BA 620 exam

CHAPTER 2
FINANCIAL STATEMENTS, CASH FLOW, AND TAXES

True/False

Easy:

(2.1) Annual report F K
Answer: a
EASY
1.
The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders’ equity.

a.
True

b.
False

(2.1) Annual report and expectations F K
Answer: a
EASY
2.
The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm 's future earnings and dividends, and the riskiness of those cash flows.

a.
True

b.
False

(2.2) Retained earnings versus cash C K
Answer: b
EASY
3.
Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.

Cash
$ 50,000

Accounts payable

$ 100,000

Inventory
200,000

Accruals

100,000

Accounts receivable 250,000

Total CL

$ 200,000

Total CA
$ 500,000

Debt

200,000

Net fixed assets
$ 900,000

Common stock

200,000

Retained earnings

800,000

Total assets
$1,400,000

Total L & E

$1,400,000

a.
True

b.
False

(2.2) Balance sheet F K
Answer: a
EASY
4.
On the balance sheet, total assets must always equal total liabilities and equity.

a.
True

b.
False

(2.2) Balance sheet: non-cash assets F K
Answer: a
EASY
5.
Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

a.
True