FIN Ch. 2 Connect
If a firm's current assets are $100 and its current liabilities are $80, then its net working capital is: Multiple choice question. $20 $100 $80 $180
$20
If you make an extra $1,000 in income and your marginal tax rate is 30 percent while your average tax rate is 20 percent, then you will pay an extra ______ in taxes.
$300 (.3 x 1000)
If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ______.
$50
If a firm's net working capital is $120 in 2021 and $100 in 2020, then the change in net working capital is:
+$20
The cash flow identity reflects the fact that:
-Cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. -A firm generates cash through its various activities -Cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.
Which one of these is a correct version of the balance sheet equation? Multiple choice question. Liabilities = Assets + Stockholders' equity Stockholders' equity = Assets + Liabilities Assets = Stockholders' equity - Liabilities Assets = Liabilities + Stockholders' equity
Assets = Liabilities + Stockholders' equity
Which of the following are examples of short-run fixed costs?
Bond interest Rent
Which one of the following is true? Multiple choice question. Earnings, net income, and cash flows are identical. Cash flows can be derived from financial statements. Cash flows always exceed earnings. Financial statements explicitly show costing and pricing of individual products
Cash flows can be derived from financial statements.
Which of the following are examples of noncash items on an income statement?
Depreciation
Which of the following do not directly affect cash flow?
Depreciation
True or false: Operating cash flow includes capital spending and working capital requirements.
False
Which of these items do NOT appear on a balance sheet? Multiple select question. Favorable economic conditions Good management Accounts Payable Knowledge that has no patent
Favorable economic conditions Good management Knowledge that has no patent
What does GAAP stand for?
Generally accepted accounting principles
In recent years, U.S. accounting standards have become more closely tied to:
IFRS.
Assets are listed on a balance sheet in which order? Multiple choice question. In order of decreasing liquidity In no particular order In order of account value from smallest to largest In order of increasing liquidity
In order of decreasing liquidity
Which are true concerning product costs?
Product costs are reported as costs of goods sold. Product costs contain both fixed and variable costs.
Which of the following is a variable cost in the short run?
Raw materials used in production.
How is income defined?
Revenue minus expenses
Which of the following are period costs?
Selling costs General expenses Administrative expenses
On which side of the balance sheet do liabilities appear? Multiple choice question. The left side Neither side The right side
The right side
Which is true of taxes?
They can be one of the largest cash outflows a firm experiences.
What is the purpose of the income statement?
To measure performance over a set period of time
How is the average income tax rate computed?
Total tax bill/Total taxable income
Financial Statements are frequently a key source of information for financial decisions.
True
Long-term liabilities are not due in the current year (from the date of the balance sheet). True false question.
True
True or false: Taxes can be a large cash outflow for a corporation.
True
______ costs change as the output of the firm changes.
Variable
Which of these questions can be answered by reviewing a firm's balance sheet? Multiple select question. How much net income has the firm earned this period? What is the total amount of assets the firm owns? How much debt is used to finance the firm? How much of the firm's net income was paid out in dividends?
What is the total amount of assets the firm owns? How much debt is used to finance the firm?
According to GAAP, when is income reported?
When it is earned or accrued
When is revenue recognized on an income statement?
When the earnings process is virtually completed When the value of an exchange of goods or services can be reliably determined
Assets can be described as items that _____. Multiple select question. a firm owns are always the same amount as a firm's liabilities generate revenue provide market value to the firm
a firm owns generate revenue provide market value to the firm
A balance sheet reflects a firm's Blank______ value on a particular date.
accounting
A supplier may look at the size of _____ to see how promptly the firm pays its bills.
accounts payable
Net income refers to money earned ______.
after interest and taxes
The short run is ____.
an imprecise period of time
The cash flow identity states that cash flows from ______ should equal cash flows to creditors and equity investors.
assets
Liquidity refers to the ease of changing _____. Multiple choice question. cash in to other assets assets to cash liabilities to assets cash to liabilities
assets to cash
A company's ______ tax rate is its tax bill divided by its total taxable income, and its ______ tax rate is the tax rate it pays on the next dollar of income.
average; marginal
Under GAAP, U.S. firms must carry assets at: Multiple choice question.
book value
The statement of cash flow explains changes in _____.
cash and equivalents
The total of cash flow to creditors and cash flow to stockholders is called _____.
cash flow from assets
In finance, the value of a firm depends on its ability to generate ______.
cash flows
What should you keep in mind when examining an income statement?
cash versus noncash items GAAP time and costs
The difference between the total assets and total liabilities is shareholders' equity, also called________ equity or________ equity.
common, owners'
The fact that the balance sheets are listed at _____ means that there is no necessary connection between the total assets and the value of the firm.
cost
The cash flow identity states that cash flow from assets equals cash flows to ____.
creditors and stockholders
A long-term liability represents a(n) _____. obligation of the firm lasting over 1 month debt that must be paid within the year debt that is not due in the coming year obligation of the firm lasting over 90 days
debt that is not due in the coming year
The more debt a firm has, the greater its:
degree of financial leverage
Accounting profit ____ cash flow.
differs from
Depreciation is the accountant's estimate of the cost of ______ used up in the production process.
equipment
The matching principle of GAAP requires revenues be matched with _____.
expenses
The corporate tax code is _____.
extremely complicated
James is an owner of J & Jo Company. If he wants to find out the cash flow of his bakery, he should look into the firm's _____.
financial statements
The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.
flat
Fixed costs are costs that will not change ______.
in the short run
If you think of the balance sheets as a snapshot, then the _____ can be thought of as a video covering the period between before and after pictures.
income statement
The purpose of a(n) ______ is to measure performance over a set period of time.
income statement
A decrease in depreciation expense ______ earnings per share.
increases
Period costs are the costs that are allocated to a specific ______.
interval of time
The shareholders are the _____ in line to receive payment when a firm is forced to sell assets to pay off debt. Multiple choice question. third last second first
last
What is a primary concern for a bank lending funds to a business for the short term?
liquidity
____refers to the speed and ease with which an asset can be converted to cash.
liquidity
The ______ tax rate is the tax rate paid on the next dollar of income.
marginal
For financial managers, the accounting value of the stock is not an especially important concern; it is the ______value that matters.
market
The ___________ principle 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 or service.
matching
Which one of the following complies with GAAP?
matching revenues with expenses
Net working capital equals current assets ______ current liabilities. Multiple choice question. times plus minus divided by
minus
Noncash items are expenses that directly affect _____ but do not directly affect ______.
net income; cash flow
Book value of assets is generally:
not what the assets are actually worth
Cash generated from a firm's normal business activities is called _____.
operating cash flow
An income statement reflects activity that occurs _____ while a balance sheet reflects values ____.
over a period of time; as of a specific date
A positive operating cash flow indicates that the firm is generating enough cash to ______.
pay operating costs
Net working capital is (negative/positive) when current assets exceed current liabilities.
positive
In general, revenue should be recognized at the time of ______ , which is not necessarily the same time as the money is collected.
sale, revenue, earnings
On a balance sheet, total assets must always equal total liabilities plus ______. Multiple choice question. shareholders' equity retained earnings fixed assets net working capital
shareholders' equity
An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____.
statement of cash flows
The last (residual) claimants to be paid by a firm are the ______. Multiple choice question. creditors stockholders bondholders employees
stockholders
Most importantly, assets provide ______ to the firm. Multiple choice question. expenses leverage value depreciation
value
In the long run, all costs are _____.
variable
Another name for short-term financial management is ___ management.
working capital
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 may be in a different period. -Sales on credit are accounts receivable rather than cash inflows until they are collected, which may be 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.
If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.
10 (200/2000)
The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.
21%
If you earn an extra $100 of taxable income this year and owe taxes of $34 on that income, then your marginal tax rate is _____ percent.
34 (34/100)
What does stockholders' equity represent? Multiple choice question. A fixed claim against the firm's liabilities A claim against all of the firm's assets A residual claim against the firm's liabilities (The book value of the firm's assets less the book value of its current assets.) 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.)
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
When a customer purchases an item on credit, the purchase amount is recorded by the seller in which one of these accounts? Multiple choice question. Accounts receivable Accounts payable Cash Accrued expense
Accounts receivable
Increasing its noncash liquid assets will enable a firm to do which of the following? Multiple select question. Reduce its investment in receivables and inventory Increase its ability to avoid financial distress Increase its ability to meet short-term obligations Increase its rate of return
Increase its ability to avoid financial distress Increase its ability to meet short-term obligations
The use of financial leverage can:
Increase the chance of financial distress and business failure. Greatly magnify both gains and losses. Increase the potential reward for investors.
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 follow other accounting standards.
Which of the following is a current asset? Multiple choice question. Inventory Accrued expense Accounts payable Equipment
Inventory
Why is positive net working capital important? Multiple choice question. It means the firm should have sufficient cash to meet its current obligations. It results in the highest retained earnings possible. It allows the firm to become debt-free. It results in the lowest possible tax bill.
It means the firm should have sufficient cash to meet its current obligations.
Which of the following will be found in the liabilities section of a firm's balance sheet? Multiple select question. Preferred stock issued by the firm Long-term bonds issued by the firm Inventory Notes payable
Long-term bonds issued by the firm Notes payable
Whose responsibility is it to create value for a firm?
Management
Which of these are generally considered to be short-run fixed costs?
Management salaries Property taxes Rent payments for a warehouse
Which of the following are classified as liabilities on a firm's balance sheet? Multiple select question. Notes payable Inventory Accounts payable Accounts receivable
Notes payable Accounts payable
Which of the following are fixed assets? Multiple select question. Plant Buildings Land Accounts receivable
Plant Buildings Land
____costs include such things as raw materials, direct labor expense, and manufacturing overhead.
Product
What are two classifications of costs used by financial accountants?
Product costs Period costs
