Business Finance Chapter 2

Which of these assets are generally converted into cash within one year? Select all that apply. -Inventory -Equipment -Patents and trademarks -Accounts receivable

- Inventory - Accounts receivable

Which of these assets have useful lives exceeding one year and are classified as fixed assets? Select all that apply. Land Inventory Machinery Building

- Land - Machinery - Building

Which of these accounts are included in net working capital? Select all that apply. -Notes payable -Equipment -Inventory -Long-term debt payable

- Notes payable - Inventory Reason: Notes payable is a current liability. Net working capital is equal to current assets minus current liabilities. nventory is a current asset. Net working capital is equal to current assets minus current liabilities.

Where can you access the financial statement of a company that is publicly traded

- On the companies website - On the SEC - On websites like Yahoo finance

Which of these are equity accounts? Select all that apply. -Accounts payable -Common stock -Preferred stock -Retained earnings

- preferred stock - common stock - Retained earnings

An annual report provides what four financial statements?

-Balance sheet -income statement -statement of cash flows -statement of retained earnings

Assets formula

Assets = Liabilities + Equity

Which one of these statements correctly applies to a balance sheet?

A balance sheet shows what a firm owns, what it owes, and what it is worth.

preferred stock

A hybrid security that has characteristics of both long-term debt and common stock.

Which of these accounts are current liabilities? Select all that apply. Accrued wages Accrued wages Bonds payable Accounts payable

Accounts payable Accrued wages Accrued wages

Which of these accounts are included in net working capital? Select all that apply. -Accounts receivable -Accounts payable -Cash -Retained earnings

Accounts receivable Accounts payable Cash

Which one of these is a subtraction from the cash flows from financing activities?

Buying back common stock

What is the definition of cash flows from operations?

Cash flows that are the direct result of the production and sale of the firm's products.

Which one of these is a cash flow from a financing activity?

Decrease in loans payable

Which one of these is an addition to the cash flows from investing activities?

Decrease in other long-term assets

hich one of these is a subtraction from the cash flows from investing activities?

Decrease in other long-term assets

Which of these statements regarding the structure of an income statement is (are) correct? Select all that apply. Multiple select question. EBIT= Gross profit - Depreciation - Other operating expenses EBIT = Addition to retained earnings + Taxes + Interest EBT = Dividends paid + Addition to retained earnings + Taxes Gross profit = Net sales - Cost of goods sold

EBIT= Gross profit - Depreciation - Other operating expenses EBT = Dividends paid + Addition to retained earnings + Taxes Gross profit = Net sales - Cost of goods sold

OCF = Operating cash flow, IOC = Investment in operating capital, and EBIT = Earnings before interest and taxes Which one of these formulas defines free cash flow (FCF)?

FCF = OCF - IOC

stockholders' equity

Funds provided by the firm's preferred and common stock owners

Which one of these is a subtraction from the cash flows from investing activities?

Increase in a fixed asset

Which of these are additions to the cash flows from financing activities? Select all that apply. Increase in common stock Increase in long-term debt Common stock dividend paid Decrease in notes payable

Increase in common stock Increase in long-term debt

The statement of retained earnings reconciles the dividends paid and the change in retained earnings to which one of these? Interest Income Change in cash and marketable securities Net income Change in common stock

Net Income

What is the definition of net working capital?

Net working capital is the difference between a firm's current assets and current liabilities.

long-term debt

Obligations of the firm that are due in more than one year.

current liabilities

Obligations of the firm that are due within one year.

Current liabilities are debts of a firm that must be paid within what time frame?

One year

financial statement

Statement that provides an accounting-based picture of a firm's financial position

liquidity

The ease with which an asset can be converted into cash.

balance sheet

The financial statement that reports a firm's assets, liabilities, and equity at a particular point in time.

common stock and paid-in surplus

The fundamental ownership claim in a public or private company.

Fixed assets

The least liquid assets appear last on the asset side of the balance sheet. Assets with a useful life exceeding one year.

Current Assets

The most liquid assets appear first on the asset side of the balance sheet They are Assets that will normally convert to cash within one year.

retained earnings

The portion of company profits that are kept by the company rather than distributed to the stockholders as cash dividends.

The operating profit is equal to earnings before interest and taxes. True/False

True

A financial statement provides an Blank______-based picture of a firm's financial condition.

accounting