Chapter 01 Test Bank

1-1 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 01 Test Bank 1.Current liabilities are defined as liabilities with a maturity of less than one year.

TRUE

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2.A decline in the Net fixed assets account between year-end 2016 and year-end 2017 is a clear indication that fixed assets were sold during 2017.

FALSE

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3.When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method.

TRUE

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4.Accounting rules require U.S. companies to depreciate research and development (R&D) expenditures using the straight-line method.

FALSE

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5.You can construct a sources and uses statement for 2017 if you have a company’s year-end balance sheets for 2017 and 2018.

FALSE

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6.A reduction in long-term debt is a use of cash.

TRUE

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7.The accrual principle requires that revenue not be recognized until payment from a sale is received.

FALSE

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Analysis for Financial Management, 12e Robert C. Higgins (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4

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8.An increase in cash and cash equivalents should appear as a source of cash on the sources and uses statement.

FALSE

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9.A cash flow statement places each source or use of cash into one of three broad categories: operating activities, investing activities, or financing activities.

TRUE

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• The cost of equity is usually reported on the income statement right below interest expense.

FALSE

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• Which of the following statements concerning the cash flow production cycle is true?

A.The profits reported in a given time period equal the cash flows generated.B.A company’s operations and finances are independent of each other.C.Financial statements have nothing to do with reality.D.The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm’s working capital cycle.E.A profitable company will always have sufficient cash to meet its obligations.

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• Which of the following statements concerning a firm’s cash flows and profits is false?

A.Managers must be at least as concerned with cash flows as with profits.B.A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production.C.The cash flows generated in a given time period can differ from the profits reported.D.Profits are no assurance that cash flow will be sufficient to maintain solvency.E.Due to required cash investments in current assets, fast-growing and profitable companies can literally "grow broke".

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• Which of the following is NOT a typical reason for differences between profits and cash flow?

A.Goodwill B.Depreciation expense C.Changes in accounts receivable D.Accrual accounting practices

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• Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets

the company owns and all the claims against those assets?

• income statement
• creditor’s statement
• balance sheet
• cash flow statement
• sources and uses statement

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• A balance sheet reports the value of a firm’s assets, liabilities, and equity

• over an annual period.
• over any period of time.
• at any point in time.
• at the end of the year.

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• A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the

company’s balance sheet?

• Equity rises $250,000; net plant and equipment falls $250,000.
• Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.
• Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000.
• Cash rises $250,000; net plant and equipment falls $250,000.

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• A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this

transaction affect the company’s balance sheet?

• Net plant and equipment rises $10 million; cash falls $10 million; bank debt rises $5 million.
• Net plant and equipment rises $5 million; cash falls $10 million; bank debt rises $5 million.
• Net plant and equipment rises $5 million; cash falls $5 million; bank debt rises $5 million.
• Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.

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• Which one of the following is the financial statement that summarizes a firm’s revenue and expenses over a period of time?

• income statement
• balance sheet
• cash flow statement
• sources and uses statement
• market value statement

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• The sources and uses of cash over a stated period of time are reflected in the

• income statement.
• balance sheet.
• shareholders’ equity statement.
• cash flow statement.
• statement of operating position.

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• Which one of the following is a source of cash?

• increase in accounts receivable
• decrease in notes payable
• decrease in common stock
• increase in inventory
• increase in accounts payable

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• Which one of the following is a use of cash?

• increase in notes payable
• increase in inventory
• increase in long-term debt
• decrease in accounts receivable
• increase in common stock

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• Which one of the following is a source of cash?

• decrease in accounts receivable
• decrease in common stock
• decrease in long-term debt
• decrease in accounts payable
• increase in inventory

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• Which of the following would NOT be considered a use of cash?

• Dividends paid
• A decrease in accounts payable
• Depreciation
• An increase in the cash and marketable securities account

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