FINC 3210 CH 2
According to the originators of the U.S. corporate tax code, the only rates are:
35%, 15%, 34%, and 25%
What does stockholders' equity represent?
A residual claim against the firm's assets.
A balance sheet reflects a firms
Accounting value on a specific date
Shareholders' equity equals_____.
Assets minus liabilities
On the balance sheet, assets are listed as their_____ value.
Book
Under GAAP, assets are generally carried on a firm's balance sheet at
Book value and Historical cost
In finance, the value of a firm depends on its ability to generate_____.
Cash Flows
Which of the following is true?
Cash flows can be derived from financial statements
Product costs are usually shown on the income statement under the heading of _____.
Cost of goods sold
The GAAP matching principle requires revenues to be matched with:
Expenses
T or F for financial analists, financial statements and accounting numbers are more important than cash flows
False
Costs that do not change in the short run arise because of_____.
Fixed commitments
What should you keep in mind when examining an income statement?
GAAP, Cash versus non-cash items, time and costs.
What does GAAP stand for?
Generally Accepted Accounting Principles
The purpose of an _____ is to measure performance over a set period of time.
Income Statement
Period costs are the costs that are allocated to a specific ____.
Interval of time
Which of the following are classified as liabilities on a firms balance sheet?
Long-term debt and Accounts Payable
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
Which of the following are classified as fixed assets on the balance sheet?
Patents, Trademarks, and Buildings
Net capital spending is equal to ending net fixed assets minus beginning net fixed assets___.
Plus depreciation
What are two ways in which financial accountants usually classify costs?
Product costs and Period costs
Changed in capital spending can be negative if
The firm sold more assets than it purchased
What is the most important item that can be extracted from financial statements?
The firm's actual cash flows
What is the purpose of the income statement?
To measure performance over a set period of time.
T or F: Operating cash flow does not include depreciation or interest
True
______ cost change as the output of the firm changes.
Variable
According to GAAP, when is income reported?
When it is earned or accrued.
When is revenue recognized on an income statement?
When the earnings process is virtually completed. When the exchange of goods or services is completed.
Net capital spending is equal to the change in net fixed assets plus:
depreciation
When a firm smooths earnings to please investors, it is called _____.
earnings management