Version A – 45 Questions
1) On the statement of cash flows, a company reports depreciation on purchased
equipment as cash inflow under operations because
Depreciation cash inflows are triggered by production of a good or service.
b) Depreciation is treated as an expense on the income statement, but there are no
actual cash outflows.
Depreciation cash inflows are generated when inventory turns into revenue.
d) It depends entirely on whether or not the company paid for the purchase entirely
None of the above.
Depreciation payments are included in the income statement,
the bottom line of which goes to cash flow under investments.
2) On the statement of cash flows, a company reports an increase in accounts receivable
Cash inflow under operations.
A negative adjustment to cash flow under operations.
Cash outflow under investing.
It depends on when the customers intend to settle their accounts.
None of the above.
Cash has not actually changed hands when an accounts
receivable is created.
3) A firm’s long-term debt/equity ratio is equal to 2.5.
Which of the following
statements is not true?
The firm’s long-term debt is two and one-half times the size of its shareholders’
b) For each $1.00 in shareholder equity the firm has $2.50 in long-term debt.
The firm’s degree of financial leverage is greater than 1x.
d) For each $1.00 in shareholder equity the firm has
at least $3.50 in assets.
All of the above statements are true.
4) Sean and Laura (S&L) start a corporation to sell maps to the Boston Marathon route.
Between March 1 and March 17th they:
each contributed $1,000
they signed corporate agreements
they sold maps for $500 (half cash, half on credit)
they purchased maps for $1,000 (half cash, half on-account).
If S&L prepared financial statements on March 17th, what balance sheet accounts
would be affected by the various transactions?
Cash, Accounts Receivable, Fixed Assets.
b) Cash, Accounts Receivable, Inventory, Retained Earnings, and Paid-in-Capital.
Cash, Inventory, Shareholder's Liabilities.
d) Cash, Inventory, Accounts Payable, Paid in Capital
Cash, Accounts Receivable, Inventory, Accounts Payable, Paid in Capital, and
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