Chapter 2

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

-Accounts payable -Notes payable

Which is NOT on a balance sheet?

-Favorable economic conditions -Good management -Knowledge that has no patent

Ridiculousness, Inc., has sales of $46,000, costs of $20,900, depreciation expense of $1,500, and interest expense of $1,100. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

-Go over this- Operating cash flows= Earnings before interest/taxes + depreciation- taxes =17,225

The use of financial leverage can:

-Increase the chance of financial distress and business failure -Greatly magnify both gains and losses -Increase the potential reward for investors

Residual value is the amount left over after paying _______

-Other debt holders -Bondholders -Preferred stockholders -Accounts payable

What should you keep in mind when examining an income statement?

-Time and cost -Cash vs. Non cash items -GAAP

Which are included in the fixed asset portion of the balance sheet?

-Trademarks -Accumulated depreciation

Billy's Exterminators, Inc., has sales of $737,000, costs of $282,000, depreciation expense of $34,000, interest expense of $27,000, and a tax rate of 35 percent. What is the net income for this firm?

256,100

A customer has yet to pay the bill for products purchased on credit. This debt is recorded in which balance sheet account?

Accounts receivable

Accounts are listed on the balance sheet in which order

Decreasing liquidity

What is a non cash item on an income statement?

Depreciation

Accounting profit _____ cash flow

Differs from

Billy's Exterminators, Inc., has sales of $743,000, costs of $294,000, depreciation expense of $46,000, interest expense of $33,000, a tax rate of 35 percent, and paid out $88,200 in cash dividends. The firm has 98,000 shares of common stock outstanding. What are the dividends per share?

Dividends per share= dividends/ shares of common stock =.9

Depreciation is the accountant's estimate of the cost of _____ used up in the production process

Equipment

Fixed costs are costs that will not change due to:

Fixed commitments over a stated period of time

The purpose of an ____ is to measure performance over a set period of time

Income statement

Why is positive net working capital important?

It means the firm should have sufficient cash to meet it's current obligations

What is the primary concern for a bank lending funds to a business for the short term?

Liquidity

The Dyrdek Co. had $306,000 in 2014 taxable income. Use the tax rates from Table 2.3. What is the marginal tax rate?

MTR= The rate that the last income bracket is being taxed at 39%

Whose responsibility is it to create value for a firm

Management

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

Non cash items are expenses that directly affect ____ but do not directly affect _____

Net income; cash flow

An income statement reflects activity that occurs____ while a balance sheet reflects values _____

Over a period of time; as of a specific date

How is income defined?

Revenues- expenses

Which side of balance sheet is liabilities?

Right

An increase in depreciation expense lowers net income

True

Liquidity is

Turning assets to cash

_____ costs change as the output of the firm changes

Variable

Net working capital plus current liabilities =

current assets

KCCO, Inc., has current assets of $5,200, net fixed assets of $25,200, current liabilities of $4,250, and long-term debt of $9,400. What is the value of the shareholders' equity account for this firm?

total assets-total liabilities 16,750

most importantly assets provide ____ to the firm

value

What does stockholders equity represent?

A residual claim against the book value of the firm's assets. (The book value of the firms assets less the book value of it's liabilities)

The Dyrdek Co. had $306,000 in 2014 taxable income. Use the tax rates from Table 2.3. What is the average tax rate?

ATR= total taxes paid/ total taxable income

Billy's Exterminators, Inc., has sales of $743,000, costs of $294,000, depreciation expense of $46,000, interest expense of $33,000, a tax rate of 35 percent, and paid out $88,200 in cash dividends. The firm has 98,000 shares of common stock outstanding. What are the earnings per share?

EPS= net income/ shares of common stock =2.45

The last (residual) claimants to be paid by a firm are the _____

Stockholders

The short run is:

an imprecise period of time

Billy's Exterminators, Inc., has sales of $658,000, costs of $310,000, depreciation expense of $62,000, interest expense of $41,000, a tax rate of 35 percent, and paid out $76,000 in cash dividends. What is the addition to retained earnings?

net income- cash dividends =83,250


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