Chap 3 Risk and Insurance

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Chapter 03
Working with Financial Statements

Multiple Choice Questions

1. Activities of a firm which require the spending of cash are known as:
A. sources of cash.
B. uses of cash.
C. cash collections.
D. cash receipts.
E. cash on hand.

2. The sources and uses of cash over a stated period of time are reflected on the:
A. income statement.
B. balance sheet.
C. tax reconciliation statement.
D. statement of cash flows.
E. statement of operating position.

3. A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
A. total assets.
B. total equity.
C. net income.
D. taxable income.
E. sales.

4. Which one of the following standardizes items on the income statement
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A firm uses 2008 as the base year for its financial statements. The common-size, base-year statement for 2009 has an inventory value of 1.08. This is interpreted to mean that the 2009 inventory is equal to 108 percent of which one of the following?
A. 2008 inventory
B. 2008 total assets
C. 2009 total assets
D. 2008 inventory expressed as a percent of 2008 total assets
E. 2009 inventory expressed as a percent of 2009 total assets

19. Which of the following ratios are measures of a firm's liquidity?
I. cash coverage ratio
II. interval measure
III. debt-equity ratio
IV. quick ratio
A. I and III only
B. II and IV only
C. I, III, and IV only
D. I, II, and III only
E. I, II, III, and IV

20. An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.
A. increase in the cash ratio
B. increase in the net working capital to total assets ratio
C. decrease in the quick ratio
D. decrease in the cash coverage ratio
E. increase in the current ratio

21. An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?
A. accounts payable
B. cash
C. inventory
D. accounts receivable
E. fixed assets

22. A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?
A. current
B. cash
C. debt-equity
D. quick
E. total debt

23. A firm has an
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