A sole trader reports income for tax purposes… (24 Points) via the owner's personal taxation (24 Points) independently from the owner (0 Points) by filing under the trade name (0 Points) based on the level of net profit (0 Points) A partner’s taxable income… definitely represents cash available to service debt may or may not represent cash available to service debt represents the maximum cash available to service debt represents the minimum cash available to service debt Among other things, a profit and loss account reports… (24 Points) assets and liabilities, arranged in ascending order of liquidity (0 Points) revenue generated from basic operations offset by the direct cost of producing goods, which yields gross profit (24 Points) cash flow information, arranged in non-operating, investing, and borrowing sections (0 Points) cash flow information, arranged in operating, investing, and financing sections (0 Points) assets and liabilities, arranged in descending order of liquidity (0 Points) Among other things, a profit and loss account reports (or shows)… (select all that apply) assets and liabilities, arranged in descending order of liquidity assets and liabilities, arranged in descending order of liquidity cash flow information, arranged in operating, investing, and financing sections gross profit offset by operating costs of running the company, which yields operating income operating income offset by financing costs and other income streams falling outside the normal course of business activity but sufficiently large to be reported individually, which yields profit before taxes Assets, liabilities, revenues, and expenses are among the main elements of a firm's financial accounts True False Accrual Basis financial accounts… (select all that apply) match the recognition of revenues with the expenses that went into generating that revenue recognise an economic transaction at the time cash is paid or received recognise an economic transaction at the time it occurs without paying out or receiving the cash that accompanies the transaction record expenses before their associated revenues are recognised An increase in days stock indicates the firm… has more product available to process and sell to customers is more efficient at turning raw materials into finished products is paying its vendors more quickly is paying its vendors more slowly An increase in trade debtors in days from one period to the next indicates… the firm's increased efforts to collect past due receivables are working the firm is being paid more quickly by its customers lower levels of trade debtors (assuming a constant sales level) the firm is being paid more slowly by its customers A cash flow coverage ratio less than 1.00 in a given operating period means interest, dividends and current maturities of long-term debt were covered by internal cash flow internal cash flow from operations decreased from the prior year payment obligations for interest, dividends and debt amortisation increased during the period the company did not generate sufficient cash flow internally to cover the full, combined amounts of interest, dividends, and scheduled debt reductions.based on the level of net profit A cash flow coverage ratio greater than 1.00 means, among other things, the company… covered all its operational and investment activities from cash generated internally covered its scheduled debt reductions from cash generated internally was unable to make scheduled debt payments from cash generated internally decreased its overall level of debt A cash flow coverage ratio greater than 1.00 means… payment obligations for interest, dividends and debt amortisation are decreasing interest, dividends and current maturities of long-term debt were covered by internal cash flow interest and dividend payments were covered (but not current maturities of long-term debt) by internal cash flow internal cash flow from operations increased from the prior year Because a sole trader has no legal separation from the owner, his or her taxable income is equivalent to cash available to service debt False True Because a partnership consists of multiple owners, the partnership must file taxes independently True (0 Points) False (24 Points) Cash from personal and business income less cash used for personal and business expenses yields (24 Points) operating cash flow (24 Points) cash available for debt service (0 Points) personal cash flow (0 Points) cash after debt service (0 Points) Cash available for debt service is operating cash flow (select all that apply) less cash taxes paid less withdrawals plus interest expense plus misc income Cash Basis financial accounts (select all that apply) recognise an economic transaction at the time cash is paid or received match the recognition of revenues with the expenses that went into generating that revenue recognise an economic transaction at the time it occurs without paying out or receiving the cash that accompanies the transaction may record revenues in a different accounting period than their associated expenses are recognised Days stock measures the level of inventory (stock) relative to… (24 Points) sales (24 Points) cost of goods sold (0 Points) gross profit (0 Points) production costs (0 Points) Financial gearing measures… (24 Points) total liabilities relative to net worth (24 Points) total liabilities (0 Points) the change in net worth over time (0 Points) borrowed funds (0 Points) In addition to the tax on company (corporation) income, shareholders pay taxes on dividends False True If a firm consistently has very low financial gearing compared to its peers, it most likely means… cash flow is being managed better than its peers it has a stronger capital base from which to grow than other firms in the industry it has a weaker capital base from which to grow when compared to other firms in the industry it may be growing much too rapidly Increasing financial gearing from one period to the next means… liabilities are growing at a faster rate than net worth liabilities are growing at a slower rate than net worth solvency risk is decreasing the firm is borrowing, in relative terms, fewer dollars If a sole trader elects a trade name, this becomes the taxable entity False True Operating profit can be defined as the funds… (24 Points) available after covering the cost of goods sold and operating expenses (24 Points) available after covering the cost of goods sold (0 Points) available to cover the cost of goods sold (0 Points) available after covering the cost of goods sold, operating expenses, interest expense, and income taxes (0 Points) When analysing tax forms, taxable income is equivalent to cash flow available to service debt True False When an individual is the sole shareholder of a company (corporation), he or she is personally liable for business income related taxes True False When analysing tax forms, taxable income differs from cash flow available to service debt by (select all that apply) active income depreciation expense non-taxable income passive income When analysing tax forms for debt service capacity it is important to understand which items are (select all that apply) received in cash taxable passive recurring Which of the following business types are liable for income taxes (select all that apply)… sole trader (0 Points) partnership (0 Points) company (corporation) (24 Points) conglomerate (0 Points) What does a profit and loss account report? (select all that apply) Assets and liabilities, arranged in descending order of liquidity Assets and liabilities, arranged in ascending order of liquidity Gross profit offset by operating costs of running the business, which yields operating income Operating income offset by financing costs and other income streams falling outside the normal course of business activity but sufficiently large to be reported individually, which yields profit before taxes Revenue generated from basic operations offset by the direct cost of producing goods, which yields gross profit Which of the following are NOT among the five basic elements that make up financial accounts? Assets Expenses Liabilities Revenue Taxes Which of the following statements is in agreement with the conservatism principle? (select all that apply) Earnings during any period should be based on the current market prices of the inventory (stock) used to generate sales The value of assets should be reduced if market value falls below historical cost Financial data should convey business operations in a less, rather than more, favourable light when there is a choice The value of assets should be reduced if historical cost falls below market value Financial data should convey business operations in a more, rather than less, favourable light when there is a choice Which of the following statements is in agreement with the conservatism principle? Earnings during any period should be based on the current market prices of the inventory (stock) used to generate sales Financial data should convey business operations in a more, rather than less, favourable light when there is a choice Fixed assets should be depreciated at the most rapid pace allowable by law Financial data should convey business operations in a less, rather than more, favourable light when there is a choice The value of assets should be reduced if historical cost falls below market value Which of the following statements is NOT in agreement with the conservatism principle? (select all that apply) Earnings during any period should be based on the current market prices of the inventory (stock) used to generate sales Financial data should convey business operations in a less, rather than more, favourable light when there is a choice Financial data should convey business operations in a more, rather than less, favourable light when there is a choice Fixed assets should be depreciated at the most rapid pace allowable by law The value of assets should be reduced if market value falls below historical cost When analysing a partnership, its important to know (select all that apply) ( check nhe) passive and active income partner's share of current year income partner's guaranteed payments, if any partner's share of liabilities The gross profit margin is calculated by… (24 Points) subtracting cost of goods sold from sales and then dividing by sales (24 Points) subtracting cost of goods sold from sales and then dividing by cost of goods sold (0 Points) dividing cost of goods sold by sales (0 Points) dividing total operating expenses by sales (0 Points) The gross profit margin measures the percent of sales… (select all that apply) available to pay operating expenses, interest expense, and income taxes remaining after deducting the cost of goods sold and operating expenses remaining after deducting the cost of goods sold, operating expenses, and interest remaining before deducting the cost of goods sold that a firm retains after accounting for its cost of goods sold The basic sections that make up a firm's financial accounts include: (select all that apply) Liabilities (8 Points) Taxes (0 Points) Revenue (8 Points) Assets (8 Points) Common stock (0 Points) The operating expense percentage measures… the percentage of each sales dollar used for operating expenses and financing costs dividing cost of goods sold by sales the percentage of operating expenses necessary to assure profitability the relative amount of operating expenses (excluding financing costs) incurred compared to total sales The accounting equation states… assets must be exactly equal to the sum of liabilities and equity the total of all debits must equal the total of all credits in any accounting transaction all expenses incurred in generating revenue during a period be recognised in the same accounting period as that revenue liabilities must be exactly equal to the sum of assets and equity equity must be exactly equal to the sum of liabilities and assets The accounting equation states assets must be exactly equal to the sum of liabilities and equity True (24 Points) False (0 Points) The accounting equation states liabilities must be exactly equal to the sum of assets and equity False True The adjusted operating expense percentage is calculated by… (check lai nhe) adding interest expense to total operating expenses, and dividing the result by gross sales subtracting gross profit from total operating expenses, and dividing the result by net sales dividing total operating expenses by gross sales subtracting depreciation and amortisation expense from total operating expenses, and dividing the result by net sales