Fint630-c2

The cash flow identity reflects the fact that

* cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm * 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

If you earn an extra $100 of taxable income this year and owe taxes of $34 on that income, then your marginal tax rate is _______ percent.

34

If the Federal marginal tax bracket is 21%, the state marginal tax bracket is 5%, and the local marginal tax bracket is 1%, how much money will a corporation keep if it makes another $1,000,000 in taxable income?

730,000

What does stockholder's equity represent?

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

T/F For finanical analysis, finical statement and accounting numbers are more important than cash flows.

False

T/F The corporate tax code is simplistic and makes good economic sense.

False

Which of these items do NOT appear on a balance sheet?

Favorable economic conditions Knowledge that has no patent Good management

Which of the following are period cost?

General Expenses Admin Expenses Selling cost

What doe GAAP stand for?

Generally Accepted Accounting Principles

________ costs change as the output of the firm changes.

Variable

Assets can be described as items that:

a firm owns generate revenue provide market value to the firm

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

T/F Operating cash flow includes capital spending and working capital requirements.

False

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

cash versus non-cash items GAAP time and costs

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

depreciation

Assets are listed on a balance sheet in which order?

in order of decreasing liquidity

The purpose of a(n) ________________ is to measure performance over a set period of time.

income statement

Assets are recorded at historical cost, not market value, because:

it is hard to keep you with the market value

Changes in capital spending can be negative when the acquisition of fixed assets is _____ the sale of fixed assets.

less than

For finanical decision-making purposes, the most important tax rate is the ______ tax rate.

marginal

the accounting equation shows that stockholder's equity equal assets ________________ liabilities.

minus

Book value of assets is generally:

not what the assets are actually worth

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

stockholders

Under a flat-rate tax, all income levels are taxed at ___________.

the same marginal rate the same average rate

In the long run, all costs are

variable

If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:

$-50Cash flow paid to creditors = interest paid - net new borrowing

If a company paid $100 dividends, it additionally issued stocks for $10, and repurchased its own stocks for $25, what is the company's cash flow to stockholders?

$100-10+25 = $115

If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ________________.

$50

If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is ______.

$50

Increasing its non-cash liquid assets will enable a firm to do which of the following?

* Increase its ability to meet short-term obligations * Increase its ability to avoid financial distress

cash flow to stockholders equals __________.

- Dividends paid minus net new equity raised

Which of the following will be found in the liabilities section of a firm's balance sheet.

- Long-term bonds - Notes payable

The U.S Tax rate becomes a flat-rate tax in practice at approximately what corporate income level?

0

If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is ____________ percent.

10

A decrease in depreciation expense ______________ earnings per share?

Increases

Which of the following are fixed assets?

Land Buildings Plant

Residual value is the amount left over after paying _________.

Other debt holders Accounts Payable Bondholders.

The short run for a firm is the period of time during which ________.

Output can vary and some costs are fixed

An income statement reflects activity that occurs ____________ while a balance sheet reflects values ______________.

Over a period time; as of a specific date

Which of the following is true about the U.S flat-rate tax system?

The tax rate is flat at all income levels.

T/F A balance sheet shows what a firm owns and how it is financed.

True

T/F Taxes can be a large cash outflow for a corporation.

True

What is revenue recognized on a income statement?

When the value of an exchange of goods or services can be reliably determined. When the earning process is virtually completed.

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

Under GAAP, US firms must carry assets at:

book value

The statement of cash flow explains changes in _______.

cash and equivalents

The cash flow identify states that cash flow from assets equal cash flows to ___________.

creditors and stockholders

Net working capital plus current liabilities equal _____.

current assets

Suppose your company's taxable income was $235,000 in 2017. Using Table 2.3, calculate the income tax due, the average tax rate, and the marginal tax rate.

$74,900 ; 32% ; 39%

Given the tax rates of 15% on Income from $0 to $50,000, 25% on income from $50,001 to $75,000, and 34% on income from $75,001 to $100,000, approximately how much tax would a company pay on a taxable income of $90,000?

(.15)(50,000)(.25)(25,000)(.34)(15,000)= $18,850

Which of these are generally considered to be short-run fixed costs?

* Management salaries * Property Taxes * Rent payments for a warehouse

The tax Cuts and Jobs Act of 2017 set the corporate tax rate to be _______ regardless of the level of taxable income.

21%

If the federal marginal tax bracket is 21%, the state marginal tax bracket is 5%, and the local marginal tax bracket is 1%, the overall marginal tax rate for the company will be _______ %.

27%

What does stockholders' equity represent?

A residual claim against the book value of the firms' assets.

Free cash flow is better described as _____________.

total distributable cash flow

Which of the following is true about the difference between the income statement and cash inflows and outflows?

* Sales on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period. * 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. * income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS.

What is revenue recognized on an income statement?

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

If a firm's net working capital is $120 in 2014 and $100 in 2013, then the change in net working captial is:

+$20

What is depreciation?

A systematic expensing of an asset based on the asset's estimated life

__________ income is money earned after interest and taxes.

Net

Which of the following are current assets?

accounts receivable inventory

in march, Al's paid cash for a video game for the stores inventory. In April, it sold the same on credit. In may, al's received payment for the sale. the expense should be recorded in __ and the income should be reported in ___

april, april -- income is reported when earned or virtually earned, the associated expense is reported when the income is reported

Rank the ease (from easiest to hardest) of turning the following assets into cash.

cash equivalents accounts receivable inventory plant and equipment

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

cash flows

Costs that do not change in the short run arise because of _________.

fixed commitments

Fixed cost are costs that will not change _____________.

in the short run

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

Period costs are the costs that are allocated to a specific __________.

interval of time

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 the good or service.

matching

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

net income cash flow

A positive operating cash flow indicates that the firm is generating enough cash to:

pay operating costs

Which are true concerning product costs?

product cost contain both fixed and variable cost product cost are reported as cost of goods sold

What are two classifications of costs used by financial accountants?

product costs period costs

Which of the following are include in the fixed asset portion of a balance sheet?

trademarks buildings

Current assets are defined as assets that can be turned into cash within _____________ months.

twelve

T/F Long-term liabilities are not due in the current year (from the date of the balance sheet)

True

The use of financial leverage can:

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

Marginal tax rates are the most important tax rates because:

Incremental cash flows are taxed at marginal tax rates. Financial decisions are usually based on new cash flows.

Why is positive net working capital important?

It means the firm should have sufficient cash to meet its current obligations.

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

Liquidity

Whose responsibility is it to create value for a firm?

Management