Chap002 2019 Fall Assignment 2

Chapter 02 - Financial Statements, Taxes, and Cash Flow
Chapter 02
Financial Statements, Taxes, and Cash Flow
Multiple Choice Questions
1. Which one of the following is the financial statement that shows the accounting value of a
firm's equity as of a particular date?
A. income statement
B. creditor's statement
C. balance sheet
D. statement of cash flows
E. dividend statement
5. 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.
6. The percentage of the next dollar you earn that must be paid in taxes is referred to as the
_____ tax rate.
A. mean
B. residual
C. total
D. average
E. marginal
13. Which one of the following is classified as an intangible fixed asset?

A. accounts receivable
B. production equipment
C. building
D. trademark
E. inventory
17. 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
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18. 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.
20. Which one of the following accounts is the most liquid?

A. inventory
B. building
C. accounts receivable
D. equipment
E. land
21. Which one of the following represents the most liquid asset?
A. $100 account receivable that is discounted and collected for $96 today
B. $100 of inventory which is sold today on credit for $103
C. $100 of inventory which is discounted and sold for $97 cash today
D. $100 of inventory that is sold today for $100 cash
E. $100 accounts receivable that will be collected in full next week
25. 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.
28. Which one of the following is true according to Generally Accepted Accounting
Principles?
A. Depreciation may or may not be recorded at management's discretion.
B. Income is recorded based on the matching principle.
C. Costs are recorded based on the realization principle.
D. Depreciation is recorded based on the recognition principle.
E. Costs of goods sold are recorded based on the matching principle.
29. Which one of these is most apt to be a fixed cost?

A. raw materials
B. manufacturing wages
C. management bonuses
D. office salaries
E. shipping and freight
2-2
30. Which one of the following costs is most apt to be a fixed cost?
A. production labor cost
B. depreciation
C. raw materials
D. utilities
E. sales commissions
35. Depreciation:
A. reduces both taxes and net income.
B. increases the net fixed assets as shown on the balance sheet.
C. reduces both the net fixed assets and the costs of a firm.
D. is a noncash expense which increases the net income.
E. decreases net fixed assets, net income, and operating cash flows.
37. Which one of the following statements is correct concerning a corporation with taxable
income of $125,000?
A. Net income minus dividends paid will equal the ending retained earnings for the year.
B. An increase in depreciation will increase the operating cash flow.
C. Net income divided by the number of shares outstanding will equal the dividends per share.
D. Interest paid will be included in both net income and operating cash flow.
E. An increase in the tax rate will increase both net income and operating cash flow.
46. A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210
in accounts payable, and $70 in cash. What is the amount of the current assets?
A. $710
B. $780
C. $990
D. $2,430
E. $2,640
53. Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common
stock increased by $1,200 and retained earnings decreased by $310. What is the net income
for the year?
A. -$210
B. $990
C. $1,610
D. $1,910
E. $2,190
2-3
56. Given the tax rates as shown, what is the average tax rate for a firm with taxable income
of $311,360?
A. 28.25 percent
B. 31.09 percent
C. 33.62 percent
D. 35.48 percent
E. 39.00 percent
60. Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets
of $209,411. During the year, assets with a combined book value of $6,943 were sold.
Depreciation for the year was $42,822. What is the amount of net capital spending?
A. $33,763
B. $40,706
C. $58,218
D. $65,161
E. $67,408
2-4
75. What is the net working capital for 2009?

A. -$175
B. $338
C. $1,262
D. $1,945
E. $4,941
76. What is the change in net working capital from 2008 to 2009?
A. -$175
B. -$70
C. $125
D. $240
E. $315
77. What is the net capital spending for 2009?

A. $117
B. $239
C. $257
D. $338
E. $421
78. What is the operating cash flow for 2009?

A. $1,226
B. $1,367
C. $1,644
D. $1,766
E. $1,823
79. What is the cash flow from assets for 2009?

A. $1,230
B. $1,580
C. $1,770
D. $1,810
E. $1,980
2-5
80. What is net new borrowing for 2009?

A. -$1,300
B. -$1,020
C. $880
D. $1,020
E. $1,300
81. What is the cash flow to creditors for 2009?

A. -$1,020
B. -$1,100
C. $280
D. $1,580
E. $1,760
82. What is the cash flow to stockholders for 2009?

A. $0
B. $133
C. $268
D. $1,709
E. $1,515
Essay Questions
85. Assume you are the financial officer of a major firm. The president of the firm has just
stated that she wishes to reduce the firm's investment in current assets since those assets
provide little, if any, return to the firm. How would you respond to this statement?
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Chapter 02 - Financial Statements, Taxes, and Cash Flow

Multiple Choice Questions

5. Noncash items refer to:

13. Which one of the following is classified as an intangible fixed asset?

20. Which one of the following accounts is the most liquid?

25. The book value of a firm is:

29. Which one of these is most apt to be a fixed cost?

75. What is the net working capital for 2009?

77. What is the net capital spending for 2009?

78. What is the operating cash flow for 2009?

79. What is the cash flow from assets for 2009?

80. What is net new borrowing for 2009?

81. What is the cash flow to creditors for 2009?

82. What is the cash flow to stockholders for 2009?

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