frl 300 ch 2-

Shareholders' equity:

represents the residual value of a firm.

Which one of the following is classified as an intangible fixed asset?

trademark

Which one of the following statements concerning net working capital is correct?

A decrease in the cash balance also decreases net working capital.

As of 2008, which one of the following statements concerning corporate income taxes is correct?

A firm's tax is computed on an incremental basis.

Which one of the following statements is correct concerning a corporation with taxable income of $125,000?

An increase in depreciation will increase the operating cash flow.

Which one of the following is true according to Generally Accepted Accounting Principles?

Costs of goods sold are recorded based on the matching principle.

The common set of standards and procedures by which audited financial statements are prepared is known as the:

Generally Accepted Accounting Principles.

Which of the following are included in the market value of a firm but are excluded from the firm's book value? I. value of management skills II. value of a copyright III. value of the firm's reputation IV. value of employee's experience

I, III, and IV only

An increase in the depreciation expense will do which of the following? I. increase net income II. decrease net income III. increase the cash flow from assets IV. decrease the cash flow from assets

II and III only

Which one of the following statements related to the cash flow to creditors is correct?

A positive cash flow to creditors represents a net cash outflow from the firm.

Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes? I. interest expense II. taxes III. costs of goods sold IV. depreciation

I and IV only

Which of the following are current assets? I. patent II. Inventory III. accounts payable IV. cash

II and IV only

Which one of the following statements concerning net working capital is correct?

Net working capital increases when inventory is sold for cash at a profit.

Which one of the following statements related to an income statement is correct?

Taxes reduce both net income and operating cash flow.

Which one of the following must be true if a firm had a negative cash flow from assets?

The firm utilized outside funding.

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

The labor costs for producing a product are expensed when the product is sold.

Which one of the following statements related to taxes is correct?

The marginal tax rate for a firm can be either higher or lower than the average tax rate.

Which one of the following accounts is the most liquid?

accounts receivable

The _____ tax rate is equal to total taxes divided by total taxable income.

average

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

balance sheet

The book value of a firm is:

based on historical cost.

The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:

cash flow from assets.

The cash flow related to interest payments less any net new borrowing is called the:

cash flow to creditors.

You recently purchased a grocery store. At the time of the purchase, the store's market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value?

construction of a new restricted access highway located between the store and the surrounding residential areas

Net working capital is defined as:

current assets minus current liabilities.

Which one of the following will increase the cash flow from assets, all else equal?

decrease in net capital spending

For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.

depreciation

Which one of the following costs is most apt to be a fixed cost?

depreciation

Noncash items refer to:

expenses which do not directly affect cash flows.

Which one of the following is NOT included in cash flow from assets?

interest expense

Net capital spending:

is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

marginal

Which one of these is most apt to be a fixed cost?

office salaries

Which term relates to the cash flow which results from a firm's ongoing, normal business activities?

operating cash flow

Which one of the following will increase the value of a firm's net working capital?

selling inventory at a profit

Which one of the following represents the most liquid asset?

$100 of inventory that is sold today for $100 cash

Which of the following are included in current liabilities? I. note payable to a supplier in eight months II. amount due from a customer next month III. account payable to a supplier that is due next week IV. loan payable to the bank in fourteen months

I and III only

Which one of the following statements related to liquidity is correct?

Liquid assets are valuable to a firm.

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

Cash flow to stockholders is defined as:

dividend payments less net new equity raised.

Cash flow from assets is also known as the firm's:

free cash flow.

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?

good reputation of the company

The higher the degree of financial leverage employed by a firm, the:

higher the probability that the firm will encounter financial distress.

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

income statement

Depreciation

reduces both taxes and net income.