1.

As per Accounting Standard-3, Cash Flow is classified into

a) Operating activities and investing activities

b) Investing activities and financing activities
c) Operating activities and financing activities
d) Operating activities, financing activities and investing activities

ANSWER: d) Operating activities, financing activities and investing activities

2. Cash Flow Statement is also known as

a) Statement of Changes in Financial Position on Cash basis

b) Statement accounting for variation in cash
c) Both a and b
d) None of the above.

ANSWER: c) Both a and b

3. The objectives of Cash Flow Statement are

A) Analysis of cash position

B) Short-term cash planning
C) Evaluation of liquidity
D) Comparison of operating Performanc

ANSWER: A

4. In cash flow statement, the item of interest is shown in

A) Operating Activities
B) Financing Activities
C) Investing Activities

a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
ANSWER: c) Both B and C

5. Cash Flow Statement is based upon

a) Cash basis of accounting

b) Accrual basis of accounting
c) Credit basis of accounting
d) None of the above

ANSWER: a) Cash basis of accounting

6. Which of the following statements are false?

A) Cash Flow Statement is helpful in the formation of policies.

B) Cash Flow Statement is useful for external analysis
C) Cash Flow Statement is helpful in estimating future cash flow

a) Both A and B
b) Both A and C
c) Both B and C
d) None of the above

ANSWER: d) None of the above

7. Which of the following statements are true?

A) Cash flow reveals only the inflow of cash

B) Cash flow reveals only the outflow of cash
C) Cash flow is a substitute for income statement
D) Cash flow statement is not a replacement of funds flow statement.

a) Only A
b) Only B
c) Both B and C
d) Only D

ANSWER: d) Only D
1 Simplicity with which bondholders and shareholders can change their investments into cash is
known

A. barter
B. hedging
C. arbitrage
D. liquidity

Gross margin is added to cost of sold goods to calculate

A. revenues
B. selling price
C. unit price
D. bundle price

Fixed cost is divided by break-even revenues to calculate

A. cost margin
B. fixed margin
C. revenue margin
D. contribution margin

Fixed cost is added to target operating income and then divided to contribute margin per unit to
calculate

A. quantity of units required to sold

B. selling of units
C. sold units
D. contributed units

An effect of fixed cost to change in operating income is classified as

A. uncertain margin
B. certain margin
C. operating margin
D. operating leverage

Fixed cost, and contribution margin percentage for bundle are divided to calculate

A. breakeven costs
B. breakeven revenues
C. breakeven units
D. breakeven sales

In cost accounting, financial way of charging price for product above cost, of acquiring or
producing goods is known as
 A. sales margin
B. cost margin
C. Gross margin
D. income margin

The major device for measuring the profitability of a firm over a defined period of time is the
A) income statement.
B) balance sheet.
C) statement of cash flow.
D) none of the above.
Answer: A

The ________ does not represent continuing operations in any way, but is simply a snapshot of
the total worth of a firm at a given point in time.
A) income statement
B) balance sheet
C) sources and uses of funds statement
D) none of the above
Answer: B

47. The statement of cash inflows and outflows shows all of the following except.
A) How the firm's balance sheet changed from one period to another.
B) How funds from operations were used to finance the company's assets.
C) How the firm has matched short-term and long-term sources of funds with short-term and
long-term uses of funds.
D) The firms cost of new borrowing.
Answer: D

48. Cash inflows arise from _____ assets, ________ liabilities, and ___________ stockholders'
equity.
A) increasing; increasing; decreasing
B) increasing; decreasing; decreasing
C) decreasing; increasing; increasing
D) decreasing; increasing; decreasing
Answer: C

49. Which of the following is NOT a key ratio in the prediction of bankruptcy as developed by
Edward Altman?
A) debt to equity
B) current ratio
C) retained earnings as a percent of total assets
D) total assets
Answer: A
 50. ________________ ratios measure the ability of a firm to earn an adequate return on sales,
total assets and invested capital.
A) Asset utilization B) Liquidity
C) Profitability
D) Debt utilization
Answer: C

51. The method of calculating return on assets which highlights the importance of sales, profit
margin and asset turnover is known as
A) the sales method
B) DuPont analysis
C) the Altman model
D) the Gordon model
Answer: B

52. Asset utilization ratios measure all of the following except

A) productivity of fixed assets in terms of sales
B) the relationship of the income statement to cash of the asset groups on the balance sheet.
C) how many times per year the inventory is sold and accounts receivable collected.
D) the firm's ability to pay off short-term obligations as they come due.
Answer: D

53. The primary purpose of the liquidity ratios is to determine

A) how much working capital is tied up in inventory.
B) the relative level of short-term debt.
C) how well a firm is able to pay off short-term obligations.
D) more than one of the above.
Answer: C

54. Which of the following statements about liquidity ratios is true?

A) The higher the current ratio, the more likely a firm is able to pay its short-term obligations.
B) The lower the quick ratios relative to the current ratio, the safer a firm is in terms of liquidity.
C) The ratio of net working capital to total assets always lies between 0 and 1.
D) Relatively high current ratios are usually a sign of efficient working capital management.
Answer: A

55. The ________ ratios help determine the degree of financial risk and earnings volatility
present in a firm.
A) profitability
B) asset utilization
C) liquidity
D) none of the above.
Answer: D

56. Which of the following statements are true?

A) Debt to equity and debt to asset ratios measure capital structure and vary widely among
industries.
B) Debt utilization ratios alone do not measure a firm's ability to meet its cash obligations.
C) DuPont analysis considers the impact of debt on the profitability of the firm.
D) two of the above are true.
Answer: D

57. ___________ ratios measure the impact of external market forces on the internal
performance of a firm.
A) Price
B) Profitability
C) Liquidity
D) Asset utilization
Answer: A

58. A high payout ratio indicates

A) a firm is investing heavily in plant and equipment.
B) a firm has high current obligations
C) the firm is probably in the mature phase of its life cycle and does not have many growth
opportunities available.
D) the firm is probably in Stage II of its life cycle.
Answer: C

59. Ratio analysis which compares a company to an industry is complicated because

A) reliable industry data is not readily accessible.
B) the accounting conventions between companies may be dissimilar.
C) large companies are diversified across several industries.
D) more than one of the above.
Answer: D

60. __________ analysis is the process of studying a series of ratios for a company and/or
industry over time.
A) DuPont
B) Trend
C) Common size
D) all of the above.
Answer: B

61. In an inflationary economy, many firms use the ________ method of inventory valuation to
reduce distortion of profits.
A) current cost
B) LIFO
C) FIFO
D) LILO
Answer: B
 62. Replacement cost accounting __________ income, but __________ assets and
____________ the debt-to-assets ratio.
A) reduces; increases; lowers
B) lowers; increases; increases
C) increases; decreases; lowers
D) none of the above Answer: A

63. Corporate pension funds pose a threat to future earnings of the company because
A) the company is liable for all payments.
B) unfunded pensions will be paid from future earnings
C) the firm may be unable to reinvest in new assets.
D) all of the above
Answer: D

64. The statement of cash flows tells us

A) accounting profit or loss
B) how cash was created
C) actual profit or loss
D) two of the above
Answer: B

65. An analyst can judge a company's level of debt by comparing these ratios:
A) return-on-equity to total debt-to-assets
B) return-on-equity to total asset turnover
C) return-on-equity to debt turnover
D) return-on-equity to return-on-assets
Answer: D

66. A stock is a good buy when the value of these ratios except one is low compared to a market
index or company history. Which one doesn't belong?
A) price to book value
B) price to earnings
C) dividend yield
D) all of the above belong
Answer: D

67. Which of the following is not an asset utilization ratio:

A) receivable turnover
B) fixed-asset turnover
C) quick ratio
D) all of the above are asset utilization ratios
Answer: C

68. The major device that indicates what the firm owns and how these assets are financed in the
form of liabilities or ownership interest:
A) the balance sheet.
B) the statement of cash flows.
C) the income statement.
D) the general ledger.
Answer: A

69. The primary sections of a statement of cash flows are:

A) cash flows from investing, operating, and financing activities.
B) cash flows from investing and operating activities plus investments.
C) cash flows from investing, financing, and accounting activities.
D) cash flows from investing, operating, financing, and accounting activities.
Answer: A

70. Financial ratios are used to weigh and evaluate:

A) the operating performance and capital structure of the firm.
B) which stocks are the "gold mine" stocks when investing in the market.
C) which stocks are about to file for bankruptcy.
D) the net present value of the company.
Answer: A

71. The type of ratio that allows the analyst to measure the ability of the firm to earn an
adequate return on sales, total assets, and invested capital is:
A) liquidity ratios.
B) profitability ratios.
C) asset-utilization ratios.
D) debt-utilization ratios.
Answer: B

72. Which of the following is a good example of changes in accounting principles.

A) a change in earnings per share due to an increase in the number of shares of common stock
B) a change in income due to a change for post retirement benefits
C) a change in earnings before taxes because of a change in internal rates on debt
D) none of the above
Answer: B

73. When a company repurchases shares of their own common stock

A) the earnings per share will rise
B) the dividends paid out in total will decline
C) the earnings per share growth rate will rise
D) all of the above will happen
Answer: D

74. You would find the payment of dividends in the statement of cash flow under
A) cash flows from operating activities
B) cash flows from investing activities
C) cash flows from financing activities
D) cash flows from purchasing activities
Answer: C
75. You would expect to find depreciation and amortized expenses in the statement of cash flows
under
A) cash flows from operating activities
B) cash flows from investing activities
C) cash flows from financing activities
D) cash flows from purchasing activities
Answer: A