Week 2 Study

Which of the following is the balance sheet equation? Multiple choice question.

Assets equal liabilities plus stockholders' equity.

Which of the following is NOT a component of cash flow from assets? Change in net working capital Capital spending Financing expenses Operating cash flow

Financing expenses

According to GAAP, when is income reported?

When it is earned or accrued

According to GAAP, when is revenue recognized on an income statement? After the related expenses are paid in full Only when cash has been received for the sale When the value of an exchange of goods or services is known or reliably determined When the earnings process is virtually completed

When the value of an exchange of goods or services is known or reliably determined When the earnings process is virtually completed

A balance sheet reflects a firm's:

accounting value on a specific date

Net earnings refers to income earned ______.

after interest and taxes

In the long-run, costs may be considered as ________.

all variable

The short run is ______.

an imprecise period of time

Liquidity refers to the ease of changing _____.

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

Non-cash items do not affect:

cash flow

In finance, the value of a firm depends on its ability to generate ______.

cash flows

Cash flow refers to _____.

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

Financial leverage refers to a firm's _________.

use of debt in its capital structure

The more debt a firm has, the greater its:

degree of financial leverage

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

market

Physical assets are termed ______________ assets.

tangible

The market value of an item is:

the cash value you'd get if you sold it

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

Depreciation

Assets can be categorized as (select all that are appropriate) short-term and long-term equity tangible and intangible assets current and fixed assets fixed and variable assets

tangible and intangible assets current and fixed assets

On a balance sheet, total assets must always equal total liabilities plus:

shareholders' equity

Which of the following are components of cash flow from assets? Net new borrowing Change in net working capital Net new equity Capital spending Operating cash flow

Change in net working capital Capital spending Operating cash flow

Tax rates for propietorships, partnerships, and LLCs __________ with the passage of the Tax Cuts and Jobs Act of 2017.

changed

Cash flow to stockholders equals ____.

dividends paid minus net new equity raised

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

earnings management

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

false, minus

Which of the following is NOT a component of cash flow from assets? Operating cash flow Financing expenses Capital spending Change in net working capital

financing expenses

Cash flow to creditors equals:

interest paid - net new borrowing

Current assets ______ (plus/minus) current liabilities equals NWC

minus

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

net income

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

overstate; understate

Liquidity has two dimensions which are the ability to:

quickly convert assets into cash without significant loss in value

According to the current U.S. corporate tax code, the corporate tax rate in effect for 2019 is:

21%

Which of these questions can be answered by reviewing a firm's balance sheet? What is the total amount of assets the firm owns? 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?