Ch 2 connect FRL 3000 study set

If a firms current assets equal $200 and its current liabilities equal $150, then its net working capital equals ________

$50

If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is ______.

$50

what should you keep in mind when examining an income statement

- GAAP - Cash versus non-cash items - Time and costs

a firms net working capital goes from $ 150 in 2013 to $ 130 in 2014 then the change in the net working capital is

-$20

If interest is $100 and net barrowing is $150, then cash flow to creditors equals

-$50

The cash flow identity reflects the fact that

-Cash flow from the firm's assets equals the cash flow paid to suppliers of capital to the firm -a firm generates cash through its various activities -cash is either used to pay creditors or paid out to the owners of the firm

If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.

10

The cash flow identity states that cash flows from assets equal cash flows to

Creditors and stockholders

What does GAAP stand for?

Generally Accepted Accounting Principles

Increasing its non-cash liquid assets will enable a firm to do which of the following?

Increase its ability to avoid financial distress Increase its ability to meet short term obligations

Why is it important for accounting standards to become more comparable across countries?

Increasing globalization of business makes it necessary to understand financial reporting by firms that allow other accounting standards.

which of the following are current assets

Inventory and accounts receivable

T/F: Taxes can be a large cash outflow for a corporation.

True

According to GAAP, when is income reported?

When it is earned or accrued

Assets can be described as items that

a firm owns provide market value to the firm generate revenue

Under GAAP, U.S. firms must carry assets at:

book value

which of the following are fixed assets

building plant land

noncash items do not affect

cash flow

net working capital plus current liabilities equal

current assets

Which of the following are examples of non cash items on a income statement?

depreciation

net capital spending is equal to the change in net fixed assets plus

depreciation

How are assets listed on the balance sheet?

in order of decreasing liquidity

fixed costs are costs that will not change ______

in the short run

The purpose of a __________ is to measure performance over a set period of time.

income statement

A decrease in depreciation expense __________ earnings per share.

increases

marginal tax rates are the most important tax rates because

incremental cash flows are taxed at marginal tax rates financial decisions are usually based on new cash flows

Assets are recorded as historical cots, not market value, because

it is hard to keep up with the market value

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

knowledge that has no patent favorable economic conditions good management

What is the primary concern of a bank lending funds to a business for the short term?

liquidity

whos responsibility is it to create value for a firm?

management

For financial decision-making purposes, the most important tax rate is the ________ tax rate.

marginal

The ______ tax rate is the tax rate paid on the next dollar of income.

marginal

which of the following are classified as liabilities on a firms balance sheet

notes payable accounts payable

An income statement reflects activity that occurs ____________ while a balance sheet reflects values ___________.

over a period of time at a specific date

A positive operating cash flow indicates that the firm is generating enough cash to:

pay operating costs

what are two classifications of cost used by financial accountants?

period cost product cost

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

statement of cash flows

In the long run all costs are _____

variable costs

Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be __________ regardless of the level of income taxable income.

21%

The last (residual) claimants to be paid by a firm are the

stockholders

what is the most item that can be extracted from financial statements?

the firms actual cash flow

Under a flat-rate tax, all income levels are taxed at _____.

the same average rate the same marginal rate

which of the following is true about the U.S. flat-rate tax system?

the tax rate is flat at all income levels

When is revenue recognized on an income statement?

when the value of exchange of goods or services can be reliably determined when the earning process is virtually completed

Marginal tax rates are the most important tax rate because..

Financial decisions are usually based on new cash flows Incremental cash flows are taxed at marginal tax rates

Why is positive net working capital important?

It means the firm should have sufficient cash to meet its current obligations.

which are true concerning product cost

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

which of the following are period costs

Selling costs General expenses Administrative expenses

Liquidity refers to the ease of changing _________.

assets to cash

Which one is true?

cash flows can be derived from financial statements

a long term liability represents a(n) ____

debt that is not due in the coming year

The matching principle of GAAP requires revenues to be match with

expenses

T/F: The corporate tax code is simplistic and makes good economic sense

false

The price at which buyers and sellers would trade is called ________ value

market

which of the following will be found in the liabilities section of a firms balance sheet?

notes payable long term bonds issued by the firm

residual value is the amount left over after paying _________

other debt holders bond holders accounts payable

which of the following is a variable costs in the short run?

raw materials used in production

The U.S. tax rate become a flat-rate tax in practice at approximately corporate income level?

$0

If dividends are $100, stock sold is $10, and stock repurchased is $25, what is the cash flow to stockholders?

$115

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

1 Cash Equivalents 2 Accounts Receivable 3 Inventory 4 Plant and Equipment

If the Federal marginal tax bracket is 21%, the state marginal tax bracket is 5%, and the local marginal tax bracket is 1%, the overall marginal tax rate for the company will be _______%

27

A customer has yet to pay the bill for products purchased on credit. The customer's trade credit is recorded in which balance sheet account?

Accounts Receivable

which one of these is a correct version of the balance sheet equation

Assets= liability + stockholder equity

which of the following are included in the fixed asset portion of a balance sheet?

trademarks buildings

T/F: Free cash flow is the total of cash flow that the firm can distribute to creditors and stock holders

true

Which of these questions can be answered by reviewing the balance sheet?

what is the total amount of assets the firm owns How much debt is used to finance the firm

Suppose your company's taxable income was $235,000 in 2017. Using table 2.3 calculate the income tax due, the average tax rate, and the marginal tax rate. Round average tax rate to the nearest whole number.

$74,900;32%;39%

Given the tax rates of 15% on income from $0 to $50,000, 25% on income from $50,001 to $75,000, and 34% on income from $75,001 to $100,000 approximately how much tax would a company pay on a taxable income of $60,000.

(.15)(50,000)+(.25)(10,000) = $10,000

which of the following is true about the difference between the income statement and cash inflows and outflows?

-cost of raw materials purchased on credit are accounts payable rather than cash outflows until they are paid. which maybe in a different period. -income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS. -sales on credit are accounts receivable rather than cash inflows until they are collected, which maybe in a different period.

If you make an extra $1,000 in income and your marginal tax rate is 30% while your average tax rate is 20 %, then you will pay an extra ________ in taxes.

300

What does stockholders' equity represent?

A residual claim against the book value of the firm's assets. (The book value of the firm's assets less the book value of its liabilities.)

what is depreciation?

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

The use of financial leverage can

Magnify both gains and losses increase the chance of financial distress and business failure increase the potential reward for investors

which of these are generally considered to be short run fixed costs

Property taxes; management salaries, rent payments for a warehouse

Long term liabilities are not due in the current year (from the date of the balance sheet)

True

t/f: in the short run, all costs are fixed

false

t/f: operating cash flows includes capital spending and working capital requirements

false

How is income defined?

revenue minus expenses