Answer Options:
a. True
b. False
Answer: False
Question: Amram Company’s current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio?
a. Borrow using short-term notes payable and use the proceeds to reduce accruals.
b. Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
c. Use cash to reduce accruals.
Answer: b. Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
Question: The current and quick ratios both help us measure a firm’s liquidity. The current ratio measures the relationship of the firm’s current assets to its current liabilities, while the quick ratio measures the firm’s ability to pay off short-term obligations without relying on the sale of inventories.
a. True
b. False
Answer Options:
for Question 558
a. True
b. False
Answer: True
Question: Since the ROA measures the firm’s effective utilization of assets without considering how these assets are financed, two firms with the same EBIT must have the same ROA.
Answer Options:
a. True
b. False
Answer: b. False
Question: 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 amounts at which the assets are carried on the books.
Answer Options:
a. True
b. False
Answer: a. True
Question: The annual report contains four basic financial statements: the income statement, the balance sheet, the cash flow statement, and statement of stockholders’ equity.
Answer Options:
a. True
b. False
Answer: a
Question: Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy-to-use estimates of a firm’s liquidity position.
a. True
b. False
Answer: a. True
Question: Which of the following statements could explain the increase in cash, assuming the company’s financial statements were prepared under generally accepted accounting principles (GAAP)?
a. The company repurchased some of its common stock.
b. The company dramatically increased its capital expenditures.
c. The company retired a large amount of its long-term debt.
d. The company sold some of its fixed assets.
e. The company had high depreciation expenses.
Answer Options:
a. The company repurchased some of its common stock.
b. The company dramatically increased its capital expenditures.
c. The company retired a large amount of its long-term debt.
d. The company sold some of its fixed assets.
e. The company had high depreciation expenses.
Answer: d. The company sold some of its fixed assets.
Question: If on January 3, 2015, a company declares a dividend of $1.50 per share, payable on January 31, 2015, then the price of the stock should drop by approximately $1.50 on January 31.
Answer Options:
a. True
b. False
Answer: b. False
Question: On the balance sheet, total assets must always equal the sum of total liabilities and equity.
Answer Options:
a. True
b. False
Answer: True
Question: Assume that Congress recently passed a provision that will enable Bev’s Beverages Inc. (BBI) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or the tax rate. Prior to the new provision, BBI’s net income was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BBI’s financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
Answer Options:
a. The provision will reduce the company’s cash flow.
b. The provision will increase the company’s tax payments.
c. The provision will increase the firm’s operating income (EBIT).
d. The provision will increase the company’s net income.
e. Net fixed assets on the balance sheet will decrease.
Answer: e
Question: Because the U.S. tax system is a progressive tax system, a taxpayer’s marginal and average tax rates are the same.
Answer Options:
a. True
b. False
Answer: False