1. Which one of the following statements related to an income statement is correct?

Net income is distributed to dividends and paid-in surplus.

Taxes reduce both net income and operating cash flow.

Interest expense is included in operating cash flow.

Depreciation does not affect taxes since it is a non-cash expense.

Interest expense increases the amount of tax due.

2. Which of the following can be used to compute the return on equity?

I. Profit margin × Return on assets

II. Return on assets × Equity multiplier

III. Profit margin × Total asset turnover × Debt-equity ratio

IV. Net income / Total assets

II and III only.

I, II, III, and IV.

II and IV only.

II only.

I, II, and III only.