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TRUE/FALSE
1. The annual report contains four basic financial statements: the income statement, balance sheet,
statement of cash flows, and statement of retained earnings.
2. The primary reason the annual report is important in finance is that it is used by investors when they
form expectations about the firm’s future earnings and dividends, and the riskiness of those cash flows.
3. Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of
retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.
4. On the balance sheet, total assets must always equal total liabilities plus equity.
5. In Canada, amortization is a similar concept as depreciation and can be applied to both tangible and
intangible assets.
6. The income statement shows the difference between a firm’s income and its costs—i.e., its
profits—during a specified period of time. However, not all reported income comes in the form of
cash, and reported costs likewise may not correctly reflect cash outlays. Therefore, there may be a
substantial difference between a firm’s reported profits and its actual cash flow for the same period.
9. Net operating profit after taxes (NOPAT) is the amount of net income a company would generate from
its operations if it had no interest income or interest expense.
10. The fact that interest income received by a corporation is 50% taxable encourages firms to use more
debt financing than equity financing.
11. If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was
allowed as a tax-deductible expense, this would probably encourage companies to use more debt
financing than they currently do, other things held constant.
12. The interest and dividends paid by a corporation are considered to be deductible operating expenses;
hence, they decrease the firm’s tax liability.
13. The balance sheet is a financial statement that measures the flow of funds into and out of various
accounts over time, while the income statement measures the firm’s financial position at a point in
time.
14. The FIFO method leads to a higher balance sheet inventory value but a lower cost of goods sold in the
income statement.
15. The value of goodwill on intangible assets is calculated according to the impairment rule instead of a
fixed annual charge.
16. Retained earnings are the existing shareholders’ reinvested profit and do not represent cash.
17. Since investors use net income to value the firm, cash flow becomes a secondary consideration simply
because cash is for operation only.
18. To estimate the cash flow from operations, depreciation must be added back to net income because it
is a non-cash charge that has been deducted from revenue.
19. The current cash flow from existing assets is highly relevant to the investor. However, since the value
of the firm depends primarily upon its growth opportunities, profit projections from those
opportunities are the only relevant future flows with which investors are concerned.
20. Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not
deductible. This treatment, other things held constant, tends to encourage the use of debt financing by
corporations.
21. The time dimension is important in financial statement analysis. The balance sheet shows the firm’s
financial position at a given point in time, the income statement shows results over a period of time,
and the statement of cash flows reflects changes in the firm’s accounts over that period of time.
MULTIPLE CHOICE
Kaksi todistajaa.
Oli katkeraa ivaa, että mies, joka oli niin kauvan urheillut kuoleman
kanssa ja hieronut sillä kauppoja, tuotiin itse tänne kuolleena,
paljastettavaksi ja tuijoteltavaksi! Vähänpä nyt oli hyötyä hänen
kujeistaan ja kemiallisista sekoituksistaan, hänen kamalista
tiedoistaan ja siitä salaperäisyydestä, johon hän oli verhoutunut.
Manala oli saanut hänet kolkon pään, mustan sydämen ja kaikki.
Niin tylsinä kuin hänen aistinsa vielä olivatkin, huomasi hän, että
kuningas istui kumartuneena eteenpäin, omituinen terävä ilme
kasvoillaan,— että tuomarit näyttivät hämmästyneiltä, että
kardinaalinkin kalvaat piirteet olivat hieman punehtuneet. Ja
yksikään heistä ei katsonut häneen. He olivat kääntyneet poikaan,
joka seisoi pöydän päässä papin vieressä. Ikkunasta osui kalsea
valo hänen kasvoilleen, ja hän puhui. "Minä kuuntelin", kuuli
madame hänen sanovan. "Niin."
"Ja kuinka pitkä aika kului ennen kuin madame de Vidoche tuli?"
kysyi presidentti, nähtävästi pitkittäen kuulustelua, jonka alkuosasta
syytetty ei tiennyt mitään.
"Varma olen."
"Ja madame?"
"Lemmenjauhetta."
"Molemmat."
"Niin."
"Niin."
Poika myönsi.
"Rolandin verestä?"
"Missä asuit?"
*****
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