Chapter 2 LS

Net working capital plus current liabilities equal ___.

Current assets

Fixed costs are costs that will not change due to ___.

Fixed commitments over a stated period of time.

Which of these items do NOT appear on a balance sheet?

Knowledge that has no patent. Favorable economic conditions. Good management.

The short run for a firm is the period of time during which ___.

Output can vary. Some costs are fixed.

Rank these (from easiest to hardest) of turning the following assets into cash.

1. Cash Equivalents 2. Accounts Recieveable 3. Inventory 4. Plant and Equipment

An official accounting statement that helps to explain the change in cash and cash equivalents is called the ___.

Statement of cash flows

___ costs change as the output of the firm changes.

Variable

Net income refers to money earned ___.

After interest and taxes

Which one of these is a correct version of the balance sheet equation?

Assets = Liabilities + Stockholder's Equity

The more debt a firm has, the greater its:

Degree of financial leverage

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

1 year

What does a balance sheet reflect about a firm?

Accounting value on a specific date

Which are true concerning product costs?

Product casts contain both fixed and variable costs. Product costs are reported as costs of goods sold.

Non-cash items do not affect ___.

cash flow.

What is depreciation?

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

Which one of the following is shown on the left-handed side of the balance sheet?

Fixed assets

What does GAAP stand for?

Generally Accepted Accounting Principles

Which of the following will be found in the liabilities section of a firm's balance sheet?

Notes payable Long-term bonds

A customer as yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?

Accounts Recievable

The cash flow identity reflects the fact that:

Cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. A firm generates cash through its various activities. Cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.

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?

Which of the following are current assets?

Inventory Accounts Recievable

The use of financial leverage can

Increase the chance of financial distress and business failure. Greatly magnify both gains and losses. Increase the potential reward for investors.

Liquidity refers to the ease of changing ___.

Assets to cash

Most importantly, assets provide ___ to the firm.

Value