Finance Connect- Chapter 2

Amounts not yet collected from customers on sales already made are called

accounts receivable

The ______ tax rate is the tax rate paid on the next dollar of income.

marginal

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

minus

In practice, accountants tend to classify costs as either ______ costs or _______ costs

product; period

According to the current U.S. corporate tax code, the corporate tax rate in effect for 2019 is:

21%

What does shareholders' equity represent?

A residual claim against the firm's total assets

What is depreciation?

A systematic expensing of an asset based on the asset's estimated life

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

Change in net working capital Operating cash flow Capital spending

The three most important items to keep in mind when reviewing an income statement are

GAAP, cash versus noncash items, and time and costs

Who is entitled to the residual value of a firm's cash flows?

Shareholders

How is the average income tax rate computed?

Total tax bill / Total taxable income

Liquidity refers to the ease of changing _____.

assets to cash

Non-cash items do not affect

cash flow

Product costs are usually shown on the income statement under the heading of

costs of goods sold

cash flow from assets equals cash flows to ____

creditors and stockholders

The more debt a firm has, the greater its:

degree of financial leverage

True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.

false

______ changes as the output of the firm changes.

Variable cost

A balance sheet reflects a firm's:

accounting value on a specific date

net earnings refers to income earned

after interest and taxes

Marginal tax rates are the most important tax rates because

incremental cash flows are taxed at marginal tax rates financial decisions are usually based on new cash flows

which of the following are classified as liabilities on a firms balance sheet?

long term debt accounts payable

what is the most important tax rate

marginal

The ______ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service

matching

The ______ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.

matching

Costs incurred during a particular time period that might be reported as selling, general, and administrative expenses are also known as

period costs

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

shareholders equity

The market value of an item is:

the cash value you'd get if you sold it

Common stockholders are entitled to the difference between ______ and ________.

total assets; total liabilities

Financial leverage refers to a firm's

use of debt in its capital structure

Long-term liabilities represent obligations of the firm lasting over _____.

1 year

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

21

Which one of the following is true?

Earnings, net income, and cash flows are identical. The Income Statement explicitly shows cash flows. Cash flows can be derived from financial statements.******* Cash flows always exceed earnings.

Liabilities can be classified as _______ or long-term.

current

Assets can be categorized as

current and fixed assets tangible and intangible assets

A primary reason that accounting income differs from cash flow is that an income statement contains ______.

non cash items

Marginal tax rates are the most important tax rates because

financial decisions are usually based on new cash flows incremental cash flows are taxed at marginal tax rates

Depreciation is the accountant's estimate of the cost of ______ used in the production process matched with the benefits produced from owning it.

equipment fixed assets

Costs that do not change in the short run arise because of ______

fixed commitments

Period costs are the costs that are allocated to a specific ______.

interval of time

What is shown on the left side of the balance sheet

Assets

Current assets are defined as assets that can be turned into cash within ______ months.

12

In the long-run, costs may be considered as ________.

all variable

The cash flow identity states that cash flows from ______ should equal cash flows to creditors and equity investors.

assets

The GAAP matching principle requires revenues to be matched with:

expenses

Which of these questions can be answered by reviewing a firm's balance sheet?

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