Chapter 2 Test Bank

Chapter 2 Test Bank - CHAPTER 2 Financial Statements,...

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CHAPTER 2 Financial Statements, Taxes, and Cash Flow I. DEFINITIONS Topic: BALANCE SHEET 1. The financial statement showing a firm's accounting value on a particular date is the: A) Income statement. B) Balance sheet. C) Statement of cash flows. D) Tax reconciliation statement. E) Bank statement. Answer: B Topic: CURRENT ASSETS 2. A current asset is: A) An item currently owned by the firm. B) An item that the firm expects to own within the next year. C) An item currently owned by the firm that will convert to cash within the next 12 months. D) The amount of cash on hand the firm currently shows on its balance sheet. E) The market value of all the items currently owned by the firm. Answer: C Topic: LONG-TERM DEBT 3. The long-term debts of a firm are: A) Liabilities that come due within the next 12 months. B) Liabilities that do not come due for at least 12 months. C) Liabilities owed to the firm's suppliers. D) Liabilities owed to the firm's shareholders. E) Liabilities the firm expects to incur within the next 12 months. Answer: B Topic: NET WORKING CAPITAL 4. Net working capital is defined as: A) Total liabilities minus shareholders' equity. B) Current liabilities minus shareholders' equity. C) Fixed assets minus shareholders' equity. D) Total assets minus total liabilities. E) Current assets minus current liabilities. Answer: E
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5. A(n) ______________ asset is one which can be quickly converted into cash without significant loss in value. A) current B) fixed C) intangible D) liquid E) long-term Answer: D Topic: FINANCIAL LEVERAGE 6. Financial leverage refers to: A) The amount of debt used in a firm's capital structure. B) The ratio of retained earnings to shareholders' equity. C) The ratio of paid-in surplus to shareholders' equity. D) The ratio of cost-of-goods-sold to total sales. E) The amount of receivables present in the firm's asset structure. Answer: A Topic: GAAP 7. The common set of standards and procedures by which audited financial statements are prepared is known as: A) The matching principle. B) The cash flow identity. C) Generally Accepted Accounting Principles (GAAP). D) The Freedom of Information Act (FOIA). E) The 1993 Omnibus Budget Reconciliation Act. Answer: C Topic: INCOME STATEMENT 8. The financial statement summarizing a firm's performance over a period of time is the: A) Income statement. B) Balance sheet. C) Statement of cash flows. D) Tax reconciliation statement. E) Shareholders' equity sheet. Answer: A Topic: NONCASH ITEMS 9. Noncash items A) The credit sales of a firm. B) The accounts payable of a firm. C) Expenses incurred for the purchase of intangible fixed assets. D) Expenses charged against revenues that do not directly affect cash flow. E)
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Chapter 2 Test Bank - CHAPTER 2 Financial Statements,...

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