1. Which of the following statements is correct?

a. On the statement of cash flows, a decrease in the liability and equity items represents a cash inflow or source of funds.

b. It is important to realize that the balance sheet must balance, that is, total assets must equal the sum of total liabilities and total owners equity.

c. Common-size statements make it difficult to compare financial statement across differing companies.

d. All the answers are correct.

e. Accounts payable is the difference between what the firm owns and what it owes to others.

2. Which of the following statements is correct?

a. A common-size income statement is one that shows all of the data as a percentage of the firms total assets.

b. On the statement of cash flows, a decrease in the liability and equity represents a cash inflow or source of funds.

c. Because the income statement is specific to a point in time, it is much like a photograph.

d. All the answers are correct.

e. On the statement of cash flows, an increase in an asset represents a cash outflow or use of funds.

3. Which of the following statements is incorrect?

a. Net income is the profit earned by the firm after all revenues and expenses have been taken into account.

b. Earnings Before Interest and Taxes (EBIT) = EBT - Interest Expense.

c. All the answers are correct except one.

d. Common-size financial statements can aid in spotting important trends over time, which otherwise might not be obvious when looking at dollar amounts.

e. When a firm's accounts payable balance increases, it will have a positive sign on the statement of cash flows.

4. Which of the following statements is correct?

a. Common-size financial statements cannot aid in spotting important trends over time, which is obvious when looking at dollar amounts.

b. Common-size statements make it difficult to see trends over time.

c. Common-size statements make it easy to see trends over time.

d. All the answers are correct.

e. Assets are the firms debts.