Fin 301 Chp 2

dividends exceed net income for a period

All else held constant, the book value of owners' equity will decrease when: the market value of inventory increases. dividends exceed net income for a period. cash is used to pay an accounts payable. a long-term debt is repaid. taxable income increases.

a dividend is paid to current shareholders

Net working capital decreases when: a new 3-year loan is obtained with the proceeds used to purchase inventory. a credit customer pays his or her bill in full. depreciation increases. a long-term debt is used to finance a fixed asset purchase. a dividend is paid to current shareholders.

Inventory is purchased with cash

A firm's liquidity level decreases when: inventory is purchased with cash. inventory is sold on credit. inventory is sold for cash. an account receivable is collected. proceeds from a long-term loan are received.

Operating cash flow minus the change in net working capital minus net capital spending

Cash flow from assets is defined as

Interest paid minus net new borrowing

Cash flow to creditors is defined as

dividends paid minus new equity raised

Cash flow to stockholders is defined as:

Increases the potential return to the stockholders

Financial Leverage: increases as the net working capital increases. is equal to the market value of a firm divided by the firm's book value. is inversely related to the level of debt. is the ratio of a firm's revenues to its fixed expenses. increases the potential return to the stockholders.

reflect expected selling prices given the current economic situation

Market values: reflect expected selling prices given the current economic situation. are affected by the accounting methods selected. are equal to the initial cost minus the depreciation to date. either remain constant or increase over time. are equal to the greater of the initial cost or the current expected sales value.

an invoice from a supplier

Net Working Capital includes; a land purchase. an invoice from a supplier. non-cash expenses. fixed asset depreciation. the balance due on a 15-year mortgage.

the cash that a firm generates from it's normal business activities

Operating cash flow is defined as:

the residual value of a firm

Shareholder's equity is best defined as

net fixed assets minus long term debt plus net working capital

Shareholder's equity is equal to:

income statement

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the

balance sheet

The financial statement that summarizes a firm's accounting value as of a particular date is called the

is equal to the estimated current cash value of those assets

The market value of a firm's fixed assets: will always exceed the book value of those assets. is more predictable than the book value of those assets. in addition to the firm's net working capital reflects the true value of a firm. is decreased annually by the depreciation expense. is equal to the estimated current cash value of those assets.

the costs of producing an item should be recorded when the sale of that item is recorded as revenue

The matching principle states that: costs should be recorded on the income statement whenever those costs can be reliably determined. costs should be recorded when paid. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. sales should be recorded when the payment for that sale is received. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.

Reputation of the firm

Which one of the following is included in the market value of a firm but not in the book value? Raw materials Partially built inventory Long-term debt Reputation of the firm Value of a partially depreciated machine

sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined

The recognition principle states that: costs should be recorded on the income statement whenever those costs can be reliably determined. costs should be recorded when paid. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. sales should be recorded when the payment for that sale is received. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.

Marginal tax rate

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the

Noncash item

Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?

Cash flow from assets

Which one of the following has nearly the same meaning as free cash flow? Net income Cash flow from assets operating cash flow cash flow to shareholders addition to R.E

Average Tax Rate

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

Net income is distributed either to dividends or retained earnings

Which one of these is correct? Depreciation has no effect on taxes. Interest paid is a noncash item. Taxable income must be a positive value. Net income is distributed either to dividends or retained earnings. Taxable income equals net income × (1 + Average tax rate).