Question

True or False?

a) Calculation of retained earnings is one of the factors cited by our author for why NI and CF may be different.

b)

COGS appears on the asset side of the BS.

C)

?EBIT can be found by subtracting SGA and Depreciation from the gross profit margin.

D)

?Changes in interest expense do not affect a? firm’s cash position.

E)

The balance sheet identity indicates that total liabilities can be found by adding total assets to total equity.

F)?If there is no change in gross fixed assets from one year to the? next, then net fixed assets would have to have increased.

G)Accounts payable represents? short-term loans extended to the corporation by suppliers.

Answer 1

>Calculation of retained earnings is one of the factors cited by our author for why NI and CF may be different.
FALSE.
Net Income (NI) and Cash Flows (CF) may be different because of following the accrual concept of accounting and it has nothing to do with calculation of retained earnings.

>COGS appears on the asset side of the BS.
FALSE.
Cost of Goods Sold (COGS) is shown on the Income Statement as it is an Expense.

>EBIT can be found by subtracting SGA and Depreciation from the gross profit margin.
FALSE. Earnings before Interest and Tax (EBIT) is found by deducting all Operating Expenses (Selling general administrative expense) from gross Profit margin. SGA includes depreciation.

>Changes in interest expense do not affect a? firm’s cash position.
FALSE. Change in Cash interest payable (% rate) affect firms cash position not a change in interest expense.

>The balance sheet identity indicates that total liabilities can be found by adding total assets to total equity.
FALSE. Total Liabilities can be found by DEDUCTING total equity from Total Assets.

>If there is no change in gross fixed assets from one year to the? next, then net fixed assets would have to have increased.
FALSE. Gross fixed asset may remain same, but Net Fixed Asset would DECREASE (not increase) due to increased depreciation.

>Accounts payable represents? short-term loans extended to the corporation by suppliers
TRUE. Suppliers supply goods on credit as a source of short term loan. Purchase on account leads to Accounts Payable creation.