1 of 3

1. The book value of a firm is always equal to its market value.

A. True
B. False

2. The balance sheet shows a firm's financial position at a point in time.

A. True
B. False

3. Treasury stock is the investment a firm holds in another company.

A. True
B. False

4. Which of the following balance sheet items generally takes the longest time to convert to cash?
A. accounts payable
B. accounts receivable
C. inventory

D. marketable securities

5. Which of the following would not appear as an asset on a company's balance sheet?
A. accounts receivable
B. buildings

C. common stock
D. inventory

6. Which of the following would appear as a liability on a company's balance sheet?

A. cost of goods sold
B. depreciation expense
C. notes payable

D. preferred stock

7. Preferred stock is similar to a bond because

A. it has no maturity date
B. it pays a fixed periodic cash flow
C. it represents ownership in a firm

D. the dividend does not reduce a firm's taxes

8. Common stockholders are

A. agents of the firm

B. creditors of the firm

C. managers of the firm

D. owners of the firm

2 of 3

9. Which of the following is a tax deductible expense for a corporation?

A. common stock dividends paid
B. interest paid

C. loan principal paid

D. preferred stock dividends paid

10. Earnings per share are measured by dividing earnings-before-interest-and-taxes (EBIT) by the number of shares outstanding.
A. True
B. False

11. Cash flows from creditors and shareholders are considered financing activities.
A. True
B. False

12. Buying and selling long-term assets are considered

A. financing activities
B. investing activities

C. liquidating activities
D. operating activities

13. A firm's net income may be greater than its net cash flows because the firm
A. deducted depreciation expense
B. deferred income taxes
C. did not pay dividends

D. sold merchandise on credit

14. When a firm estimates future taxes, it should consider the

A. average tax rate
B. combined tax rate
C. historic tax rate

D. marginal tax rate

15. Interest is a tax-deductible expense. This causes firms to have a preference for
A. financing with bonds
B. financing with common stock

C. financing with preferred stock

D. financing with retained earnings

16. The generally accepted accounting principles (GAAP) are set by the
A. Securities Exchange Commission (SEC).
B. Federal Reserve Board (FRB).

3 of 3

C. The Financial Accounting Standards Board (FASB).

D. The United States Congress.

17. According to the balance sheet identity, total assets must equal
A. total liabilities and owners' equity.
B. current assets and current liabilities.
C. fixed assets and total debt.

D. total shareholders' equity less current assets.

18. The depreciation method used by a firm does not affect the cost of the asset
A. True
B. False

19. Accelerated depreciation methods are better than straight-line depreciation methods for tax purposes because they
A. reduce the cost of an asset.
B. allow a firm to take more of a total depreciation write-off.
C. alter the timing of when the depreciation is expensed.
D. make earnings look better.

20. Which of the following assets is not a tangible asset?

A. Patents and copyrights.
B. Land and buildings

C. Plant and machinery.

D. Delivery truck.

21. Which of the following liabilities is not a long-term liability?

A. Corporate bonds.
B. Bank term loans.

C. Pension obligations.
D. Commercial paper.

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to
grade the test.

1 of 4

100% (21 out of 21 correct)

1. The book value of a firm is always equal to its market value.
A. True

B. False

2. The balance sheet shows a firm's financial position at a point in time.

A. True

B. False

3. Treasury stock is the investment a firm holds in another company.

A. True

B. False

4. Which of the following balance sheet items generally takes the longest time to convert to cash?
A. accounts payable

B. accounts receivable
C. inventory

D. marketable securities

5. Which of the following would not appear as an asset on a company's balance sheet?
A. accounts receivable
B. buildings

C. common stock
D. inventory

6. Which of the following would appear as a liability on a company's balance sheet?

A. cost of goods sold

B. depreciation expense
C. notes payable

D. preferred stock

7. Preferred stock is similar to a bond because

A. it has no maturity date

B. it pays a fixed periodic cash flow

C. it represents ownership in a firm

2 of 4

D. the dividend does not reduce a firm's taxes

8. Common stockholders are

A. agents of the firm

B. creditors of the firm

C. managers of the firm

D. owners of the firm

9. Which of the following is a tax deductible expense for a corporation?

A. common stock dividends paid
B. interest paid

C. loan principal paid

D. preferred stock dividends paid

10. Earnings per share are measured by dividing earnings-before-interest-and-taxes (EBIT) by the number of shares
outstanding.
A. True

B. False

11. Cash flows from creditors and shareholders are considered financing activities.
A. True

B. False

12. Buying and selling long-term assets are considered

A. financing activities
B. investing activities

C. liquidating activities
D. operating activities

13. A firm's net income may be greater than its net cash flows because the firm
A. deducted depreciation expense
B. deferred income taxes
C. did not pay dividends

D. sold merchandise on credit

14. When a firm estimates future taxes, it should consider the

3 of 4

A. average tax rate

B. combined tax rate

C. historic tax rate

D. marginal tax rate

15. Interest is a tax-deductible expense. This causes firms to have a preference for
A. financing with bonds

B. financing with common stock

C. financing with preferred stock

D. financing with retained earnings

16. The generally accepted accounting principles (GAAP) are set by the
A. Securities Exchange Commission (SEC).
B. Federal Reserve Board (FRB).

C. The Financial Accounting Standards Board (FASB).

D. The United States Congress.

17. According to the balance sheet identity, total assets must equal
A. total liabilities and owners' equity.

B. current assets and current liabilities.

C. fixed assets and total debt.

D. total shareholders' equity less current assets.

18. The depreciation method used by a firm does not affect the cost of the asset
A. True

B. False

19. Accelerated depreciation methods are better than straight-line depreciation methods for tax purposes because they
A. reduce the cost of an asset.

B. allow a firm to take more of a total depreciation write-off.

C. alter the timing of when the depreciation is expensed.
D. make earnings look better.

20. Which of the following assets is not a tangible asset?

A. Patents and copyrights.
B. Land and buildings

C. Plant and machinery.

4 of 4

D. Delivery truck.

21. Which of the following liabilities is not a long-term liability?

A. Corporate bonds.
B. Bank term loans.

C. Pension obligations.
D. Commercial paper.

Retake Test