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Cash flow statement& multiple choice questions

Question 1

Gross profit is equal to

a.sales minus cost of goods sold.
b.sales minus (selling and administrative expenses).
c.sales minus (cost of goods sold and selling and administrative expenses).
d.sales minus (cost of goods sold and depreciation expense).

Question 2
Which of the following is not a true statement about the goal of maximizing shareholder wealth?

a.It takes into account the timing of cash-flows.
b.It is a short-run point of view which takes risk into account.
c.It considers risk as a factor.
d.None of the above.

Question 3
The major difficulty in most insider-trading cases has been

a.that lenient judges have simply released the guilty individuals.
b.that insider trading, even though illegal, actually serves a beneficial economic and financial purpose.
c.that inside trades have not been legally well defined.
d.inside trades actually have a beneficial effect on the wealth of all stockholders.

Question 4
Which of the following is not a primary source of capital to the firm?

a.assets
b.common stock
c.preferred stock
d.bonds

Question 5
When a corporation uses the financial markets to raise new funds, the sale of securities is made in the

a.primary market.
b.secondary market.
c.on-line market.
d.third market.

Question 6
One of the major advantages of a sole proprietorship is

a.that the owner has limited liability.
b.that stock in the proprietorship can be easily transferred
c.that it is exempt from many tax rules that would otherwise apply when employees are hired by the firm.
d.low operating costs.

Question 7
How many of the following items are found on the balance sheet, rather than the income statement?

. Accounts receivable
. Retained earnings
. Income tax expenses
. Accrued expenses
. Cash
. Selling and administrative expenses
. Plant and equipment
. Operating expenses
. Marketable securities
. Interest expenses

a.3 of these items are found on the balance sheet
b.4 of these items are found on the balance sheet
c.5 of these items are found on the balance sheet
d.6 of these items are found on the balance sheet

Question 8
With a Subchapter S corporation

a.income is taxed as direct income to stockholders.
b.stockholders have the same liability as members of a partnership.
c.the number of stockholders is unlimited.
d.life of the corporation is limited.

Question 9
Agency problems are least likely to arise in which organizational form?

a.sole proprietorship
b.limited partnership
c.corporation
d.subchapter S corporation

Question 10
Increased productivity due to technology has

a.increased corporations' reliance on debt for capital expansion needs.
b.created larger asset values on the firm's historical balance sheet.
c.made it cheaper (in terms of interest costs) for firms to borrow money.
d.helped to keep corporate costs in check.

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Solution Preview

Question 1

Gross profit is equal to

a.sales minus cost of goods sold.
b.sales minus (selling and administrative expenses).
c.sales minus (cost of goods sold and selling and administrative expenses).
d.sales minus (cost of goods sold and depreciation expense).

Ans: a.sales minus cost of goods sold.

Question 2
Which of the following is not a true statement about the goal of maximizing shareholder wealth?

a.It takes into account the timing of cash-flows.
b.It is a short-run point of view which takes risk into account.
c.It considers risk as a factor.
d.None of the above.

Ans: b.It is a short-run point of view which takes risk into account

Question 3
The major difficulty in most insider-trading cases has been

a.that lenient judges have simply released the guilty individuals.
b.that insider trading, even though illegal, ...

Solution Summary

The answer contains the preparation of cash flow statement and also answers for multiple choice questions.

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