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Unformatted text preview: Chapter 02 Financial Statements, Taxes, and Cash Flow 1. Noncash items refer to: A. accrued expenses. B. inventory items purchased using credit. C. the ownership of intangible assets such as patents. D. expenses which do not directly affect cash flows. E. sales which are made using store credit. 2. The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the: A. operating cash flow. B. net capital spending. C. net working capital. D. net cash flow. E. cash flow to stockholders. 3. Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? A. real estate investment B. good reputation of the company C. equipment owned by the firm D. money due from a customer E. an item held by the firm for future sale 4. Which one of the following will increase the value of a firm's net working capital? A. using cash to pay a supplier B. depreciating an asset C. collecting an accounts receivable D. purchasing inventory on credit E. selling inventory at a profit 5. Which one of the following statements concerning net working capital is correct? A. Net working capital increases when inventory is purchased with cash. B. Net working capital must be a positive value. C. Total assets must increase if net working capital increases. D. A decrease in the cash balance also decreases net working capital. E. Net working capital is the amount of cash a firm currently has available for spending. 6. Shareholders' equity: A. increases in value anytime total assets increases. B. is equal to total assets plus total liabilities. C. decreases whenever new shares of stock are issued. D. includes long-term debt, preferred stock, and common stock. E. represents the residual value of a firm. 2-1 7. The higher the degree of financial leverage employed by a firm, the: A. higher the probability that the firm will encounter financial distress. B. lower the amount of debt incurred. C. less debt a firm has per dollar of total assets. D. higher the number of outstanding shares of stock. E. lower the balance in accounts payable. 8. The book value of a firm is: A. equivalent to the firm's market value provided that the firm has some fixed assets. B. based on historical cost. C. generally greater than the market value when fixed assets are included. D. more of a financial than an accounting valuation. E. adjusted to the market value whenever the market value exceeds the stated book value. 9. Which one of the following is true according to Generally Accepted Accounting Principles (GAAP)? A. Depreciation may or may not be recorded at management's discretion. B. Income is recorded based on the matching principle....
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- Spring '08