FIN 461 TEST 3 QUESTIONS WITH
100% CORRECT ANSWERS
What impact does depreciation have on the cash account?
a. Depreciation has no impact on the cash account.
b. Depreciation results in a decrease to cash.
c. Depreciation results in an increase to cash.
d. Depreciation only impacts the cash account if inflation has occurred - Answer- a
Which of the following items are included in the adjustments to net income to obtain
cash flow from operating activities?
a. Payment of dividends and depreciation expense.
b. The change in accounts receivable and the acquisition of land.
c. The gain from an asset sale and the payment of dividends.
d. The change in inventory and depreciation expense. - Answer- d
Which item may be of concern when analyzing cash flow from operating activities?
a. Increasing inventories.
b. Decreasing accounts receivable.
c. Repayment of debt.
d. Payments of dividends. - Answer- a
Which of the following could be indicative of cash flow problems or a result of an
expansion?
a. Increasing accounts receivable and decreasing inventories.
b. Increasing accounts receivable and increasing inventories.
c. Decreasing accounts receivable and increasing inventories.
d. Decreasing accounts receivable and decreasing inventories. - Answer- b
What can be found on an income statement?
a. Assets, revenues and expenses.
b. Revenues, expenses and net profit (loss).
c. Revenues, expenses, and stockholders' equity.
d. Assets, liabilities and stockholders' equity. - Answer- b
, What are the two basic formats of the income statement?
a. Multiple-step and single-step.
b. Cash basis and single-step.
c. Accrual basis and single-step.
d. Accrual basis and multiple-step. - Answer- a
Which of the following is not an acceptable method to report total comprehensive
income?
a. On the face of the income statement.
b. In a separate statement of comprehensive income.
c. In the equity section of the balance sheet.
d. In the statement of stockholders' equity. - Answer- c
Why is the common-size income statement valuable to the analyst?
a. The common-size income statement shows the relative magnitude of revenues and
expenses to total assets.
b. The common-size income statement allows the analyst to compare the firm to itself
from year-to-year, but not to its competitors.
c. The common-size income statement shows the relative magnitude of revenues and
expenses relative to profits.
d. The common-size income statement shows the relative magnitude of expenses
relative to net sales. - Answer- d
What could be the cause of an increase in a firm's sales number?
a. The firm has decreased prices.
b. Fewer units of product have been sold.
c. The firm has increased prices and volume of sales.
d. The firm has decreased prices and volume of sales. - Answer- c
Which of the following statements is true?
a. Only service companies report both cost of goods sold and gross profit. b. Cost of
goods sold is the largest expense item for many firms.
c. Cost of goods sold is not affected by the choice of inventory valuation method.
d. Cost of goods sold equals gross profit. - Answer- b
Of what value is the calculation of gross profit margin?
a. The gross profit margin helps the analyst assess the capital structure of the firm.
b. The gross profit margin allows the analyst to determine if the firm has been affected
by inflation.
100% CORRECT ANSWERS
What impact does depreciation have on the cash account?
a. Depreciation has no impact on the cash account.
b. Depreciation results in a decrease to cash.
c. Depreciation results in an increase to cash.
d. Depreciation only impacts the cash account if inflation has occurred - Answer- a
Which of the following items are included in the adjustments to net income to obtain
cash flow from operating activities?
a. Payment of dividends and depreciation expense.
b. The change in accounts receivable and the acquisition of land.
c. The gain from an asset sale and the payment of dividends.
d. The change in inventory and depreciation expense. - Answer- d
Which item may be of concern when analyzing cash flow from operating activities?
a. Increasing inventories.
b. Decreasing accounts receivable.
c. Repayment of debt.
d. Payments of dividends. - Answer- a
Which of the following could be indicative of cash flow problems or a result of an
expansion?
a. Increasing accounts receivable and decreasing inventories.
b. Increasing accounts receivable and increasing inventories.
c. Decreasing accounts receivable and increasing inventories.
d. Decreasing accounts receivable and decreasing inventories. - Answer- b
What can be found on an income statement?
a. Assets, revenues and expenses.
b. Revenues, expenses and net profit (loss).
c. Revenues, expenses, and stockholders' equity.
d. Assets, liabilities and stockholders' equity. - Answer- b
, What are the two basic formats of the income statement?
a. Multiple-step and single-step.
b. Cash basis and single-step.
c. Accrual basis and single-step.
d. Accrual basis and multiple-step. - Answer- a
Which of the following is not an acceptable method to report total comprehensive
income?
a. On the face of the income statement.
b. In a separate statement of comprehensive income.
c. In the equity section of the balance sheet.
d. In the statement of stockholders' equity. - Answer- c
Why is the common-size income statement valuable to the analyst?
a. The common-size income statement shows the relative magnitude of revenues and
expenses to total assets.
b. The common-size income statement allows the analyst to compare the firm to itself
from year-to-year, but not to its competitors.
c. The common-size income statement shows the relative magnitude of revenues and
expenses relative to profits.
d. The common-size income statement shows the relative magnitude of expenses
relative to net sales. - Answer- d
What could be the cause of an increase in a firm's sales number?
a. The firm has decreased prices.
b. Fewer units of product have been sold.
c. The firm has increased prices and volume of sales.
d. The firm has decreased prices and volume of sales. - Answer- c
Which of the following statements is true?
a. Only service companies report both cost of goods sold and gross profit. b. Cost of
goods sold is the largest expense item for many firms.
c. Cost of goods sold is not affected by the choice of inventory valuation method.
d. Cost of goods sold equals gross profit. - Answer- b
Of what value is the calculation of gross profit margin?
a. The gross profit margin helps the analyst assess the capital structure of the firm.
b. The gross profit margin allows the analyst to determine if the firm has been affected
by inflation.
