Question 1

Which of the following is a noncash expense added back to net income in determining cash flowfrom operating activities?

Accepted Answer

A)  amortization 
B)  interest 
C)  administration 
D)  selling

Question 2

Capital budgeting is

Accepted Answer

A)  necessary whenever an executive wants to determine how to report earnings on the financial statements. 
B)  the methods used to determine a firm's hurdle rate for new projects. 
C)  the methods used to value a real project. 
D)  not related to finance, but rather a marketing term.

Question 3

Retained earnings represents the cumulative total of all earnings retained and reinvested in thefirm since its inception.

Accepted Answer

A) True 
 B)False

Question 4

When preparing a statement of cash flows, retained earnings adjustments are required so thatwhich of the following are separated on the statement?

Accepted Answer

A)  depreciation and purchases 
B)  net profits and dividends 
C)  assets and liabilities 
D)  revenue and cost

Question 5

The small business deduction for eligible Canadian-controlled private corporations is

Accepted Answer

A)  28%. 
B)  7%. 
C)  16%. 
D)  44%.

Question 6

Common stock consists of two components, contributed capital and retained earnings.

Accepted Answer

A) True 
 B)False

Question 7

The CCA depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year.

Accepted Answer

A) True 
 B)False

Question 8

Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow for the year are

Accepted Answer

A)  $3,000 and $10,000 respectively. 
B)  $7,000 and -$3,000 respectively. 
C)  $3,000 and -$7,000 respectively. 
D)  $3,000 and $7,000 respectively.

Question 9

The president's letter, as the first component of the stockholders' report, is the primary communication from management to the firm's employees.

Accepted Answer

A) True 
 B)False

Question 10

All of the following are financing cash flows EXCEPT

Accepted Answer

A)  sale of stock. 
B)  increasing debt. 
C)  repurchasing stock. 
D)  payment of stock dividends.

Question 11

The stockholder's report may include all of the following EXCEPT

Accepted Answer

A)  a statement of cash flows. 
B)  a cash budget. 
C)  a statement of retained earnings. 
D)  an income statement.

Question 12

The net value of fixed assets is also called their

Accepted Answer

A)  book value. 
B)  par value. 
C)  price. 
D)  market value.

Question 13

Because amortization is treated as a separate source of cash, only net rather than gross changes in fixed assets appear on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 14

The capital cost allowance (CCA) system is the depreciation method used for___________purposes.

Accepted Answer

A)  financial reporting 
B)  managerial 
C)  cost accounting 
D)  tax

Question 15

Since financial decisions usually involve new cash flows or changes in existing ones, the relevanttax rate is the

Accepted Answer

A)  marginal tax rate. 
B)  going-concern tax rate. 
C)  average tax rate. 
D)  CCA tax rate.

Question 16

In the statement of cash flow, the financing flows are cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to repurchase stock or pay cash dividends.

Accepted Answer

A) True 
 B)False

Question 17

Capital gains are taxed at___________of the investor's marginal tax rate.

Accepted Answer

A)  100 percent 
B)  25 percent 
C)  50 percent 
D)  66.67 percent

Question 18

Allocation of the historic costs of fixed assets against the annual revenue they generate is called

Accepted Answer

A)  net profits. 
B)  variable costing. 
C)  gross profits. 
D)  amortization.

Question 19

Operating profits are defined as

Accepted Answer

A)  earnings before interest and taxes. 
B)  earnings after taxes. 
C)  sales revenue minus cost of goods sold. 
D)  earnings before depreciation and taxes.

Question 20

Gross profits are defined as

Accepted Answer

A)  sales revenue minus cost of goods sold. 
B)  operating profits minus cost of goods sold. 
C)  operating profits minus depreciation. 
D)  sales revenue minus operating expenses.

Exam 2: Financial Statements, Cash Flows, and Taxes

Which of the following is a noncash expense added back to net income in determining cash flowfrom operating activities?

Capital budgeting is

Retained earnings represents the cumulative total of all earnings retained and reinvested in thefirm since its inception.

When preparing a statement of cash flows, retained earnings adjustments are required so thatwhich of the following are separated on the statement?

The small business deduction for eligible Canadian-controlled private corporations is

Common stock consists of two components, contributed capital and retained earnings.

The CCA depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year.

The president's letter, as the first component of the stockholders' report, is the primary communication from management to the firm's employees.

All of the following are financing cash flows EXCEPT

The stockholder's report may include all of the following EXCEPT

The net value of fixed assets is also called their

Because amortization is treated as a separate source of cash, only net rather than gross changes in fixed assets appear on the statement of cash flows.

The capital cost allowance (CCA) system is the depreciation method used for___________purposes.

Since financial decisions usually involve new cash flows or changes in existing ones, the relevanttax rate is the

In the statement of cash flow, the financing flows are cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to repurchase stock or pay cash dividends.

Capital gains are taxed at___________of the investor's marginal tax rate.

Allocation of the historic costs of fixed assets against the annual revenue they generate is called

Operating profits are defined as

Gross profits are defined as