Question:* Net Income Equals:
Answer: • Total Revenues minus Total Expenses
Question:* Cost of Goods Sold is calculated using which of the following?
Answer: • Beginning Inventory + Cost of Goods Purchased - Ending Inventory
Question:* What is the order in which assets are typically listed on the balance sheet?
Answer: • In order of liquidity
Question:* Almost all financial statements use what form of accounting?
Answer: • Accrual basis accounting
Question:* The income statement is also called what?
Answer: • Statement of earnings
Question:* Why would investors have an interest in a company's statement of retained earnings?
Answer: • Investors want to know that a company is reinvesting enough of their earnings to support future growth and pay dividends
Question:* Which item does not depreciate?
Answer: • Goodwill
Question:* When are current liabilities due to be paid?
Answer: • Within the next 12 months
Question:* A company’s working capital is defined as
Answer: • Current assets minus current liabilities
Question:* What is another name for the Balance Sheet?
Answer: • Statement of Financial Position
Question:* What agency does a publicly traded company file with if they sell stock?
Answer: • The Securities Exchange Commission
Question:* True or False? Liabilities and shareholders’ equity must be equal.
Answer: • False
Question:* What information is found on the Income Statement?
Answer: • Revenues, Expenses, Net Profit or Loss
Question:* What is the basic accounting equation used to calculate the balance sheet?
Answer: • Assets = Liabilities + Stockholders Equity
Question:* On a balance sheet, goodwill is an example of what?
Answer: • Intangible Assets
Question:* What are retained earnings?
Answer: • Earnings that have been reinvested back into the business
Question:* What are revenues?
Answer: • Income from goods or services that have been sold
Question:* Which two line items are used to calculate Working Capital?
Answer: • Current Assets and Current Liabilities
Question:* Which of the following is NOT a division of sources and uses of cash flow on the cash flow statement?
Answer: • Material business activities
Question:* What is an example of a liability?
Answer: • A property tax bill
Question:* Which of the following is NOT a primary section of a company’s financial statements?
Answer: • Letter from the CEO
Question:* Which of the following is NOT one of the four basic financial statements?
Answer: • Audit Statement
Question:* What sources of cash flow are included on the statement of cash flows?
Answer: • Cash flows from operating activities, investing activities, and financing activities
Question:* What audience is an annual report addressing?
Answer: • Shareholders
Question:* What should balance on a company’s balance sheet?
Answer: • Total Assets and the sum of Liabilities and Shareholders’ Equity
Question:* What is GAAP, and why is it important?
Answer: • Generally Accepted Accounting Principles; It is important because it is responsible for standardizing accounting procedures.
Question:* What is the calculation used on the income statement?
Answer: • Revenues – Expenses = Net Income
Question:* Of the following, which is an item that doesn't belong in the heading of a balance sheet?
Answer: • Address of the business
Question:* What information is found on the Balance Sheet?
Answer: • Assets, Liabilities and Shareholder's Equity
Question:* True or False? All expenses required to be paid in the same accounting period.
Answer: • False
Question:* Current assets do NOT include which of the following
Answer: • Machinery and equipment
Question:* What happens to retained earnings as dividends are declared?
Answer: • Retained earnings decrease.
Question:* When goods have been sold but not paid for, where are they documented in the balance sheet?
Answer: • As accounts receivable.
Question:* On a balance sheet, which of the following is subject to depreciation?
Answer: • All long-term assets except for land
Question:* What four components are contained in a financial statement?
Answer: • Balance sheet, income statement, statement of retained earnings, statement of cash flow
Question:* What does it mean when a company's stock is volatile?
Answer: • The value of the stock often changes drastically
Question:* A measure of the overall efficiency of asset utilization is the:
Answer: • Asset Turnover Ratio
Question:* Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment are referred to as:
Answer: • Capital Expenditures
Question:* What is the objective of financial statement analysis?
Answer: • To understand the risk vs. profitability of a company
Question:* Is net income equal to the net cash generated by operations? Where is net cash reported?
Answer: • No. Net cash is reported on the cash flow statement.
Question:* How is the return on assets calculated?
Answer: • Net income divided by total assets
Question:* What equation is used when calculating the statement of retained earnings?
Answer: • Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
Question:* Which corporate officers must certify the accuracy of financial statements?
Answer: • CEO and CFO
Question:* What does the statement of retained earnings tell you about a company's position?
Answer: • It tells you how it has been affected by net income and distribution of dividends
Question:* What category would cash paid for taxes fall under?
Answer: • Cash flows from operating activities
Question:* What do the footnotes to financial statements typically provide?
Answer: • All of these
Question:* How do you calculate the Current Ratio?
Answer: • Total Current Assets / Total Current Liabilities
Question:* What is the first statement to calculate before moving on to the statement of retained earnings?
Answer: • Income statement.
Question:* Current assets are assets that are intended to be converted into cash or consumed within:
Answer: • One year
Question:* What's the difference between a Capital lease and an Operational lease?
Answer: • Capital leases are traditionally used for long-term leases while Operational leases are for short-term leases.
Question:* All are Profitability Ratios, except:
Answer: • Current Ratio
Question:* If you needed to replace machinery at your company, where would you list this on the statement of cash flows?
Answer: • Under cash flows from investing activities
Question:* What is Goodwill?
Answer: • An asset that captures the excess purchase price of an acquired business bought for greater than fair market value.
Question:* EBITDA is Operating Profit:
Answer: • Before Depreciation and Amortization
Question:* Parentheses around a number in financial statements indicates what?
Answer: • The number is a loss or decrease
Question:* When profits are reinvested into the business, what are they called?
Answer: • Retained earnings
Question:* True or false? A company can never have negative income tax liabilities.
Answer: • False
Question:* What is ROE, and why is it important?
Answer: • Return on equity; It is important because it tells you the amount of net income returned as a percentage of shareholders equity
Question:* Which component of a financial statement will tell you, ultimately, whether a company has earned or lost money?
Answer: • Income statement
Question:* When all statements and documents are collated, what activity does it allow investors to partake in?
Answer: • Business valuation
Question:* Companies report accounts receivable at:
Answer: • Net Realizable Value
Question:* Income from Operations is equal to Gross Profit less:
Answer: • Operating Expenses
Question:* Which of the following is NOT a component of the acronym EBITDA?
Answer: • Assets
Question:* How are retained earnings calculated?
Answer: • Net income minus dividends
Question:* How will a business acquisition typically impact a company’s cash flow?
Answer: • decrease
Question:* SOX stands for:
Answer: • The Sarbanes-Oxley Act
Question:* What is the overall objective of using ratio analysis?
Answer: • Evaluate how well the business is using its resources
Question:* How do you calculate the Quick Ratio?
Answer: • (Current assets – Inventories) / Current Liabilities
Question:* Which of the following would be reported as a cash inflow from investing activities?
Answer: • Proceeds from selling investments in the equity securities of other companies
Question:* Analysis of risk has what intention?
Answer: • Revealing a company's credit risk
Question:* What is an accounting entity?
Answer: • A clearly defined unit that must be accounted for separately
Question:* Which items are traditionally disclosed separately on an Income Statement?
Answer: • Extraordinary items, changes in accounting principles and discontinued operations
Question:* Which of the following is NOT a method of calculating depreciation?
Answer: • Mechanical valuation method
Question:* The Dividend Payout Ratio is calculated by dividing total dividends by:
Answer: • Net Income
Question:* Which of the following is not an element included in the statement of retained earnings?
Answer: • Stockholder equity
Question:* Which of the following is NOT one of the four GAAP principles?
Answer: • Market value principle
Question:* When you have finished calculating your statement of cash flows, where is the final result transferred to?
Answer: • The balance sheet.
Question:* Where would an entry be made for the purchase of goods or services without a contract or note?
Answer: • Under liabilities as accounts payable
Question:* What does a company’s debt-to-equity ratio describe?
Answer: • The nature of the company’s capitalization
Question:* What does it mean when a company's change in cash is negative?
Answer: • The company did not make enough money to repay creditors, pay dividends for the next year.
Question:* What is the final line of the statement of operations?
Answer: • Net after-tax profits
Question:* Within the context of stockholders equity, what are cash and other assets considered?
Answer: • Contributed capital
Question:* Which value appears on all three components of financial statements?
Answer: • Net profits
Question:* Which entity is primarily responsible for setting accounting standards?
Answer: • the FASB
Question:* Which of the following does NOT increase cash flows?
Answer: • Increase in accounts receivable
Question:* Gross profit equals
Answer: • Net revenues minus cost of sales
Question:* Why would a creditor heavily scrutinize a company's statement of retained earnings?
Answer: • Every dollar that is paid to the stockholders as dividends is a dollar not available to pay back its debt.
Question:* A financial statement is a smaller piece of a much larger annual document submitted to the Securities Exchange Commission. What is the name of the document?
Answer: • 10K
Question:* Two figures must be transferred to the balance sheet before the final result can be calculated. What are they, and where are they transferred from?
Answer: • Retained earnings from the statement of retained earnings, and cash from the statement of cash flows.
Question:* On which Financial Statement(s) are Discontinued Operations reported?
Answer: • Income Statement
Question:* True or false? A declared dividend decreases shareholders’ equity.
Answer: • True
Question:* In the DuPont system, what is the Return On Equity equal to?
Answer: • Profit Margin times Total Asset Turnover times Equity Multiplier
Question:* Which of the following activities would be regarded as a financing activity on the Statement of Cash Flows?
Answer: • Dividend distributions
Question:* Using the financial statements, how is Free Cash Flow calculated?
Answer: • EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditures
Question:* What are the two basic formats of the Income Statement?
Answer: • Single-Step and Multi-Step
Question:* Which of the following is NOT a potential off-balance-sheet liability?
Answer: • (none of these)
Question:* In preparing consolidated financial statements, which type of transaction is NOT wholly or partially eliminated?
Answer: • Parent company stock repurchases
Question:* On a classified Balance Sheet, the asset line items appear in which order?
Answer: • Current Assets; Long-term Investments; Property, Plant, and Equipment; Intangible Assets; Other Assets
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