Finance Chapter 2 Terms

On a balance sheet, total assets must always equal total liabilities plus: Multiple choice question. net working capital. fixed assets. retained earnings. shareholders' equity.

shareholders' equity.

Physical assets are termed Blank______ assets. Multiple choice question. long-term tangible current intangible

tangible

Financial leverage refers to a firm's Blank______. Multiple choice question. net working capital organizational structure use of debt in its capital structure

use of debt in its capital structure

A balance sheet reflects a firm's: Multiple choice question. economic value over a specified time period. earnings per share over an unspecified time. income at a specific time. accounting value on a specific date.

accounting value on a specific date.

The short run is Blank______. Multiple choice question. defined as more than one year defined as one month an imprecise period of time defined as six months

an imprecise period of time

Liquidity refers to the ease of changing Blank______. Multiple choice question. cash to liabilities liabilities to assets assets to cash cash into other assets

assets to cash

The Blank______ tax rate is the tax rate paid on the next dollar of income. Multiple choice question. marginal average maximum minimum

marginal

Assets can be categorized as: Multiple select question. short-term and long-term equity. tangible and intangible assets. fixed and variable assets. current and fixed assets.

Tangible and intangible assets. current and fixed assets.

In the long run, costs may be considered as Blank______. Multiple choice question. some fixed and some variable all fixed all variable

all variable

Cash flow to creditors equals: Multiple choice question. interest paid minus net new borrowing. interest plus dividends paid. interest paid plus net new borrowing. stock repurchased plus interest paid.

interest paid minus net new borrowing.

The balance sheet identity shows that stockholders' equity equals assets Blank______ liabilities. Multiple choice question. plus minus times

minus

The last item (or "bottom line") on the income statement is typically the Blank______. Multiple choice question. operating income gross income net income operating cash flow

net income

Liquidity has two dimensions which are the ability to: Multiple choice question. convert assets into cash so that value is maximized. quickly convert assets into cash without significant loss in value. quickly convert assets into cash regardless of loss in value.

quickly convert assets into cash without significant loss in value.

The market value of an item is: Multiple choice question. the amount you paid it. the cash value you'd get if you sold it. its appraised value. the amount recorded in the balance sheet.

the cash value you'd get if you sold it.

Net income refers to income earned Blank______. Multiple choice question. before interest and taxes prior to taxes after interest and taxes net of operating and administrative costs

after interest and taxes

A company's Blank______ tax rate is its tax bill divided by its total taxable income, and its Blank______ tax rate is the tax rate it pays on the next dollar of income. Multiple choice question.

average; marginal

When a firm smooths earnings to please investors, it is called Blank______. Multiple choice question. earnings management fair market accounting earnings smoothing discretionary reporting

earnings management

Earnings management is a controversial practice in which corporations Blank______ or Blank______ their earnings to "smooth out" dips and surges and keep investors calm. Multiple choice question. lie; fudge overstate; understate overstate; inflate change; don't change

overstate; understate

Which of the following is the balance sheet equation? Multiple choice question. Liabilities equal assets plus stockholders' equity. Stockholders' equity equals assets plus liabilities Assets equal liabilities plus stockholders' equity. Assets equal stockholders' equity minus liabilities.

Assets equal liabilities plus stockholders' equity.

True or false: Current assets plus current liabilities equals net working capital.

False

Current assets (plus/minus) current liabilities equals NWC

Minus

Noncash items do not affect Blank______. Multiple choice question. earnings per share net income cash flow retained earnings

cash flow

In finance, the value of a firm depends on its ability to generate Blank______. Multiple choice question. earnings per share net working capital net income cash flows

cash flows

Which of the following are components of cash flow from assets? Multiple select question. net new borrowing change in net working capital net new equity capital spending operating cash flow

change in net working capital capital spending operating cash flow

Tax rates for proprietorships, partnerships, and LLCs Blank______ with the passage of the Tax Cuts and Jobs Act of 2017. Multiple choice question. increased flattened changed

changed

The more debt a firm has, the greater its: Multiple choice question. degree of operating leverage. degree of financial leverage. book value. retained earnings.

degree of financial leverage.

Which of the following is an example of a noncash item on an income statement? Multiple choice question. costs retained earnings depreciation dividends

depreciation

Cash flow to stockholders equals Blank______. Multiple choice question. stock repurchased plus dividends paid net new equity raised minus dividends paid dividends paid minus net new equity raised dividends paid plus net new equity raised

dividends paid minus net new equity raised

Cash flow refers to Blank______. Multiple choice question. the difference between the number of dollars that came in and the number that went out the sum of the number of dollars that came in and the number that went out only the cash that corresponds to the net income for the year only the cash that represents the closing balance of retained earnings

the difference between the number of dollars that came in and the number that went out

How is the average income tax rate computed? Multiple choice question. total tax bill / total taxable income total taxable income / marginal tax rate total taxes paid over the last five years / 5 last dollar of income earned / amount of tax paid on that dollar of income

total tax bill / total taxable income

According to GAAP, when is income reported?

when it is earned or accrued

According to GAAP, when is revenue recognized on an income statement? Multiple select question. only when cash has been received for the sale when the value of an exchange of goods or services is known or reliably determined after the related expenses are paid in full when the earnings process is virtually completed

when the value of an exchange of goods or services is known or reliably determined when the earnings process is virtually completed

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?