepted Answer

Gross plant and equipment minus accumulated depreciation represents the book value of a company's fixed assets, not necessarily their fair market value.

Question 10

A firm's balance sheet provides a representation of the current market value of the company.

Accepted Answer

A firm's balance sheet provides a representation of the company's financial position at a particular point in time, including its assets, liabilities, and equity. However, the values listed on the balance sheet do not necessarily reflect the current market value of the company, as assets and liabilities may be recorded at historical cost or other accounting valuation methods that do not reflect their true market value.

Question 11

Total equity on the balance sheet increases as dividends paid increases.

Accepted Answer

Total equity on the balance sheet actually decreases when dividends are paid out, since dividends represent a distribution of profits to shareholders.

Question 12

When a corporation sells common stock to investors,the amount is added to revenue on the income statement.

Accepted Answer

Selling common stock to investors is not considered revenue as it is not earned from the normal operations of the business. Rather, it is a form of financing and the funds raised are typically recorded as equity on the balance sheet.

Question 13

Beginning cash balance + cash flow from operations + cash flow from investing activities + cash flow from financing activities = ending cash balance.

Accepted Answer

This equation is the statement of cash flows and is a basic principle of accounting. It shows how a company's cash balance changes throughout a given period.

Question 14

Which of the following represents a source of cash?
A)A decrease in accounts payable
B)A decrease in accounts receivable
C)Payment of dividends
D)An increase in inventories

Accepted Answer

The answer of Which of the following represents a source...

Question 15

Balance sheet and other accounts for GPA are listed below in alphabetical order.Use these accounts to construct GPA's balance sheet for 2013.All balance sheet accounts are shown,but some accounts will not be used.All amounts are in millions of dollars.
Accounts payable $1900
Accounts receivable $661
Cash $1,000
Common stock $2,000
EBIT $1,968
Interest expense $8.00
Inventories $1,620
Long-term debt $890
Net plant & equipment $2,563
Other current assets $645
Other long-term assets $576
Retained earnings $2,080
Short-term debt $195
Taxes $778

Accepted Answer

The answer of Balance sheet and other accounts for GPA...

Question 16

The ratio of ________ to ________ is an indicator of the quality of a firm's earnings.
A)cash flow from operations,net income
B)liabilities,assets
C)dividends,interest expense
D)cash flow from operations,capital expenditures

Accepted Answer

The ratio of cash flow from operations to net income is an indicator of the quality of a firm's earnings because it shows how much of the reported net income is actually translating into cash flow from operations. A high ratio indicates that the company's reported net income is supported by strong cash flows from operations, which is generally seen as a positive sign of the quality of earnings. Conversely, a low ratio can signal potential issues with the company's revenue recognition, accrual accounting, or cash flow management practices.

Quiz 3: Understanding Financial Statements,taxes,and Cash Flows

Reducing a firm's debt will increase its cash flow.

A balance sheet is a statement of the financial position of the firm on a given date,including its asset holdings,liabilities,and equity.

The change between a firm's beginning cash balance and ending cash balance would equal

In a growing business,negative cash flow from investing activities is normal.

Operating cash flow will increase with a decrease in