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Chapter 002 Financial Statements, Taxes and Cash Flow Multiple Choice Questions 1. The financial statement summarizing the value of a firm's equity on a particular date is the: a. income statement. B . balance sheet. c. statement of cash flows. d. cash flow statement. e. dividend statement. SECTION: 2.1 TOPIC: BALANCE SHEET TYPE: DEFINITIONS 2. A current asset is best defined as: a. an asset, such as equipment, that is currently owned by a firm. b. an asset the firm expects to own within the next year. C . an asset which is expected to be converted into cash within the next year. d. the amount of cash on hand the firm currently shows on its balance sheet. e. the market value of the inventory currently owned by the firm. SECTION: 2.1 TOPIC: CURRENT ASSETS TYPE: DEFINITIONS 3. Net working capital is defined as: a. total liabilities minus shareholders' equity. b. current liabilities minus shareholders' equity. c. fixed assets minus long-term liabilities. d. total assets minus total liabilities. E . current assets minus current liabilities. SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: DEFINITIONS 2-1
Chapter 002 Financial Statements, Taxes and Cash Flow 4. A(n) ____ asset is one which can be quickly converted into cash without significant loss in value. a. tangible b. fixed c. intangible D . liquid e. marketable SECTION: 2.1 TOPIC: LIQUID ASSETS TYPE: DEFINITIONS 5. Financial leverage refers to the: A . use of debt in a firm's capital structure. b. ratio of retained earnings to shareholders' equity. c. ratio of paid-in surplus to shareholders' equity. d. ratio of sales to total assets. e. ratio of current assets to long-term assets. SECTION: 2.1 TOPIC: FINANCIAL LEVERAGE TYPE: DEFINITIONS 6. The common set of standards and procedures by which audited financial statements are prepared is known as the: a. Matching principle. b. Cash flow identity. C . Generally Accepted Accounting Principles (GAAP). d. Financial Leverage Reporting Principles (FLRP). e. Standard Market Value Guidelines (SMVG). AACSB TOPIC: ETHICS SECTION: 2.2 TOPIC: GAAP TYPE: DEFINITIONS 2-2
7. 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. market value report. SECTION: 2.2 TOPIC: INCOME STATEMENT TYPE: DEFINITIONS 8. Noncash items refer to: a. the talents of the firm's employees which are not reflected in the financial statements. b. the accounts payable of a firm. c. the costs incurred for the purchase of intangible fixed assets. D . expenses charged against revenues that do not directly affect cash flow. e. sales which are made on credit. SECTION: 2.2 TOPIC: NONCASH ITEMS TYPE: DEFINITIONS 9. Your _____ tax rate is the amount of tax payable on the next taxable dollar you earn. a. mean
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