Q-1: The fundamental starting point of all the accounting statements is the ________.
A) accounting identity.
B) computing identity.
C) investing identity.
D) financing identity.
Q-2: Which of the statements below is FALSE?
A) The textbook uses the framework of the income statement to find the operating income of the company (an accounting measure) and then makes adjustments to find the true cash flow from operations.
B) In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash.
C) Three fundamental issues separate net income and cash flow: accrual-based accounting, non-cash expense items, and interest expense.
D) Generally Accepted Accounting Principles (GAAP) in the United States allow the use of accrual accounting to record revenue.
Q-3: Which of the statements below is FALSE?
A) The purpose of studying financial statements is to understand those portions of the statements that have relevance for financial decision making.
B) We need to understand how to interpret and use the information presented in financial statements to form a picture of the financial profile of the firm.
C) Accounting, it has been said, looks back to where a company has been — somewhat like looking through a rear view mirror.
D) Accounting and finance view the numbers in the same way.
Q-4: Question not clear
Q-5: C. The times interest earned ratio tells us the number of times a company has resorted to debt financing over the year
Q-6: D. The balance sheet reports the performance of the firm over the past period.
Q-7: C. the profitability ratio x total asset turnover x equity multiplier
Q-8: A. The current ratio is current assets divided by current liabilities
Q-9: There are four primary financial statements that are used to measure the performance of a firm. Which of the choices below are included among these four?
A) the balance statement and income statement.
B) the income sheet and statement of retained earnings.
C) the statement of cash flow and statement of balance.
D) the balance sheet and statement of cash flow
Q-10: Return on equity can increase as a result of an increase in which of the following ratios?
A) Net income/ sales
B) Sales/ total assets
C) Total assets/ equity
D) All of the above will have a positive influence on the ROE.
Q-11: The purpose of studying financial statements is ________.
A) to mechanically build portfolio analysis.
B) to understand those portions of the statements that have relevance for financial decision making.
C) to primarily investigate all portions of the statements that have relevance for dividend policy.
D) to mechanically learn how to read and understand footnotes.
Q-12: Which of the following are liquidity ratios
All Three are liquidity ratios
Q-13: The income statement begins with revenue and subtracts various operating expenses until arriving at ________.
A) earning after taxes.
B) net income.
C) taxable income.
Q-14: ___ can be helpful for managers to understand short-term cash obligations.
A) Profitability ratios
B) Asset management ratios
C) Solvency ratios
D) Liquidity ratios
Q-15: Which of the statements below is FALSE?
A) Officers of a company or others who have a fiduciary responsibility to the owners can trade on their acquired private information about the company prior to the information being made public.
B) One potential problem in the world of finance can arise when some owners or potential owners have access to more information about a company than do others.
C) Regulation Fair Disclosure (or Reg FD) requires companies to release all material information to all investors at the same time.
D) The 10-K must be filed within sixty days after the end of the company's fiscal year.
Q-16: A. Financial leverage ratio
Q-17: ______ break(s) down the return-on-equity into three components.
A) The DuPont model
B) Market value ratios
C) Profitability ratios
D) Asset management
Q-19: Which of the statements below is FALSE?
A. When the current ratio is greater than one, we are also saying that net working capital is positive as current assets are greater than current liabilities.
B. Financial leverage ratios deal with long-term solvency and the use of debt as a financing tool.
C. The debt ratio is total assets minus total equity divided by equity.
D. Times interest earned equals EBIT divided by interest expense.
Q-20: In finance, we separate operating decisions from financing decisions and thus exclude __ as part of operating income from the income statement.
A) Cash flow
C) Interest expense