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Finance Solution Manual

Essay by   •  December 2, 2011  •  Essay  •  4,865 Words (20 Pages)  •  3,842 Views

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True / False Questions

1. The income statement is the major device for measuring the profitability of a firm over a period of time.

TRUE

Bloom's: Understanding

Difficulty: Easy

Learning Objective: 1

2. The income statement measures the increase in the assets of a firm over a period of time.

FALSE

Bloom's: Understanding

Difficulty: Easy

Learning Objective: 1

Learning Objective: 2

3. Sales minus cost of goods sold is equal to earnings before taxes.

FALSE

Bloom's: Understanding

Difficulty: Easy

Learning Objective: 1

4. Sales minus cost of goods sold is equal to gross profit.

TRUE

Bloom's: Understanding

Difficulty: Easy

Learning Objective: 1

5. It is not possible for a company with a high profit margin to have a low operating profit.

FALSE

Bloom's: Understanding

Difficulty: Medium

Learning Objective: 1

6. Operating profit is essentially a measure of how efficient management is in generating revenues and controlling expenses.

TRUE

Bloom's: Understanding

Difficulty: Medium

Learning Objective: 1

7. Dividing Operating Profit by Shares Outstanding produces Earnings per Share.

FALSE

Bloom's: Understanding

Difficulty: Medium

Learning Objective: 1

8. Accounting income is based on verifiably completed transactions.

TRUE

Bloom's: Understanding

Difficulty: Easy

Learning Objective: 1

9. The P/E ratio is strongly related to the past performance of the firm.

FALSE

Bloom's: Understanding

Difficulty: Easy

Learning Objective: 2

10. When a firm has a sharp drop off in earnings, its P/E ratio may be artificially high.

TRUE

Bloom's: Understanding

Difficulty: Hard

Learning Objective: 2

11. The P/E ratio provides no indication of investors' expectations about the future of a company.

FALSE

Bloom's: Understanding

Difficulty: Medium

Learning Objective: 2

12. The real value of a firm is the same from an economic and accounting perspective.

FALSE

Bloom's: Understanding

Difficulty: Medium

Learning Objective: 3

13. A balance sheet represents the assets, liabilities, and owner's equity of a company at a given point in time.

TRUE

Bloom's: Understanding

Difficulty: Medium

Learning Objective: 3

14. The investments account includes marketable securities.

FALSE

Bloom's: Understanding

Difficulty: Medium

Learning Objective: 3

15. The investments account represents a commitment of funds of at least one year or more.

TRUE

Bloom's: Understanding

Difficulty: Easy

Learning Objective: 3

16. Asset accounts are listed in order of their liquidity.

TRUE

Bloom's: Understanding

Difficulty: Medium

Learning

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