Question 1

The existence of goodwill on a corporate balance sheet indicates that the corporation has:

Accepted Answer

A)   been profitable in the past.
B)   depreciated its tangible assets.
C)   intangible assets from past acquisitions.
D)   retained earnings resulting from past income.E) A) and B)
F) All of the above

Question 2

Which of the following changes in working capital will result in an increase in cash flows?

Accepted Answer

A)   Increase in accounts payable
B)   Increase in inventories
C)   Increase in accounts receivable
D)   Decrease in other current liabilitiesE) None of the above
F) A) and C)

Question 3

The difference between the market values of assets and liabilities is the market value of the shareholders' equity claim.

Accepted Answer

A) True 
 B)False

Question 4

Which of these statements related to free cash flow is correct?

Accepted Answer

A)   Free cash flow must be fully distributed to the firm's debtors and shareholders.
B)   Free cash flow must be positive for a firm to acquire new fixed assets.
C)   All, or part, of free cash flow can be used to increase a firm's cash reserves.
D)   When capital expenditures are positive, free cash flow will exceed the cash flow from operations.E) B) and C)
F) None of the above

Question 5

An increase in the accounts receivable balance increases the cash flow of a firm.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about depreciation is correct

Accepted Answer

A)   Each year the accountant adds an amount for depreciation when calculating the company's profit.
B)   The annual depreciation charge measures the cash that the company has spent on maintaining and renewing its plant and equipment.
C)   To calculate the cash produced by the business, it is necessary to deduct the depreciation charge from accounting profits.
D)   To calculate the cash produced by the business, it is necessary to add the depreciation charge back to accounting profits.E) C) and D)
F) B) and D)

Question 7

ABC Corp.'s balance sheet shows its long-term debt to be $20 million.The debt was issued with a 10% interest rate,and the current interest rate is 7%.Based on this information alone,the market value of this debt is most likely:

Accepted Answer

A)   less than $20 million.
B)   more than $20 million.
C)   equal to $20 million.
D)   unknown without knowing the maturity of the debt.E) B) and C)
F) None of the above

Question 8

When subtracting an asset's accumulated depreciation from its historic cost,the resulting value is termed the:

Accepted Answer

A)   book value of the asset.
B)   market value of the asset.
C)   depreciation expense.
D)   current asset value.E) A) and D)
F) None of the above

Question 9

Which one of the following is an intangible asset?

Accepted Answer

A)   Goodwill
B)   Retained earnings
C)   Deferred income taxes
D)   Treasury stockE) All of the above
F) None of the above

Question 10

Which of the following is more likely to be correct if market value of equity is less than book value of equity?

Accepted Answer

A)   Investors anticipate excellent earning potential.
B)   Investors anticipate low earning potential.
C)   Assets have been fully depreciated.
D)   The company is bankrupt.E) A) and D)
F) A) and C)

Question 11

An individual's income for the year includes both dividend and interest payments.Which of these statements correctly applies to that individual's tax liability?

Accepted Answer

A)   Dividends are taxed; tax on interest payments is paid at the corporate level.
B)   Interest is taxed; tax on dividend payments is paid at the corporate level.
C)   Both dividend and interest payments are taxed at the personal level.
D)   All taxes on dividend and interest payments are paid at the corporate level.E) None of the above
F) B) and C)

Question 12

Which of the following values would most likely interest a shareholder?

Accepted Answer

A)   Book value of equity
B)   Market value of equity
C)   Retained earnings
D)   Net working capitalE) B) and D)
F) C) and D)

Question 13

The net income figure on an income statement is calculated before deducting the:

Accepted Answer

A)   interest expense.
B)   depreciation expense.
C)   cash dividends.
D)   tax liability.E) None of the above
F) B) and D)

Question 14

Which of the firm's financial statements most clearly recognizes the payment for new equipment?

Accepted Answer

A)   Balance sheet
B)   Income statement
C)   Statement of cash flows
D)   Common-size balance sheetE) B) and C)
F) All of the above

Question 15

In general,what is changing as you read down the left-hand side of a balance sheet?

Accepted Answer

A)   The assets are becoming more fully depreciated.
B)   The assets are increasing in value.
C)   The assets are increasing in maturity.
D)   The assets are becoming less liquid.E) All of the above
F) C) and D)

Question 16

Dividends paid are treated as a financing activity on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 17

If net income is positive,then cash flow from operations must be positive for that period.

Accepted Answer

A) True 
 B)False

Question 18

If market interest rates have increased since a company last borrowed long-term funds,the market value of these long-term funds will likely be:

Accepted Answer

A)   greater than their book value.
B)   less than their book value.
C)   equal to their book value.
D)   unknown without knowing the maturity of the debt.E) None of the above
F) A) and B)

Question 19

If the market value of assets is high,then the market value of liabilities must be high also.

Accepted Answer

A) True 
 B)False

Question 20

Market-value balance sheets differ from book-value balance sheets in that market values:

Accepted Answer

A)   are higher than book values.
B)   are lower than book values.
C)   reflect GAAP accounting.
D)   reflect investors' expectations.E) B) and C)
F) A) and B)

Exam 3: Accounting and Finance

Dividends paid are treated as a financing activity on the statement of cash flows.

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The existence of goodwill on a corporate balance sheet indicates that the corporation has:

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Which of the firm's financial statements most clearly recognizes the payment for new equipment?

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Which of the following statements about depreciation is correct

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Which of the following is more likely to be correct if market value of equity is less than book value of equity?

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An individual's income for the year includes both dividend and interest payments.Which of these statements correctly applies to that individual's tax liability?

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Market-value balance sheets differ from book-value balance sheets in that market values:

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Which of the following changes in working capital will result in an increase in cash flows?

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An increase in the accounts receivable balance increases the cash flow of a firm.

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If the market value of assets is high,then the market value of liabilities must be high also.

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ABC Corp.'s balance sheet shows its long-term debt to be $20 million.The debt was issued with a 10% interest rate,and the current interest rate is 7%.Based on this information alone,the market value of this debt is most likely:

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Which of these statements related to free cash flow is correct?

Correct AnswerverifiedShow Answer

In general,what is changing as you read down the left-hand side of a balance sheet?

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Which of the following values would most likely interest a shareholder?

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If net income is positive,then cash flow from operations must be positive for that period.

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When subtracting an asset's accumulated depreciation from its historic cost,the resulting value is termed the:

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If market interest rates have increased since a company last borrowed long-term funds,the market value of these long-term funds will likely be:

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The difference between the market values of assets and liabilities is the market value of the shareholders' equity claim.

Correct AnswerverifiedShow Answer

The net income figure on an income statement is calculated before deducting the:

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Which one of the following is an intangible asset?

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