40 FINANCE MULTIPLE CHOICE QUESTIONS

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.

The accounting process is concerned only with external transactions representing economic events.

True

False

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

Debits always increase an account, while credits decrease an account.

True

False

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.

The statement of retained earnings shows the revenues, expenses and net income of an enterprise over a period of time.

True

False

Current ratios and quick ratios usually provide a clear picture of the financial leverage employed by a firm.

True

False

After one year, an investment earning 2% interest would grow to 1.02 times it’s initial value.

True

False

Revenue and expense accounts are nothing more than temporary accounts.

True

False

Current Assets almost always equal Current Liabilities.

True

False

Managerial accounting has no strict rules which govern internal accounting procedures.

True

False

Liabilities are not the claims of creditors to a company’s resources.

True

False

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

Dividends are distributions of profits to the owners of a corporation, and therefore represent an expense to the firm.

True

False

The income statement shows the revenues, expenses and net income of an enterprise over a period of time.

True

False

Financial accounting, unlike managerial accounting, has firm guidelines that it must follow.

True

False

The balance sheet shows the financial position of a company as of a certain date.

True

False

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

If we know a present value and an interest rate, we should be able to find a future value.

True

False

A well-presented statement of cash flows cannot provide all of the information found in a balance sheet and income statement.

True

False

The two major sections of the statement of cash flows are sources of cash and uses of cash.

True

False

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

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.

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

Economic events may or may not affect the financial position of a company.

True

False

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.

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.

Ratio analysis is unqualifiably the best method of financial statement analysis.

True

False

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