1) Which of the following statements is CORRECT? a

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1) Which of the following statements is CORRECT?

a. The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of retained earnings. 
b. The balance sheet gives us a picture of the firm’s financial position at a point in time. 
c. The income statement gives us a picture of the firm’s financial position at a point in time. Correct
d. The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.
e. The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.

2. Which of the following statements is CORRECT?

a. The balance sheet for a given year, say 2010, is designed to give us an idea of what happened to the firm during that year. Correct
b. The balance sheet for a given year, say 2010, tells us how much money the company earned during that year.
c. The difference between the total assets reported on the balance sheet and the debts reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP).
d. For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet.
e. A typical industrial company’s balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last.

3. Which of the following items is NOT included in current assets?

a. Accounts receivable.
b. Inventory.
c. Bonds. 
d. Cash.
e. Short-term, highly liquid, marketable securities. 

4. Which of the following statements is CORRECT?

a. The focal point of the income statement is the cash account, because that account cannot be manipulated by “accounting tricks.”
b. The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP).
c. The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SEC).
d. If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported net cash flow. 
e. The income statement for a given year, say 2010, is designed to give us an idea of how much the firm earned during that year.

5. Net working capital, which is defined as current assets minus current liabilities, is also equal to the current ratio.

a. True 
b. False

6. Other things held constant, the shorter the Cash Conversion Cycle, the more effective the firm’s working capital management.

a. True 
b. False

7. Other things held constant, if a firm stretches its accounts payable, this will lengthen its cash conversion cycle (CCC).

a. True 
b. False

8. Which of the following statements is true?
a. Current assets consist of cash, accounts receivable, inventory, and net plant, property, and equipment. True
b. The quick ratio is a more restrictive measure of a firm’s liquidity than the current ratio. 
c. For the average firm, inventory is considered to be more liquid than accounts receivable.
d. A successful firm’s current liabilities should always be greater than its current assets.

9. Which of the following costs are not included in the Inventory account?
a. Raw materials cost
b. Labor costs
c. Manufacturing overhead costs
d. Financing costs

10. All of these accounts are part of the Income statement except:
a. Revenues
b. Selling Expenses
c. Interest expense
d. COGS
e. Accounts Receivable

11. Fixed costs are those that:
a. Are incurred as part of the production process
b. Are incurred outside the factory or production facility
c. Are costs that change directly with changes in the level of sales or production
d. Doesn’t change based on changes based on the level of sales or production
e. Are zero when production is zero

12. A plant can remain operating when sales are depressed
a. if the selling price per unit exceeds the variable cost per unit
b. to help the local economy
c. in an effort to cover at least some of the variable cost
d. unless variable costs are zero when production is zero

13. The following institutions are obligated to comply with the requirements of the Sarbanes-Oxley Act
a. Public corporations
b. Public and private corporations who have issued common shares of stock
c. Public and private corporations as well as Limited Liability Partnerships
d. Any corporation which has to present Income Tax returns

14. Which of the following is not a function of the financial markets:
a. Transporting cash across time
b. Risk transfer and diversification
c. To provide liquidity and information to investors
d. To provide a venue for major real estate transactions.

15. The Primary Market is where new and previously issued securities are traded among investors.
a. True
b. False