Financial Statement Analysis Study Guide
Which of the following statements concerning the cash flow production cycle is true?
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<CORRECT ANSWER>The movement of cash to inventory, to accounts receivable, and back
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to cash is known as the firm's working capital cycle.
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Which of the following statements concerning a firm's cash flows and profits is false?
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<CORRECT ANSWER>A company that sells merchandise at a profit will generate cash soon
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enough to replenish cash flows required for continued production.
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Which one of the following is the financial statements that shows a financial snapshot, taken
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at a point in time, of all the assets the company owns and all the claims against those
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assets? <CORRECT ANSWER>Balance sheet
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A balance sheet reports the value of a firm's assets, liabilities, and equity <CORRECT
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ANSWER>at any point in time
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A company purchases a new $10 million building financed half with cash and half with a
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bank loan. How would this transaction affect the company's balance sheet? <CORRECT
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ANSWER>Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises
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$5 million
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Which one of the following is the financial statement that summarizes a firm's revenue and
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expenses over a period of time? <CORRECT ANSWER>Income statement
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Which of the following is a source of cash? <CORRECT ANSWER>Increase in accounts payable
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Which one of the following is a use of cash? <CORRECT ANSWER>Increase in inventory
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, Financial Statement Analysis Study Guide
Which one of the following is a source of cash? <CORRECT ANSWER>Decrease in accounts
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receivable
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Which one of the following is the financial statements that summarizes change in the
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company's balance sheet over a period of time? <CORRECT ANSWER>Cash flow statement
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Which one of the following is NOT a major category on the cash flow statement? <CORRECT
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ANSWER>Cash flows from selling activities
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The book value of a firm is <CORRECT ANSWER>based on historical cost
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Depreciation expense <CORRECT ANSWER>reduces both taxes and net income
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Suppose an acquiring firm pays $100 million for a target firm and the target's assets have a
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book value of $70 million and an estimated replacement value of $80 million. What amount
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would be allocated to the acquiring firm's goodwill account? <CORRECT ANSWER>$20
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million
BB
ZZZ Corporation's income statement shows a provision for income taxes of $65 million in
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2017. At the end of 2016, ZZZ's balance sheet reported income taxes payable of $12 million
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and deferred taxes of $18 million. At the end of 2017, their balance sheet shows income
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taxes payable of $15 million and deferred taxes of $17 million. What were ZZZ's taxes paid
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in 2017? <CORRECT ANSWER>$63 million
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Which of the following formulas describes the calculation of cash flow from operating
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activities? <CORRECT ANSWER>Net Income + Noncash items +/- Changes in current assets
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and liabilities
BB BB
Which of the following statements concerning the cash flow production cycle is true?
BB BB BB BB BB BB BB BB BB BB BB BB
<CORRECT ANSWER>The movement of cash to inventory, to accounts receivable, and back
BB BB BB BB BB BB BB BB BB BB BB BB
to cash is known as the firm's working capital cycle.
BB BB BB BB BB BB BB BB BB BB
Which of the following statements concerning a firm's cash flows and profits is false?
BB BB BB BB BB BB BB BB BB BB BB BB BB
<CORRECT ANSWER>A company that sells merchandise at a profit will generate cash soon
BB BB BB BB BB BB BB BB BB BB BB BB BB
enough to replenish cash flows required for continued production.
BB BB BB BB BB BB BB BB BB
Which one of the following is the financial statements that shows a financial snapshot, taken
BB BB BB BB BB BB BB BB BB BB BB BB BB BB
at a point in time, of all the assets the company owns and all the claims against those
BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB
assets? <CORRECT ANSWER>Balance sheet
BB BB BB BB
A balance sheet reports the value of a firm's assets, liabilities, and equity <CORRECT
BB BB BB BB BB BB BB BB BB BB BB BB BB
ANSWER>at any point in time
BB BB BB BB BB
A company purchases a new $10 million building financed half with cash and half with a
BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB
bank loan. How would this transaction affect the company's balance sheet? <CORRECT
BB BB BB BB BB BB BB BB BB BB BB BB
ANSWER>Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises
BB BB BB BB BB BB BB BB BB BB BB BB BB BB
$5 million
BB BB
Which one of the following is the financial statement that summarizes a firm's revenue and
BB BB BB BB BB BB BB BB BB BB BB BB BB BB
expenses over a period of time? <CORRECT ANSWER>Income statement
BB BB BB BB BB BB BB BB BB
Which of the following is a source of cash? <CORRECT ANSWER>Increase in accounts payable
BB BB BB BB BB BB BB BB BB BB BB BB BB
Which one of the following is a use of cash? <CORRECT ANSWER>Increase in inventory
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, Financial Statement Analysis Study Guide
Which one of the following is a source of cash? <CORRECT ANSWER>Decrease in accounts
BB BB BB BB BB BB BB BB BB BB BB BB BB
receivable
BB
Which one of the following is the financial statements that summarizes change in the
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company's balance sheet over a period of time? <CORRECT ANSWER>Cash flow statement
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Which one of the following is NOT a major category on the cash flow statement? <CORRECT
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ANSWER>Cash flows from selling activities
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The book value of a firm is <CORRECT ANSWER>based on historical cost
BB BB BB BB BB BB BB BB BB BB BB
Depreciation expense <CORRECT ANSWER>reduces both taxes and net income
BB BB BB BB BB BB BB BB
Suppose an acquiring firm pays $100 million for a target firm and the target's assets have a
BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB
book value of $70 million and an estimated replacement value of $80 million. What amount
BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB
would be allocated to the acquiring firm's goodwill account? <CORRECT ANSWER>$20
BB BB BB BB BB BB BB BB BB BB BB
million
BB
ZZZ Corporation's income statement shows a provision for income taxes of $65 million in
BB BB BB BB BB BB BB BB BB BB BB BB BB
2017. At the end of 2016, ZZZ's balance sheet reported income taxes payable of $12 million
BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB
and deferred taxes of $18 million. At the end of 2017, their balance sheet shows income
BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB BB
taxes payable of $15 million and deferred taxes of $17 million. What were ZZZ's taxes paid
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in 2017? <CORRECT ANSWER>$63 million
BB BB BB BB BB
Which of the following formulas describes the calculation of cash flow from operating
BB BB BB BB BB BB BB BB BB BB BB BB
activities? <CORRECT ANSWER>Net Income + Noncash items +/- Changes in current assets
BB BB BB BB BB BB BB BB BB BB BB BB
and liabilities
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