QTTC_Quiz 1_Chap2_English

Suppose two firms A and B both adhere to the same accounting standards. Both firms started their operations 2 years ago and recorded $1 million of net fixed asset. No company has sold or bought any more fixed assets in the past 2 years. Thus, on the balance sheets of these two firms, the net fixed asset will be the same.

• True

• False

Answer explanation

The statement is false because even if both firms started with the same net fixed asset, depreciation would have reduced the value over time, resulting in different net fixed asset values on their balance sheets.

The statement of cash flows consists of 4 main parts: cash flow from operating activities, cash flow from investing activities, cash flow from financing activities and summary of cash and cash equivalents at the end of reporting period.

• True

• False

An increase in accounts payable represents an increase in net cash provided by operating activities, an effect similar to taking out a new bank loan. However, these two items show up in different sections of the statement of cash flows to reflect the difference between operating and financing activities.

• True

• False

An increase in accounts receivable represents an increase in net cash provided by operating activities because receivables will produce cash when they are collected

•  True

• False

Its retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends. If the firm has sufficient retained earnings, it can purchase assets and pay for them with cash from retained earnings.

• True

• False

In finance, we are generally more interested in cash flows than in accounting profits. Free cash flow (FCF) is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in net operating working capital.​

• True

• False

Free cash flow is the amount of cash that, if withdrawn, would harm the firm's ability to operate and to produce future cash flows.

• True

• False

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to encourage the use of debt financing by corporations

• True

• False

Which of the following items is NOT normally considered a current asset?

• Accounts receivable.

• Inventory.

• Bonds.

• Cash.

• Short-term, highly-liquid, marketable securities

On its 31/12/xx balance sheet, Barnes Inc showed $510 million of retained earnings, and exactly that same amount was shown the previous year. Assuming that no earnings restatements were issued, which of the following statements is CORRECT?

• If the company lost money in 2018, it must have paid dividends.

• The company must have had zero net income in 2018.

• The company must have paid out half of its 2018 earnings as dividends.

• The company must have paid no dividends in 2018

• Dividends could have been paid in 2018, but they would have had to equal the earnings for the year