award:

1. 0.80 points

In general, what is changing as you read down the left hand side of a balance sheet?
The assets are more fully depreciated
The assets are growing in value
The assets are increasing in maturity
→ The assets are becoming less liquid

award:

2. 0.80 points

A balance sheet portrays the value of a firm's assets and liabilities:

Over an annual period
Over any stated period of time
→ At any stated point in time
At the end of the calendar year

award:

3. 0.80 points

Which of the following items should not be included in a listing of current assets?
Marketable securities
→ Accounts payable
Accounts receivable
Inventories

award:

4. 0.80 points

Which of the following assets is likely to be considered the most liquid?

→ Marketable securities
Net fixed assets
Accounts payable
Inventories

award:

5. 0.80 points

If the value of a firm's net fixed assets equals the value of the accumulated depreciation, then, from an accounting context, the fixed assets are:
New
Fully depreciated
→ One-half depreciated
Equal in value to the firm's current assets

award:

6. 0.80 points

If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm has:
no retained earnings
→ Long-term debt
No accumulated depreciation
Current assets

award:

7. 0.80 points

Accumulated Depreciation is used to reduce what type of account on the balance sheet?

1 of 21
 Current Asset
→ Capital Assets or Fixed Assets
Liability
Owners Equity

award:

8. 0.80 points

What balancing entry is most likely to be called for if previously excluded intangible assets were added to a firm's balance sheet?
Increase accumulated depreciation
Decrease long-term debt
→ Increase shareholders' equity
Decrease current assets

award:

9. 0.80 points

What happens to a firm's net worth as it uses cash to repay accounts payable?
Net worth increases
Net worth decreases
→ Net worth remains constant
Net worth decreases temporarily, until cash is replenished

award:

10. 0.80 points

If a payment of principal is due in seven months on a long-term liability, that payment will appear on the current balance sheet now as a(n):
→ Current liability
Long-term debt
Cash
Interest expense

award:

11. 0.80 points

Net working capital is a measure of the company's:

Goodwill
Short-term liabilities
→ Estimated liquidity
Shareholders' equity

award:

12. 0.80 points

Net working capital is calculated by taking the difference between:

Total assets and total liabilities
Inventory and accounts payable
→ Current assets and current liabilities
Cash and long-term debt

award:

13. 0.80 points

According to GAAP, assets and liabilities are typically recorded on the balance sheet at:
Historical cost
Market value
Salvage value
→ Historical cost less depreciation

award:

14. 0.80 points

2 of 21
 Which of the following is correct for a fully depreciated asset?
Market value is zero
Market value is greater than book value
Book value is greater than market value
→ The relationship between market and book values is indeterminable

award:

15. 0.80 points

Depreciation expense is used to:

Allocate costs to all departments of the firm
Determine when an asset is fully paid off
→ Allocate historical cost over the life of an asset
Equate the historical cost and market values of an asset

award:

16. 0.80 points

When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:
→ Book value of the asset
Market value of the asset
Depreciation expense
Current asset value

award:

17. 0.80 points

ABC Corp.'s balance sheet shows their long-term debt to be $10 million. The debt was issued with a 10 percent interest rate, and the current interest rate is 7 percent. Based
on this information, the market value of this debt would be:
Less than $20 million
→ More than $20 million
Equal to $20 million
Unknown without knowing the maturity of the debt

award:

18. 0.80 points

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:
greater than their book value
→ less than their book value
Equal to their book value
Unknown without knowing the maturity of the debt

award:

19. 0.80 points

Which of the following values would most likely interest a shareholder?

Book value of equity
→ Market value of equity
Historical cost of equity
Retained earnings component of equity

award:

20. 0.80 points

What happens to the market value of a firm's equity as the book value of the firm's equity increases?
It increases by the same amount
It decreases by the same amount
It remains constant
→ There is no set relationship to determine this outcome

3 of 21
 award:

21. 0.80 points

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?
Market value of liabilities exceeds book value of liabilities
→ Market value of liabilities equals $1 million
Market value per share equals $1,000
Market value per share equals $2,000

award:

22. 0.80 points

Which of the following is more likely to be correct if market value of equity is less than book value of equity?
Investors anticipate excellent earning potential
→ Investors anticipate low earning potential
Assets have been fully depreciated
The company is bankrupt

award:

23. 0.80 points

Market-value balance sheets differ from book-value balance sheets in that market values:
Are higher than book values
Are lower than book values
Conform more to GAAP accounting
→ Conform to investors' expectations

award:

24. 0.80 points

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.
$500,000
$380,000
→ $0
($120,000)

award:

25. 0.80 points

The Net Income figure on an income statement is calculated before deducting:

Interest expense
Depreciation expense
→ Cash dividends
Tax liability

award:

26. 0.80 points

An increase in depreciation expense will (other things equal):

Increase net income
→ Decrease net income
Increase cash flow
Decrease the market value of assets

award:

27. 0.80 points

Current period depreciation expense is listed on:

The balance sheet
The investment section of the cash flow statement
→ The income statement
Neither the balance sheet nor the income statement; it is a noncash expense

4 of 21
 award:

28. 0.80 points

Which of the following statements about depreciation is correct?

Depreciation is subtracted from cost of goods sold to calculate net income
When depreciation expense is incurred, cash balances are reduced
Depreciation expense does not affect net income
→ Depreciation reduces the book value of assets

award:

29. 0.80 points

Net earnings result from:

The sale of additional shares of stock to investors
→ Income not paid to shareholders in the form of cash dividends
An excess of assets over liabilities
Market values that exceed book values

award:

30. 0.80 points

Which of the following is not a typical reason for differences between profit and cash flow?
Depreciation expense
→ Income taxes
Changing levels of accounts receivable
Accrual accounting practices

award:

31. 0.80 points

Which of the following best explains the combination of a high level of sales combined with a low cash flow during an accounting period?
High depreciation expense
Reduction of inventory levels
→ Acquisition of equipment
Increase in accounts payable

award:

32. 0.80 points

If a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period, then, based on these two categories, cash flow will increase
by:
$2,500
→ $2,000
$1,500
$500

award:

33. 0.80 points

The gathering of related revenues and expenses into the same period, regardless of when they were incurred, is:
Cash basis accounting
Market value accounting
Book value accounting
→ Accrual accounting

award:

34. 0.80 points

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold:
Will be recognized in the first period
→ Will be recognized in the second period
Will be recognized when payment is received
Will be split between both periods

5 of 21
 award:

35. 0.80 points

In a statement of cash flows, which category includes depreciation expense?

→ Operations
Investments
Financing
None of the above; depreciation is a non-cash expense.

award:

36. 0.80 points

Which of the following will occur in a statement of cash flows as a result of paying cash dividends?
Cash flows from operations will increase
Cash flows from investments will decrease
→ Cash flows from financing will decrease
Cash balances will not be affected

award:

37. 0.80 points

Which of the following changes in working capital will result in an increase in cash flows?
→ Increase in accounts payable
Increase in inventories
Increase in accounts receivable
Decrease in other current liabilities

award:

38. 0.80 points

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?
Cash provided by financing increases by $3,500
Cash used by financing decreases by $1,000
→ Debt increased by more than cash dividends paid
Debt was reduced by more than cash dividends paid

As a plug figure, cash provided by financing must have increased by $4,500. If dividends paid exceeded the increase to debt, this number would be negative.

award:

39. 0.80 points

If a firm's net income is positive and its non-cash expenses are positive, which of the following could account for a negative amount of cash provided by operations?
Current assets decrease more than current liabilities decrease
→ Current assets increase more than current liabilities increase
Current assets decrease more than current liabilities increase
A large addition is made to plant and equipment

award:

40. 0.80 points

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?
The firm has low depreciation expense
The firm did not pay any dividends
→ The firm sold more equipment than it purchased
The firm has a low interest rate on its debt

6 of 21
 award:

41. 0.80 points

What happens when moving from net income to cash flows as the result of an increase in inventory balances?
Cash flows increase
→ Cash flows decrease
Cash flows are unchanged
The change in cash flows cannot be determined

award:

42. 0.80 points

According to the statement of cash flows, cash flows from financing could be positive if:
The firm repaid more debt than it added
→ The firm added more debt than it repaid
Interest rates were low on outstanding debt
The firm sold portions of its plant and equipment

award:

43. 0.80 points

Which of the firm's financial statements most clearly recognizes the payment for new equipment?
Balance Sheet
Income Statement
→ Statement of Cash Flows
Statement of Condition

award:

44. 0.80 points

Which of the following categories of a statement of cash flows is affected by the payment of interest expense?
→ Cash flows from operations
Cash flows from non-cash expenses
Cash flows from investments
Cash flows from financing

award:

45. 0.80 points

Which of the following information is reported on the income statement?

Accounts Payable
→ Revenues, Expenses, and Net Income or Net Loss
Current liabilities
Current portion of long-term debt

award:

46. 0.80 points

Which of the following statements correctly compares international accounting standards?

The standards are becoming less similar over time
The standards are typically more lenient in Canada and the U.S.
→ The standards are typically stricter in Canada and the U.S.
Balance sheets differ, but income statements are similar in all countries

award:

47. 0.80 points

Which of the following represents a recent trend in financial statements?

Dividends are appearing on the balance sheet
Income statements no longer record depreciation expense
Statements of cash flow are considered obsolete
→ Balance sheets record market values rather than historic costs

7 of 21
 award:

48. 0.80 points

What is the marginal tax rate for a corporation with $60,000 taxable income and an average tax rate of 16.67 percent if the next-lowest marginal tax rate of 15 percent covers
taxable incomes up to $50,000?
15.00 percent
16.67 percent
18.34 percent
→ 25.00 percent

$60,000 taxable income

x .1667 average tax rate
= $10,000 tax liability

Therefore, $10,000 x marginal tax rate = 2,500 marginal tax rate = 25%

award:

49. 0.80 points

Marginal tax rates are based on:

Net income
Total income
→ An additional dollar of income
Earnings before interest and taxes

award:

50. 0.80 points

CumChan Corporation had operating income (EBIT) of $2,500,000 in 2005, depreciation expenses of $500,000, and dividends paid of $400,000. What is CumChan's operating
cash flow (EBITDA) for 2005?
→ $3,000,000
$6,000,000
300 percent
$3,300,000

$2,500,000 EBIT + $500,000 = $3,000,000(dividend payment are not operating cash flow)

award:

51. 0.80 points

If market values of equity exceed book values of equity, then:

Equity has been depreciated too rapidly
The firm uses accrual-based accounting
→ Profit potential is expected to be attractive
The firm is holding too much cash

award:

52. 0.80 points

For all Canadian corporations except those in the lowest and highest tax brackets, it is the case that their:
→ Marginal tax rate exceeds their average tax rate
Average tax rate exceeds their marginal tax rate
Marginal tax rate equals their average tax rate
Marginal tax rate equals 15 percent

award:

53. 0.80 points

What is the marginal impact on taxes for a profitable corporation in the 35 percent marginal tax bracket that incurs an additional dollar of depreciation expense?
A decrease of 65 cents
→ A decrease of 35 cents
An increase of 65 cents

8 of 21
 Zero impact

Taxable income will be reduced by $1, which will lower tax liabilities by 35 cents.

award:

54. 0.80 points

Which one of the following expenses cannot be used to reduce taxable corporate income?
→ Cash dividends
Depreciation expense
Interest expense
Administrative expenses

award:

55. 0.80 points

Who pays the taxes on earnings distributed as dividends?

The corporation
The investor receiving the dividend
→ Both the corporation and the investor
Neither the corporation nor the investor

award:

56. 0.80 points

Which of the following forms of income can individuals defer from taxation?
Dividends
Interest
Realized capital gains
→ Unrealized capital gains

award:

57. 0.80 points

What is the tax liability for an individual with $52,000 of income, which includes $2,000 of dividends, if the tax rate is 15 percent on income up to $25,350 and 28 percent on
income over $25,350?
$11,704.50
→ $11,264.50
$14,000.00
$14,560.00

award:

58. 0.80 points

Which statement is correct about the tax treatment of dividend income and capital gains received inside pension funds?
Dividends are taxable while capital gains are not taxable
Capital gains are taxable while dividends are not taxable
Both dividends and capital gains are taxable
→ Neither dividends nor capital gains are taxable

award:

59. 0.80 points

Which of the following statements about net working capital (NWC) is correct?
NWC is positive for all firms
As NWC decreases, potential liquidity increases
NWC excludes inventory, which is deemed illiquid
→ Decreases in NWC can increase the firm's risk

9 of 21
 award:

60. 0.80 points

A balance sheet may be considered "backward looking," from the perspective that:
It works backward, starting with net income
→ It records historic, not current values
It cannot forecast the future
It records costs over many previous periods

award:

61. 0.80 points

Perhaps the best method for estimating the market value of shareholders' equity is to:
Read from the firm's balance sheet
Read from the firm's income statement
→ Multiply number of shares outstanding by the price of each share
Add the retained earnings plus total liabilities

award:

62. 0.80 points

In which of the following asset accounts are you least likely to find a difference between market value and book value?
→ Cash
Inventory
Land
Shareholders' equity

award:

63. 0.80 points

What occurs when the value of a firm's debt exceeds the value of shareholders' equity?
The firm is bankrupt
The firm is very risky
A high rate of interest is being paid on the debt
→ The firm is financed more through debt than through equity

award:

64. 0.80 points

Which of the following expense categories is subtracted from total revenues to arrive at a firm's EBIT?
Cash dividends
→ Depreciation expense
Interest expense
Tax liability

award:

65. 0.80 points

Which of the following cash outflows does not reduce a firm's net income?
Income taxes
Interest expense
→ Dividends
Depreciation expense

award:

66. 0.80 points

Accrual accounting, which attempts to match sales revenues and the expenses associated with the production of the goods, is conducted in an attempt to:
Reduce income-tax liability
→ Reduce bias in reported profitability measures
Speed up the receipt of accounts receivable
Reduce the time necessary to depreciate assets

10 of 21
 award:

67. 0.80 points

If a firm's cash-flow statement shows that cash was used for investments, which of the following would seem most likely?
The inventory balance increased
Common stock was repurchased
→ New machines were acquired
Cash dividends were paid

award:

68. 0.80 points

Interest expense appears in the operations section of the cash-flows statement because:
Firms cannot operate without incurring interest expense
→ Its payment is not within managerial discretion
It is paid to finance a firm's inventory
False statement; interest expense appears in the financing section of the cash-flows statement

award:

69. 0.80 points

When an accountant does not report all of the potentially relevant financial information on the firm's financial statements, the accountant is most likely:
Hiding transactions from the shareholders
→ Using the discretion that is built into GAAP
Not following GAAP
Not licensed to practice accounting

award:

70. 0.80 points

One of the stronger motivations for a continuing standardization in international accounting standards is to:
Allow foreign countries to escape the wrath of the U.S. government
Provide additional work for accountants
Force financial statements to be prepared in English
→ Develop international sources of capital for firms

award:

71. 0.80 points

For a corporation in the 25 percent marginal tax bracket that incurs $70.00 in labour and materials expense, plus $15.00 in depreciation expense while generating an
incremental revenue of $100, tax liability will increase by:
→ $3.75
$7.50
$13.75
$25.00

Taxable income will be increased by $15, which will increase tax liability by $3.75.

award:

72. 0.80 points

According to the current Canadian federal income tax structure, the marginal tax rate for personal taxpayers in the highest levels of income is:
15.0 percent
25.0 percent
→ 29 percent
39.6 percent

award:

73. 0.80 points

Which of the following statements appears correct for a corporation with a negative net income in both the present and the last fiscal year?
This year's loss can be carried back, but last year's loss cannot be used
Neither of the losses can be used to reduce taxes
Both losses can be carried forward but not backward

11 of 21
 → Both losses can be carried forward and backward, within certain time limits

award:

74. 0.80 points

Which of the following statements is correct for an individual with a net income of $50,000, a tax liability of $10,704.50, and a 28 percent marginal tax rate?
→ The average tax rate is 21.41 percent
The average tax rate is 28.00 percent
The average tax rate is unknown, but less than the marginal tax rate
The average tax rate is unknown, but greater than the marginal tax rate

award:

75. 0.80 points

An individual's income for the year includes both dividend and interest payments. Which of the following statements will be correct concerning that individual's tax liability?
Dividends are taxed; tax on interest payments is paid at the corporate level
Interest is taxed; tax on dividend payments is paid at the corporate level
→ Both dividend and interest payments are taxed at the personal level
All taxes on dividend and interest payments are paid at the corporate level

award:

76. 0.80 points

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?
The net loss was greater than the amount of depreciation expense
Inventory increased significantly more than accounts payable
→ Accounts receivable decreased by significantly more than accounts payable
Cash balances declined to the desired amount

award:

77. 0.80 points

The existence of "goodwill" on a corporate balance sheet indicates that the corporation has:
Been profitable in the past
depreciated its tangible assets
→ Intangible assets from past acquisitions
Retained earnings resulting from past income

award:

78. 0.80 points

Foreign corporations may be more likely in the future to develop their financial statements according to GAAP so that:
They can reduce or avoid the payment of income taxes
Maintain reserves that are hidden from shareholders
They can adhere to less stringent accounting standards
→ Their stock qualifies for listing on U.S. exchanges

award:

79. 0.80 points

Calculate the EBIT (Earnings Before Interest and Taxes) for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000
interest expense.
$500,000
$380,000
→ $0
$120,000

12 of 21
 award:

80. 0.80 points

Calculate the cash flow due to production of goods and cash flow from sales if sales were $500, cost of goods sold were $180, accounts receivable increased by $20, and
inventory decreased by $18.
→ $480 and -$162
$550 and -$120
-$925 and -$480
-$150 and -$162

Sales ± ΔAR = cash flow from sales = $500 - 20 = 480; COGS ± ΔInventory = cash flow due to production = -$180 + 18 = $162.

award:

81. 0.80 points

Calculate the cash flow due to production of goods and cash flow from sales if sales were $9,250, cost of goods sold were $8,850, accounts receivable decreased by $950,
and inventory increased by $460.
$5,550 and $6,280
$17,250 and -$9,640
$1,620 and -$1,400
→ $10,200 and -$9,310

Sales ± ΔAR = cash flow from sales = $9,250 + $950 = $10,200; COGS ± ΔInventory = cash flow due to production = -$8850 - $460 = -$9310.

award:

82. 0.80 points

Calculate cash inflow or outflow from operating activities given the following information: Net loss -$12,000; depreciation expense $3,000; increase in AR $1,250; decrease in
inventory $900; increase in AP $760.
Cash inflow of $9,675
Cash inflow of $2,650
→ Cash outflow of $8,590
Cash outflow of $1,690

award:

83. 0.80 points

Calculate cash inflow or outflow from operating activities given the following information: profit before tax $11,250; depreciation expense $1,250; interest paid $725; tax paid
$1,050; decrease in AR $125; increase in inventory $900; decrease in AP $700.
→ Inflow of $10,375
Inflow of $8,850
Outflow of $14,650
Outflow of $6,150

award:

84. 0.80 points

Calculate the cash inflows (outflows) from investing activities if total cash decreased by $40,000; cash inflows from operating activities were $14,000 and cash outflows from
financing activities were $60,000.
Inflow of $5,000
→ Inflow of $6,000

13 of 21
 Outflow of $5,000
Outflow of $6,000

award:

85. 0.80 points

Calculate the cash inflows (outflows) from operating activities if total cash increased by $250,000; cash outflows from Investing activities were $14,000 and cash inflows from
financing activities were $190,000
Inflow of $90,000
Inflow of $81,000
→ Inflow of $74,000
Inflow of $60,000

award:

86. 0.80 points

Calculate cash inflow (outflow) from investing activities given the following information: acquisition of business operations $925; disposal of property $605; disposal of intangible
asset $175; interest received $80; proceeds of share issue $1,400; repayment of loan $195; dividends paid $200.
Outflow of $180
→ Outflow of $65
Inflow of $1,395
Inflow of $220

award:

87. 0.80 points

Calculate cash inflow (outflow) from financing activities given the following information: acquisition of business operations $925; disposal of property $605; disposal of intangible
asset $175; interest received $80; proceeds of share issue $1,400; repayment of loan $195; dividends paid $200.
Outflow of $180
Outflow of $65
→ Inflow of $1,395
Inflow of $220

award:

88. 0.80 points

Calculate cash inflow (outflow) from assets given the following information:

14 of 21
 → Inflow of $4,000
Inflow of $2,000
Outflow of $4,000
Outflow of $2,000

award:

89. 0.80 points

Calculate financing flow given the following information:

→ Inflow of $4,000
Inflow of $2,000
Outflow of $4,000
Outflow of $2,000

award:

90. 0.80 points

An asset's liquidity is determined by how readily the asset can be converted to an appropriate amount of cash.
→ True
False

award:

91. 0.80 points

The principal reason for excluding many intangible assets from the balance sheet is that they are difficult to value.
→ True
False

award:

92. 0.80 points

The difference between gross fixed assets and net fixed assets is accumulated depreciation.
→ True
False

award:

93. 0.80 points

Fixed assets can be either tangible or intangible assets.

→ True
False

award:

94. 0.80 points

Balance sheets have traditionally recorded amounts in terms of market values.

True
→ False

15 of 21
 award:

95. 0.80 points

The income statement resembles a snapshot of the firm at a specific time.

True
→ False

award:

96. 0.80 points

If net income is positive, then cash flow from operations is positive also for that period.
True
→ False

award:

97. 0.80 points

Depreciation charge is a cash payment.

True
→ False

award:

98. 0.80 points

Purchases of marketable securities are not considered to be cash used by investments on the statement of cash flows.
→ True
False

award:

99. 0.80 points

Expenditure on new capital equipment is a cash payment.

→ True
False

award:

100.0.80 points
An increase in the accounts receivable balance provides an increase in cash flow.
True
→ False

award:

101.0.80 points
An increase in inventories uses cash, reducing the firm's net cash balance.
→ True
False

award:

102.0.80 points
Accounting practices are not standardized across countries.
→ True
False

award:

103.0.80 points
The payment of interest expense is considered cash flow from financing on the statement of cash flows.
True

16 of 21
 → False

award:

104.0.80 points
If the market value of assets is high, then the market value of liabilities must be high also.
True
→ False

award:

105.0.80 points
If depreciation is a method of allocating cost rather than an actual cash flow, discuss how depreciation impacts the income statement and overall cash flows.

Depreciation appears on the income statement as an expense prior to calculating EBIT. It reduces the amount of income subject to taxation. As a result, the amount of tax
liability is reduced. Thus, profitable firms will show an increase in cash flow in the amount of the depreciation expense times the marginal tax rate.

award:

106.0.80 points
Discuss reasons why a market-value balance sheet may be distinctly different from a book-value balance sheet.

For some assets, depreciation expense is an accurate portrayal of reduction in market value. However, it is not at all uncommon for market value to be distinctly different from
depreciated book value. This can be especially true for land, which is not depreciated but has often appreciated if it has been on the books for a long period of time. In a
similar manner, liabilities may have a different market value if market interest rates on similar liabilities have changed sufficiently since the liability was issued. Finally,
investors and analysts may have critical information about the future prospects for the firm that has not been incorporated into current generally accepted accounting
principles.

award:

107.0.80 points
Why may it be difficult to rely on profits to get an overall impression of the firm's cash flows?

Two important differences between cash flow and net income are: many assets (both tangible and intangible) are depreciated (or amortized) rather than expensed in the
period in which they were acquired. Thus, the cash outflow may occur long before the corresponding expense. Also, revenues and expenses are recognized in the period in
which they are incurred regardless of when the corresponding cash flows occur.

award:

108.0.80 points
Determine the net income and also the cash flow from operations for the following 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, and a tax rate of 34 percent.

Adding depreciation expense to net income provides a cash flow from operations of $112,400.

award:

109.0.80 points
What is the overall change in net working capital resulting from the following changes? $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.

17 of 21
 award:

110.0.80 points
What is the change in cash balance for a firm with: $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?

award:

111. 0.80 points

Discuss the premise of accrual accounting. Why is it considered preferable over cash basis accounting?

Accrual accounting attempts to gather all revenues and expenses that relate to a particular accounting period, regardless of when the cash flows actually occurred. This
should permit a firm's financial statements to offer a more realistic picture of the firm's ability to generate a profit, or for the firm to have value as a "going concern." For
example, with cash basis accounting a profitable firm could show a large loss in a period of adding to their productive capacity, yet the new equipment has not yet
depreciated in value.

award:

112.0.80 points
Determine the net cash flows for periods 1 through 3 for a firm with the following transactions: $1,000 spent in period 1 and $2,000 spent in period 2 to produce goods to be
sold in the following periods, sales of $2,000 in period 2 and $4,000 in period 3, one-half of all sales are in cash with the other half collected in the following period.

award:

113.0.80 points
Compute the total tax liability, the average tax rate, and the marginal tax rate for the following corporation: $1,000,000 in taxable income; 15 percent tax up to $50,000, 25
percent up to $75,000, 34 percent up to $100,000, and 39 percent over $100,000.

award:

114.0.80 points
What are two problems inherent in comparing accounting statements across firms or even across countries?

In comparing accounting statements across firms, it is necessary to realize that items exist where financial managers still maintain discretion as to the manner and timing of

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 reporting. This may be especially true with intangible assets or off-balance sheet liabilities. Of course, firms employ different methods of depreciation and of accounting for
inventory valuation. These and other factors become even more serious for international comparisons, where firms may not be permitted to maintain two sets of books (one
for tax purposes and one for general reporting, as is permitted in the U.S.). Although accounting standards are becoming more standardized over time, there are still
significant differences across countries.

award:

115.0.80 points
Explain the difference between a market-value balance sheet and a book-value balance sheet.

For some assets, depreciation expense is an accurate portrayal of reduction in market value. However, it is not at all uncommon for market value to be distinctly different from
depreciated book value. This can be especially true for land, which is not depreciated but has often appreciated if it has been on the books for a long period of time. In a
similar manner, liabilities may have a different market value if market interest rates on similar liabilities have changed sufficiently since the liability was issued. Finally,
investors and analysts may have critical information about the future prospects for the firm that has not been incorporated into current generally accepted accounting
principles.

award:

116.0.80 points
Consider the firm described in the following paragraph. It spends $200 to produce goods in period 1. In period 2 it sells half of those goods for $150, but doesn't collect payment
until one period later. In period 3, it sells the other half of the goods for $150, and collects on these sales in period 4. Calculate the profits and the cash flows for this firm in
periods 1-4 by completing a table as shown below.

The profits for the firm are recognized in periods 2 and 3 when the sales take place. In both of those periods, profits are $150 - $100 = $50. Cash flows are derived as
follows.

In period 2, half the units are sold for $150, but no cash is collected so the entire $150 is treated as increase in accounts receivable. Half the $200 cost of production is
recognized, and a like amount is taken out of inventory. In period 3, the firm sells another $150 of product, but collects $150 from its previous sales, so there is no change in
outstanding accounts receivable. Net cash flow is the $150 collected in this period on the sale that occurred in period 2. In period 4, cash flow is again $150, as the accounts
receivable from the sale in period 3 is collected.

award:

117.0.80 points
Can cash flow from operations be positive if net income is negative? Can operating cash flow be negative if net income is positive? Give examples.

Both statements are true. If net income is positive, but a large portion of sales are made on credit, cash flow can be negative since the credit sales are revenue, but they
don't yet generate cash. This is true for other types of working capital, such as inventory. Purchases of inventory do not show up on the income statement but use up cash.
So it is possible for net income to be positive but cash flow from operations to be negative when there is a large increase in net working capital.

award:

118.0.80 points
What are a firm's cash flows?

Cash flow from assets measures the cash generated through operating activities and after making necessary investments in net working capital and fixed assets. This cash
flow is either distributed to the firm's investors, creditors and shareholders, or held in reserve by the firm as cash and marketable securities. We call this the financing flow of
the firm. Cash flow from assets must equal the financial flows.

The firm of Beryl Agatha had sales of $20,000 in 2005. The cost of goods sold was $13,000, general and administrative expenses were $2,000, interest expenses were $1,000,
and depreciation was $2,000. Working capital increased $400 and capital expenditures were $1,800. The firm's tax rate is 35 percent.

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 award:

119.0.80 points
What are the firm's earnings before interest and taxes?

award:

120.0.80 points
What is the firm's net income?

award:

121.0.80 points
What is the firm's cash flow from operating activities?

Cash flow from operations = net income + depreciation expense

650 + 1,000 = $1,650

award:

122.0.80 points
What information is contained in the balance sheet/Income statement, and statement of cash flows?

Investors and other stakeholders in the firm need regular financial information to help them monitor the firm's progress. Accountants summarize this information in a balance
sheet, income statement, and statement of cash flows.
The balance sheet provides a snapshot of the firm's assets and liabilities. The assets consist of current assets that can be rapidly turned into cash and fixed assets such as
plant and machinery. The liabilities consist of current liabilities that are due for payment within a year and long-term debts. The difference between the assets and the
liabilities represents the amount of the shareholders' equity.
The income statement measures the profitability of the company during the year. It shows the difference between revenues and expenses.
The statement of cash flows measures the sources and uses of cash during the year. The change in the company's cash balance is the difference between sources and
uses.

award:

123.0.80 points
Determine earnings before interest and taxes, net income and also the cash flow from operations for the following 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 34%.

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 award:

124.0.80 points
Why does accounting of income differ from cash flow?

Income is not the same as cash flow. There are two reasons for this: (1) investment in fixed assets is not deducted immediately from income but is instead spread over the
expected life of the equipment, and (2) the accountant records revenues when the sale is made rather than when the customer actually pays the bill, and at the same time
deducts the production costs even though those costs may have been incurred earlier.

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