FINAN 815 Ch 2 LearnSmart

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? 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? What is the total amount of assets the firm owns?

Liquidity refers to the ease of changing ______.

assets to cash

On the balance sheet, assets are listed at their ______ value.

book

Under GAAP, assets are generally carried on a firm's balance sheet at _____.

book value historical cost

The short run is a period when there are ______ costs.

both fixed and variable

Rank the ease (from easiest to hardest) of turning the following assets into cash. Position 1 of 4 cash equivalents correct toggle button unavailable cash equivalents

cash equivalents accounts receivable inventory plant and equipment

Non-cash items do not affect:

cash flow

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 time and costs GAAP

Product costs are usually shown on the income statement under the heading of ______.

cost of goods sold

The cash flow identity states that cash flow from assets equals cash flows to ____.

creditors and stockholders

Liabilities can be classified as ______ or long-term.

current

Which of the following is an example of a non-cash item on an income statement?

Depreciation

True or false: Current assets plus current liabilities equals net working capital.

False

The three most important items to keep in mind when reviewing an income statement are:

GAAP, cash versus noncash items, and time and costs

What does GAAP stand for?

Generally Accepted Accounting Principles (GAAP)

Assets can be categorized as: Multiple select question. short-term and long-term equity. current and fixed assets. tangible and intangible assets. fixed and variable assets.

current and fixed assets. tangible and intangible assets.

The more debt a firm has, the greater its:

degree of financial leverage

When a firm smooths earnings to please investors, it is called ______.

earnings management

Depreciation is the accountant's estimate of the cost of ______ used in the production process matched with the benefits produced from owning it.

equipment fixed assets

The GAAP matching principle requires revenues to be matched with ______.

expenses

Non-cash items are ______ that ____ cash flow.

expenses; do not directly affect

Which of the following is not a component of cash flow from assets?

financing expenses

Costs that do not change in the short run arise because of ______.

fixed commitments

True or false: Free cash flow is also known as cash flow from assets.

free

The common set of standards and procedures by which audited financial statements are prepared are called _____.

generally accepted accounting principles (GAAP)

The purpose of a(n) ______ is to measure performance over a set period of time.

income statement

Period costs are the costs that are allocated to a specific ______.

interval of time

Current assets are classified as relatively ______; these assets can be converted to cash within the next 12 months.

liquid

The price at which willing buyers and sellers would trade is called ______ value.

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

Current assets_____(plus/minus) current liabilities equals NWC.

minus

The balance sheet identity shows that stockholders' equity equals assets ______ liabilities.

minus

The last item (or "bottom line") on the income statement is typically the ______.

net income

Non-cash items are expenses that directly affect _____ but do not directly affect ______.

net income; cash flow

Which of the following are components of cash flow from assets? Multiple select question. operating cash flow net new borrowing net new equity capital spending change in net working capital

operating cash flow capital spending change in net working capital

The cash flow that results from the firm's day-to-day activities of producing and selling is called:

operating cash flow.

Earnings management is a controversial practice in which corporations ______ or ______ their earnings to "smooth out" dips and surges and keep investors calm.

overstate; understate

Costs incurred during a particular time period that might be reported as selling, general, and administrative expenses are also known as ______.

period costs

Net capital spending is equal to ending net fixed assets minus beginning net fixed assets ______.

plus depreciation

In practice, accountants tend to classify costs as either ______ costs or ______ costs.

product; period

Liquidity has two dimensions which are the ability to:

quickly convert assets into cash without significant loss in value.

Stockholders' equity is always shown on the ______ of the balance sheet.

right-hand side

Who is entitled to the residual value of a firm's cash flows?

shareholders

Physical assets are termed ______ assets.

tangible

The market value of an item is:

the cash value you'd get if you sold it

Cash flow refers to ______.

the difference between the number of dollars that came in and the number that went out

Changes in capital spending can be negative if:

the firm sold more assets than it purchased

On which side of the balance sheet do liabilities appear?

the right-hand side

What is the purpose of the income statement?

to measure performance over a set period of time

Shareholders' equity equals _____.

total assets minus total liabilities

Common stockholders are entitled to the difference between ______ and ______.

total assets; total liabilities

Free cash flow is better described as ______.

total distributable cash flow

True or false: Operating cash flow does not include depreciation or interest.

true

Financial leverage refers to a firm's ______.

use of debt in its capital structure

_______ changes as the output of the firm changes.

variable cost

According to GAAP, 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 is known or reliably determined

Long-term liabilities represent obligations of the firm lasting more than ______.

1 year

Current assets are defined as assets that can be turned into cash within ______ months.

12

What is depreciation?

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

Which of the following is the balance sheet equation?

Assets equal liabilities plus stockholders' equity.

True or false: Long-term liabilities are not due in the current year (from the date of the balance sheet).

True

According to GAAP, when is income reported?

When it is earned or accrued

Net capital spending is negative when ______.

a firm sold off more assets than it purchased

What does shareholders' equity represent?

a residual claim against the firm's total assets

A balance sheet reflects a firm's:

accounting value on a specific date.

Which of the following are classified as liabilities on a firm's balance sheet?

accounts payable long-term debt

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 of Firm A's balance sheet accounts?

accounts receivable

Which one of these is considered to be the most liquid?

accounts receivable

Amounts not yet collected from customers on sales already made are called:

accounts receivable.

Net earnings refers to income earned ______.

after interest and taxes

The short run is ______.

an imprecise period of time

Net working capital will be negative when current assets ______ current liabilities.

are less than

The cash flow identity states that cash flows from ______ should equal cash flows to creditors and equity investors.

assets