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Chapter 03 Test Bank - Static
Student: ___________________________________________________________________________
1. An asset's liquidity is determined by how readily the asset can be converted to an appropriate amount of cash.
True False
2. The principal reason for excluding many intangible assets from the balance sheet is that they are difficult to value.
True False
3. Based on generally accepted accounting principles, assets are recorded on the balance sheet at their current market
value.
True False
4. Assets can be either tangible or intangible.
True False
5. There is generally a bigger difference between the book value and the market value of fixed assets as compared to
cash.
True False
6. All items in the common-size balance sheet are expressed as a percentage of total assets.
True False
7. The income statement resembles a snapshot of the firm at a specific time.
True False
8. If the market value of assets is high, then the market value of liabilities must be high also.
True False
9. One reason for the difference between profits and cash is that the cost of capital equipment is spread over the
forecast life.
True False
10. Accrual accounting aims to provide a fairer measure of the firm's profitability.
True False
11. If net income is positive, then cash flow from operations must be positive for that period.
True False
12. Dividends paid are treated as a financing activity on the statement of cash flows.
True False
13. An increase in the accounts receivable balance increases the cash flow of a firm.
True False
14. The payment of interest expense is considered a financing activity in the statement of cash flows.
True False
15. Accounting practices are currently standardized across all countries.
True False
16. Businesses that aggressively exploit any means possible to increase current earnings may cross over into fraudulent
account practices.
True False
17. A company may deduct the interest paid to debtholders and the dividends paid to shareholders when calculating its
taxable income.
True False
18. Both the dividends and interest payments that companies make to individuals are subject to personal tax.
True False
19. The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment.
True False
20. Book values are "forward-looking" measures of value.
True False
21. The difference between the market values of assets and liabilities is the market value of the shareholders' equity
claim.
True False
22. To calculate free cash flow, you must deduct capital expenditures from the cash flow from operations.
True False
23. Depreciation charge is a cash payment.
True False
24. An expenditure on new capital equipment is a cash payment.
True False
25. The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its
investments and financing activities.
True False
26. An increase in inventories uses cash, reducing the firm's net cash balance.
True False
27. A reduction in accounts receivable uses cash, reducing the firm's net cash balance.
True False
28. The purchase of new equipment is a use of cash, and it reduces the firm's net cash balance.
True False
29. In general, what is changing as you read down the left-hand side of a balance sheet?
A. The assets are becoming more fully
depreciated.
B. The assets are increasing in
value.
C. The assets are increasing in
maturity.
D. The assets are becoming less
liquid.
30. A balance sheet portrays the value of a firm's assets and liabilities:
A. over an annual
period.
B. over any stated period of
time.
C. at any stated point in
time.
D. only at the end of the calendar
year.
31. Which of the following items should not be included in a listing of current assets?
A. Marketable
securities
B. Accounts
payable
C. Accounts
receivable
D. Inventorie
s
32. Which of the following assets is likely to be considered the most liquid?
A. Marketable
securities
B. Net fixed
assets
C. Accounts
payable
D. Inventorie
s
33. If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context
the fixed assets are:
A. new
.
B. fully
depreciated.
C. one-half
depreciated.
D. equal in value to the firm's current
assets.
34. If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the
firm has:
A. no retained
earnings.
B. long-term
debt.
C. no accumulated
depreciation.
D. current
assets.
35. Which one of the following is an intangible asset?
A. Goodwil
l
B. Retained
earnings
C. Deferred income
taxes
D. Treasury
stock
36. Suppose Dee's just acquired the assets of Flo's Flowers. The book value of Flo's Flowers assets was $68,000 but
Dee's paid a total of $75,000. The additional $7,000 paid by Dee's will be recorded on Dee's balance sheet as:
A. accounts
payable.
B. goodwill
.
C. other current
assets.
D. property, plant, and
equipment.
37. What happens to a firm's net worth as it uses cash to repay accounts payable?
A. Net worth
increases.
B. Net worth
decreases.
C. Net worth remains
constant.
D. Net worth decreases temporarily, until cash is
replenished.
38. If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance
sheet as:
A. a current
liability.
B. long-term
debt.
C. cas
h.
D. interest
expense.
39. Net working capital is a measure of a company's:
A. goodwill
.
B. short-term
liabilities.
C. estimated cash
reservoir.
D. shareholders'
equity.
40. Net working capital is calculated by taking the difference between:
A. total assets and total
liabilities.
B. inventory and accounts
payable.
C. current assets and current
liabilities.
D. cash and accounts
payable.
41. Which of the following statements about net working capital (NWC) is correct?
A. NWC is positive for all
firms.
B. As NWC decreases, potential liquidity
increases.
C. NWC excludes inventory, which is deemed
illiquid.
D. NWC is negative if current liabilities exceed current
assets.
42. The existence of goodwill on a corporate balance sheet indicates that the corporation has:
A. been profitable in the
past.
B. depreciated its tangible
assets.
C. intangible assets from past
acquisitions.
D. retained earnings resulting from past
income.
43. A balance sheet may be considered backward-looking from the perspective that it:
A. works backward, starting with net
income.
B. records historic, not current
values.
C. cannot forecast the
future.
D. records costs over many previous
periods.
44. According to GAAP, assets and liabilities are typically recorded on the balance sheet at:
A. historical cost plus
depreciation.
B. market
value.
C. salvage
value.
D. historical cost less
depreciation.
45. Which of the following statements about depreciation is correct
A. Each year the accountant adds an amount for depreciation when calculating the
company’s profit.
B. The annual depreciation charge measures the cash that the company has spent on maintaining and renewing its
plant and equipment.
C. To calculate the cash produced by the business, it is necessary to deduct the depreciation charge from
accounting profits.
D. To calculate the cash produced by the business, it is necessary to add the depreciation charge back to
accounting profits.
46. Depreciation expense is used to:
A. allocate costs to all departments of the
firm.
B. determine when an asset is fully paid
off.
C. allocate historical cost over the life of an
asset.
D. equate the historical cost and market values of an
asset.
47. When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:
A. book value of the
asset.
B. market value of the
asset.
C. depreciation
expense.
D. current asset
value.
48. ABC Corp.'s balance sheet shows its long-term debt to be $20 million. The debt was issued with a 10% interest rate,
and the current interest rate is 7%. Based on this information alone, the market value of this debt is most likely:
A. less than $20
million.
B. more than $20
million.
C. equal to $20
million.
D. unknown without knowing the maturity of the
debt.
49. Which of the following statements about depreciation is correct?
A. Depreciation is subtracted from cost of goods sold to calculate net
income.
B. When depreciation expense is incurred, cash balances are
reduced.
C. Depreciation expense does not affect net
income.
D. Depreciation reduces the book value of
assets.
50. If market interest rates have increased since a company last borrowed long-term funds, the market value of these
long-term funds will likely be:
A. greater than their book
value.
B. less than their book
value.
C. equal to their book
value.
D. unknown without knowing the maturity of the
debt.
51. Which of the following values would most likely interest a shareholder?
A. Book value of
equity
B. Market value of
equity
C. Retained
earnings
D. Net working
capital
52. What happens to the market value of a firm's equity as the book value of the firm's equity increases?
A. It increases by the same
amount.
B. It decreases by the same
amount.
C. It remains
constant.
D. There is no set relationship to determine this
outcome.
53. Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market
value of assets, and 1,000 shares of outstanding stock?
A. Market value of liabilities exceeds book value of
liabilities.
B. Market value of liabilities equals $1
million.
C. Book value per share equals
$1,000.
D. Market value per share equals
$2,000.
54. Which of the following is more likely to be correct if market value of equity is less than book value of equity?
A. Investors anticipate excellent earning
potential.
B. Investors anticipate low earning
potential.
C. Assets have been fully
depreciated.
D. The company is
bankrupt.
55. Market-value balance sheets differ from book-value balance sheets in that market values:
A. are higher than book
values.
B. are lower than book
values.
C. reflect GAAP
accounting.
D. reflect investors'
expectations.
56. If market values of equity exceed book values of equity, then:
A. equity has been depreciated too
rapidly.
B. the firm uses accrual-based
accounting.
C. profit potential is expected to be
attractive.
D. the firm is holding too much
cash.
57. Perhaps the best method for estimating the market value of shareholders' equity is to:
A. review the firm's balance
sheet.
B. review the firm's income
statement.
C. multiply number of shares outstanding by the price of each
share.
D. add the retained earnings to the total
liabilities.
58. In which of the following balance-sheet entries are you least likely to find a difference between market value and
book value?
A. Cas
h
B. Inventor
y
C. Lan
d
D. Shareholders'
equity
59. Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most
easily provides the information she is seeking?
A. Statement of cash
flows
B. Balance
sheet
C. Common-size balance
sheet
D. Income
statement
60. Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT?
A. Cash
dividends
B. Depreciation
expense
C. Interest
expense
D. Tax
liability
61. Which one of the following does not reduce a firm's net income?
A. Income
taxes
B. Interest
expense
C. Dividend
s
D. Depreciation
expense
62. Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation
expense, and $120,000 interest expense.
A. $500,00
0
B. $380,00
0
C. $
0
D. ($120,00
0)
63. The net income figure on an income statement is calculated before deducting the:
A. interest
expense.
B. depreciation
expense.
C. cash
dividends.
D. tax
liability.
64. An increase in depreciation expense will (other things equal):
A. increase net
income.
B. decrease net
income.
C. increase taxable
income.
D. decrease the market value of
assets.
65. Current period depreciation expense is listed:
A. on the balance
sheet.
B. in the investment section of the cash flow
statement.
C. on the income
statement.
D. on neither the balance sheet nor the income statement; it is a noncash
expense.
66. Retained earnings result from:
A. the sale of additional shares of stock to
investors.
B. income not paid to
shareholders.
C. an excess of assets over
liabilities.
D. market values that exceed book
values.
67. The gathering of related revenues and expenses into the same period, regardless of when they were incurred, is:
A. cash-basis
accounting.
B. market-value
accounting.
C. book-value
accounting.
D. accrual
accounting.
68. According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of
goods sold will be:
A. recognized when the goods are
produced.
B. recognized when the goods are
sold.
C. recognized when payment is
received.
D. split between the production and the sale
periods.
69. Accrual accounting, which attempts to match sales revenues and the expenses associated with the production of the
goods, is conducted in an attempt to:
A. reduce income-tax
liability.
B. reduce bias in reported profitability
measures.
C. speed up the receipt of accounts
receivable.
D. reduce the time necessary to depreciate
assets.
70. Which of the firm's financial statements most clearly recognizes the payment for new equipment?
A. Balance
sheet
B. Income
statement
C. Statement of cash
flows
D. Common-size balance
sheet
71. If a firm pays taxes, which one of these will reduce net income but increase cash flow?
A. Depreciation
expense
B. Income
taxes
C. Cash
sales
D. Interest
expense
72. Which one of the following will reduce the cash flow during an accounting period?
A. High depreciation
expense
B. Reduction of inventory
levels
C. Acquisition of
equipment
D. Increase in accounts
payable
73. Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting
period. Based solely on this information, cash flow will increase by:
A. $2,50
0.
B. $2,00
0.
C. $1,50
0.
D. $500
.
74. In a statement of cash flows, which category includes depreciation expense as a line item?
A. Cash provided by
operations.
B. Cash flows from
investments.
C. Cash provided by (used for) financing
activities.
D. Current
liabilities.
75. Which of the following will occur in a statement of cash flows as a result of paying cash dividends?
A. Cash flows from operations will
increase.
B. Cash flows from investments will
decrease.
C. Cash flows from financing will
decrease.
D. Cash balances will not be
affected.
76. Which of the following changes in working capital will result in an increase in cash flows?
A. Increase in accounts
payable
B. Increase in
inventories
C. Increase in accounts
receivable
D. Decrease in other current
liabilities
77. Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a period
in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500?
A. Cash provided by financing increases by
$6,500.
B. Cash used by financing decreases by
$1,000.
C. Debt increases by more than cash dividends
paid.
D. Debt is reduced by more than cash dividends
paid.
78. If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a
negative amount of cash provided by operations?
A. Current assets decrease more than current liabilities
decrease.
B. Current assets increase more than current liabilities
increase.
C. Current assets decrease more than current liabilities
increase.
D. A large addition is made to plant and
equipment.
79. What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and
has negative cash flows from both operations and financing?
A. The firm has low depreciation
expense.
B. The firm did not pay any
dividends.
C. The firm sold more equipment than it
purchased.
D. The firm has a low interest rate on its
debt.
80. Johnson's Nursery has net income of $42,500, depreciation expense of $1,800, interest expense of $900, taxes of
$1,600, additions to net working capital of $2,300, and capital expenditures of $11,700. What is the amount of the
free cash flow?
A. $30,30
0
B. $34,40
0
C. $31,20
0
D. $28,70
0
81. According to the statement of cash flows, cash flows from financing could be positive if:
A. the firm repaid more debt than it
added.
B. the firm added more debt than it
repaid.
C. interest rates were low on outstanding
debt.
D. the firm sold portions of its plant and
equipment.
82. Which of the following categories of a statement of cash flows is affected by the payment of interest expense?
A. Cash flows from
operations
B. Cash flows from noncash
expenses
C. Cash flows from
investments
D. Cash flows from
financing
83. Which of the following could account for a firm that has a negative net income, yet has a positive amount of cash
provided by operations?
A. The net loss was greater than the amount of depreciation
expense.
B. Inventory increased significantly more than accounts
payable.
C. Accounts receivable decreased by significantly more than accounts
payable.
D. The cash balance increased
significantly.
84. If a firm's statement of cash flows shows that cash was used for investments, which of the following would seem
most likely?
A. The inventory balance
increased.
B. Common stock was
repurchased.
C. New machines were
acquired.
D. Cash dividends were
paid.
85. Interest expense appears in the operations section of the statement of cash flows because:
A. firms cannot operate without incurring interest
expense.
B. its payment is not within managerial
discretion.
C. it is paid to finance a firm's
inventory.
D. none of the options; interest expense appears in the financing section of the statement of
cash flows.
86. Which one of these would not be paid from free cash flow?
A. Cash
dividends
B. Repayment of principal on a long-term
debt
C. Repurchase of outstanding shares of common
stock
D. New equipment
purchase
87. Which of the following statements correctly describes international accounting standards?
A. The standards are becoming less similar over
time.
B. They are concerned only with assets and not
liabilities.
C. Compared with standards in the United States international standards involve less
detailed rules .
D. Balance sheets differ, but income statements are similar in all
countries.
88. Which of these statements related to free cash flow is correct?
A. Free cash flow must be fully distributed to the firm's debtors and
shareholders.
B. Free cash flow must be positive for a firm to acquire new fixed
assets.
C. All, or part, of free cash flow can be used to increase a firm's cash
reserves.
D. When capital expenditures are positive, free cash flow will exceed the cash flow from
operations.
89. What is the fundamental difference between IFRS and GAAP?
A. GAAP relies more on general principles but ignores the spirit of those
principles.
B. GAAP relies more on specific rules and the spirit of the
rules.
C. GAAP relies more on specific rules but not the spirit of the
rules.
D. GAAP relies more on general principles as well as the spirit of
those rules.
90. A company pays tax at a rate of 15% on its first $50,000 of income. If it has $60,000 of taxable income and an
average tax rate of 18%, what is the marginal tax rate on its last $10,000 of income?
A. 15
%
B. 33
%
C. 18
%
D. 25
%
91. Assume a company pays tax at a rate of 15% on its first $50,000 of income. Any income above $50,000 is taxed at
25%. If a company has $75,000 of taxable income, which of the following statements is correct?
A. Its marginal tax rate is
15%.
B. Its average tax rate is
25%.
C. Its marginal tax rate is
18.33%.
D. Its average tax rate is
18.33%.
92. What is the marginal corporate tax rate for large companies?
A. 15
%
B. 34
%
C. 35
%
D. 39
%
93. Which of the following cannot be used to reduce taxable corporate income?
A. Cash
dividends
B. Depreciation
expense
C. Interest
expense
D. Administrative
expenses
94. Assume a firm increases its revenue by $100 while increasing its cost of goods sold by $85. How much additional tax
will the firm owe if its marginal tax rate is 25%?
A. $3.7
5
B. $7.5
0
C. $13.7
5
D. $25.0
0
95. According to the U.S. tax code at the beginning of 2016, the highest marginal tax rate for personal taxpayers is:
A. 25.0%
.
B. 28.5%
.
C. 35.0%
.
D. 39.6%
.
96. Which one of the following statements is correct for a corporation with a negative net income in both the present and
the last fiscal year?
A. This year's loss can be carried back, but last year's loss cannot
be used.
B. Neither of the losses can be used to reduce
taxes.
C. Both losses can be carried forward but not
backward.
D. Both losses can be carried forward and backward, within certain time
limits.
97. Assume a single taxpayer is taxed at 10% on the first $9,275 of taxable income, 15% on the next $28,375 of income,
and at 25% for the following $53,500 of income. What is the average tax rate for that individual if her taxable income
is $42,000?
A. 14.93
%
B. 16.67
%
C. 16.13
%
D. 25
%
98. An individual's income for the year includes both dividend and interest payments. Which of these statements
correctly applies to that individual's tax liability?
A. Dividends are taxed; tax on interest payments is paid at the
corporate level.
B. Interest is taxed; tax on dividend payments is paid at the
corporate level.
C. Both dividend and interest payments are taxed at the
personal level.
D. All taxes on dividend and interest payments are paid at the
corporate level.
99. A major goal of the Sarbanes-Oxley Act is to:
A. increase transparency in the financial reporting of a firm's
activities.
B. require firms to provide common-size balance sheets to
shareholders.
C. lower corporate tax
rates.
D. require U.S. firms to abide by international accounting
standards.
100. Which one of the following is not a requirement imposed by the Sarbanes-Oxley Act?
A. Accounting firms may not offer other services to companies they
audit.
B. Any one individual is prohibited from serving as the chairman of a firm's board of directors for more
than 5 years.
C. A board's audit committee must consist of directors who are independent of the firm's
management.
D. Management must certify that the financial statements present a fair view of the firm's financial
position.
101. Who pays taxes on earnings distributed as dividends?
A. The issuing
corporation
B. The shareholder receiving the
dividend
C. Both the issuing corporation and the
shareholder
D. Neither the issuing corporation nor the
shareholder
102. Assume tax rates on single individuals are 10% on taxable income up to $9,275, 15% on income of $9,276 to
$37,650 and 25% on income of $37,651 to $91,150. What is the tax liability for a single individual with $52,000 of
taxable income, which includes $2,000 of dividends?
A. $8,771.2
5
B. $9,103.5
0
C. $8,603.5
0
D. $8,356.2
5
103. Which of the following forms of income can individuals defer from taxation?
A. Dividend
s
B. Intere
st
C. Realized capital
gains
D. Unrealized capital
gains
104. Which type of income is subject to "double taxation"?
A. Dividends and
wages
B. Capital
gains
C. Dividend
s
D. Wage
s
105. Professor Diehard found an effective antibiotic for the DEPRESS bacteria, and patented the drug. He believes that
he could sell the patent for $20 million. He then formed a corporation and invested $400,000 in setting up a
production plant. There are 2 million shares of stock outstanding. If the professor's belief is correct, what would be
the price per share and the book value per share?
A. $10.20;
$0.20
B. $10.00;
$0.20
C. $9.80;
$0.40
D. $9.80;
$0.20
106. You have gathered this information on a firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods sold,
$20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $10,000 purchase of
productive equipment, no changes in working capital, and a tax rate of 35%. What is the free cash flow?
A. $141,00
0
B. $168,00
0
C. $128,00
0
D. $142,00
0
107. What is the overall change in cash resulting from: $300 increase in inventories, $150 increase in accounts payable,
$120 decrease in accounts receivable, $60 decrease in other current assets, $150 decrease in other current
liabilities?
A. −
$120
B. −
$240
C. $18
0
D. $12
0
108. What is the change in cash for a firm with the following: $10,000 cash flow from operations, $1,600 cash used for
new investment, a reduction in the level of debt of $2,000, $1,000 in cash dividends, and $200 in depreciation
expense?
A. $5,60
0
B. $9,60
0
C. $9,40
0
D. $5,40
0
109. What are the average and marginal tax rates for a corporation that has $97,648 of taxable income? The tax rates are
as follows:
A. 21.97%;
25%
B. 21.97%;
34%
C. 23.08%;
34%
D. 34%;
34%
110. Which one of these will increase a firm's cash balance?
A. An increase in
inventory
B. A decrease in accounts
payable
C. An issue of common
stock
D. Purchase of new
equipment
Chapter 03 Test Bank - Static Key
1. An asset's liquidity is determined by how readily the asset can be converted to an appropriate amount of cash.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Liquidity
2. The principal reason for excluding many intangible assets from the balance sheet is that they are difficult to
value.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
3. Based on generally accepted accounting principles, assets are recorded on the balance sheet at their current
market value.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Market and book values
4. Assets can be either tangible or intangible.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
5. There is generally a bigger difference between the book value and the market value of fixed assets as compared
to cash.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Market and book values
6. All items in the common-size balance sheet are expressed as a percentage of total assets.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Standardized financial statements
7. The income statement resembles a snapshot of the firm at a specific time.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Income statement
8. If the market value of assets is high, then the market value of liabilities must be high also.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Market and book values
9. One reason for the difference between profits and cash is that the cost of capital equipment is spread over the
forecast life.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Noncash items
10. Accrual accounting aims to provide a fairer measure of the firm's profitability.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
11. If net income is positive, then cash flow from operations must be positive for that period.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Operating activities
12. Dividends paid are treated as a financing activity on the statement of cash flows.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
13. An increase in the accounts receivable balance increases the cash flow of a firm.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Operating activities
14. The payment of interest expense is considered a financing activity in the statement of cash flows.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
15. Accounting practices are currently standardized across all countries.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
16. Businesses that aggressively exploit any means possible to increase current earnings may cross over into
fraudulent account practices.
TRUE
AACSB: Ethics
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Ethics, governance, and regulation
17. A company may deduct the interest paid to debtholders and the dividends paid to shareholders when calculating
its taxable income.
FALSE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Income statement
18. Both the dividends and interest payments that companies make to individuals are subject to personal tax.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
19. The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
20. Book values are "forward-looking" measures of value.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
21. The difference between the market values of assets and liabilities is the market value of the shareholders' equity
claim.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Market and book values
22. To calculate free cash flow, you must deduct capital expenditures from the cash flow from operations.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Free cash flow
23. Depreciation charge is a cash payment.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Noncash items
24. An expenditure on new capital equipment is a cash payment.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Investing activities
25. The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its
investments and financing activities.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
26. An increase in inventories uses cash, reducing the firm's net cash balance.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Sources and uses of cash
27. A reduction in accounts receivable uses cash, reducing the firm's net cash balance.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Sources and uses of cash
28. The purchase of new equipment is a use of cash, and it reduces the firm's net cash balance.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Sources and uses of cash
29. In general, what is changing as you read down the left-hand side of a balance sheet?
A. The assets are becoming more fully
depreciated.
B. The assets are increasing in
value.
C. The assets are increasing in
maturity.
D. The assets are becoming less
liquid.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Liquidity
30. A balance sheet portrays the value of a firm's assets and liabilities:
A. over an annual
period.
B. over any stated period of
time.
C. at any stated point in
time.
D. only at the end of the calendar
year.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
31. Which of the following items should not be included in a listing of current assets?
A. Marketable
securities
B. Accounts
payable
C. Accounts
receivable
D. Inventorie
s
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
32. Which of the following assets is likely to be considered the most liquid?
A. Marketable
securities
B. Net fixed
assets
C. Accounts
payable
D. Inventorie
s
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Liquidity
33. If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting
context the fixed assets are:
A. new
.
B. fully
depreciated.
C. one-half
depreciated.
D. equal in value to the firm's current
assets.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
34. If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then
the firm has:
A. no retained
earnings.
B. long-term
debt.
C. no accumulated
depreciation.
D. current
assets.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
35. Which one of the following is an intangible asset?
A. Goodwil
l
B. Retained
earnings
C. Deferred income
taxes
D. Treasury
stock
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
36. Suppose Dee's just acquired the assets of Flo's Flowers. The book value of Flo's Flowers assets was $68,000 but
Dee's paid a total of $75,000. The additional $7,000 paid by Dee's will be recorded on Dee's balance sheet as:
A. accounts
payable.
B. goodwill
.
C. other current
assets.
D. property, plant, and
equipment.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
37. What happens to a firm's net worth as it uses cash to repay accounts payable?
A. Net worth
increases.
B. Net worth
decreases.
C. Net worth remains
constant.
D. Net worth decreases temporarily, until cash is
replenished.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
38. If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance
sheet as:
A. a current
liability.
B. long-term
debt.
C. cas
h.
D. interest
expense.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
39. Net working capital is a measure of a company's:
A. goodwill
.
B. short-term
liabilities.
C. estimated cash
reservoir.
D. shareholders'
equity.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Net working capital
40. Net working capital is calculated by taking the difference between:
A. total assets and total
liabilities.
B. inventory and accounts
payable.
C. current assets and current
liabilities.
D. cash and accounts
payable.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Net working capital
41. Which of the following statements about net working capital (NWC) is correct?
A. NWC is positive for all
firms.
B. As NWC decreases, potential liquidity
increases.
C. NWC excludes inventory, which is deemed
illiquid.
D. NWC is negative if current liabilities exceed current
assets.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Net working capital
42. The existence of goodwill on a corporate balance sheet indicates that the corporation has:
A. been profitable in the
past.
B. depreciated its tangible
assets.
C. intangible assets from past
acquisitions.
D. retained earnings resulting from past
income.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
43. A balance sheet may be considered backward-looking from the perspective that it:
A. works backward, starting with net
income.
B. records historic, not current
values.
C. cannot forecast the
future.
D. records costs over many previous
periods.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
44. According to GAAP, assets and liabilities are typically recorded on the balance sheet at:
A. historical cost plus
depreciation.
B. market
value.
C. salvage
value.
D. historical cost less
depreciation.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
45. Which of the following statements about depreciation is correct
A. Each year the accountant adds an amount for depreciation when calculating the
company’s profit.
B. The annual depreciation charge measures the cash that the company has spent on maintaining and renewing
its plant and equipment.
C. To calculate the cash produced by the business, it is necessary to deduct the depreciation charge from
accounting profits.
D. To calculate the cash produced by the business, it is necessary to add the depreciation charge back to
accounting profits.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Depreciation
46. Depreciation expense is used to:
A. allocate costs to all departments of the
firm.
B. determine when an asset is fully paid
off.
C. allocate historical cost over the life of an
asset.
D. equate the historical cost and market values of an
asset.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Noncash items
47. When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:
A. book value of the
asset.
B. market value of the
asset.
C. depreciation
expense.
D. current asset
value.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Market and book values
48. ABC Corp.'s balance sheet shows its long-term debt to be $20 million. The debt was issued with a 10% interest
rate, and the current interest rate is 7%. Based on this information alone, the market value of this debt is most
likely:
A. less than $20
million.
B. more than $20
million.
C. equal to $20
million.
D. unknown without knowing the maturity of the
debt.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Market and book values
49. Which of the following statements about depreciation is correct?
A. Depreciation is subtracted from cost of goods sold to calculate net
income.
B. When depreciation expense is incurred, cash balances are
reduced.
C. Depreciation expense does not affect net
income.
D. Depreciation reduces the book value of
assets.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Noncash items
50. If market interest rates have increased since a company last borrowed long-term funds, the market value of these
long-term funds will likely be:
A. greater than their book
value.
B. less than their book
value.
C. equal to their book
value.
D. unknown without knowing the maturity of the
debt.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
51. Which of the following values would most likely interest a shareholder?
A. Book value of
equity
B. Market value of
equity
C. Retained
earnings
D. Net working
capital
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
52. What happens to the market value of a firm's equity as the book value of the firm's equity increases?
A. It increases by the same
amount.
B. It decreases by the same
amount.
C. It remains
constant.
D. There is no set relationship to determine this
outcome.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
53. Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market
value of assets, and 1,000 shares of outstanding stock?
A. Market value of liabilities exceeds book value of
liabilities.
B. Market value of liabilities equals $1
million.
C. Book value per share equals
$1,000.
D. Market value per share equals
$2,000.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Market and book values
54. Which of the following is more likely to be correct if market value of equity is less than book value of equity?
A. Investors anticipate excellent earning
potential.
B. Investors anticipate low earning
potential.
C. Assets have been fully
depreciated.
D. The company is
bankrupt.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
55. Market-value balance sheets differ from book-value balance sheets in that market values:
A. are higher than book
values.
B. are lower than book
values.
C. reflect GAAP
accounting.
D. reflect investors'
expectations.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
56. If market values of equity exceed book values of equity, then:
A. equity has been depreciated too
rapidly.
B. the firm uses accrual-based
accounting.
C. profit potential is expected to be
attractive.
D. the firm is holding too much
cash.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
57. Perhaps the best method for estimating the market value of shareholders' equity is to:
A. review the firm's balance
sheet.
B. review the firm's income
statement.
C. multiply number of shares outstanding by the price of each
share.
D. add the retained earnings to the total
liabilities.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
58. In which of the following balance-sheet entries are you least likely to find a difference between market value and
book value?
A. Cas
h
B. Inventor
y
C. Lan
d
D. Shareholders'
equity
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
59. Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most
easily provides the information she is seeking?
A. Statement of cash
flows
B. Balance
sheet
C. Common-size balance
sheet
D. Income
statement
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Standardized financial statements
60. Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT?
A. Cash
dividends
B. Depreciation
expense
C. Interest
expense
D. Tax
liability
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Income statement
61. Which one of the following does not reduce a firm's net income?
A. Income
taxes
B. Interest
expense
C. Dividend
s
D. Depreciation
expense
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Income statement
62. Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation
expense, and $120,000 interest expense.
A. $500,00
0
B. $380,00
0
C. $
0
D. ($120,00
0)
EBIT = $4,000,000 − 3,500,000 − 500,000 = $0
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Income statement
63. The net income figure on an income statement is calculated before deducting the:
A. interest
expense.
B. depreciation
expense.
C. cash
dividends.
D. tax
liability.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Income statement
64. An increase in depreciation expense will (other things equal):
A. increase net
income.
B. decrease net
income.
C. increase taxable
income.
D. decrease the market value of
assets.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Income statement
65. Current period depreciation expense is listed:
A. on the balance
sheet.
B. in the investment section of the cash flow
statement.
C. on the income
statement.
D. on neither the balance sheet nor the income statement; it is a noncash
expense.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Noncash items
66. Retained earnings result from:
A. the sale of additional shares of stock to
investors.
B. income not paid to
shareholders.
C. an excess of assets over
liabilities.
D. market values that exceed book
values.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Balance sheet
67. The gathering of related revenues and expenses into the same period, regardless of when they were incurred, is:
A. cash-basis
accounting.
B. market-value
accounting.
C. book-value
accounting.
D. accrual
accounting.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
68. According to accrual accounting, when goods are not sold until the period after they were produced, then the cost
of goods sold will be:
A. recognized when the goods are
produced.
B. recognized when the goods are
sold.
C. recognized when payment is
received.
D. split between the production and the sale
periods.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
69. Accrual accounting, which attempts to match sales revenues and the expenses associated with the production of
the goods, is conducted in an attempt to:
A. reduce income-tax
liability.
B. reduce bias in reported profitability
measures.
C. speed up the receipt of accounts
receivable.
D. reduce the time necessary to depreciate
assets.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
70. Which of the firm's financial statements most clearly recognizes the payment for new equipment?
A. Balance
sheet
B. Income
statement
C. Statement of cash
flows
D. Common-size balance
sheet
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
71. If a firm pays taxes, which one of these will reduce net income but increase cash flow?
A. Depreciation
expense
B. Income
taxes
C. Cash
sales
D. Interest
expense
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Noncash items
72. Which one of the following will reduce the cash flow during an accounting period?
A. High depreciation
expense
B. Reduction of inventory
levels
C. Acquisition of
equipment
D. Increase in accounts
payable
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Statement of cash flows
73. Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting
period. Based solely on this information, cash flow will increase by:
A. $2,50
0.
B. $2,00
0.
C. $1,50
0.
D. $500
.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Operating activities
74. In a statement of cash flows, which category includes depreciation expense as a line item?
A. Cash provided by
operations.
B. Cash flows from
investments.
C. Cash provided by (used for) financing
activities.
D. Current
liabilities.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
75. Which of the following will occur in a statement of cash flows as a result of paying cash dividends?
A. Cash flows from operations will
increase.
B. Cash flows from investments will
decrease.
C. Cash flows from financing will
decrease.
D. Cash balances will not be
affected.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
76. Which of the following changes in working capital will result in an increase in cash flows?
A. Increase in accounts
payable
B. Increase in
inventories
C. Increase in accounts
receivable
D. Decrease in other current
liabilities
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
77. Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a
period in which cash provided by operations increases by $1,000 and cash used by investments decreases by
$500?
A. Cash provided by financing increases by
$6,500.
B. Cash used by financing decreases by
$1,000.
C. Debt increases by more than cash dividends
paid.
D. Debt is reduced by more than cash dividends
paid.
Cash provided by financing increased. This could occur by increasing debt by a larger amount than the amount
paid out in dividends.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
78. If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a
negative amount of cash provided by operations?
A. Current assets decrease more than current liabilities
decrease.
B. Current assets increase more than current liabilities
increase.
C. Current assets decrease more than current liabilities
increase.
D. A large addition is made to plant and
equipment.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Operating activities
79. What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances
and has negative cash flows from both operations and financing?
A. The firm has low depreciation
expense.
B. The firm did not pay any
dividends.
C. The firm sold more equipment than it
purchased.
D. The firm has a low interest rate on its
debt.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Statement of cash flows
80. Johnson's Nursery has net income of $42,500, depreciation expense of $1,800, interest expense of $900, taxes
of $1,600, additions to net working capital of $2,300, and capital expenditures of $11,700. What is the amount of
the free cash flow?
A. $30,30
0
B. $34,40
0
C. $31,20
0
D. $28,70
0
Free cash flow = $42,500 + 900 + 1,800 − 2,300 − 11,700 = $31,200
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Free cash flow
81. According to the statement of cash flows, cash flows from financing could be positive if:
A. the firm repaid more debt than it
added.
B. the firm added more debt than it
repaid.
C. interest rates were low on outstanding
debt.
D. the firm sold portions of its plant and
equipment.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Financing activities
82. Which of the following categories of a statement of cash flows is affected by the payment of interest expense?
A. Cash flows from
operations
B. Cash flows from noncash
expenses
C. Cash flows from
investments
D. Cash flows from
financing
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Operating activities
83. Which of the following could account for a firm that has a negative net income, yet has a positive amount of cash
provided by operations?
A. The net loss was greater than the amount of depreciation
expense.
B. Inventory increased significantly more than accounts
payable.
C. Accounts receivable decreased by significantly more than accounts
payable.
D. The cash balance increased
significantly.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Operating activities
84. If a firm's statement of cash flows shows that cash was used for investments, which of the following would seem
most likely?
A. The inventory balance
increased.
B. Common stock was
repurchased.
C. New machines were
acquired.
D. Cash dividends were
paid.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Investing activities
85. Interest expense appears in the operations section of the statement of cash flows because:
A. firms cannot operate without incurring interest
expense.
B. its payment is not within managerial
discretion.
C. it is paid to finance a firm's
inventory.
D. none of the options; interest expense appears in the financing section of the statement of
cash flows.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Operating activities
86. Which one of these would not be paid from free cash flow?
A. Cash
dividends
B. Repayment of principal on a long-term
debt
C. Repurchase of outstanding shares of common
stock
D. New equipment
purchase
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Free cash flow
87. Which of the following statements correctly describes international accounting standards?
A. The standards are becoming less similar over
time.
B. They are concerned only with assets and not
liabilities.
C. Compared with standards in the United States international standards involve less
detailed rules .
D. Balance sheets differ, but income statements are similar in all
countries.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
88. Which of these statements related to free cash flow is correct?
A. Free cash flow must be fully distributed to the firm's debtors and
shareholders.
B. Free cash flow must be positive for a firm to acquire new fixed
assets.
C. All, or part, of free cash flow can be used to increase a firm's cash
reserves.
D. When capital expenditures are positive, free cash flow will exceed the cash flow from
operations.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Free cash flow
89. What is the fundamental difference between IFRS and GAAP?
A. GAAP relies more on general principles but ignores the spirit of those
principles.
B. GAAP relies more on specific rules and the spirit of the
rules.
C. GAAP relies more on specific rules but not the spirit of the
rules.
D. GAAP relies more on general principles as well as the spirit of
those rules.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Generally Accepted Accounting Principles (GAAP)
90. A company pays tax at a rate of 15% on its first $50,000 of income. If it has $60,000 of taxable income and an
average tax rate of 18%, what is the marginal tax rate on its last $10,000 of income?
A. 15
%
B. 33
%
C. 18
%
D. 25
%
0.18 × $60,000 = (0.15 × $50,000) + (x × ($60,000 − 50,000))
$10,800 = $7,500 + $10,000x
x = 0.33, or 33%
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
91. Assume a company pays tax at a rate of 15% on its first $50,000 of income. Any income above $50,000 is taxed
at 25%. If a company has $75,000 of taxable income, which of the following statements is correct?
A. Its marginal tax rate is
15%.
B. Its average tax rate is
25%.
C. Its marginal tax rate is
18.33%.
D. Its average tax rate is
18.33%.
(0.15 × $50,000 + 0.25 × $25,000)/$75,000 = 0.1833
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
92. What is the marginal corporate tax rate for large companies?
A. 15
%
B. 34
%
C. 35
%
D. 39
%
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
93. Which of the following cannot be used to reduce taxable corporate income?
A. Cash
dividends
B. Depreciation
expense
C. Interest
expense
D. Administrative
expenses
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
94. Assume a firm increases its revenue by $100 while increasing its cost of goods sold by $85. How much additional
tax will the firm owe if its marginal tax rate is 25%?
A. $3.7
5
B. $7.5
0
C. $13.7
5
D. $25.0
0
Increase in taxes = 0.25 × ($100 − 85) = $3.75
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
95. According to the U.S. tax code at the beginning of 2016, the highest marginal tax rate for personal taxpayers is:
A. 25.0%
.
B. 28.5%
.
C. 35.0%
.
D. 39.6%
.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
96. Which one of the following statements is correct for a corporation with a negative net income in both the present
and the last fiscal year?
A. This year's loss can be carried back, but last year's loss cannot
be used.
B. Neither of the losses can be used to reduce
taxes.
C. Both losses can be carried forward but not
backward.
D. Both losses can be carried forward and backward, within certain time
limits.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
97. Assume a single taxpayer is taxed at 10% on the first $9,275 of taxable income, 15% on the next $28,375 of
income, and at 25% for the following $53,500 of income. What is the average tax rate for that individual if her
taxable income is $42,000?
A. 14.93
%
B. 16.67
%
C. 16.13
%
D. 25
%
Tax = (0.1 × 9,275) + (0.15 × 28,375) + (0.25 × (42,000 − 9,275 − 28,375)) = $6,271.25. Average tax rate=
$6,271.25/$42,000 = 0.1493, or 14.93%.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
98. An individual's income for the year includes both dividend and interest payments. Which of these statements
correctly applies to that individual's tax liability?
A. Dividends are taxed; tax on interest payments is paid at the
corporate level.
B. Interest is taxed; tax on dividend payments is paid at the
corporate level.
C. Both dividend and interest payments are taxed at the
personal level.
D. All taxes on dividend and interest payments are paid at the
corporate level.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
99. A major goal of the Sarbanes-Oxley Act is to:
A. increase transparency in the financial reporting of a firm's
activities.
B. require firms to provide common-size balance sheets to
shareholders.
C. lower corporate tax
rates.
D. require U.S. firms to abide by international accounting
standards.
AACSB: Ethics
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Ethics, governance, and regulation
100. Which one of the following is not a requirement imposed by the Sarbanes-Oxley Act?
A. Accounting firms may not offer other services to companies they
audit.
B. Any one individual is prohibited from serving as the chairman of a firm's board of directors for more
than 5 years.
C. A board's audit committee must consist of directors who are independent of the firm's
management.
D. Management must certify that the financial statements present a fair view of the firm's financial
position.
AACSB: Ethics
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Ethics, governance, and regulation
101. Who pays taxes on earnings distributed as dividends?
A. The issuing
corporation
B. The shareholder receiving the
dividend
C. Both the issuing corporation and the
shareholder
D. Neither the issuing corporation nor the
shareholder
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
102. Assume tax rates on single individuals are 10% on taxable income up to $9,275, 15% on income of $9,276 to
$37,650 and 25% on income of $37,651 to $91,150. What is the tax liability for a single individual with $52,000 of
taxable income, which includes $2,000 of dividends?
A. $8,771.2
5
B. $9,103.5
0
C. $8,603.5
0
D. $8,356.2
5
(0.10 × $9,275) + (0.15 × $28,375) + (0.25 × $14,350) = $8,771.25
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
103. Which of the following forms of income can individuals defer from taxation?
A. Dividend
s
B. Intere
st
C. Realized capital
gains
D. Unrealized capital
gains
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
104. Which type of income is subject to "double taxation"?
A. Dividends and
wages
B. Capital
gains
C. Dividend
s
D. Wage
s
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
105. Professor Diehard found an effective antibiotic for the DEPRESS bacteria, and patented the drug. He believes
that he could sell the patent for $20 million. He then formed a corporation and invested $400,000 in setting up a
production plant. There are 2 million shares of stock outstanding. If the professor's belief is correct, what would
be the price per share and the book value per share?
A. $10.20;
$0.20
B. $10.00;
$0.20
C. $9.80;
$0.40
D. $9.80;
$0.20
Book value equals the $400,000 Professor Diehard has contributed in tangible assets. Market value equals the
value of his patent plus the value of the production plant, or $20.4 million. Price per share = $20.4 million/2 million
shares = $10.20. Book value per share = $400,000/2 million shares = $0.20.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-02 Distinguish between market and book values.
Topic: Market and book values
106. You have gathered this information on a firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods
sold, $20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $10,000
purchase of productive equipment, no changes in working capital, and a tax rate of 35%. What is the free cash
flow?
A. $141,00
0
B. $168,00
0
C. $128,00
0
D. $142,00
0
Net income = ($500,000 − 300,000 − 20,000 − 20,000 − 40,000) × (1 − 0.35) = $78,000
Cash flow from operations = $78,000 + 40,000 + 20,000 = $138,000
Free cash flow = $138,000 − 10,000 = $128,000
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-03 Explain why income differs from cash flow.
Topic: Free cash flow
107. What is the overall change in cash resulting from: $300 increase in inventories, $150 increase in accounts
payable, $120 decrease in accounts receivable, $60 decrease in other current assets, $150 decrease in other
current liabilities?
A. −
$120
B. −
$240
C. $18
0
D. $12
0
Net change in cash = −$300 + 150 + 120 + 60 − 150 = −$120
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Operating activities
108. What is the change in cash for a firm with the following: $10,000 cash flow from operations, $1,600 cash used for
new investment, a reduction in the level of debt of $2,000, $1,000 in cash dividends, and $200 in depreciation
expense?
A. $5,60
0
B. $9,60
0
C. $9,40
0
D. $5,40
0
Change in cash = $10,000 − 1,600 − 2,000 − 1,000 = $5,400
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
109. What are the average and marginal tax rates for a corporation that has $97,648 of taxable income? The tax rates
are as follows:
A. 21.97%;
25%
B. 21.97%;
34%
C. 23.08%;
34%
D. 34%;
34%
Average tax rate = $21,450.32/$97,648 = 0.2197, or 21.97%
Marginal tax rate = 34%
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and personal income.
Topic: Taxes
110. Which one of these will increase a firm's cash balance?
A. An increase in
inventory
B. A decrease in accounts
payable
C. An issue of common
stock
D. Purchase of new
equipment
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: Statement of cash flows
Chapter 03 Test Bank - Static Summary
Category # of Questions
AACSB: Analytical Thinking 18
AACSB: Communication 13
AACSB: Ethics 3
AACSB: Reflective Thinking 76
Accessibility: Keyboard Navigation 110
Blooms: Analyze 18
Blooms: Apply 5
Blooms: Remember 15
Blooms: Understand 72
Difficulty: 1 Easy 38
Difficulty: 2 Medium 57
Difficulty: 3 Hard 15
Gradable: automatic 110
Learning Objective: 03-01 Interpret the information contained in the balance sheet; income stateme
nt;
and statement of cash flows.
68
Learning Objective: 03-02 Distinguish between market and book values. 10
Learning Objective: 03-03 Explain why income differs from cash flow. 15
Learning Objective: 03-04 Understand the essential features of the taxation of corporate and perso
nal income.
17
Topic: Balance sheet 14
Topic: Depreciation 1
Topic: Ethics, governance, and regulation 3
Topic: Financing activities 1
Topic: Free cash flow 5
Topic: Generally Accepted Accounting Principles (GAAP) 8
Topic: Income statement 7
Topic: Investing activities 2
Topic: Liquidity 3
Topic: Market and book values 17
Topic: Net working capital 3
Topic: Noncash items 6
Topic: Operating activities 8
Topic: Sources and uses of cash 3
Topic: Standardized financial statements 2
Topic: Statement of cash flows 12
Topic: Taxes 15
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