Question 1

Which of the following statements is true for a corporation with $1 million market value of equity,$2 million market value of assets,and 1,000 shares of outstanding stock?

Accepted Answer

A)   Market value of liabilities exceeds book value of liabilities.
B)   Market value of liabilities equals $1 million.
C)   Book value per share equals $1,000.
D)   Market value per share equals $2,000.E) All of the above
F) B) and C)

Question 2

Who pays taxes on earnings distributed as dividends?

Accepted Answer

A)   The issuing corporation
B)   The shareholder receiving the dividend
C)   Both the issuing corporation and the shareholder
D)   Neither the issuing corporation nor the shareholderE) B) and D)
F) All of the above

Question 3

Net working capital is a measure of a company's:

Accepted Answer

A)   goodwill.
B)   short-term liabilities.
C)   estimated cash reservoir.
D)   shareholders' equity.E) B) and D)
F) B) and C)

Question 4

A balance sheet portrays the value of a firm's assets and liabilities:

Accepted Answer

A)   over an annual period.
B)   over any stated period of time.
C)   at any stated point in time.
D)   only at the end of the calendar year.E) A) and B)
F) B) and D)

Question 5

In which of the following balance-sheet entries are you least likely to find a difference between market value and book value?

Accepted Answer

A)   Cash
B)   Inventory
C)   Land
D)   Shareholders' equityE) B) and D)
F) A) and B) A

Question 6

Which one of the following will reduce the cash flow during an accounting period?

Accepted Answer

A)   High depreciation expense
B)   Reduction of inventory levels
C)   Acquisition of equipment
D)   Increase in accounts payableE) A) and D)
F) A) and C)

Question 7

What happens to a firm's net worth as it uses cash to repay accounts payable?

Accepted Answer

A)   Net worth increases.
B)   Net worth decreases.
C)   Net worth remains constant.
D)   Net worth decreases temporarily, until cash is replenished.E) B) and C)
F) B) and D)

Question 8

Depreciation expense is used to:

Accepted Answer

A)   allocate costs to all departments of the firm.
B)   determine when an asset is fully paid off.
C)   allocate historical cost over the life of an asset.
D)   equate the historical cost and market values of an asset.E) A) and C)
F) C) and D)

Question 9

Assume a company pays tax at a rate of 15% on its first $50,000 of income.Any income above $50,000 is taxed at 25%.If a company has $75,000 of taxable income,which of the following statements is correct?

Accepted Answer

A)   Its marginal tax rate is 15%.
B)   Its average tax rate is 25%.
C)   Its marginal tax rate is 18.33%.
D)   Its average tax rate is 18.33%.E) None of the above
F) All of the above

Question 10

One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements about net working capital (NWC) is correct?

Accepted Answer

A)   NWC is positive for all firms.
B)   As NWC decreases, potential liquidity increases.
C)   NWC excludes inventory, which is deemed illiquid.
D)   NWC is negative if current liabilities exceed current assets.E) None of the above
F) A) and C)

Question 12

Which of the following cannot be used to reduce taxable corporate income?

Accepted Answer

A)   Cash dividends
B)   Depreciation expense
C)   Interest expense
D)   Administrative expensesE) A) and C)
F) None of the above

Question 13

Which of the following assets is likely to be considered the most liquid?

Accepted Answer

A)   Marketable securities
B)   Net fixed assets
C)   Accounts payable
D)   InventoriesE) A) and C)
F) None of the above

Question 14

Assume a single taxpayer is taxed at 10% on the first $9,275 of taxable income,15% on the next $28,375 of income,and at 25% for the following $53,500 of income.What is the average tax rate for that individual if her taxable income is $42,000?

Accepted Answer

A)   14.93%
B)   16.67%
C)   16.13%
D)   25%E) B) and C)
F) None of the above A

Question 15

According to the U.S.tax code at the beginning of 2016,the highest marginal tax rate for personal taxpayers is:

Accepted Answer

A)   25.0%.
B)   28.5%.
C)   35.0%.
D)   39.6%.E) A) and B)
F) A) and C)

Question 16

Amy wants to know if inventory is increasing as a percentage of total assets.Which one of these statements most easily provides the information she is seeking?

Accepted Answer

A)   Statement of cash flows
B)   Balance sheet
C)   Common-size balance sheet
D)   Income statementE) A) and D)
F) B) and C)

Question 17

Which of the following statements about depreciation is correct?

Accepted Answer

A)   Depreciation is subtracted from cost of goods sold to calculate net income.
B)   When depreciation expense is incurred, cash balances are reduced.
C)   Depreciation expense does not affect net income.
D)   Depreciation reduces the book value of assets.E) B) and D)
F) None of the above D

Question 18

If a firm's net income is positive and its noncash expenses are positive,which of the following could account for a negative amount of cash provided by operations?

Accepted Answer

A)   Current assets decrease more than current liabilities decrease.
B)   Current assets increase more than current liabilities increase.
C)   Current assets decrease more than current liabilities increase.
D)   A large addition is made to plant and equipment.E) B) and C)
F) C) and D)

Question 19

Which one of the following does not reduce a firm's net income?

Accepted Answer

A)   Income taxes
B)   Interest expense
C)   Dividends
D)   Depreciation expenseE) A) and C)
F) B) and D)

Question 20

Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period.Based solely on this information,cash flow will increase by:

Accepted Answer

A)   $2,500.
B)   $2,000.
C)   $1,500.
D)   $500.E) B) and C)
F) B) and D)

Exam 3: Accounting and Finance

Which of the following statements is true for a corporation with $1 million market value of equity,$2 million market value of assets,and 1,000 shares of outstanding stock?

Correct AnswerverifiedShow Answer

Who pays taxes on earnings distributed as dividends?

Correct AnswerverifiedShow Answer

Net working capital is a measure of a company's:

Correct AnswerverifiedShow Answer

A balance sheet portrays the value of a firm's assets and liabilities:

Correct AnswerverifiedShow Answer

In which of the following balance-sheet entries are you least likely to find a difference between market value and book value?

Correct AnswerverifiedA

Which one of the following will reduce the cash flow during an accounting period?

Correct AnswerverifiedShow Answer

What happens to a firm's net worth as it uses cash to repay accounts payable?

Correct AnswerverifiedShow Answer

Depreciation expense is used to:

Correct AnswerverifiedShow Answer

Assume a company pays tax at a rate of 15% on its first $50,000 of income.Any income above $50,000 is taxed at 25%.If a company has $75,000 of taxable income,which of the following statements is correct?

Correct AnswerverifiedShow Answer

One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life.

Correct AnswerverifiedShow Answer

Which of the following statements about net working capital (NWC) is correct?

Correct AnswerverifiedShow Answer

Which of the following cannot be used to reduce taxable corporate income?

Correct AnswerverifiedShow Answer

Which of the following assets is likely to be considered the most liquid?

Correct AnswerverifiedShow Answer

Assume a single taxpayer is taxed at 10% on the first $9,275 of taxable income,15% on the next $28,375 of income,and at 25% for the following $53,500 of income.What is the average tax rate for that individual if her taxable income is $42,000?

Correct AnswerverifiedA

According to the U.S.tax code at the beginning of 2016,the highest marginal tax rate for personal taxpayers is:

Correct AnswerverifiedShow Answer

Amy wants to know if inventory is increasing as a percentage of total assets.Which one of these statements most easily provides the information she is seeking?

Correct AnswerverifiedShow Answer

Which of the following statements about depreciation is correct?

Correct AnswerverifiedD

If a firm's net income is positive and its noncash expenses are positive,which of the following could account for a negative amount of cash provided by operations?

Correct AnswerverifiedShow Answer

Which one of the following does not reduce a firm's net income?

Correct AnswerverifiedShow Answer

Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period.Based solely on this information,cash flow will increase by:

Correct AnswerverifiedShow Answer

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