Chapter 2 Part 2

The matching principle states that:

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

Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant?

An increase in depreciation

An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?

Depreciation

Cash flow to creditors is equal to:

beginning long-term debt minus ending long-term debt plus interest paid.

Firms that compile financial statements according to GAAP:

can still manipulate their earnings to some degree.

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation.

The market value of a firm's fixed assets:

is equal to the estimated current cash value of those assets.

If a firm has a negative cash flow from assets every year for several years, the firm:

may be continually increasing in size.

The corporate tax structure in the U.S. is based on a:

modified flat-rate tax.

Depreciation does which one of the following for a profitable firm?

Lowers taxes

Which one of the following statements concerning the balance sheet is correct?

Assets are listed in descending order of liquidity

Which one of the following relates to a negative change in net working capital?

Increase in current liabilities with no change in current assets for the period

Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle? I. Payment is collected for the sale of a good or service. II. The earnings process is virtually complete. III. The value of a sale can be reliably determined. IV. The product is physically delivered to the buyer.

II and III only

The concept of marginal taxation is best exemplified by which one of the following?

Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes

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

Net income is distributed either to dividends or retained earnings.

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?

Positive cash flow from assets

Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued?

Positive cash flow to stockholders

Which one of the following is included in the market value of a firm but not in the book value?

Reputation of the firm

An increase in which one of the following will increase net income?

Revenue

Which one of the following will increase cash flow from assets but not affect the operating cash flow?

Sale of a fixed asset

Which one of the following statements is correct concerning a firm's fixed assets?

The market value is the expected selling price in today's economy.

A negative cash flow to stockholders indicates a firm:

received more from selling stock than it paid out to shareholders

An income statement prepared according to GAAP

records expenses based on the matching principle.

The recognition principle states that:

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