Chapter 2: Financial Statements, Taxes, and Cash Flow

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U.S. corporations pay tax at a rate of ___ percent.

21

Which of the following is the balance sheet equation?

Assets equal liabilities plus stockholders' equity.

True or false: Current assets plus current liabilities equals net working capital.

False

The balance sheet identity shows that stockholders' equity equals assets Blank______ liabilities.

minus

The last item (or "bottom line") on the income statement is typically the Blank______.

net income

Which of the following are components of cash flow from assets? -net new borrowing -net new equity -operating cash flow -capital spending -change in net working capital

operating cash flow capital spending change in net working capital

Earnings management is a controversial practice in which corporations Blank______ or Blank______ their earnings to "smooth out" dips and surges and keep investors calm.

overstate, understate

Liquidity has two dimensions which are the ability to:

quickly convert assets into cash without significant loss in value.

On a balance sheet, total assets must always equal total liabilities plus:

shareholder's equity

Physical assets are termed ______ assets.

tangible

Assets can be categorized as:

tangible and intangible assets. current and fixed assets.

The market value of an item is:

that cash value you'd get if you sold it

Cash flow refers to Blank______.

the difference between the number of dollars that came in and the number that went out

How is the average income tax rate computed?

total tax bill/total taxable income

Financial leverage refers to a firm's Blank______.

use of debt in its capital structure

According to GAAP, when is income reported?

when it is earned or accrued

According to GAAP, when is revenue recognized on an income statement?

when the value of an exchange of goods or services is known or reliably determined when the earnings process is virtually completed

Which of these questions can be answered by reviewing a firm's balance sheet? -what is the total amount of assets the firm owns? -how much debt is used to finance the firm? -how much of the firm's net income was paid out in dividends? -how much net income has the fir earned this period?

What is the total amount of assets the firm owns? How much debt is used to finance the firm?

A balance sheet reflects a firm's:

accounting value on a specific date

Net income refers to income earned Blank______.

after interest and taxes

The short run is Blank______.

an imprecise period of time

Liquidity refers to the ease of changing Blank______.

assets to cash

A company's Blank______ tax rate is its tax bill divided by its total taxable income, and its Blank______ tax rate is the tax rate it pays on the next dollar of income.

average, marginal

The short run is a period when there are Blank______ costs.

both fixed and variable

Which of the following are components of cash flow from assets?

capital spending change in net working capital operating cash flow

Non-cash items do not affect:

cash flow

In finance, the value of a firm depends on its ability to generate Blank______.

cash flows

The more debt a firm has, the greater its:

degree of financial leverage

Which of the following is an example of a non-cash item on an income statement?

depreciation

Cash flow to stockholders equals Blank______.

dividends paid minus net new equity raised

When a firm smooths earnings to please investors, it is called Blank______.

earnings management

True or false: With the passage of the Tax Cuts and Jobs Act of 2017, corporate tax rates went up. True false question.

false

Which of the following is not a component of cash flow from assets? -change in net working capital -operating cash flow -capital spending -financing expenses

financing expenses

Cash flow to creditors equals:

interest paid minus net new borrowing.

The price at which willing buyers and sellers would trade is called Blank______ value.

market

Current assets ___ (plus/minus) current liabilities equals NWC.

minus


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