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1 | |
According to Generally Accepted Accounting Principles (GAAP), assets are generally shown on the financial statements at the higher of current market value or historical cost. |
| | A) | True |
| | B) | False |
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2 | |
There is a tradeoff between the advantages of liquidity and forgone potential profits. |
| | A) | True |
| | B) | False |
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3 | |
Suppose Nu-Drugs, Inc. just received a patent on a new drug for diabetes. This patent is considered an intangible fixed asset. |
| | A) | True |
| | B) | False |
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4 | |
You are to determine the level of net capital spending by a firm. If you have the balance sheet and income statements, how would you go about your task? |
| | A) | ending net fixed assets minus beginning net fixed assets plus depreciation |
| | B) | beginning net fixed assets plus ending net fixed assets minus depreciation |
| | C) | ending net fixed assets minus beginning net fixed assets minus depreciation plus taxes |
| | D) | ending net fixed assets minus beginning net fixed assets plus depreciation minus taxes |
| | E) | beginning net fixed assets minus ending net fixed assets plus depreciation |
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5 | |
Balance sheet assets: I. always have a value equal to total liabilities minus shareholders' equity.
II. are listed in order of increasing liquidity.
III. represent items acquired with the use of liabilities and equity.
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| | A) | I only |
| | B) | II and III only |
| | C) | III only |
| | D) | I and II only |
| | E) | I, II, and III |
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6 | |
Which one of the following statements is true? |
| | A) | Accounting income is generally equal to cash flow. |
| | B) | Assets are usually listed on the balance sheet at market value. |
| | C) | Accounting statements are usually prepared to match the timing of income and expenses. |
| | D) | The balance sheet equity account represents the market value of the firm to the stockholders. |
| | E) | The balance sheet tells investors exactly what the firm is worth. |
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7 | |
The changes in current assets relative to current liabilities over a period of time are called the: |
| | A) | net capital spending. |
| | B) | change in net working capital. |
| | C) | operating cash flow. |
| | D) | change in asset cash flow. |
| | E) | cash flow from assets. |
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8 | |
Which one of the following statements is generally true regarding liquidity? |
| | A) | Liquidity is detrimental to a firm because it allows the firm to pay its bills more easily, thereby avoiding financial distress. |
| | B) | Liquidity is valuable to a firm because liquid assets can be sold quickly without much loss in value. |
| | C) | Liquidity is valuable to a firm because a firm can borrow money using its liquid assets, such as a warehouse, as collateral. |
| | D) | Assets are generally listed on a firm's balance sheet in the order of increasing liquidity. |
| | E) | Liquid assets generally earn a large return, especially in comparison to illiquid assets. |
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9 | |
Additions to net working capital over the course of a year can be computed by: |
| | A) | subtracting depreciation from the difference between ending NWC and beginning NWC. |
| | B) | adding depreciation to the difference between ending NWC and beginning NWC. |
| | C) | adding interest paid to the difference between ending NWC and beginning NWC. |
| | D) | subtracting interest paid from the difference between ending NWC and beginning NWC. |
| | E) | subtracting beginning NWC from ending NWC. |
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10 | |
Last year, HD Corporation had $1 million in operating cash flow, $500,000 in net capital spending, and a decrease in net working capital of $25,000. What was the firm's cash flow from assets? |
| | A) | $475,000 |
| | B) | $525,000 |
| | C) | $1,000,000 |
| | D) | $1,475,000 |
| | E) | $1,525,000 |
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