Finance Study Chapter 2
Net Fixed Assets represents:
The original cost of the firm's assets held for use less accumulated depreciation
A firm reported retained earnings of $305 in 20x2. For 20x3, the firm reports retained earnings of $400 and pays dividends of $25. What was net income in 20x3?
Answer: $120 Solution: New RE = Old RE + NI - Div; 400 = 305 + NI - 25; NI = 120
Operating income and _____are the same
EBIT
_________accounting is superior for understanding the operations of a firm.
accrual
Notes Payable carry an explicit____
interest cost
A firm reported retained earnings of $300 in 12/31/2012. For 12/31/2013, the firm reports retained earnings of $400 and pays dividends of $25. What was their net income in 2013?
Answer: 125 Beg RE = 300, NI = 125, Div = -25, End RE = 400
Which components are part of total liabilities?
Answer: Bonds, accounts payable, mortgage
Which components are part of total assets?
Answer: Cash accounts receivable, inventory, long term assets
The evolution of retained earnings is best described by:
Answer: Change in retained earnings = net income - dividends
A basic equation for the balance sheet is_______.
Answer: Equity = Assets - Liabilities
Which components are part of current assets?
Answer: Inventory, cash, accounts receivable, short term investments
When a firm purchases short-term U.S. Treasury securities, they are generally included on the balance sheet as:
Answer: Marketable Securities
How do you calculate the change in retained earnings?
Answer: Net income - Dividends
Earnings Before Interests and Taxes (EBIT) is also called:
Answer: Operating Income
Accrual accounting recognizes:
Answer: Revenues when the earnings process is complete and matches expenses to revenues recognized.
The use of the historical cost principle on the balance sheet means:
Answer: That most assets are stated at the original cost less depreciation
Retained earnings represents:
Answer: The cumulative amount of the firm's earnings not distributed to shareholders
Net Fixed Assets represents:
Answer: The original cost of the firm's assets held for use less accumulated depreciation
Why is the balance sheet known as a permanent statement?
Answer: The other statements are reset at the end of the fiscal year.
The evolution of retained earnings is best described by:
Change in retained earnings = net income - dividends
The income statement represents the result of operations over a
over a period of time
definitely is NOT a cash reserve.
retained earnings
The matching principle in accrual accounting requires that:
: Revenues are matched to the expenses incurred to generate the revenues
The basic balance sheet equation states that Assets are equal to Liabilities plus Owner's equity. This is because all assets are:
Financed either by other people's money or by the firm's owners' money.
