Essay About Income Statement And Profitability Of A Firm

Finance Solution Manual
Essay Preview: Finance Solution Manual
Report this essay
True / False Questions
1. The income statement is the major device for measuring the profitability of a firm over a period of time.
Blooms: 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
Blooms: Understanding
Difficulty: Easy
Learning Objective: 1
Learning Objective: 2
3. Sales minus cost of goods sold is equal to earnings before taxes.
FALSE
Blooms: Understanding
Difficulty: Easy
Learning Objective: 1
4. Sales minus cost of goods sold is equal to gross profit.
Blooms: 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
Blooms: Understanding
Difficulty: Medium
Learning Objective: 1
6. Operating profit is essentially a measure of how efficient management is in generating revenues and controlling expenses.
Blooms: Understanding
Difficulty: Medium
Learning Objective: 1
7. Dividing Operating Profit by Shares Outstanding produces Earnings per Share.
FALSE
Blooms: Understanding
Difficulty: Medium
Learning Objective: 1
8. Accounting income is based on verifiably completed transactions.
Blooms: Understanding
Difficulty: Easy
Learning Objective: 1
9. The P/E ratio is strongly related to the past performance of the firm.
FALSE
Blooms: 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.
Blooms: Understanding
Difficulty: Hard
Learning Objective: 2
11. The P/E ratio provides no indication of investors expectations about the future of a company.
FALSE
Blooms: Understanding
Difficulty: Medium
Learning Objective: 2
12. The real value of a firm is the same from an economic and accounting perspective.
FALSE
Blooms: Understanding
Difficulty: Medium
Learning Objective: 3
13. A balance sheet represents the assets, liabilities, and owners equity of a company at a given point in time.
Blooms: Understanding
Difficulty: Medium
Learning Objective: 3
14. The investments account includes marketable securities.
FALSE
Blooms: Understanding
Difficulty: Medium
Learning Objective: 3
15. The investments account represents a commitment of funds of at least one year or more.
Blooms: Understanding
Difficulty: Easy
Learning Objective: 3
16. Asset accounts are listed in order of their liquidity.
Blooms: Understanding
Difficulty: Medium
Learning