FIN 3123 Chp 2 Smartbook

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

12

When a customer purchases an item on credit, the purchase amount is recorded by the seller in which one of these accounts?

Accounts receivable

A balance sheet reflects a firm's ______ value on a particular date. Multiple choice question.

accounting

Which of the following are fixed assets?

Land Buildings Plant

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

Liquidity

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

Management Salaries, Property Taxes, and Rent payments for a warehouse Rent Bond interest

______ costs include such things as raw materials, direct labor expense, and manufacturing overhead.

Product

Which of the following is a variable cost in the short run?

Raw materials used in production

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

Trademarks Buildings

True or false: Free cash flow is the total of cash flow that the firm can distribute to creditors and to stockholders.

True

True or false: Taxes can be a large cash outflow for a corporation.

True

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

both fixed and variable

Noncash items do not affect _____.

cash flow

The total of cash flow to creditors and cash flow to stockholders is called _____.

cash flow from assets

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

cash flows

Accounting profit ____ cash flow.

differs from

Cash flow to stockholders equals ____.

dividends paid minus net new equity raised

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

less than

Net working capital equals current assets ______ current liabilities.

minus

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

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

Depreciation is the accountant's estimate of the cost of ______ used up in the production process.

Equipment

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?

Which of the following are current assets?

Inventory Accounts receivable

Who is entitled to the residual value of a firm's cash flows?

Shareholders

The cash flow identity reflects the fact that:

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

Net income refers to money earned ______.

after interest and taxes

Another name for short-term financial management is ___ management.

working capital

Assets are recorded at historical cost, not market value, because _____.

it is hard to keep up with the market value

Net capital spending is equal to ending net fixed assets minus beginning net fixed assets ____.

plus depreciation

Assets can be described as items that _____.

a firm owns provide market value to the firm generate revenue

James is an owner of J & Jo Company. If he wants to find out the cash flow of his bakery, he should look into the firm's _____.

financial statements

The accounting equation shows that stockholders' equity equals assets ______ liabilities.

minus

The difference between the total assets and total liabilities is shareholders' or _________equity

owners

Fill in the blank question. When looking at the income statement, the financial manager should keep in mind GAAP, cash versus noncash items, and __________ and costs.

time

In the long run, ________ are variable.

all costs

Cash flow to creditors is equal to _____.

interest paid less net new borrowing

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

pay operating costs

A supplier may look at the size of _____ to see how promptly the firm pays its bills. Multiple choice question.

accounts payable

Residual value is the amount left over after paying

accounts payable bondholders other debt holders

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 matching principle of GAAP requires revenues be matched with _____.

expenses

For a ______ asset, it would be purely a coincidence if the actual market value were equal to its book value.

fixed

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

fixed commitments

_______ refers to the speed and ease with which an asset can be converted to cash.

liquidity

Noncash items are expenses that directly affect _____ but do not directly affect ______.

net income; cash flow

Cash generated from a firm's normal business activities is called _____.

operating cash flow

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

some costs are fixed output can vary

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.)

What is depreciation?

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

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.

True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.

False

In recent years, U.S. accounting standards have become more closely tied to _____.

IFRS

How are assets on a balance sheet listed?

In order of decreasing liquidity

The use of financial leverage can:

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

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.

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

cash versus noncash items time and costs GAAP

A long-term liability represents a(n) _____.

debt that is not due in the coming year

The more debt a firm has, the greater its:

degree of financial leverage