Finance Connect- Chapter 2
Amounts not yet collected from customers on sales already made are called
accounts receivable
The ______ tax rate is the tax rate paid on the next dollar of income.
marginal
The balance sheet identity shows that stockholders' equity equals assets ______ liabilities.
minus
In practice, accountants tend to classify costs as either ______ costs or _______ costs
product; period
According to the current U.S. corporate tax code, the corporate tax rate in effect for 2019 is:
21%
What does shareholders' equity represent?
A residual claim against the firm's total assets
What is depreciation?
A systematic expensing of an asset based on the asset's estimated life
Which of the following are components of cash flow from assets?
Change in net working capital Operating cash flow Capital spending
The three most important items to keep in mind when reviewing an income statement are
GAAP, cash versus noncash items, and time and costs
Who is entitled to the residual value of a firm's cash flows?
Shareholders
How is the average income tax rate computed?
Total tax bill / Total taxable income
Liquidity refers to the ease of changing _____.
assets to cash
Non-cash items do not affect
cash flow
Product costs are usually shown on the income statement under the heading of
costs of goods sold
cash flow from assets equals cash flows to ____
creditors and stockholders
The more debt a firm has, the greater its:
degree of financial leverage
True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.
false
______ changes as the output of the firm changes.
Variable cost
A balance sheet reflects a firm's:
accounting value on a specific date
net earnings refers to income earned
after interest and taxes
Marginal tax rates are the most important tax rates because
incremental cash flows are taxed at marginal tax rates financial decisions are usually based on new cash flows
which of the following are classified as liabilities on a firms balance sheet?
long term debt accounts payable
what is the most important tax rate
marginal
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
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
Costs incurred during a particular time period that might be reported as selling, general, and administrative expenses are also known as
period costs
On a balance sheet, total assets must always equal total liabilities plus
shareholders equity
The market value of an item is:
the cash value you'd get if you sold it
Common stockholders are entitled to the difference between ______ and ________.
total assets; total liabilities
Financial leverage refers to a firm's
use of debt in its capital structure
Long-term liabilities represent obligations of the firm lasting over _____.
1 year
U.S. corporations pay tax at a rate of ____ percent.
21
Which one of the following is true?
Earnings, net income, and cash flows are identical. The Income Statement explicitly shows cash flows. Cash flows can be derived from financial statements.******* Cash flows always exceed earnings.
Liabilities can be classified as _______ or long-term.
current
Assets can be categorized as
current and fixed assets tangible and intangible assets
A primary reason that accounting income differs from cash flow is that an income statement contains ______.
non cash items
Marginal tax rates are the most important tax rates because
financial decisions are usually based on new cash flows incremental cash flows are taxed at marginal tax rates
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
Costs that do not change in the short run arise because of ______
fixed commitments
Period costs are the costs that are allocated to a specific ______.
interval of time
What is shown on the left side of the balance sheet
Assets
Current assets are defined as assets that can be turned into cash within ______ months.
12
In the long-run, costs may be considered as ________.
all variable
The cash flow identity states that cash flows from ______ should equal cash flows to creditors and equity investors.
assets
The GAAP matching principle requires revenues to be matched with:
expenses
Which of these questions can be answered by reviewing a firm's balance sheet?
The total amount of assets the firm owns How much debt is used to finance the firm