Chapter 02 - Financial Statements, Taxes, and Cash Flow
Chapter 02
Financial Statements, Taxes, and Cash Flow
Multiple Choice Questions
1. Which one of the following is the financial statement that shows the accounting value of a
firm's equity as of a particular date?
A. income statement
B. creditor's statement
C. balance sheet
D. statement of cash flows
E. dividend statement
2. Net working capital is defined as:
A. total liabilities minus shareholders' equity.
B. current liabilities minus shareholders' equity.
C. fixed assets minus long-term liabilities.
D. total assets minus total liabilities.
E. current assets minus current liabilities.
3. The common set of standards and procedures by which audited financial statements are
prepared is known as the:
A. matching principle.
B. cash flow identity.
C. Generally Accepted Accounting Principles.
D. Financial Accounting Reporting Principles.
E. Standard Accounting Value Guidelines.
4. 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. statement of cash flows
D. tax reconciliation statement
E. market value report
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,Chapter 02 - Financial Statements, Taxes, and Cash Flow
5. Noncash items refer to:
A. accrued expenses.
B. inventory items purchased using credit.
C. the ownership of intangible assets such as patents.
D. expenses which do not directly affect cash flows.
E. sales which are made using store credit.
6. The percentage of the next dollar you earn that must be paid in taxes is referred to as the
_____ tax rate.
A. mean
B. residual
C. total
D. average
E. marginal
7. The _____ tax rate is equal to total taxes divided by total taxable income.
A. deductible
B. residual
C. total
D. average
E. marginal
8. The cash flow of a firm which is available for distribution to the firm's creditors and
stockholders is called the:
A. operating cash flow.
B. net capital spending.
C. net working capital.
D. cash flow from assets.
E. cash flow to stockholders.
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,Chapter 02 - Financial Statements, Taxes, and Cash Flow
9. Which term relates to the cash flow which results from a firm's ongoing, normal business
activities?
A. operating cash flow
B. capital spending
C. net working capital
D. cash flow from assets
E. cash flow to creditors
10. Cash flow from assets is also known as the firm's:
A. capital structure.
B. equity structure.
C. hidden cash flow.
D. free cash flow.
E. historical cash flow.
11. The cash flow related to interest payments less any net new borrowing is called the:
A. operating cash flow.
B. capital spending cash flow.
C. net working capital.
D. cash flow from assets.
E. cash flow to creditors.
12. Cash flow to stockholders is defined as:
A. the total amount of interest and dividends paid during the past year.
B. the change in total equity over the past year.
C. cash flow from assets plus the cash flow to creditors.
D. operating cash flow minus the cash flow to creditors.
E. dividend payments less net new equity raised.
13. Which one of the following is classified as an intangible fixed asset?
A. accounts receivable
B. production equipment
C. building
D. trademark
E. inventory
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, Chapter 02 - Financial Statements, Taxes, and Cash Flow
14. Which of the following are current assets?
I. patent
II. Inventory
III. accounts payable
IV. cash
A. I and III only
B. II and IV only
C. I, II, and IV only
D. I, II and III only
E. II, III, and IV only
15. Which one of the following is included in a firm's market value but yet is excluded from
the firm's accounting value?
A. real estate investment
B. good reputation of the company
C. equipment owned by the firm
D. money due from a customer
E. an item held by the firm for future sale
16. Which of the following are included in current liabilities?
I. note payable to a supplier in eight months
II. amount due from a customer next month
III. account payable to a supplier that is due next week
IV. loan payable to the bank in fourteen months
A. I and III only
B. II and III only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
17. Which one of the following will increase the value of a firm's net working capital?
A. using cash to pay a supplier
B. depreciating an asset
C. collecting an accounts receivable
D. purchasing inventory on credit
E. selling inventory at a profit
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Chapter 02
Financial Statements, Taxes, and Cash Flow
Multiple Choice Questions
1. Which one of the following is the financial statement that shows the accounting value of a
firm's equity as of a particular date?
A. income statement
B. creditor's statement
C. balance sheet
D. statement of cash flows
E. dividend statement
2. Net working capital is defined as:
A. total liabilities minus shareholders' equity.
B. current liabilities minus shareholders' equity.
C. fixed assets minus long-term liabilities.
D. total assets minus total liabilities.
E. current assets minus current liabilities.
3. The common set of standards and procedures by which audited financial statements are
prepared is known as the:
A. matching principle.
B. cash flow identity.
C. Generally Accepted Accounting Principles.
D. Financial Accounting Reporting Principles.
E. Standard Accounting Value Guidelines.
4. 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. statement of cash flows
D. tax reconciliation statement
E. market value report
2-1
,Chapter 02 - Financial Statements, Taxes, and Cash Flow
5. Noncash items refer to:
A. accrued expenses.
B. inventory items purchased using credit.
C. the ownership of intangible assets such as patents.
D. expenses which do not directly affect cash flows.
E. sales which are made using store credit.
6. The percentage of the next dollar you earn that must be paid in taxes is referred to as the
_____ tax rate.
A. mean
B. residual
C. total
D. average
E. marginal
7. The _____ tax rate is equal to total taxes divided by total taxable income.
A. deductible
B. residual
C. total
D. average
E. marginal
8. The cash flow of a firm which is available for distribution to the firm's creditors and
stockholders is called the:
A. operating cash flow.
B. net capital spending.
C. net working capital.
D. cash flow from assets.
E. cash flow to stockholders.
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,Chapter 02 - Financial Statements, Taxes, and Cash Flow
9. Which term relates to the cash flow which results from a firm's ongoing, normal business
activities?
A. operating cash flow
B. capital spending
C. net working capital
D. cash flow from assets
E. cash flow to creditors
10. Cash flow from assets is also known as the firm's:
A. capital structure.
B. equity structure.
C. hidden cash flow.
D. free cash flow.
E. historical cash flow.
11. The cash flow related to interest payments less any net new borrowing is called the:
A. operating cash flow.
B. capital spending cash flow.
C. net working capital.
D. cash flow from assets.
E. cash flow to creditors.
12. Cash flow to stockholders is defined as:
A. the total amount of interest and dividends paid during the past year.
B. the change in total equity over the past year.
C. cash flow from assets plus the cash flow to creditors.
D. operating cash flow minus the cash flow to creditors.
E. dividend payments less net new equity raised.
13. Which one of the following is classified as an intangible fixed asset?
A. accounts receivable
B. production equipment
C. building
D. trademark
E. inventory
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, Chapter 02 - Financial Statements, Taxes, and Cash Flow
14. Which of the following are current assets?
I. patent
II. Inventory
III. accounts payable
IV. cash
A. I and III only
B. II and IV only
C. I, II, and IV only
D. I, II and III only
E. II, III, and IV only
15. Which one of the following is included in a firm's market value but yet is excluded from
the firm's accounting value?
A. real estate investment
B. good reputation of the company
C. equipment owned by the firm
D. money due from a customer
E. an item held by the firm for future sale
16. Which of the following are included in current liabilities?
I. note payable to a supplier in eight months
II. amount due from a customer next month
III. account payable to a supplier that is due next week
IV. loan payable to the bank in fourteen months
A. I and III only
B. II and III only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
17. Which one of the following will increase the value of a firm's net working capital?
A. using cash to pay a supplier
B. depreciating an asset
C. collecting an accounts receivable
D. purchasing inventory on credit
E. selling inventory at a profit
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