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1.  Which of the following is a reason for the initial need for financial statements?

a. As lending became more complex, physical inspection of assets was not always possible.

b. No investments were made on a share-of-profits basis.

c. Factory owners did not need reports to see how effectively their enterprises were being run.

d. All of the above statements are true.

 

2. Which of the following statements are correct.

a. Undoubtedly, the quantitative financial statements are the most important part of the annual report.

b. Undoubtedly, the verbal materials in the annual report are the most important part of the annual report.

c. The quantitative and verbal materials in the annual report are equally important.

 

3. Which of the following are basic financial reports included in the annual report?

a. balance sheet

b. income statement

c. statement of retained earnings

d. statement of cash flows

e. all of the above

 

4. The balance sheet:

a. summarizes the firm’s revenues and expenses over an accounting period.

b. reports how much of the firm’s earnings were retained in the business rather than paid out in dividends.

c. reports the impact of a firm’s operating, investing, and financing activities on cash flows over an accounting period.

d. states the firm’s financial position at a specific point in time.

 

5. The income statement:

a. summarizes the firm’s revenues and expenses over an accounting period.

b. reports how much of the firm’s earnings were retained in the business rather than paid out in dividends.

c. reports the impact of a firm’s operating, investing, and financing activities on cash flows over an accounting period.

d. states the firm’s financial position at a specific point in time.

 

6. The statement of retained earnings:

a. summarizes the firm’s revenues and expenses over an accounting period.

b. reports how much of the firm’s earnings were retained in the business rather than paid out in dividends.

c. reports the impact of a firm’s operating, investing, and financing activities on cash flows over an accounting period.

d. states the firm’s financial position at a specific point in time.

 

7. The statement of cash flows:

a. summarizes the firm’s revenues and expenses over an accounting period.

b. reports how much of the firm’s earnings were retained in the business rather than paid out in dividends.

c. reports the impact of a firm’s operating, investing, and financing activities on cash flows over an accounting period.

d. states the firm’s financial position at a specific point in time.

 

8.  On its one year ago balance sheet, Sherman Books had retained earnings equal to $510 million.  On its current year balance sheet, retained earnings were also equal to $510 million.  Which of the following statements is most correct?

a. The company must have had net income equal to zero in the current year.

b. The company did not pay dividends in the current year.

c. If the company’s net income in the current year was $200 million, dividends paid must have also equaled $200 million.

d. If the company lost money in the current year, it must have paid dividends.

e. None of the statements above is correct.

 

9.  Common stockholders’ equity (net worth):

a. represents the amount of fixed assets in a firm.

b. represents the total liabilities for a firm.

c. is the capital supplied by common stockholders; it is the residual book value of the firm after all claims other than the ownership claim of common stockholders are satisfied.

d. is the amount of profit retained in the firm in a particular year.

 

10.  Depreciation:

a. represents allocations of the costs of assets over their useful lives

b. is referred to as a noncash charge

c. applies to tangible assets

d. all of the above are true

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