Deck 2: Financial Statements Cash Flow

Question 1

_____ refers to the cash flow that results from the firm's ongoing,normal business activities.

A)Cash flow from assets
B)Net working capital
C)Capital spending
D)Cash flow from operating activities
E)Cash flow to creditors

Answer 1

Cash flow from operating activities

Question 2

The financial statement summarizing a firm's accounting performance over a period of time is the:

A)income statement.
B)balance sheet.
C)statement of cash flows.
D)tax reconciliation statement.
E)shareholders' equity sheet.

Answer 2

income statement.

Question 3

Your _____ tax rate is the amount of tax payable on the next taxable dollar you earn.

A)deductible
B)residual
C)total
D)average
E)marginal

Answer 3

marginal

Question 4

_____ refers to the difference between a firm's current assets and its current liabilities.

A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from assets
E)Cash flow to creditors

Question 5

_____ refers to the firm's dividend payments less any net new equity raised.

A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from creditors
E)Cash flow to stockholders

Question 6

Dividends per share is equal to dividends paid:

A)multiplied by the total number of shares outstanding.
B)divided by total shareholders' equity.
C)divided by the total number of shares outstanding.
D)multiplied by the par value of the common stock.
E)divided by the par value of common stock.

Question 7

A(n)____ asset is one which can be quickly converted into cash without significant loss in value.

A)current
B)fixed
C)intangible
D)liquid
E)long-term

Question 8

_____ refers to the firm's interest payments less any net new borrowing.

A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from shareholders
E)Cash flow to creditors

Question 9

_____ refers to the changes in net capital assets.

A)Cash flow from assets
B)Net working capital
C)Cash flow from investing
D)Operating cash flow
E)Cash flow to creditors

Question 10

Noncash items refer to:

A)the credit sales of a firm.
B)the accounts payable of a firm.
C)all accounts on the balance sheet other than cash on hand.
D)the costs incurred for the purchase of intangible fixed assets.
E)expenses charged against revenues that do not directly affect cash flow.

Question 11

Which of the following are included in current liabilities?
I.note payable to a supplier in eighteen months
II.debt payable to a mortgage company in nine months
III.accounts payable to suppliers
IV.loan payable to the bank in fourteen months

A)I and III only
B)II and III only
C)III and IV only
D)II, III, and IV only
E)I, II, and III only

Question 12

An increase in total assets:

A)means that net working capital is also increasing.
B)requires an investment in fixed assets.
C)means that shareholders' equity must also increase.
D)must be offset by an equal increase in liabilities and shareholders' equity.
E)can only occur when a firm has positive net income.

Question 13

A current asset is:

A)the market value of all items currently owned by the firm.
B)an item that the firm expects to own within the next year.
C)the amount of cash on hand the firm currently shows on its balance sheet.
D)cash or an item currently owned by the firm that will convert to cash within the next 12 months.
E)an item currently owned by the firm.

Question 14

Net working capital is defined as:

A)total liabilities minus shareholders' equity.
B)current liabilities minus shareholders' equity.
C)fixed assets minus long-term liabilities.
D)total assets minus total liabilities.
E)current assets minus current liabilities.

Question 15

The financial statement showing a firm's accounting value on a particular date is the:

A)shareholders' equity sheet.
B)tax reconciliation statement.
C)statement of cash flows.
D)balance sheet.
E)income statement.

Question 16

Your _____ tax rate measures the total taxes you pay divided by your taxable income.

A)average
B)marginal
C)total
D)deductible
E)residual

Question 17

_____ is calculated by adding back noncash expenses to net income and adjusting for changes in current assets and liabilities.

A)Total cash flow
B)Capital spending
C)Net working capital
D)Cash flow from operations
E)Cash flow to creditors

Question 18

The long-term debts of a firm are liabilities:

A)owed to the firm's shareholders.
B)the firm expects to incur within the next 12 months.
C)owed to the firm's suppliers.
D)that come due within the next 12 months.
E)that do not come due for at least 12 months.

Question 19

Which of the following are included in current assets?
I.equipment
II.Inventory
III.accounts payable
IV.cash

A)II and IV only
B)I and III only
C)I, II, and IV only
D)III and IV only
E)II, III, and IV only

Question 20

Earnings per share is equal to:

A)net income divided by total shareholders' equity.
B)net income divided by the par value of the common stock.
C)gross income multiplied by the par value of the common stock.
D)net income divided by the total number of shares outstanding.
E)operating income divided by the par value of the common stock.

Question 21

Which equality is the basis for the balance sheet?

A)Fixed Assets = Stockholder's Equity + Current Assets
B)Assets = Liabilities + Stockholder's Equity
C)Assets = Current Long-Term Debt + Retained Earnings
D)Fixed Assets = Liabilities + Stockholder's Equity
E)None of the above.

Question 22

According to Generally Accepted Accounting Principles,costs are:

A)recorded as incurred.
B)recorded when paid.
C)matched with revenues.
D)matched with production levels.
E)expensed as management desires.

Question 23

As seen on an income statement:

A)interest is deducted from income and increases the total taxes incurred.
B)the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses.
C)depreciation is shown as an expense but does not affect the taxes payable.
D)depreciation reduces both the pretax income and the net income.
E)interest expense is added to earnings before interest and taxes to get pretax income.

Question 24

Depreciation:

A)reduces both the net fixed assets and the costs of a firm.
B)is a non-cash expense that is recorded on the income statement.
C)is a non-cash expense which decreases the net operating income.
D)decreases net fixed assets, net income, and operating cash flows.
E)increases the net fixed assets as shown on the balance sheet.

Question 25

Which one of the following accounts is generally the most liquid?

A)Patent
B)Accounts receivable
C)Building
D)Equipment
E)Inventory

Question 26

Book value:

A)is based on historical cost.
B)is equivalent to market value for firms with fixed assets.
C)is more of a financial than an accounting valuation.
D)generally tends to exceed market value when fixed assets are included.
E)is adjusted to market value whenever the market value exceeds the stated book value.

Question 27

Liquidity is:

A)a measure of the use of debt in a firm's capital structure.
B)equal to current assets minus current liabilities.
C)equal to the market value of a firm's total assets minus its current liabilities.
D)valuable to a firm even though liquid assets tend to be less profitable to own.
E)generally associated with intangible assets.

Question 28

Dividends per share:

A)increase as the net income increases as long as the number of shares outstanding remains constant.
B)decrease as the number of shares outstanding decrease, all else constant.
C)are inversely related to the earnings per share.
D)are based upon the dividend requirements established by Generally Accepted Accounting Procedures.
E)are equal to the amount of net income distributed to shareholders divided by the number of shares outstanding.

Question 29

An increase in which one of the following will cause the operating cash flow to increase?

A)Change in net working capital
B)Taxes
C)Net working capital
D)Costs
E)Depreciation

Question 30

According to Generally Accepted Accounting Principles,

A)income is recorded based on the matching principle.
B)costs are recorded based on the liquidity principle.
C)income is recorded based on the realization principle.
D)depreciation is recorded as it affects the cash flows of a firm.
E)net income is recorded based on the realization principle.

Question 31

Which of the following accounts are included in shareholders' equity?
I.retained earnings
II.interest paid
III.long-term debt
IV.capital surplus

A)I and II only
B)II and IV only
C)I and IV only
D)II and III only
E)I and III only

Question 32

Which one of the following statements concerning liquidity is correct?

A)If you sold an asset today, it is a liquid asset.
B)Balance sheet accounts are listed in order of decreasing liquidity.
C)If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid.
D)The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties.
E)Trademarks and patents are highly liquid.

Question 33

Cash flow to stockholders must be positive when:

A)the net sale of common stock exceeds the amount of dividends paid.
B)no income is distributed but new shares of stock are sold.
C)both the cash flow to assets and the cash flow to creditors are negative.
D)the dividends paid exceed the net new equity raised.
E)both the cash flow to assets and the cash flow to creditors are positive.

Question 34

The earnings per share will:

A)decrease as the total revenue of the firm increases.
B)increase as the number of shares outstanding increase.
C)increase as net income increases.
D)decrease as the costs decrease.
E)increase as the tax rate increases.

Question 35

When making financial decisions related to assets,you should:

A)always consider market values.
B)place more emphasis on book values than on market values.
C)rely primarily on the value of assets as shown on the balance sheet.
D)place primary emphasis on historical costs.
E)only consider market values if they are less than book values.

Question 36

The carrying value or book value of assets:

A)is always the best measure of the company's value to an investor.
B)represents the true market value according to GAAP.
C)is always higher than the replacement cost of the assets.
D)is determined under GAAP and is based on the cost of the asset.
E)None of the above.

Question 37

Assets are listed on the balance sheet in order of:

A)decreasing size.
B)decreasing liquidity.
C)relative life.
D)increasing size.
E)None of the above.

Question 38

The cash flow to creditors includes the cash:

A)received by the firm when payments are paid to suppliers.
B)outflow of the firm when new debt is acquired.
C)outflow when interest is paid on outstanding debt.
D)inflow when accounts payable decreases.
E)received when long-term debt is paid off.

Question 39

A firm starts its year with a positive net working capital.During the year,the firm acquires more short-term debt than it does short-term assets.This means that:

A)the ending net working capital will be negative.
B)both accounts receivable and inventory decreased during the year.
C)the beginning current assets were less than the beginning current liabilities.
D)accounts payable increased and inventory decreased during the year.
E)the ending net working capital can be positive, negative, or equal to zero.

Question 40

When you are making a financial decision,the most relevant tax rate is the _____ rate.

A)average
B)fixed
C)marginal
D)total
E)variable

Question 41

Cash flow to stockholders is defined as:

A)interest payments.
B)cash dividends plus repurchases of equity minus new equity financing.
C)cash flow from financing less cash flow to creditors.
D)repurchases of equity less cash dividends paid plus new equity sold.
E)None of the above.

Question 42

Given the tax rates as shown,what is the average tax rate for a firm with taxable income of $126,500?

A)21.38%
B)23.88%
C)25.76%
D)34.64%
E)39.00%

Question 43

Which of the following statements concerning the income statement is true?

A)It measures performance over a specific period of time.
B)It determines after-tax income of the firm.
C)It includes deferred taxes.
D)It treats interest as an expense.
E)All of the above.

Question 44

Under GAAP,a firm's assets are reported at:

A)market value.
B)liquidation value.
C)intrinsic value.
D)cost.
E)None of the above.

Question 45

According to generally accepted accounting principles (GAAP),revenue is recognized as income when:

A)the transaction is complete and the goods or services are delivered.
B)a contract is signed to perform a service or deliver a good.
C)payment is requested.
D)income taxes are paid.
E)All of the above.

Question 46

Your firm has net income of $198 on total sales of $1,200.Costs are $715 and depreciation is $145.The tax rate is 34 percent.The firm does not have interest expenses.What is the operating cash flow?

A)$93
B)$241
C)$340
D)$383
E)$485

Question 47

Net capital spending is equal to:

A)net additions to net working capital.
B)total cash flow to stockholders less interest and dividends paid.
C)net income plus depreciation.
D)the change in total assets.
E)the net change in fixed assets.

Question 48

At the beginning of the year,a firm has current assets of $360 and current liabilities of $190.At the end of the year,the current assets are $510 and the current liabilities are $240.What is the change in net working capital?

A)-$30
B)-$10
C)$0
D)$10
E)$100

Question 49

Brad's Company has equipment with a book value of $500 that could be sold today at a 50 percent discount.Its inventory is valued at $400 and could be sold to a competitor for that amount.The firm has $50 in cash and customers owe them $300.What is the accounting value of its liquid assets?

A)$50
B)$350
C)$700
D)$750
E)$1,000

Question 50

Which of the following is not included in the computation of operating cash flow?

A)Earnings before interest and taxes
B)Interest paid
C)Depreciation
D)Current taxes
E)All of the above are included.

Question 51

Martha's Enterprises spent $2,400 to purchase equipment three years ago.This equipment is currently valued at $2,000 on today's balance sheet but could actually be sold for $2,000.Net working capital is $300 and long-term debt is $900.Assuming the equipment is the firm's only fixed asset,what is the book value of shareholders' equity?

A)$200
B)$800
C)$1,200
D)$1,400
E)The answer cannot be determined from the information provided.

Question 52

Art's Boutique has sales of $640,000 and costs of $480,000.Interest expense is $40,000 and depreciation is $60,000.The tax rate is 34%.What is the net income?

A)$20,400
B)$39,600
C)$50,400
D)$79,600
E)$99,600

Question 53

Free cash flow is:

A)without cost to the firm.
B)net income plus taxes.
C)an increase in net working capital.
D)cash that the firm is free to distribute to creditors and stockholders.
E)None of the above.

Question 54

The tax rates are as shown.Your firm currently has taxable income of $74,000.How much additional tax will you owe if you increase your taxable income by $20,000?

A)$6,460
B)$6,710
C)$6,940
D)$7,160
E)$7,174

Question 55

Teddy's Pillows has beginning net fixed assets of $600 and ending net fixed assets of $730.Assets valued at $400 were sold during the year.Depreciation was $50.What is the amount of net capital spending?

A)$130
B)$150
C)$165
D)$180
E)$330

Question 56

The cash flow of the firm must be equal to:

A)cash flow to equity plus cash flow to debtholders.
B)cash flow to debtholders minus cash flow to equity.
C)cash flow to governments plus cash flow to equity.
D)cash flow to equity minus cash flow to debtholders.
E)None of the above.

Question 57

A firm has $300 in inventory,$600 in fixed assets,$200 in accounts receivables,$100 in accounts payable,and $50 in cash.What is the amount of the current assets?

A)$500
B)$550
C)$600
D)$1,150
E)$1,200

Question 58

The total assets are $1200,the fixed assets are $700,long-term debt is $600,and short-term debt is $400.What is the amount of net working capital?

A)$0
B)$100
C)$200
D)$300
E)$400

Question 59

Which of the following are all components of the statement of cash flows?

A)Cash flow from internal activities, cash flow from external activities, and cash flow from financing activities
B)Cash flow from operating activities, cash flow from investing activities, and cash flow from divesting activities
C)Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities
D)Cash flow from brokering activities, cash flow from profitable activities, and cash flow from non-profitable activities
E)None of the above.

Question 60

At the beginning of the year,long-term debt of a firm is $270 and total debt is $340.At the end of the year,long-term debt is $290 and total debt is $390.The interest paid is $40.What is the amount of the cash flow to creditors?

A)-$50
B)-$20
C)$20
D)$50
E)$60

Question 61

Peggy Grey's Cookies has net income of $360.The firm pays out 40 percent of the net income to its shareholders as dividends.During the year,the company sold $80 worth of common stock.What is the cash flow to stockholders?

A)$64
B)$136
C)$144
D)$224
E)$296

Question 62

What is the change in the net working capital from 2009 to 2010?

A)$1,235
B)$1,035
C)$1,335
D)$3,405
E)$4,740

Question 63

What is net new borrowing for 2010?

A)-$70
B)-$35
C)0
D)$35
E)$70

Question 64

What is net capital spending for 2010?

A)-$477
B)-$250
C)-$57
D)$0
E)$57

Question 65

What is the amount of the net capital spending for 2010?

A)-$290
B)$795
C)$1,080
D)$1,660
E)$2,165

Question 66

What is the cash flow to creditors for 2010?

A)-$405
B)-$225
C)$225
D)$385
E)$405

Question 67

Thompson's Jet Skis has operating cash flow of $258.Depreciation is $45 and interest paid is $53.A net total of $79 was paid on long-term debt.The firm spent $210 on fixed assets and increased net working capital by $48.What is the amount of the cash flow to stockholders?

A)-$104
B)-$26
C)$28
D)$114
E)$142

Question 68

What is the change in net working capital from 2009 to 2010?

A)-$93
B)-$7
C)$7
D)$85
E)$97

Question 69

What is the amount of net new borrowing for 2010?

A)-$225
B)-$25
C)$0
D)$25
E)$225

Question 70

What is the cash flow of the firm for 2010?

A)$405
B)$430
C)$1,340
D)$2,590
E)$3,100

Question 71

What is the cash flow to creditors for 2010?

A)-$170
B)-$35
C)$135
D)$170
E)$205

Question 72

What is the operating cash flow for 2010?

A)$520
B)$800
C)$1,015
D)$1,110
E)$1,390

Question 73

What is the cash flow of the firm for 2010?

A)$50
B)$247
C)$297
D)$447
E)$517

Question 74

What is the cash flow to stockholders for 2010?

A)$408
B)$417
C)$452
D)$482
E)$503

Question 75

Pete's Boats has beginning long-term debt of $180 and ending long-term debt of $210.The beginning and ending total debt balances are $340 and $360,respectively.The interest paid is $20.What is the amount of the cash flow to creditors?

A)-$10
B)$0
C)$10
D)$40
E)$50

Question 76

What is the amount of the non-cash expenses for 2010?

A)$570
B)$630
C)$845
D)$1,370
E)$2,000

Question 77

What is the net working capital for 2010?

A)$345
B)$405
C)$645
D)$805
E)$812

Question 78

What is the taxable income for 2010?

A)$360
B)$520
C)$640
D)$780
E)$800

Question 79

What is the operating cash flow for 2010?

A)$845
B)$1,930
C)$2,215
D)$2,845
E)$3,060

Question 80

What is the operating cash flow for 2010?

A)$143
B)$297
C)$325
D)$353
E)$367