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1. The current ratio is never larger than the quick ratio.

2. Assets are listed in order of increasing liquidity on the balance sheet.
3. The income statement summarizes the assets, liabilities and owners' equity of a
company at a moment in time.
4. Cash paid for merchandise is an operating activity.
5. The operating break-even point is the point at which operating profits equal revenues
minus operating costs.
6. The purchase of stock in another company is classified as a financing activity.
7. The primary purpose of the statement of cash flows is to report all major cash
receipts (inflows) and cash payments (outflows) during a period.
8. The income statement shows a firms financial position on a specific date.
9. Accounts payable consist of payments due from a firm's customers.
10. Depreciation is the cost of a firms equipment and building allocated over their useful
Multiple Choice:
1. An example of a liquidity ratio is ______________.
a. fixed asset turnover
c. acid test or quick
e. B and C
b. current ratio
d. A and C
2 ___________________ a snapshot of the financial condition of the firm at a particular
. time.
a. The balance sheet provides
c. The statement of cash flows provides
b. The income statement
d. All of the above provide
3 A firms degree of operating leverage (DOL) depends primarily upon its
a. sales variability
b. level of fixed operating costs
c. closeness to its operating break-even point
d. debt-to-equity ratio
4 EBIT is usually the same thing as:
a. funds provided by operations
b. earnings before taxes
c. net income
d. operating profit
5 Which of the following is NOT a cash outflow for the firm?
a. depreciation
b. dividends
c. interest payments
d. taxes