Financial Statement and Cash Flows

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FOUNDATION OF FINANCE (BWFF1013)
FIRST SEMESTER 2012/2013 (A121)
CHAPTER 2-FINANCIAL STATEMENT AND CASH FLOWS

Section A

Please circle TRUE or FALSE to the following statements.

1) An income statement reports a firm's cumulative revenues and expenses from the inception of the firm through the income statement date. Answer: FALSE

2)A firm's income statement reports the results from operating the business for a period of time, while the firm's balance sheet provides a snapshot of the firm's financial position at a specific point in time. Answer: TRUE

3)Financial ratios are useful for evaluating performance but should not be used for making financial projections. Answer: FALSE

4)The current ratio and the acid test ratio both measure financial leverage. Answer: FALSE

Section B

Please circle the correct answer.

1) The basic format of an income statement is

A) Sales - Expenses = Profits
B) Income - Expenses = EBIT
C) Sales - Liabilities = Profits
D) Assets - Liabilities = Profits

2) JJ Rlooing reported the following items for the current year: Sales = RM3,000,000; Cost of Goods Sold = RM1,500,000; Depreciation Expense = RM170,000; Administrative Expenses = RM150,000; Interest Expense = RM30,000; Marketing Expenses = RM80,000; and Taxes = RM300,000. JJ’s operating income is equal to

A) $770,000.
B) $1,070,000.
C) $1,100,000.
D) $1,500,000.

Explanation: Sales — Cost of Goods Sold — Depreciation Expense — Administrative Expenses — Marketing Expenses

3) JJ’s net profit margin is equal to

A) 25.67%.
B) 35.67%.
C) 36.67%.
D) 50.00%.
Explanation: Sales — Cost of Goods Sold — Depreciation Expense — Administrative Expenses — Marketing Expenses = EBIT = $3,000,000 — 1,500,000 — 170,000 — 150,000 — 80,000 = $1.100,000); (EBIT - Interest Expense - Taxes = Net Income = $1,100,000 - 30,000 - 300,000 = $770,000); (Net...
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