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TIF_ch03 - Test Bank Chapter 3 ACCOUNTING CASH FLOWS AND...

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Test Bank Chapter 3: ACCOUNTING, CASH FLOWS, AND TAXES EFS I. True or False (Definitions and Concepts) F 1. The income statement reports the financial position of a firm at a particular point in time. (FALSE: Should be balance sheet instead of income statement.) T 2. The income statement reports the income, expenses, and profit (or loss) over a specific interval of time. F 3. Depreciation increases an asset's book value each year. (FALSE: Should be lowers instead of increases.) T 4. The average tax rate is the total taxes paid divided by taxable income. T 5. GAAP stands for generally accepted accounting principles. T 6. The annual report includes an income statement, a balance sheet, a statement of cash flows, and accompanying notes F 7. Long-term refers to more than six months. (FALSE: Should be one year instead of six months.) T 8. Adverse selection can discourage people from offering to sell good-quality products. T 9. The difference between current assets and current liabilities is the firm’s net working capital. F 10. EBIT is the earnings after interest and taxes. (FALSE: Should earnings before instead of earnings after.) F 11. Dividends per share divided by EPS gives the firm’s liquidity ratio. (FALSE: Should be payout ratio instead of liquidity ratio.) F 12. The income statement indicates how the cash position of the firm has changed during the period covered by the income statement. (FALSE: Should be statement of cash flows instead of income statement.) T 13. The notes to the financial statements are an integral part of the statements. T 14. The current market value of an asset can be very different from its book value. T 15. A progressive tax system has an average tax rate that increases for some increases in the level of income but never decreases with such increases. II. Multiple Choice (Definitions and Concepts) d 16. GAAP include that define how firms should maintain records and prepare financial reports. a. conventions
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b. rules c. procedures d. all of these c 17. Accepted standards among countries making it hard to compare the information contained in financial statements for firms in different countries. a 18. Generally accepted accounting principles (GAAP) refer to: procedures necessary to define accepted accounting practice at a particular time. statement, a balance sheet, a statement of cash flows, and accompanying notes. loss of value. b
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