Chapter 2 | Concept Review

Which of the following may be found on the balance sheet?

All of the above

On its one year ago balance sheet, Sherman Books had retained earnings equal to $510 million.

On its current year balance sheet, retained earnings were also equal to $510 million. Which of

the following statements is most correct?

the company’s net income in the current year was $200 million, dividends paid must have also

equaled $200 million

The income statement:

Summarizes the firms revenues and expenses over an accounting period.

Depreciation:

all of the above are true

Which of the following items may be found on an income statement?

Answers A and B are correct

Net cash flow is generally defined as net income plus:

Depreciation and Amortization

Holmes Aircraft recently announced an increase in its net income, yet its net cash flow declined

relative to last year. Which of the following could explain this performance?

The company’s depreciation expense declined

Whereas economic value added focuses on the effects of managerial action since the inception of

the company, market value added focuses on managerial effectiveness in a given year

False

Market value added (MVA) is:

Equal to the total market value of the firms stock minus the total common equity

Economic value added differs from accounting profit in that it:

Considers the cost of equity capital while accounting profit does not.