The Income Statement:
Answer(s): D
To assess the health and growth of a firm, one needs the cashflow statement in addition to the income statement to evaluate the liquidity and solvency of the firm. III is not true since the Income statement does not contain all the details which pertain to changes in assets and liabilities. Finally, (IV) is true of a balance sheet; an income statement displays some aspects of a firm's operations over a selected period.
When a firm records a lease as a capital lease:
Answer(s): B
A capital lease is recorded as an asset as well as a liability. The next principal payment to be made on the lease is recorded as current liability (since it occurs within an operating cycle), thus decreasing the current ratio and working capital. The remaining portion is recorded as a long-term liability. Since total assets increase, the financial leverage ratio (assets/equity) increases.
Under the indirect method, when reporting the cash flow from operations the starting point is
Answer(s): C
Under the indirect method the starting point is the period's net income.
The Management Discussion and Analysis Section of the annual report ________.
Companies with publicly traded securities have been required since 1968 to provide a discussion of earnings in the MD&A section.
Which of the following is/are TRUE?
While CFO is lower under expensing since the entire cash expense is charged against it, expensing leads to a lower total income, causing lower tax payments. Hence, total cash flows are higher under expensing.
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