Chapter 2 - Financial Statements, Taxes, and Cash Flow

Physical assets are termed ______________ assets.

tangible

The market value of an item is:

the cash value you'd get if you sold it

Cash flow refers to _____.

the difference between the number of dollars that came in and the number that went out

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

depreciation

Cash flow to creditors equals:

interest paid minus net new borrowing

According to the current U.S. corporate tax code, the corporate tax rate in effect for 2019 is:

21%

Which of the following is the balance sheet equation?

Assets equal liabilities plus stockholders' equity.

Which of the following is NOT a component of cash flow from assets?

Financing expenses

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?

How is the average income tax rate computed?

Total tax bill / Total taxable income

According to GAAP, when is income reported?

When it is earned or accrued

A balance sheet reflects a firm's:

accounting value on a specific date

Net earnings refers to income earned ______.

after interest and taxes

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

all variable

The short run is ______.

an imprecise period of time

Non-cash items do not affect:

cash flow

Tax rates for propietorships, partnerships, and LLCs __________ with the passage of the Tax Cuts and Jobs Act of 2017.

changed

Assets can be categorized as (select all that are appropriate)

current and fixed, tangible and intangible

The price at which willing buyers and sellers would trade is called ______ value.

market

Current assets _____ (plus/minus) current liabilities equals NWC.

minus

The balance sheet identity shows that stockholders' equity equals assets ______ liabilities.

minus

The last item (or "bottom line") on the income statement is typically the _________.

net income

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

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

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

The short run is a period when there are ______ costs.

both fixed and variable

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

cash flows

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

earnings management

True or false: Current assets plus current liabilities equals net working capital.

false

Financial leverage refers to a firm's _________.

use of debt in its capital structure

Cash flow to stockholders equals ____.

dividends paid minus net new equity raised

The more debt a firm has, the greater its:

degree of financial leverage

Which of the following are components of cash flow from assets?

Operating cash flow, Capital spending, Change in net working capital

Liquidity refers to the ease of changing _____.

assets to cash

Earnings management is a controversial practice in which corporations ________ or ___________ their earnings to "smooth out" dips and surges and keep investors calm.

overstate; understate

Liquidity has two dimensions which are the ability to:

quickly convert assets into cash without significant loss in value