False 12 If a bank were to impose a working capital covenant in a loan agreement to you, what strategy below would help you to keep net working capital above mandated minimum? | A) Selling excess inventory (below cost) for cash. | B) Converting accounts payable to a long-term note payable. | C) Issuing short-term debt for cash. | D) Buying raw materials and agreeing to pay the invoice in 30 days. |
13 The accounting process is concerned only with external transactions representing economic events. | True | False |
14 Discounting is more frequently of value to a capital budget than is compounding because we are usually interested in measuring the current value of a payment to be received in the future. | True | False |
15 Debits always increase an account, while credits decrease an account. | True | False |
16 Which organization is recognized today as the authoritative voice of accounting rules and principles? | A) S.E.C. | B) A.I.C.P.A | C) F.A.S.B. | D) A.A.A. |
17 The statement of retained earnings shows the revenues, expenses and net income of an enterprise over a period of time. | True | False |
18 Current ratios and quick ratios usually provide a clear picture of the financial leverage employed by a firm. | True | False |
19 After one year, an investment earning 2% interest would grow to 1.02 times it’s initial value. | True | False |
20 Revenue and expense accounts are nothing more than temporary accounts. | True | False |
21 Current Assets almost always equal Current Liabilities. | True | False |
22 Managerial accounting has no strict rules which govern internal accounting procedures. | True | False |
23 Liabilities are not the claims of creditors to a company’s resources. | True | False |
24 Current ratios and quick ratios indicate the relative liquidity of a company. These two ratios are essential in that they provide an analyst with information concerning a company’s ability to meet its current obligations. | True | False |
25 Dividends are distributions of profits to the owners of a corporation, and therefore represent an expense to the firm. | True | False |
26 The income statement shows the revenues, expenses and net income of an enterprise over a period of time. | True | False |
27 Financial accounting, unlike managerial accounting, has firm guidelines that it must follow. | True | False |
28 The balance sheet shows the financial position of a company as of a certain date. | True | False |
29 Since the total of all the right-hand sides of accounts equals the total of left-hand sides, then the total amount of increases entered in the general ledger must equal the total amount of decreases. | True | False |
30 If we know a present value and an interest rate, we should be able to find a future value. | True | False |
31 A well-presented statement of cash flows cannot provide all of the information found in a balance sheet and income statement. | True | False |
32 The two major sections of the statement of cash flows are sources of cash and uses of cash. | True | False |
33 If we know a present value, an interest rate, and a given number of periods, we should be able to find a future value. | True | False |
34 Analysts often take a short cut in estimating a firm’s cash from operations: they just add depreciation back to net income. What is the greatest shortcoming of this approach? | A) Depreciation is not relevant to a cash flow analysis. | B) Expenditures for PP&E are not considered in the cash flow from operations. | C) Changes in working capital elements are disregarded in this approach. | D) Companies do not report their depreciation expenses. |
35 Horizontal and vertical analysis are two key techniques used in analyzing financial statements, usually applied in tandem. Briefly stated, vertical analysis requires that a significant element be measured as a percentage of a base to which it is related. For example, the various components of an income statement might be measured as a percentage of sales. This technique can be applied to the balance sheet as well. | True | False |
36 Economic events may or may not affect the financial position of a company. | True | False |
37 G.A.A.P is: | A) the collection of accounting standards and conventions that has evolved over the years to govern the profession. | B) the Governmental Association of Accounting Professionals. | C) the rule making committee of the A.I.C.P.A. | D) a chain of clothing stores. |
38 Which of the following is a source of cash? | A) Increase in accounts receivable. | B) Gain on sale of a piece of equipment. | C) a decrease in inventories. | D) a decrease in long-term debt. |
39 Ratio analysis is unqualifiably the best method of financial statement analysis. | True | False |
40 Which of the following items listed below would you subtract from Net Income to arrive at Cash Provided (Used) by operating Activities. | A) Depreciation on a delivery truck. | B) Amortization of a patent. | C) The gain arising from the sale of a new fork lift which was carried on the books at $21,500 and was sold for $26,000. | D) All of the above | E) None of the above |
|