FIN 3400 Chapter 02 Assignment Questions and Answers- Florida International University

FIN 3400 Chapter 02 Assignment Questions and Answers- Florida International University Which one of these is not one of the four basic financial statements? Multiple choice question. Statement of ratios Balance sheet Statement of cash flows Income statement Which one of these correctly defines the balance sheet identity? Multiple choice question. Liabilities - Equity = Assets Equity = Assets - Liabilities Liabilities = Assets + Equity Equity = Assets + Liabilities A firm has fixed assets of $28,000, long-term debt of $12,000, current liabilities of $4,000, current assets of $5,000 and equity of $17,000. What is the total of the assets side of the balance sheet of the firm? Multiple choice question. $28,000 $17,000 $29,000 $33,000 Which of these examples best defines a liquid asset? Multiple choice question. Mia sold 100 shares of stock today at the going market price. Dell sold a car today and received less than the market value. Courtney sold her used textbook valued at $50 to her best friend for $25 today. Ernst tried to sell his used truck today but had no success. Select all that apply Which of these assets are generally converted into cash within one year? Select all that apply. Multiple select question. Accounts receivable Inventory Equipment Patents and trademarks A financial statement provides an _______-based picture of a firm's financial condition. Multiple choice question. management accounting market marketing What is the balance sheet identity formula? Multiple choice question. Assets + Equity = Liabilities Assets = Liabilities + Equity Assets + Liabilities = Equity Assets = Liabilities - Equity Select all that apply Which of these are equity accounts? Select all that apply. Multiple select question. Common stock Accounts payable Retained earnings Preferred stock Click and drag on elements in order Rank these assets in order of liquidity with the most liquid asset listed first. Instructions Drag and drop application. 1. Cash 2. Accounts receivable 3. Inventory 4. Plant and equipment What is the definition of liabilities? Multiple choice question. Liabilities are funds invested in the firm by the firm's shareholders. Liabilities are monies owed to a firm by its customers. Liabilities are funds provided by lenders to a firm. Liabilities are funds which a firm invests for the long-term. What is the definition of liquidity? Multiple choice question. Liquidity is the time required to sell an asset at a profit. Liquidity is the time it takes to convert an asset into cash at any price. Liquidity is the ease of conversion of an asset into cash at a fair value. Liquidity is the speed at which an asset can be converted into cash. Select all that apply Which of these assets have useful lives exceeding one year and are classified as fixed assets? Select all that apply. Multiple select question. Inventory Machinery Building Land Which one of these is a current liability? Multiple choice question. 20-year mortgage loan 6-month note payable 3-year bank loan 10-year bonds Which one of these is not one of the four basic financial statements? Multiple choice question. Balance sheet Statement of cash flows Statement of ratios Income statement Which one of these questions can be answered by monitoring a firm's balance sheets? Multiple choice question. Percentage increase in sales Level of net working capital Change in profitability Market value of firm Which one of these reports the amount of money a firm owes its creditors within the next year? Multiple choice question. Long-term debt Current liabilities Current assets Fixed asset Which one of these actions meets the definition of a liability? Multiple choice question. Corner Bank loans $100,000 to the Corner Bakery for two years. Georgia purchased 100 shares of a firm's common stock. Sal's suits sells a suit to Al on credit. A firm purchased $300 of goods from a supplier for cash. Which one of these statements correctly applies to straight-line depreciation? Multiple choice question. Straight-line depreciation is most commonly used when computing a firm's taxes. Straight-line depreciation is commonly used when compiling financial statements. Straight-line depreciation decreases a firm's taxes more in the early years than does MACRS depreciation. Straight-line depreciation provides a greater tax deduction over the life of an asset than does MACRS depreciation. Select all that apply Which of these accounts are included in net working capital? Select all that apply. Multiple select question. Equipment Inventory Notes payable Long-term debt payable Select all that apply Which of these accounts are current liabilities? Select all that apply. Multiple select question. Accrued wages Bonds payable Notes payable Accounts payable Balance sheets list assets in declining order of liquidity. Which of these orders best illustrates this? Multiple choice question. Cash, inventory, accounts receivable, plant and equipment Accounts receivable, cash, inventory, plant and equipment Cash, accounts receivable, inventory, plant and equipment Cash, accounts receivable, plant and equipment, inventory Select all that apply Which of these questions can be answered by monitoring a firm's balance sheets for last year and this year? Select all that apply. Multiple select question. Is the firm more or less liquid than last year? Did the firm's taxes increase or decrease since last year? Did the firm earn more or less profit per dollar of sales than it did last year? Did the firm issue additional shares of stock this year? Select all that apply Which of these are equity accounts? Select all that apply. Multiple select question. Accounts payable Preferred stock Retained earnings Common stock True or false: Net working capital is a measure of a firm's ability to pay its bills for the next year. True false question. True False Which type of depreciation offers the greatest tax deferral benefit in the early years of an asset's life? Multiple choice question. Straight-line depreciation MACRS depreciation MACRS and straight-line depreciation offer the same tax deferral benefits each year. Neither MACRS nor straight-line depreciation offer any tax deferral benefits. Which relationship of liquidity is correct? Multiple choice question. The liquidity of an asset is inversely related to the profitability of that asset. The liquidity of an asset is unrelated to the profitability of that asset. The liquidity of an asset is directly related to the profitability of that asset. Select all that apply Which of these accounts are included in net working capital? Select all that apply. Multiple select question. Accounts payable Accounts receivable Retained earnings Cash Which one of these assets is considered to be the most liquid? Multiple choice question. Plant and equipment Inventory Accounts receivable Land Which account is the least liquid of the current asset accounts? Multiple choice question. Cash Patent Inventory Accounts receivable Which one of these questions can be answered by monitoring a firm's balance sheets? Multiple choice question. Market value of firm Level of net working capital Percentage increase in sales Change in profitability True or false: An increase in the financial leverage of a firm reduces both the firm's profits and its losses. True false question. True False What is the definition of net working capital? Multiple choice question. Net working capital is the sum of a firm's cash and marketable securities accounts. Net working capital is the amount of cash a firm has on hand as of a specific date. Net working capital is the difference between a firm's current assets and current liabilities. Net working capital is the value of a firm's assets that can be converted into cash in one year or less. What is the definition of an income statement? Multiple choice question. An income statement reports total revenues and expenses as of a specific date. An income statement reports the cash inflows and outflows of a firm as of a specific date. An income statement reports total revenues and expenses over a specific period of time. An income statement reports the cash inflows and outflows of a firm over a specific period of time. Which one of these relationships regarding liquidity is correct? Multiple choice question. As the liquidity of assets increases, so does the firm's probability of experiencing financial distress. As the liquidity of assets increases, so does the firm's profits on those assets. As the liquidity of assets increases, both the firm's probability of financial distress and its profits on those assets increase. As the liquidity of assets increases, both the firm's probability of financial distress and its profits on those assets decrease. Which one of the following best illustrates a highly liquid asset? Multiple choice question. Sale of a $100 asset by tomorrow at a price of $100. Sale of a $100 asset today at a price of $90. Sale of a $100 asset within 10 days at a price of $100. Sale of a $100 asset within the hour at a price of $85. Which of these statements regarding the structure of an income statement is (are) correct? Select all that apply. Multiple select question. EBIT= Gross profit - Depreciation - Other operating expenses EBIT = Addition to retained earnings + Taxes + Interest EBT = Dividends paid + Addition to retained earnings + Taxes Gross profit = Net sales - Cost of goods sold Balance sheets list assets in declining order of liquidity. Which of these orders best illustrates this? Multiple choice question. Accounts receivable, cash, inventory, plant and equipment Cash, inventory, accounts receivable, plant and equipment Cash, accounts receivable, plant and equipment, inventory Cash, accounts receivable, inventory, plant and equipment Which party has a residual claim to a firm's cash flows? Multiple choice question. Stockholders Employees Managers Debt holders A change in financial leverage does which one of the following? Multiple choice question. An increase in financial leverage reduces a firm's total debt. A decrease in financial leverage decreases the risks faced by the firm. An increase in financial leverage can decrease both a firm's profits and its losses. A decrease in financial leverage decreases the amount of a firm financed with equity. An income statement is best defined by which one of these statements? Multiple choice question. An income statement reflects the profits, but not the losses generated by a firm's revenues and expenses. An income statement reflects the total revenues that a firm earns over a period of time and the total expenses incurred to generate those sales. An income statement reflects values as of a single date. An income statement reflects the total costs incurred to produce net sales for a given date. Which of one of these statements best illustrates the definition of a marginal tax rate? Multiple choice question. Don paid $28,000 in taxes on his $100,000 income, or 28 percent. Antonio will pay $0.28 more in taxes if his taxable income increases by $1, or 28 percent. Fredrico paid no tax on his $16,400 income, or zero percent. Suenette paid $13,400 in taxes on a taxable income of $52,000, or 25.8 percent. Which relationship of liquidity is correct? Multiple choice question. The liquidity of an asset is inversely related to the profitability of that asset. The liquidity of an asset is unrelated to the profitability of that asset. The liquidity of an asset is directly related to the profitability of that asset. Which one of these statements related to the recording of financial statement items based on GAAP is (are) correct? Multiple choice question. Expenses related to the production of a product are recorded on the income statement when cash is used to pay those expenses. The cost of a fixed asset is expensed when payment for the asset is made. Expenses related to the production of a product are recorded on the income statement when that product is sold, not when the expenses are paid. The cost of salaries are recorded on the income statement when those wages are paid. The operating profit is equal to earnings before interest and taxes. True false question. True False Fill in the Blank Question holders have first claim to the cash flows of the firm. Which one of these accounts is a noncash expense? Multiple choice question. Wages Depreciation Dividends paid Rent True or false: An increase in the financial leverage of a firm reduces both the firm's profits and its losses. True false question. True False Which one of the following is a use of cash? Multiple choice question. Sale of common stock Increase in a current liability Increase in a fixed asset Net income What is the definition of a marginal tax rate? Debt Multiple choice question. The marginal tax rate is the percentage of each dollar of taxable income that the firm pays in taxes. The marginal tax rate is the percentage of every additional dollar of sales that a firm must pay out in taxes. The marginal tax rate is the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns. The marginal tax rate is defined as the total tax liability stated as a percentage of the total taxable income. Explain why following GAAP to record sales on an income statement may differ from the cash flows generated by those sales. Multiple choice question. GAAP requires the revenue from a sale be recorded only when all the costs of that sale have been paid, not when the cash flow from the sale occurs. GAAP requires the revenue from a sale be recorded at the time of sale, which may not coincide with the cash flow from the sale. GAAP allows each firm to determine when it will record a sale. Cash flows from sales may occur at a different time. GAAP requires the revenue from a sale be recorded when payment is received, so there are no differences. True or false: A decrease in a long-term asset account balance is a cash flow from investing activity. True false question. True False Which one of these is a subtraction from the cash flows from investing activities? Multiple choice question. Decrease in a fixed asset Decrease in other long-term assets Increase in a fixed asset Increase in inventory Which one of these accounts is a noncash expense? Multiple choice question. Employee benefits Amortization Utilities Legal expense Which one of these is a cash flow from a financing activity? Multiple choice question. Decrease in loans payable Increase in accounts payable Decrease in accounts payable Increase in fixed assets Select all that apply Which of these is (are) a source of cash? Select all that apply. Multiple select question. Decrease in inventory Increase in accounts receivable Decrease in accounts payable Increase in long-term debt Which one of these is a subtraction from the cash flows from financing activities? Multiple choice question. Buying back common stock Borrowing money for five years Obtaining a mortgage Selling preferred stock Which of one of these statements best illustrates the definition of a marginal tax rate? Multiple choice question. Don paid $28,000 in taxes on his $100,000 income, or 28 percent. Fredrico paid no tax on his $16,400 income, or zero percent. Suenette paid $13,400 in taxes on a taxable income of $52,000, or 25.8 percent. Antonio will pay $0.28 more in taxes if his taxable income increases by $1, or 28 percent. Cash flows from financing activities are defined as the cash flows resulting from which one of the following? Multiple choice question. Marketable securities transactions Debt and equity financing transactions Purchases and sales of long-term assets Production and sales of products Which one of these is a cash flow from an investing activity? Multiple choice question. Increase/decrease in preferred stock Increase/decrease in fixed assets Increase/decrease in notes payable Increase/decrease in inventory A firm has an operating cash flow of $600, a net change in gross fixed assets of $100, and a change in net operating working capital of $50. What is the firm's free cash flow (FCF)? Multiple choice question. $550 $650 $450 $750 Which one of these is an addition to the cash flows from investing activities? Multiple choice question. Increase in fixed assets Dividend paid Decrease in other long-term assets Increase in common stock Assume net income is $32, cash dividends paid are $20, and the ending retained earnings balance is $44. What is the change in retained earnings for the period? Multiple choice question. $32 $56 $24 $12 Select all that apply Which of these are cash flows from financing activities? Select all that apply. Multiple select question. Increase in common stock Increase in accounts payable Preferred stock dividend Decrease in long-term debt The Sarbanes-Oxley Act of 2002 requires senior management of a firm to do which one of these? Multiple choice question. Certify the financial statements are accurate and representative of the firm's earnings Pay all profits immediately to shareholders in the form of dividends Maintain a constant stock price so investors will avoid future losses Manipulate the accounting rules to maximize profits for each period Select all that apply Which of these are additions to the cash flows from financing activities? Select all that apply. Multiple select question. Common stock dividend paid Increase in long-term debt Decrease in notes payable Increase in common stock What is the definition of a statement of cash flows? Multiple choice question. A statement of cash flows is a financial statement that reflects a firm's cash flows as of a specific date. A statement of cash flows is a financial statement that shows the firm's cash flows over a period of time. A statement of cash flows is a statement which reflects the changes in current assets over a period of time. A statement of cash flows is a statement which reflects changes in operating activities only as of a specific date. True or false: The cash flows that result from debt and equity financing transactions are cash flows from financing activities. True false question. True False A firm has EBIT of $600, depreciation of $200, and a tax rate of 34 percent. What is the operating cash flow? Multiple choice question. $264 $404 $596 $528 A statement of retained earnings showed a beginning retained earnings balance of $24 and an ending balance of $22. Net income was positive. What do you know given this information? Multiple choice question. Net income exceeded cash dividends paid. Cash dividends paid exceeded net income. No dividends were paid. Common stock dividends exceeded preferred stock dividends. Which of these is a requirement of the Sarbanes-Oxley Act of 2002? Multiple choice question. Public corporations are required to use MACRS for financial statement purposes. All public firms in the same industry must apply the same method of depreciation. Public corporations are required to artificially smooth their earnings. A corporate board's audit committee must have considerable experience with GAAP. Which one of these is the best definition of a statement of cash flows? Multiple choice question. A statement of cash flows reconciles the noncash balance sheet items to the noncash income statement items. A statement of cash flows summarizes the sources and uses of cash by type of cash flow. A statement of cash flows recaps the cash flows affecting the balance sheet of a firm. A statement of cash flows reconciles the cash balance sheet items to the cash income statement items.