Ch 2 Practice Q's-Answers

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Jan 9, 2024

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Practice Questions for CHAPTER 2 1. Which of the following is NOT considered to be an operating expense on the income statement? A) administrative expenses and overhead B) corporate taxes C) salaries D) depreciation and amortization 2. Three activities in the statement of cash flow? Operating, Investment, Financing 3. Is “Increase in Account receivable” an inflow or outflow of cashflow? Outflow 4. Is “Decrease in Inventories” an inflow or outflow of cashflow? Inflow 5. Which of the following is NOT considered to be an operating expense on the income statement? A) interest expense B) depreciation and amortization C) selling, general, and administrative expenses D) research and development 6. A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows? A) as an outflow under operating activities B) as an outflow under investment activities C) as an outflow under financial activities D) not recorded on the statement of cash flows 7. Which of the following items is not included as part of a company’s current assets? A. Accounts payable. B. Inventory. C. Accounts receivable. D. Both B (Inventory) and C (Accounts receivable)

1 8. The major components of stockholder’s equity are _______. A. cash, common stock, and paid-in surplus B. common stock, paid-in surplus, and net income C. common stock, paid-in surplus, and retained earnings D. common stock, liabilities, and retained earnings 9. Which of the following statements regarding the income statement is INCORRECT? A. The income statement shows the cash flows and expenses at a given point in time. B. The last or "bottom" line of the income statement shows a firm's net income. C. The first line of an income statement lists the revenues from the sales of products or services. D. The income statement shows the flow of revenues and expenses generated by a firm between two dates. 10. Manufacturer A has a profit margin of 2.2%, an asset turnover of 1.7 and an equity multiplier of 5.0. Manufacturer B has a profit margin of 2.5%, and an equity multiplier of 4.7. How much asset turnover should manufacturer B have to match manufacturer A's ROE? A. 1.59 B. 3.18 C. 2.23 D. 1.27 11. Amazon Inc. has earnings before interest & taxes of $90M, depreciation expenses of $3M, capital expenditures of $6.5M & increased its net working capital by $750,000. If its tax rate is 40%. What is its free cash flow? A. 90M – 0.4(90M) + 3M – 6.5M – 750,000 B. 90M – 0.4(90M) – 3M – 6.5M +750,000 C. 90M – 0.4(90M) – 3M – 6.5M – 750,000 D. 90M – 0.4(90M) + 3M – 6.5M + 750,000 12. Which of the following statements regarding the balance sheet is INCORRECT? A) The balance sheet provides a snapshot of a firm's financial position at a given point in time. B) The balance sheet lists a firm's assets and liabilities. C) The balance sheet reports stockholders' equity on the right-hand side. D) The balance sheet reports liabilities on the left-hand side.

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