Ch. 1 Quiz

A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company’s balance sheet?

Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000.

Equity rises $250,000; net plant and equipment falls $250,000.

Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000. (Correct)

Cash rises $250,000; net plant and equipment falls $250,000.

The book value of a firm is

generally greater than the market value when fixed assets are included.

based on historical cost. (Correct)

more of a financial than an accounting valuation.

equivalent to the firm’s market value provided that the firm has some fixed assets.

adjusted to the market value whenever the market value exceeds the stated book value.

Which one of the following is a source of cash?

increase in inventory

decrease in accounts payable

decrease in common stock

decrease in long-term debt

decrease in accounts receivable (correct)

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case’s book value per share? $3.50

Which one of the following is a source of cash?

increase in accounts receivable

decrease in common stock

decrease in notes payable

increase in accounts payable Correct

increase in inventory

Depreciation expense

increases net fixed assets as shown on the balance sheet.

decreases current assets, net income, and operating cash flows.

reduces both taxes and net income. Correct

is a noncash item that increases net income.

A balance sheet reports the value of a firm’s assets, liabilities, and equity

over any period of time.

at the end of the year.

over an annual period.

at any point in time. (correct

Which of the following is NOT a major category on the cash flow statement?

Cash flows from financing activities

Cash flows from investing activities

Cash flows from selling activities Correct

Cash flows from operating activities

Which one of the following is a use of cash?

increase in long-term debt

increase in common stock

decrease in accounts receivable

increase in inventory Correct

increase in notes payable

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