FIN320 Chapter 2 Smartbook

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

both fixed and variable

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

Depreciation

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

False

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

False

Cash flow to stockholders equals ______.

dividends paid - net new equity raised

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

earnings management

Which of the following is not a component of cash flow from assets?

financing expenses

Cash flow to creditors equals:

interest paid - net new borrowing.

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

market

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 ______.

net income

Earnings management is a controversial practice in which corporations ______ or ______ 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. convert assets into cash so that value is maximized. quickly convert assets into cash regardless of loss in value.

quickly convert assets into cash without significant loss in value.

On a balance sheet, total assets must always equal total liabilities plus: net working capital. shareholders' equity. fixed assets. retained earnings.

shareholders' equity.

Physical assets are termed Blank______ assets.

tangible

Assets can be categorized as: fixed and variable assets. tangible and intangible assets. current and fixed assets. short-term and long-term equity.

tangible and intangible assets. current and fixed assets.

The market value of an item is: the cash value you'd get if you sold it. the amount recorded in the balance sheet. its appraised value. the amount you paid it.

the cash value you'd get if you sold it.

Cash flow refers to ______.

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

According to GAAP, when is income reported?

when it is earned or accrued

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

change in net working capital capital spending operating cash flow

The more debt a firm has, the greater its:

degree of financial leverage.

Financial leverage refers to a firm's ______.

use of debt in its capital structure

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

U.S. corporations pay tax at a rate of _____ %

21

A balance sheet reflects a firm's: income at a specific time. economic value over a specified time period. accounting value on a specific date. earnings per share over an unspecified time.

accounting value on a specific date.

Net income refers to income earned ______.

after interest and taxes

In the long run, costs may be considered as ______.

all variable

The short run is ______.

an imprecise period of time

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

average; marginal

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

cash flows

Which of these questions can be answered by reviewing a firm's balance sheet? Multiple select question. 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 firm earned this period?

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

Liquidity refers to the ease of changing ______.

assets to cash

Non-cash items do not affect:

cash flow

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

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