A current assets b long term liabilities c equity d

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(3) Which of the following is a component of accounts payable? (a) current assets (b) long-term liabilities (c) equity (d) net working capital (4) Which of the following is not considered a component of shareholders' equity? (a) common stock (b) paid in surplus (c) retained earnings (d) interest paid ANSWERS: (1) d ; (2) c ; (3) d ; (4) d 103. Answer the below questions. (1) The Feeder Company reported retained earnings in 2004 of $400. In 2005, Feeder lost $40 after taxes and paid a dividend of $40. What is Feeder's ending retained earnings in 2005? (a) $220 (b) $300 (c) $320 (d) $380 (2) Which of the following statements about liquidity is true? (a) You can get an accurate picture of the liquidity of a firm by looking at its current assets. (b) Accounts receivable are generally considered more liquid than inventory. (c) An asset is liquid if it can be sold quickly whatever the price.
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(3) George’s Manufacturing has 300 million shares of stock outstanding at the end of the year. Net income is $600 million, retained earnings are $900 million, and a total of $240 million in dividends is paid. What are George's earnings per share? (a) $0.50 (b) $0.67 (c) $0.80 (d) $2.00 (4) If operating cash flow is negative, then (a) the firm is apparently about to go bankrupt (b) the firm can pay no dividends (c) cash flow to bondholders must also be negative (d) cash flow from assets may still be positive ANSWERS: (1) c ; (2) b ; (3) d ; (4) d 104. Which of the below statements are true? (1) A firm that earns negative net income will always find itself in financial distress. (2) A firm's market value always exceeds its book value. (3) The income statement reflects a snapshot taken at a single point in time. (4) Net investment in fixed assets over the course of a year is equal to the ending net fixed assets minus the beginning net fixed assets plus depreciation. (5) Current assets and fixed assets are on the left-hand side of the balance sheet. (6) Current liabilities, long-term debt, and equity are on the left-hand side. (7) Suppose Mercy, Inc. just received a patent on a new anti-cholesterol drug. This patent is considered an intangible fixed asset. ANSWERS: Statements (4) , (5) , and (7) are true . Statement (1) is FALSE: Because of depreciation a firm with a negative net income can still have a positive cash flow. Statement (2) is FALSE: A firm's market value usually (but not always) exceeds it book value. Statement (3) is FALSE: The income statement accounts for what has occurred over some period of time. Statement (6) is FALSE: Current liabilities, long-term debt, and equity are on the right-hand side. 105. Most experts argue that financial ratio analysis needs to look at trends and industry averages. Explain why you think this might be so? Trends are important in order to gage deviations from previous years as well as to project future ratios (assuming the trend continues). Trends can help us overcome problems caused by one year numbers which may reflect unusual and one-time events (such as the change in accounting methods or spin-off of assets). Industry averages are important to measure the company's performance relative to competitors and industry norms. Without a norm, numbers can lack sufficient meaning. We might note that prior research finds that averages differ between
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