FIN 3123 Chp 2 Smartbook
Current assets are defined as assets that can be turned into cash within ______ months.
12
When a customer purchases an item on credit, the purchase amount is recorded by the seller in which one of these accounts?
Accounts receivable
A balance sheet reflects a firm's ______ value on a particular date. Multiple choice question.
accounting
Which of the following are fixed assets?
Land Buildings Plant
What is a primary concern for a bank lending funds to a business for the short term?
Liquidity
Which of these are generally considered to be short-run fixed costs?
Management Salaries, Property Taxes, and Rent payments for a warehouse Rent Bond interest
______ costs include such things as raw materials, direct labor expense, and manufacturing overhead.
Product
Which of the following is a variable cost in the short run?
Raw materials used in production
Which of the following are included in the fixed asset portion of a balance sheet?
Trademarks Buildings
True or false: Free cash flow is the total of cash flow that the firm can distribute to creditors and to stockholders.
True
True or false: Taxes can be a large cash outflow for a corporation.
True
The short run is a period when there are ______ costs.
both fixed and variable
Noncash items do not affect _____.
cash flow
The total of cash flow to creditors and cash flow to stockholders is called _____.
cash flow from assets
In finance, the value of a firm depends on its ability to generate ______.
cash flows
Accounting profit ____ cash flow.
differs from
Cash flow to stockholders equals ____.
dividends paid minus net new equity raised
Changes in capital spending can be negative when the acquisition of fixed assets is ______ the sale of fixed assets.
less than
Net working capital equals current assets ______ current liabilities.
minus
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
A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?
Accounts receivable
Depreciation is the accountant's estimate of the cost of ______ used up in the production process.
Equipment
Which of these questions can be answered by reviewing a firm's balance sheet?
How much debt is used to finance the firm? What is the total amount of assets the firm owns?
Which of the following are current assets?
Inventory Accounts receivable
Who is entitled to the residual value of a firm's cash flows?
Shareholders
The cash flow identity reflects the fact that:
a firm generates cash through its various activities. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.
Net income refers to money earned ______.
after interest and taxes
Another name for short-term financial management is ___ management.
working capital
Assets are recorded at historical cost, not market value, because _____.
it is hard to keep up with the market value
Net capital spending is equal to ending net fixed assets minus beginning net fixed assets ____.
plus depreciation
Assets can be described as items that _____.
a firm owns provide market value to the firm generate revenue
James is an owner of J & Jo Company. If he wants to find out the cash flow of his bakery, he should look into the firm's _____.
financial statements
The accounting equation shows that stockholders' equity equals assets ______ liabilities.
minus
The difference between the total assets and total liabilities is shareholders' or _________equity
owners
Fill in the blank question. When looking at the income statement, the financial manager should keep in mind GAAP, cash versus noncash items, and __________ and costs.
time
In the long run, ________ are variable.
all costs
Cash flow to creditors is equal to _____.
interest paid less net new borrowing
A positive operating cash flow indicates that the firm is generating enough cash to ______.
pay operating costs
A supplier may look at the size of _____ to see how promptly the firm pays its bills. Multiple choice question.
accounts payable
Residual value is the amount left over after paying
accounts payable bondholders other debt holders
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
The matching principle of GAAP requires revenues be matched with _____.
expenses
For a ______ asset, it would be purely a coincidence if the actual market value were equal to its book value.
fixed
Costs that do not change in the short run arise because of ______.
fixed commitments
_______ refers to the speed and ease with which an asset can be converted to cash.
liquidity
Noncash items are expenses that directly affect _____ but do not directly affect ______.
net income; cash flow
Cash generated from a firm's normal business activities is called _____.
operating cash flow
The short run for a firm is the period of time during which ______.
some costs are fixed output can vary
What does stockholders' equity represent?
A residual claim against the book value of the firm's assets. (The book value of the firm's assets less the book value of its liabilities.)
What is depreciation?
A systematic expensing of an asset based on the asset's estimated life
Which of the following is true about the difference between the income statement and cash inflows and outflows?
Cost of raw materials purchased on credit are accounts payable rather than cash outflows until they are paid, which may be in a different period. Sales on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period. Income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS.
True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.
False
In recent years, U.S. accounting standards have become more closely tied to _____.
IFRS
How are assets on a balance sheet listed?
In order of decreasing liquidity
The use of financial leverage can:
Increase the chance of financial distress and business failure. Increase the potential reward for investors. Greatly magnify both gains and losses.
Why is it important for accounting standards to become more comparable across countries?
Increasing globalization of business makes it necessary to understand financial reporting by firms that follow other accounting standards.
What should you keep in mind when examining an income statement?
cash versus noncash items time and costs GAAP
A long-term liability represents a(n) _____.
debt that is not due in the coming year
The more debt a firm has, the greater its:
degree of financial leverage