Spot the false statement

Exercise and reference answers

Questions

1. False statement

   Profit on the income statement is the same as cash in the bank.

   Statements

   1. Profit on the income statement is the same as cash in the bank.
   2. A balance sheet shows a firm's position at one point in time.
   3. An income statement covers a stretch of time rather than a moment.

2. False statement

   The acid-test ratio adds inventory back into current assets.

   Statements

   1. A current ratio of 2 has traditionally been considered good.
   2. The acid-test ratio adds inventory back into current assets.
   3. An acid-test ratio of at least 1 is preferred.

3. False statement

   Earnings per share is the cash actually handed to each stockholder.

   Statements

   1. A debt-to-equity ratio above 100 percent means lenders financed more than the owners.
   2. Inventory turnover divides cost of goods sold by average inventory.
   3. Earnings per share is the cash actually handed to each stockholder.

4. False statement

   Depreciation is charged on land every year.

   Statements

   1. Depreciation is charged on land every year.
   2. Fixed assets other than land wear out and lose value over time.
   3. Depreciation spreads an asset cost across the years it earns revenue.

Instructions

Two statements in each set are sound. Tap the one that is wrong.

Explanation