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50 Cards in this Set

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  • Back
Compensating balances reduce the amount of cash available to the borrower to meet obligations and they decrease the effective interest rate for the borrower
f
To qualify as a marketable security, the investment must be readily marketable and it must be the intent of management to convert the investment to cash within the current operating cycle or a year, whichever is longer
t
Using the direct write-off method, the bad debt expense that is recorded as a specific customer's account is determined to be noncollectible
t
When a company has receivables that are due beyond one year or accounting cycle from the balance sheet date, and when it is the industry practice to include these receivables in current assets, they will be included in current assets even though they do not technically meet the guidelines to qualify as current assets
t
If days' sales in receivables are materially longer than the credit terms, this indicates a collection problem
t
When doing external analysis, many of the reasons why the days' sales in receivables is abnormally high or low cannot be determined without access to internal information
t
A low sales to working capital ratio tentatively indicates an unprofitable use of working capital
t
The lifo inventory costing method results in the acid-test ratio being overstated
f
Current assets are assets that (1) are in the form of cash, (2) will be realized in cash, or (3) conserve the use of cash within the operating cycle of a business or for one year, whichever is shorter
f
In order to classify cash as a current asset, it must be free from any restrictions that would prevent its deposit or use to pay creditors classified as long-term
f
Customer concentration can be an important consideration in the quality of receivables
t
The company with the natural business year tends to overstate its accounts receivable turnover, thus overstating its liquidity
t
Significant weight is seldom given to the cash ratio unless the firm is in financial trouble
t
In general, the profitability of a firm is not considered to be important in determining the short-term, debt-paying ability of the firm
t
Equity earnings are excluded from earnings for the times interest earned coverage
t
As with the debt ratio and the debt/equity ratio, from a long-term, debt-paying ability view, the lower the debt to tangible net worth ratio, the better
t
The debt to tangible net worth ratio is a more conservative ratio than the debt ratio
t
The balance sheet pension liability considers the projected benefit obligation
f
Times interest earned indicates a firm's long-term, debt-paying ability from the balance sheet view
f
Increases of profits by cutting the cost of sales would increase the times interest earned.
t
Net profit margin is net profit before minority share of earnings and nonrecurring items to total assets.
f
The use of debt with high interest charges may cause the net profit margin to be low.
t
High fixed costs in a period of low activity can cause a low net profit margin.
t
Equity earnings are usually lower than the cash generated from the investment as dividends.
f
Operating assets exclude investments, land, and intangibles from the asset base
f
Return on investment measures the return on long-term suppliers of funds.
t
Changes in the cost of goods sold can have a substantial impact on gross profit margin.
t
In order to compute gross profit margin, the income statement must be in single-step format
f
Ratios of profits to sales and to identifiable assets can help to analyze profitability by segment.
t
Segment data contain information about geographic markets, including foreign countries
t
Interim reports are usually audited.
f
When used properly, pro forma financial information makes a positive contribution to financial reporting.
t
In computing earnings per share, preferred dividends are subtracted from net income.
t
Using financial leverage results in a fixed change that can materially affect the earnings available to the common shareholders.
t
The price/earnings ratio expresses the relationship between selling prices of the company's products and the related earnings.
f
Book value per share measures the current value of the net assets on a per share basis
f
Some employees prefer restricted stock over options because they receive actual shares of stock
t
In general, new firms, growing firms, and firms perceived as growth firms will have a relatively low percentage of earnings retained.
f
Stock options do not require a cash outlay from the company, while stock appreciation rights often do require a cash outlay.
t
SFAS No. 123(R) results in greater international comparability in the accounting for share-based transactions.
t
Working capital is considered to be one of the prime indicators of liquidity
t
The income statement will not fairly represent the cash from operations.
t
With the indirect method of presenting cash from operations, the income statement is essentially presented on a cash receipts and cash payments basis.
f
The operating cash flow/current maturities of long-term debt and current notes payable is a ratio that indicates long-term, debt-paying ability
f
The operating cash flow/total debt ratio is one that indicates a firm's ability to meet its current maturities of debt
f
. Cash flow per share is usually higher than earnings per share
t
The statement of cash flows should be reviewed for several time periods in order to determine the major sources of cash and the major uses of cash.
t
Only cash flow transactions are presented in the statement of cash flows, including supporting schedules.
f
The conversion of long-term bonds into common stock is an example of a transaction involving two financing activities with no cash flow effect.
t
A supporting schedule to the statement of cash flows may include noncash flow items
t