Chapter 02 Financial Statements and Cash Flow Answer Key
 
 
Multiple Choice Questions
 
1. The financial statement showing a firm's accounting value on a particular date is the: 
A. income statement.
B. balance sheet.
C. statement of cash flows.
D. tax reconciliation statement.
E. shareholders' equity sheet.
 
Difficulty level: Easy
Topic: BALANCE SHEET
Type: DEFINITIONS
 
2. A current asset is: 
A. an item currently owned by the firm.
B. an item that the firm expects to own within the next year.
C. an item currently owned by the firm that will convert to cash within the next 12 months.
D. the amount of cash on hand the firm currently shows on its balance sheet.
E. the market value of all items currently owned by the firm.
 
Difficulty level: Easy
Topic: CURRENT ASSETS
Type: DEFINITIONS
 
3. The long-term debts of a firm are liabilities: 
A. that come due within the next 12 months.
B. that do not come due for at least 12 months.
C. owed to the firm's suppliers.
D. owed to the firm's shareholders.
E. the firm expects to incur within the next 12 months.
 
Difficulty level: Easy
Topic: LONG-TERM DEBT
Type: DEFINITIONS
 
4. Net working capital is defined as: 
A. total liabilities minus shareholders' equity.
B. current liabilities minus shareholders' equity.
C. fixed assets minus long-term liabilities.
D. total assets minus total liabilities.
E. current assets minus current liabilities.
 
Difficulty level: Easy
Topic: NET WORKING CAPITAL
Type: DEFINITIONS
 
5. A(n) ____ asset is one which can be quickly converted into cash without significant loss in value. 
A. current
B. fixed
C. intangible
D. liquid
E. long-term
 
Difficulty level: Easy
Topic: LIQUID ASSETS
Type: DEFINITIONS
 
6. The financial statement summarizing a firm's accounting performance over a period of time is the: 
A. income statement.
B. balance sheet.
C. statement of cash flows.
D. tax reconciliation statement.
E. shareholders' equity sheet.
 
Difficulty level: Easy
Topic: INCOME STATEMENT
Type: DEFINITIONS
 
7. Noncash items refer to: 
A. the credit sales of a firm.
B. the accounts payable of a firm.
C. the costs incurred for the purchase of intangible fixed assets.
D. expenses charged against revenues that do not directly affect cash flow.
E. all accounts on the balance sheet other than cash on hand.
 
Difficulty level: Easy
Topic: NONCASH ITEMS
Type: DEFINITIONS
 
8. Your _____ tax rate is the amount of tax payable on the next taxable dollar you earn. 
A. deductible
B. residual
C. total
D. average
E. marginal
 
Difficulty level: Easy
Topic: MARGINAL TAX RATES
Type: DEFINITIONS
 
deductible9. Your _____ tax rate is the total taxes you pay divided by your taxable income. 
A. deductible
B. residual
C. total
D. average
E. marginal
 
Difficulty level: Easy
Topic: AVERAGE TAX RATES
Type: DEFINITIONS
 
10. _____ refers to the cash flow that results from the firm's ongoing, normal business activities. 
A. Cash flow from operating activities
B. Capital spending
C. Net working capital
D. Cash flow from assets
E. Cash flow to creditors
 
Difficulty level: Medium
Topic: CASH FLOW FROM OPERATING ACTIVITIES
Type: DEFINITIONS
 
11. _____ refers to the changes in net capital assets. 
A. Operating cash flow
B. Cash flow from investing
C. Net working capital
D. Cash flow from assets
E. Cash flow to creditors
 
Difficulty level: Medium
Topic: CASH FLOW FROM INVESTING

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