Chapter 2 BF

Current assets are define as assets that can be turned into cash within __________ months. - 24 - 18 - 12 - 6

- 12

Changes in capital spending can be negative if - the firm bought more assets than it sold - the firm bought and sold the same amount of assets - the firm sold more fixed assets than it purchased

- the firm sold more fixed assets than it purchased

What is the purpose of the income statement? - to identify the cash inflows ans outflow - to identify the amount of cash spent on various expenses - to show the accumulation of assets and liabilities - to measure performance over a set period time.

- to measure performance over a set period time.

Financial leverage refers to a firm's __________. - use of debt in its capital structure -net working capital - organizational structure

- use of debt in its capital structure

If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:

-$50 Cash flow paid to creditors = Interest paid - net borrowing 100-150=50

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

-accounting value on a specific date

Net working capital equals ________. -fixed assets minus long-term liabilities -current assets minus current liabilities -total assets minus total liabilities -total assets minus total liabilities -current liabilities minus current assets

-current assets minus current liabilities

According to the originators of the current U.S. corporate tax code, the tax code, the tax rates in effect for 2015 are: - 34% - 40% - 35% - 15% - 25%

- 15% - 25% - 34% - 35%

Cash flow to stockholders equals ___________. - net new equity raised minus dividends paid. - dividends paid minus net new equity raised - stock repurchased plus dividends paid - dividends paid plus net new equity raised

- dividends paid minus net new equity raised

When a firm smooths earnings to please investors, it is called ________. - earnings management - discretionary reporting - earnings smoothing - fair market accounting

- earnings management

Stockholder's equity is always shown on the ___________ of the balance sheet. - left side - middle - right side

- right side

On a balance sheet, total assets must always equal total liabilities plus: - retained earnings - shareholders equity -net working capital - fixed assets

- shareholders equity

Free cash flow is better described as _________. - non-cash expenses - total distributional cash flow - fixed asset investments - cash balances after tax payment

- total distributional cash flow

What is depreciation? - The current market value of an asset minus the asset's initial cost - The market value of an asset minus the asset's book value - A systematic expensing of an asset based on the asset's estimated life - A systematic cash contribution to a company's checking account to fund a new asset

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

Who is entitled to the residual value of a firm's cash flows? - IRS - Bondholders - Occupy Wall Street Protester's - Shareholders

- Shareholders

According to GAAP, when is income reported? - Whenever the firm decides to report it - When it is first anticipated - When it is earned or accrued - When cash payments is recieved

- When it is earned or accrued

Depreciation is the accountant's estimate of the cost of ____________ used in the production process matched with the benefit produced from owning it. - cash - equipment - fixed assets - inventory

- equipment - fixed assets

Costs that do not change in the short run arise because of - fixed commitments - variable commitments - unfunded commitments - unknown future events

- fixed commitments

Period costs are the costs that are allocated to a specific _________. - interval of time - product - type of service - production run

- interval of time

Which of the following are classified as liabilities on a firm's balance sheet? - long-term debt - accounts payable - marketable securities - accounts receivable

- long-term debt - accounts payable

The _________ principal of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good of service. - tax - revenue - matching - historic

- matching

The last item ( or bottom line) on the income statement is typically the ___________. - operating income - net income - operating cash flow - gross income

- net income

A primary reason that accounting income differs from cash flow is that an income statement contains _______. - collection from customers - cash balance - noncash items - expenses paid

- noncash items

A positive operating cash flow indicates that the firm is generating enough cash to: - pay out a dividend - pay everyday cash outflows - repurchase stock - create valuable projections

- pay everyday cash outflows

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

- quickly convert assets into cash without significant loss in value

If dividends are $100, stock sold is $10, and stock repurchased is $25, what is the cash flow to stockholders? - $115 - $85 - $65 - $135

$115 100-(10-25) = 115

A customer has yet to pay the bill for products purchased from Firm A on credit. This customer's trade credit is recorded in which Firm's A balance sheet accounts? - Accounts Receivable - Retained earnings - Stockholder's equity - Accounts payable

- Accounts Receivable

Which of the following is an example of a non-cash item on an income statement? - Depreciation - Retained earnings - Costs - Dividends

- Depreciation

Which of these questions can be answered by reviewing a firms balance sheet? - How much debt is used to finance the firm.? - How much net income has the firm earned this period? - How much of the firm's earned this period? - What is the total amount of assets the firm owns?

- How much debt is used to finance the firm.? - What is the total amount of assets the firm owns?

Which of the following are components of cash flow from assets? - Operating cash flow - Net new equity - Change in net working capital - Capital spending - Net new borrowing

- Operating cash flow - Capital spending - Change in net working capital

In the long-run, costs may considered as __________. - all fixed - all variable - some fixed and some variable

- all variable

Net working capital will be negative when current assets ___________ current liabilities. - equal - are less than - are greater than

- are less than

Under GAAP, assets are generally carried on a firm's balance sheet at _________. - market value - book value - salvage value - historical cost

- book value - historical cost

What should you keep in mind when examining an income statement? - cash versus non-cash items - GAAP - time and costs - asset consumption

- cash versus non-cash items - GAAP - time and costs

Assets can be categorized as - current and fixed assets - short-term and long-term equity - fixed and variable assets -tangible and current assets

- current and fixed assets

Rank the ease of turning assets into cash

1. Cash equivalents 2. accounts receivable 3. inventory 4. plant and equipment

GAAP

Generally Accepted Accounting Principles

Operating cash outflow does not include depreciation or interest.

True

The companies in biotechnology industry pay tax at the _________ average tax rate. - highest - lowest

- lowest

For financial decision-making purposes, the most important tax is the _________ tax rate. - average - marginal - fair - flat

- marginal

The _______ tax rate is the rate paid on the next dollar of income. - minimum - average - marginal - maximum

- marginal

The price at which buyers ans sellers would trade is called _____ value. - book - market -carrying - accounting

- market

Net capital spending is equal to ending net fixed assets minus beginning net fixed assets_________ - plus the change in inventory - minus depreciation - minus the change in inventory - plus depreciation

- plus depreciation