Finance Chapter 2
Noncash items refer to:
Expenses which do not directly affect cash flows
Assets are listed on a balance sheet in which order?
In order of time it would take to conver to cash
A firm has $820 in inventory, $3,200 in fixed assets, $1,210 in accounts receivable, $890 in accounts payable, and $360 in cash. What is the amount of the net working capital?
$1,500
Mart's Boutique has sales of $820,000 and costs of $540,000. Interest expense is $36,000 and depreciation is $59,000. The tax rate is 35 percent. What is the net income?
$120,250
The statement of cash flow explains changes in?
Cash and equivilents
Noncash items refer to?
Expenses charged against revenues that do not directly affect cash flow
Making net payments to creditors and owners is called ___ activity in the accounting statement of cash flows?
Financing
Costs that do not change in the short run arise because of?
Fixed commitments
Earnings per share will decrease as the number of shares outstanding ______?
Increases
When a firm pays out fewer dividends, it ___ the accounting value of its retained earnings?
Increases
Net working capital will be negative when current assets are ___ current liabilities?
Less than
Non-cash items are expenses that directly affect ____ but do not directly affect ____?
Net income; cash flow
Interest expense is reflected in the ____ section of the income statement?
Non-operating
What does the operations section of an income statement report?
Revenues and expenses from principal operations
The last claimants to be paid by a firm are the?
Stockholders
Total assets are $1,450, fixed assets are $790, long-term debt is $750, and short-term debt is $300. What is the amount of current assets?
$660
At the beginning of the year, a firm has current assets of $16,200 and current liabilities of $13,280. At the end of the year, the current assets are $14,800 and the current liabilities are $14,210. What is the change in net working capital?
-$2,330
What does stockholder's equity represent?
A residual claim against the firm's assets
What does a balance sheet reflect about a firm?
Accounting value on a specific date
Assuming the number of shares outstanding remains constant, an increase in dividends per share will reduce the?
Addition to retained earnings
A write-off refers to a decrease in?
Value of company's assets
The financial statement summarizing a firm's accounting performance over a period of time is the:
income statement
What are the period costs?
~General expenses ~Selling costs ~Administrative expenses
Why are marginal tax rates important?
~Incremental cash flows are taxed at marginal tax rates ~Financial decisions are usually based on new cash flows
What should you keep in mind when examining an income statement?
~Time and costs ~GAAP ~Non cash items
One of the most important limitations of balance sheets is they only show ____ rather than market value?
Cost
Fixed assets are not ___ assets?
Current
Assuming the number of shares outstanding remains constant, an increase in dividends per share will reduce the:
addition to retained earnings
Which term defines the tax rate that applies to the next dollar of taxable income earned?
marginal
Earnings per share will increase if net income ____ and number of shares outstanding _____.
Increases; decreases
Who owns treasury stock?
The issuer of the stock
Free cash flow is:
cash that the firm is free to distribute to creditors and stockholders
Earnings per share will increase when:
depreciation decreases
According to GAAP, when is income reported?
When it is earned
What are two classifications of costs used by financial accountants?
1.) Product costs 2.) Period costs
U.S. corporate taxes switch to a constant flat-rate tax once the average tax rate reaches:
35%
Balance sheet accounts are listed in order of ______liquidity.
Decreasing
