Topic

Financial Statements, Taxes, and Cash Flow

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Quizzes in Financial Statements, Taxes, and Cash Flow

Net capital spending:

Correct answer(s):
    • is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.


Which one of the following must be true if a firm had a negative cash flow from assets?

Correct answer(s):
    • The firm utilized outside funding.

Which one of the following will increase the cash flow from assets, all else equal?

Correct answer(s):
    • decrease in net capital spending

Which one of the following statements is correct concerning a corporation with taxable income of $125,000?

Correct answer(s):
    • An increase in depreciation will increase the operating cash flow.

Which one of the following statements related to an income statement is correct?

Correct answer(s):
    • Taxes reduce both net income and operating cash flow.

As of 2008, which one of the following statements concerning corporate income taxes is correct?

Correct answer(s):
    • A firm's tax is computed on an incremental basis.

Which one of the following statements related to taxes is correct?

Correct answer(s):
    • The marginal tax rate for a firm can be either higher or lower than the average tax rate.


Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

Correct answer(s):
    • The labor costs for producing a product are expensed when the product is sold.

Which one of the following is true according to Generally Accepted Accounting Principles?

Correct answer(s):
    • Costs of goods sold are recorded based on the matching principle.

You recently purchased a grocery store. At the time of the purchase, the store’s market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value?

Correct answer(s):
    • construction of a new restricted access highway located between the store and the surrounding residential areas

The higher the degree of financial leverage employed by a firm, the:

Correct answer(s):
    • higher the probability that the firm will encounter financial distress.


Which one of the following represents the most liquid asset?

Correct answer(s):
    • $100 of inventory that is sold today for $100 cash