Smartbook 2
Which of the following is a variable cost in the short run?
raw materials used in production
In the long-run, ___ are variable
all costs
Which one of these is a correct version of the balance sheet equation?
assets = liabilities + stockholders' equity
What is a primary concern for a bank lending funds to a business for the short term?
Liquidity
Why is positive net working capital important?
It means the firm should have sufficient cash to meet its current obligations
Assets can be described as items that:
a firm owns generate revenue provide market value to the firm
How is income defined?
revenue minus expenses
Under a flat-rate tax, all income levels are taxed at ___
the same marginal rate the same average rate
When a customer purchases an item on credit, the purchase amount is recorded by the seller in which one of these accounts?
accounts receivable
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?
$115 $100-10+25 = 115
Given the corporate 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 if it had taxable income of $90,000
$18,850 (.15)(50000)(.25)(25000) (.34)(90000,75000)
The cash flow identity reflects the fact that
a firm generates cash through its various activities cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders
The short run is ___
an imprecise period of time
The short run is a period where there are ___ costs
both fixed and variable
A long-term liability represents a(n) ___
debt that is not due in the coming year
Accounting profit ___ cash flow
differs from
Depreciation is the accountant's estimate of the cost of ___ used up in the production process
equipment
The matching principle of GAAP requires revenues be matched with ___
expenses
Costs that do not change in the short run arise because of ___
fixed commitments
Which of the following are period costs?
general expenses administrative expenses selling costs
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?
The purpose of a(n) ___ is to measure performance over a set period of time
income statement
The price at which willing buyers and sellers would trade is called ___ value
market
A positive operating cash flow indicates that the firm is generating enough cash to ___
pay operating costs
On a balance sheet, total assets must always equal total liabilities plus ___
shareholders' equity
The short run for a firm is the period of time during which ___
some costs are fixed output can vary
The cash flow identity states that cash flow from assets equals cash flows to ___
creditors and stockholders
If you make an extra $1,000 in income and your marginal tax rate is 30 percent while your average tax rate is 20 percent, then you will pay an extra ___ in taxes
$300
If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ___
$50
In March, Al's paid cash for a video game for the store's inventory. In April, it sold the game on credit. In May, Al's received payment for the sale. Based on matching principle, the expense should be recorded in ___ and the income should be reported in ___
April April
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)
The statement of cash flow explains changes in ___
cash and equivalents
Rank the ease (from easiest to hardest) of turning the following assets into cash
cash equivalents accounts receivable inventory plant and equipment
Non-cash items do not affect ___
cash flow
What should you keep in mind when examining an income statement?
cash versus non-cash items time and costs GAAP
Net working capital plus current liabilities equal ___
current assets
Period costs are the costs that are allocated to a specific ___
interval of time
Which of the following will be found in the liabilities section of a firm's balance sheet?
notes payable long-term bonds issued by the firm
Assets are listed on a balance sheet in which order?
in order of decreasing liquidity
Liquidity refers to the ease of changing ___
assets to cash
Residual value is the amount left over after paying ___
bondholders other debt holders accounts payable
In finance, the value of a firm depends on its ability to generate ___
cash flows
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
Marginal tax rates are the most important tax rates because:
financial decisions are usually based on new cash flows incremental cash flows are taxed at marginal tax rates
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
The ___ tax rate is the tax rate paid on the next dollar of income
marginal
For financial decision-making purposes, the most important tax rate is the ___ tax rate
marginal Because financial decisions are based on new cash flows
Non-cash items are expenses that directly affect ___ but do not directly affect ___
net income cash flow
Which of the following are classified as liabilities on a firm's balance sheet?
notes payable accounts payable
What are two classifications of costs used by financial accountants?
product costs period costs
Which are true concerning product costs?
product costs contain both fixed and variable costs product costs are reported as costs of goods sold
Which of these are generally considered to be short-run fixed costs?
property taxes management salaries rent payments for a warehouse
Which of the following are examples of short-run fixed costs?
rent bond interest
An official accounting statement that helps to explain the change in cash and cash equivalents is called the ______
statement of cash flows
Which of the following are included in the fixed asset portion of a balance sheet?
trademarks buildings
If a firm's net working capital is $120 in 2014 and $100 in 2013, then the change in net working capital is:
+$20 $120-$100=20
What does GAAP stand for?
Generally Accepted Accounting Principles
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
Which of the following are current assets?
account receivable inventory
Which of these items do NOT appear on a balance sheet?
favorable economic conditions knowledge that has no patent good management