Chapter 2
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
