Chapter 2

probability a firm will encounter financial distress increases.

As the degree of financial leverage increases, the:

Generally Accepted Accounting Principles

Which one of the following determines the standards and procedures with which audited financial statements are prepared?

cash flow from assets.

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

Inventory

Which one of the following is classified as a current asset?

Rent

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

$500 worth of inventory that is sold today for $500 in cash

Which one of the following represents the most liquid asset?

Corporations pay the same rate of taxes regardless of the amount of taxable income.

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