Multiple Choice Questions

Chapter 03 - Working with Financial Statements Chapter 03 Working with Financial Statements Answer Key

Multiple Choice Questions

1. Activities of a firm which require the spending of cash are known as:

• sources of cash.
• uses of cash.
• cash collections.
• cash receipts.
• cash on hand.

Refer to section 3.1

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-1

Section: 3.1

Topic: Uses of cash

• The sources and uses of cash over a stated period of time are reflected on the:
• income statement.
• balance sheet.
• tax reconciliation statement.
• statement of cash flows.
• statement of operating position.

Refer to section 3.1

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-1

Section: 3.1

Topic: Statement of cash flows

3-1

Chapter 03 - Working with Financial Statements

• A common-size income statement is an accounting statement that expresses all of a firm's

expenses as percentage of:

• total assets.
• total equity.
• net income.
• taxable income.
• sales.

Refer to section 3.2

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-1

Section: 3.2

Topic: Common-size statement

• Which one of the following standardizes items on the income statement and balance sheet

relative to their values as of a common point in time?

• statement of standardization
• statement of cash flows
• common-base year statement
• common-size statement
• base reconciliation statement

Refer to section 3.2

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-1

Section: 3.2

Topic: Common-base year statement

3-2

Chapter 03 - Working with Financial Statements

• Relationships determined from a firm's financial information and used for comparison

purposes are known as:

• financial ratios.
• identities.
• dimensional analysis.
• scenario analysis.
• solvency analysis.

Refer to section 3.3

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-2

Section: 3.3

Topic: Financial ratios

• The formula which breaks down the return on equity into three component parts is referred

to as which one of the following?

• equity equation
• profitability determinant
• SIC formula
• Du Pont identity
• equity performance formula

Refer to section 3.4

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-3

Section: 3.4

Topic: Du Pont identity

3-3

Chapter 03 - Working with Financial Statements

• The U.S. government coding system that classifies a firm by the nature of its business

operations is known as the:

A. NASDAQ 100.

• Standard & Poor's 500.
• Standard Industrial Classification code.
• Governmental ID code.
• Government Engineered Coding System.

Refer to section 3.5

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-4

Section: 3.5

Topic: SIC codes

• Which one of the following is a source of cash?
• increase in accounts receivable
• decrease in notes payable
• decrease in common stock
• increase in accounts payable
• increase in inventory

Refer to section 3.1

AACSB: N/A

Difficulty: Basic

Learning Objective: 3-1

Section: 3.1

Topic: Source of cash

3-4