Chapter 2: Financial Statements, taxes and cash flow

According to GAAP, when is revenue recognized on an income statement?

-when the value of an exchange of goods or services is known or reliably determined -when the earnings process is virtually completed

U.S. corporations pay tax at a rate of:

21%

Book Value

The balance sheet value of the assets, liabilities, and equity

Market Value

True value; the price at which the assets, liabilities, or equity can actually be bought or sold

Shareholders' equity is best defined as:

the residual value of a firm.

A balance sheet reflects a firm's

accounting value on a specific date

Free cash flow is also known as:

cash flow from assets

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

12

In the long-run, costs may be considered as ________.

All variable

The short run involves:

Both fixed and variable costs

When a firm smooths earnings to please investors, it is called

Earnings management

The more debt a firm has, the greater its:

degree of financial leverage