FN340 Ch. 2
Net income refers to money earned ______.
after interest and taxes
On the balance sheet, assets are listed at their _____ value.
book
The statement of cash flow explains changes in _____.
cash and equivalents
Noncash items do not affect _____.
cash flow
The total of cash flow to creditors and cash flow to stockholders is called _____.
cash flow from assets
A long-term liability represents a(n) _____. Multiple choice question.
debt that is not due in the coming year
The more debt a firm has, the greater its:
degree of financial leverage
Cash flow to stockholders equals ____. Multiple choice question.
dividends paid minus net new equity raised
The matching principle of GAAP requires revenues be matched with _____. Multiple choice question.
expenses
The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.
flat
Which one of the following represents what a firm owns at a given point in time?
its assets
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
Net working capital equals current assets ______ current liabilities.
minus
Noncash items are expenses that directly affect _____ but do not directly affect ______.
net income; cash flow
An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____.
statement of cash flows
Most importantly, assets provide ______ to the firm.
value
In the long run, all costs are _____.
variable
Another name for short-term financial management is ___ management.
working capital
If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.
10 (200/2,000)
The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.
21%
Which one of the following is true?. A) Cash flows can be derived from financial statements. B) Financial statements explicitly show cash flows. C) Cash flows always exceed earnings. D) Earnings, net income, and cash flows are identical.
A
The cash flow identity reflects the fact that: A) cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. B) operating cash flow is the same as operating income. C) a firm generates cash through its various activities. D) cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders.
A, C, and D
The use of financial leverage can: A) Increase the chance of financial distress and business failure. B) Decrease the noncash expenses incurred by the firm. C) Greatly magnify both gains and losses. D) Increase the potential reward for investors.
A, C, and D
A balance sheet reflects a firm's ______ value on a particular date.
Accounting
Liquidity refers to the ease of changing _____.
Assets to cash
Assets can be described as items that _____. A) are always the same amount as a firm's liabilities B) provide market value to the firm C) generate revenue D) a firm owns
B, C, and D
Under GAAP, U.S. firms must carry assets at:
Book value
Which is true of taxes? A) They are typically a very small expenditure for the firm. B) They are not mandatory for most small firms due to low earnings. C) They can be one of the largest cash outflows a firm experiences. D) Firms can select to pay them in advance or in arrears, with no penalties or benefits.
C
T/F For financial analysis, financial statements and accounting numbers are more important than cash flows.
False
________ refers to the speed and ease with which an asset can be converted to cash.
Liquidity
______ income is money earned after interest and taxes.
Net
How is the average income tax rate computed?
Total tax bill/Total taxable income
T/F Long-term liabilities are not due in the current year (from the date of the balance sheet).
True
T/F Taxes can be a large cash outflow for a corporation.
True
