CHAPTER 2

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date ?

• balance sheet

• income statement

• creditor's statement

• statement of cash flows

• dividend statement

Net working capital is defined as :

• current assets minus current liabilities

• total liabilities minus shareholders' equity

• current liabilities minus shareholders' equity

• fixed assets minus long-term liabilities

• total assets minus total liabilities

The common set of standards and procedures by which audited financial statements are prepared is known as the :

• Generally Accepted Accounting Principles

• matching principle

• cash flow identity

• Financial Accounting Reporting Principles

• Standard Accounting Value Guidelines

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?

• good reputation of the company

• real estate investment

• equipment owned by the firm

• money due from a customer

• an item held by the firm for future sale

Which one of the following accounts is the most liquid?

• accounts receivable

• inventory

• building

• equipment

• land

The book value of a firm is:

• based on historical cost

• equivalent to the firm's market value provided that the firm has some fixed assets

• generally greater than the market value when fixed assets are included

• more of a financial than an accounting valuation

• adjusted to the market value whenever the market value exceeds the stated book value

Which of the following is (are) included in the market value of a firm but are excluded from the firm's book value?I. value of management skills II. value of a copyright III. value of the firm's reputation IV. value of employee's experience

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time ?

• income statement

• balance sheet

• statement of cash flows

• tax reconciliation statement

• market value report

Noncash items refer to :

• expenses which do not directly affect cash flows

• accrued expenses

• inventory items purchased using credit

• the ownership of intangible assets such as patents

• sales which are made using store credit

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

• Taxes reduce both net income and operating cash flow

• Interest expense increases the amount of tax due

• Depreciation does not affect taxes since it is a non-cash expense

• Net income is distributed to dividends and paid-in surplus

• Interest expense is included in operating cash flow