Test Bank for Analysis For Financial Management 13th Edition Robert
Higgins, Jennifer Koski, Todd Mitton
Student name:__________
TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) Current liabilities are defined as liabilities with a maturity of less than one year.
⊚ true
⊚ false
2) A decline in the Net Property, Plant, and Equipment account between year-end 2020 and
year-end 2021 is a clear indication that fixed assets were sold during 2021.
⊚ true
⊚ false
3) When reporting financial performance for tax purposes, U.S. companies prefer to use
accelerated depreciation methods over the straight-line method.
⊚ true
⊚ false
4) Accounting rules require U.S. companies to depreciate research and development (R&D)
expenditures using the straight-line method.
⊚ true
⊚ false
5) You can construct a sources and uses statement for 2021 if you have a company’s year-
end balance sheets for 2021 and 2022.
⊚ true
⊚ false
6) A reduction in long-term debt is a use of cash.
⊚ true
⊚ false
,7) The accrual principle requires that revenue not be recognized until payment from a sale is
received.
⊚ true
⊚ false
8) An increase in cash and cash equivalents should appear as a use of cash on the sources
and uses statement.
⊚ true
⊚ false
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
⊚ false
10) The cost of equity is usually reported on the income statement right below interest
expense.
⊚ true
⊚ false
11) The United States was one of the first countries to adopt International Financial
Reporting Standards.
⊚ true
⊚ false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
12) 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 can be assured of generating 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”.
13) 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
14) 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?
A) Income statement
B) Creditor’s statement
C) Balance sheet
D) Cash flow statement
E) Sources and uses statement
15) A balance sheet reports the value of a firm’s assets, liabilities, and equity
A) over an annual period.
B) over any period of time.
C) at any point in time.
D) at the end of the year only.
, 16) 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?
A) Equity rises $250,000; net plant and equipment falls $250,000.
B) Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.
C) Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000.
D) Cash rises $250,000; net plant and equipment falls $250,000.
17) 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?
A) Net plant and equipment rises $10 million; cash falls $10 million; bank debt rises $5
million.
B) Net plant and equipment rises $5 million; cash falls $10 million; bank debt rises $5
million.
C) Net plant and equipment rises $5 million; cash falls $5 million; bank debt rises $5
million.
D) Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5
million.
18) Which one of the following is the financial statement that summarizes a firm’s revenue
and expenses over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Sources and uses statement
E) Market value statement
19) The sources and uses of cash over a stated period of time are reflected in the
Higgins, Jennifer Koski, Todd Mitton
Student name:__________
TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) Current liabilities are defined as liabilities with a maturity of less than one year.
⊚ true
⊚ false
2) A decline in the Net Property, Plant, and Equipment account between year-end 2020 and
year-end 2021 is a clear indication that fixed assets were sold during 2021.
⊚ true
⊚ false
3) When reporting financial performance for tax purposes, U.S. companies prefer to use
accelerated depreciation methods over the straight-line method.
⊚ true
⊚ false
4) Accounting rules require U.S. companies to depreciate research and development (R&D)
expenditures using the straight-line method.
⊚ true
⊚ false
5) You can construct a sources and uses statement for 2021 if you have a company’s year-
end balance sheets for 2021 and 2022.
⊚ true
⊚ false
6) A reduction in long-term debt is a use of cash.
⊚ true
⊚ false
,7) The accrual principle requires that revenue not be recognized until payment from a sale is
received.
⊚ true
⊚ false
8) An increase in cash and cash equivalents should appear as a use of cash on the sources
and uses statement.
⊚ true
⊚ false
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
⊚ false
10) The cost of equity is usually reported on the income statement right below interest
expense.
⊚ true
⊚ false
11) The United States was one of the first countries to adopt International Financial
Reporting Standards.
⊚ true
⊚ false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
12) 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 can be assured of generating 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”.
13) 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
14) 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?
A) Income statement
B) Creditor’s statement
C) Balance sheet
D) Cash flow statement
E) Sources and uses statement
15) A balance sheet reports the value of a firm’s assets, liabilities, and equity
A) over an annual period.
B) over any period of time.
C) at any point in time.
D) at the end of the year only.
, 16) 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?
A) Equity rises $250,000; net plant and equipment falls $250,000.
B) Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.
C) Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000.
D) Cash rises $250,000; net plant and equipment falls $250,000.
17) 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?
A) Net plant and equipment rises $10 million; cash falls $10 million; bank debt rises $5
million.
B) Net plant and equipment rises $5 million; cash falls $10 million; bank debt rises $5
million.
C) Net plant and equipment rises $5 million; cash falls $5 million; bank debt rises $5
million.
D) Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5
million.
18) Which one of the following is the financial statement that summarizes a firm’s revenue
and expenses over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Sources and uses statement
E) Market value statement
19) The sources and uses of cash over a stated period of time are reflected in the
