TEST BANK
TEST BANK
,Foundations of Financial Management 17th Edition Block Test Bank
Foundations of Financial Management, 17e (Block)
Chapter 2 Review of Accounting
1) The income statement is the major device for measuring the profitability of a firm over a
period of time.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) The income statement shows the amount of profits earned based on any one given day.
Answer: FALSE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Sales minus cost of goods sold is equal to earnings before taxes.
Answer: FALSE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) Sales minus cost of goods sold is equal to gross profit.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
1
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Visit TestBankDeal.com to get complete for all chapters
,5) It is not possible for a company with a high gross profit margin to have a low operating profit.
Answer: FALSE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) Gross profit margin is a measurement of how much gross profit a company generated from the
amount of sales it earned.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) Operating profit is essentially a measure of how efficient management is in generating
revenues and controlling expenses.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Another way of writing net income after tax is earnings after taxes (EAT).
Answer: TRUE
Difficulty: 1 Easy
Topic: Per-share valuations
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
, 9) Dividing earnings after taxes (which includes all profits distributed to both preferred
stockholders and common stockholders) by common shares outstanding produces earnings per
share.
Answer: FALSE
Difficulty: 1 Easy
Topic: Per-share valuations
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) The price-earnings (P/E) ratio is strongly related to the past performance of the firm.
Answer: FALSE
Difficulty: 1 Easy
Topic: Market value ratios
Learning Objective: 02-02 The price-earnings ratio indicates the relative valuation of earnings.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) Accounting income is based on verifiably completed transactions.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12) When a firm has a sharp drop off in earnings, its P/E ratio may be artificially high.
Answer: TRUE
Difficulty: 1 Easy
Topic: Market value ratios
Learning Objective: 02-02 The price-earnings ratio indicates the relative valuation of earnings.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
TEST BANK
,Foundations of Financial Management 17th Edition Block Test Bank
Foundations of Financial Management, 17e (Block)
Chapter 2 Review of Accounting
1) The income statement is the major device for measuring the profitability of a firm over a
period of time.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) The income statement shows the amount of profits earned based on any one given day.
Answer: FALSE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Sales minus cost of goods sold is equal to earnings before taxes.
Answer: FALSE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) Sales minus cost of goods sold is equal to gross profit.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
1
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Visit TestBankDeal.com to get complete for all chapters
,5) It is not possible for a company with a high gross profit margin to have a low operating profit.
Answer: FALSE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) Gross profit margin is a measurement of how much gross profit a company generated from the
amount of sales it earned.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) Operating profit is essentially a measure of how efficient management is in generating
revenues and controlling expenses.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Another way of writing net income after tax is earnings after taxes (EAT).
Answer: TRUE
Difficulty: 1 Easy
Topic: Per-share valuations
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
, 9) Dividing earnings after taxes (which includes all profits distributed to both preferred
stockholders and common stockholders) by common shares outstanding produces earnings per
share.
Answer: FALSE
Difficulty: 1 Easy
Topic: Per-share valuations
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) The price-earnings (P/E) ratio is strongly related to the past performance of the firm.
Answer: FALSE
Difficulty: 1 Easy
Topic: Market value ratios
Learning Objective: 02-02 The price-earnings ratio indicates the relative valuation of earnings.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) Accounting income is based on verifiably completed transactions.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement
Learning Objective: 02-01 The income statement measures profitability.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12) When a firm has a sharp drop off in earnings, its P/E ratio may be artificially high.
Answer: TRUE
Difficulty: 1 Easy
Topic: Market value ratios
Learning Objective: 02-02 The price-earnings ratio indicates the relative valuation of earnings.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
