Quiz Questions: Student Centre Chapter 2: Review of Accounting

Student Centre Chapter 2: Review of Accounting
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Quiz Questions
2-1. The income statement measures:
a. what the firm owns and how those assets are financed
b. the profitability of the firm at a given point in time
c. the profitability of the firm over a period of time
d. how changes in the balance sheet are financed over time
2-2. The three primary sources of capital to the firm are:
a. net income, retained earnings, and bank loans

b. bondholders, preferred shareholders, and common shareholders
c. operating profits, extraordinary gains, dividends
d. amortization cash flow, net income, and retained earnings
2-3. Which of the following is not true regarding the P/E ratio?
a. It is the multiplier applied to earnings per share to determine

current value
b. P/E ratios allow comparison of the relative market values of many
companies based on $1 of earnings per share.
c. It indicates expectations about the future of a company.

d. Firms expected to provide returns greater than those of the
market with equal or less risk normally have P/E ratios lower than
the market P/E.
2-4. The balance sheet of the firm shows:
a. the profitability of the firm over time

b. the holdings and obligations of the firm
c. the assets of the firm on a current cost basis
d. the receipt and disbursement of corporate funds
2-5. Which of the following properly lists balance sheet items in order of
liquidity, from most liquid to least liquid?
a. Accounts receivable, inventory, marketable securities, cash.

b. Cash, marketable securities, accounts receivable, inventory.
c. Inventory, marketable securities, cash, accounts receivable.
d. Cash, inventory, accounts receivable, marketable securities.
2-6. All of the following are true of shareholders' equity except:
a. it represents the combined total of the firm's current and long

term assets
b. it represents the total contribution and ownership interest of
preferred and common shareholders
c. the three basic components are preferred stock, common stock,
and retained earnings
d. it represents the difference between the firm's assets and
liabilities
2-7. Net worth or the book value of the firm is computed:
a. total assets minus shareholders' equity

b. total assets minus the firm's liabilities
c. preferred stock plus common stock plus retained earnings
d. shareholders equity minus preferred stock
2-8. The current cost method of financial reporting takes inflation into account
and has the greatest impact on:
a. the valuation of accounts receivable and marketable securities

b. inventory and plant and equipment
c. current assets
d. the determination of dividend policy
2-9. The statement of cash flows:
a. measures changes in net income over time

b. the receipt and disbursement of funds of the firm
c. the assets of the firm and the means by which they are financed
d. emphasizes the critical nature of the firm's cash flows
2-10. All of the following areas of cash flows are analyzed except:
a. operations activities
b. uses of funds
c. investing activities
d. financing activities
2-11. Amortization is considered a source of funds to the firm because:
a. it is purely an accounting entry and doesn't involve a direct

disbursement of funds, freeing up these funds for other investments
b. it represents a reduction in asset holdings

c. it represents an increase in an asset account

d. amortization is not a source of funds

2-12. All of the following are decisions heavily impacted by federal income tax
considerations except:
a. lease versus purchase decisions

b. the issuance of common shares versus debt
c. cash budgeting and dividend policy decisions
d. the decision to replace on asset
2-13. All of the following are examples of tax deductible expenses, except:
a. dividends on common shares

b. interest payments
c. amortization charges
d. sales and administrative expenses
2-14. The aftertax cost of a tax deductible expense is:
a. cost times the tax rate

b. cost times (1-tax rate)
c. the cost of the expense
d. the cost divided by the tax rate
2-15. To an economist, the term income means:
a. sales - cost of goods sold

b. change in real worth taking place between the beginning and each
of a period
c. operating profit - interest expense

d. earnings aftertaxes

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For list of chapters click on arrow Go

| Internet Resources and Questions | Quiz Questions | Web Links | Glossary and Key Terms |

2-2. The three primary sources of capital to the ﬁrm are:

a. net income, retained earnings, and bank loans

a. It is the multiplier applied to earnings per share to determine

2-4. The balance sheet of the ﬁrm shows:

a. the proﬁtability of the ﬁrm over time

a. Accounts receivable, inventory, marketable securities, cash.

2-6. All of the following are true of shareholders' equity except:

a. it represents the combined total of the ﬁrm's current and long

2-7. Net worth or the book value of the ﬁrm is computed:

a. total assets minus shareholders' equity

a. the valuation of accounts receivable and marketable securities

2-9. The statement of cash ﬂows:

a. measures changes in net income over time

2-11. Amortization is considered a source of funds to the ﬁrm because:

a. it is purely an accounting entry and doesn't involve a direct

a. lease versus purchase decisions

a. dividends on common shares

2-14. The aftertax cost of a tax deductible expense is:

a. cost times the tax rate

2-15. To an economist, the term income means:

a. sales - cost of goods sold

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