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CHAPTER2FinancialStatements,Taxes,andCashFlowII.CONCEPTSTANGIBLEASSETd21.Acomputerusedinabusinessofficebytheofficemanagerisclassifiedas:a.acurrentasset.b.anintangibleasset.c.networkingcapital.d.atangibleasset.e.aninventoryitem.CURRENTASSETSa22.Whichofthefollowingareincludedincurrentassets?I.equipmentII.inventoryIII.accountspayableIV.casha.IIandIVonlyb.IandIIIonlyc.I,II,andIVonlyd.IIIandIVonlye.II,III,andIVonlyCURRENTLIABILITIESb23.Whichofthefollowingareincludedincurrentliabilities?I.notepayabletoasupplierineighteenmonthsII.debtpayabletoamortgagecompanyinninemonthsIII.accountspayabletosuppliersIV.loanpayabletothebankinfourteenmonthsa.IandIIIonlyb.IIandIIIonlyc.IIIandIVonlyd.II,III,andIVonlye.I,II,andIIIonlyNETWORKINGCAPITALc24.Whichoneofthefollowingstatementsconcerningnetworkingcapitaliscorrect?a.Networkingcapitalisnegativewhencurrentassetsexceedcurrentliabilities.b.Networkingcapitalincludescash,accountsreceivables,fixedassets,andaccountspayable.c.Inventoryisapartofnetworkingcapital.d.Thechangeinnetworkingcapitalisequaltothebeginningnetworkingcapitalminustheendingnetworkingcapital.e.Networkingcapitalincludesaccountsfromtheincomestatement.NETWORKINGCAPITALa25.Whichoneofthefollowingstatementsconcerningnetworkingcapitaliscorrect?a.Thegreaterthenetworkingcapital,thegreatertheabilityofafirmtomeetitsshort-termobligations.b.Thechangeinnetworkingcapitalisequaltocurrentassetsminuscurrentliabilities.c.Depreciationmustbeaddedbacktocurrentassetswhencomputingthechangeinnetworkingcapital.d.Networkingcapitalisequaltolong-termassetsminuslong-termliabilities.e.Networkingcapitalisapartoftheoperatingcashflow.BALANCESHEETd26.Anincreaseintotalassets:a.meansthatnetworkingcapitalisalsoincreasing.b.requiresaninvestmentinfixedassets.c.meansthatshareholders’equitymustalsoincrease.d.mustbeoffsetbyanequalincreaseinliabilitiesandshareholders’equity.e.canonlyoccurwhenafirmhaspositivenetincome.LIQUIDITYc27.Whichoneofthefollowingaccountsisthemostliquid?a.inventoryb.buildingc.accountsreceivabled.equipmente.patentBALANCESHEETb28.Whichofthefollowingaccountsgenerallyincreaseinvaluewhenafirmsellssharesofitscommonstockatapriceinexcessofparvalue?I.retainedearningsII.paid-insurplusIII.commonstockIV.preferredstocka.IandIIonlyb.IIandIIIonlyc.IIIandIVonlyd.I,II,andIIIonlye.II,III,andIVonlyLIQUIDITYe29.Whichoneofthefollowingstatementsconcerningliquidityiscorrect?a.Ifyoucansellanassettoday,itisaliquidasset.b.Ifyoucansellanassetnextyearatapriceequaltoitsactualvalue,theassetishighlyliquid.c.Trademarksandpatentsarehighlyliquid.d.Thelessliquidityafirmhas,thelowertheprobabilitythefirmwillencounterfinancialdifficulties.e.Balancesheetaccountsarelistedinorderofdecreasingliquidity.LIQUIDITYd30.Liquidityis:a.ameasureoftheuseofdebtinafirm’scapitalstructure.b.equaltocurrentassetsminuscurrentliabilities.c.equaltothemarketvalueofafirm’stotalassetsminusitscurrentliabilities.d.valuabletoafirmeventhoughliquidassetstendtobelessprofitabletoown.e.generallyassociatedwithintangibleassets.SHAREHOLDERS’EQUITYd31.Whichofthefollowingaccountsareincludedinshareholders’equity?I.interestpaidII.retainedearningsIII.paidinsurplusIV.long-termdebta.IandIIonlyb.IIandIVonlyc.IandIVonlyd.IIandIIIonlye.IandIIIonlySHAREHOLDERS’EQUITYc32.Shareholders’equity:a.includescommonstock,paidinsurplus,retainedearnings,andlong-termdebt.b.onabalancesheetisequivalenttothemarketvalueoftheoutstandingsharesofstock.c.includesallofafirm’searningsretainedbythefirmtodate.d.increases,allelseequal,whenthedividendspaidaregreaterthanthenetincomeforayear.e.includesthebookvalueofanybondsissuedbythefirm.FINANCIALLEVERAGEb33.Thehigherthedegreeoffinancialleverageemployedbyafirm,the:a.lowertheprobabilitythatthefirmwillencounterfinancialdistress.b.greatertheamountofdebtincurred.c.greaterthenumberofsharesofcommonstockissued.d.greaterthecashflowtocreditorseachyear.e.lowerthepotentialgainstoshareholders.BOOKVALUEb34.Bookvalue:a.isequivalenttomarketvalueforfirmswithfixedassets.b.isbasedonhistoricalcost.c.generallytendstoexceedmarketvaluewhenfixedassetsareincluded.d.ismoreofafinancialthananaccountingvaluation.e.isadjustedtomarketvaluewheneverthemarketvalueexceedsthestatedbookvalue.MARKETVALUEa35.Whenmakingfinancialdecisionsrelatedtoassets,youshould:a.alwaysconsidermarketvalues.b.placemoreemphasisonbookvaluesthanonmarketvalues.c.relyprimarilyonthevalueofassetsasshownonthebalancesheet.d.placeprimaryemphasisonhistoricalcosts.e.onlyconsidermarketvaluesiftheyarelessthanbookvalues.INCOMESTATEMENTd36.Asseenonanincomestatement:a.interestisdeductedfromincomeandincreasesthetotaltaxesincurred.b.thetaxrateisappliedtotheearningsbeforeinterestandtaxeswhenthefirmhasbothdepreciationandinterestexpenses.c.depreciationisshownasanexpensebutdoesnotaffectthetaxespayable.d.depreciationreducesboththetaxableincomeandthenetincome.e.interestexpenseisaddedtoearningsbeforeinterestandtaxestogettaxableincome.EARNINGSPERSHAREa37.Theearningspersharewill:a.increaseasnetincomeincreases.b.increaseasthenumberofsharesoutstandingincrease.c.decreaseasthetotalrevenue