FIN 320 CH 2

Marginal

For financial decision-making purposes, the most important tax rate is the __ tax rate.

Total tax bill / Total taxable income

How is the average income tax rate computed?

Assets + liabilities

Shareholder' equity equals____.

A residual claim against the firm's assets

What does stockholder's equity represent?

A systematic expensing of an asset based on the assets estimated life

What is depreciation?

The firm's actual cash flows

What is the most important item that can be extracted from financial statements?

To measure performance over a set period of time

What is the purpose of the income statement?

- GAAP - Cash vs non-cash items - Time and costs

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

The right side

On which side of the balance sheet do liabilities appear?

-When the exchange of goods or services is complete -When the earnings process is virtually completed

When is revenue recognized on a n income statement?

-Buildings -Trademark -Patents

Which of the following are classified as fixed assets on the balance sheet?

- Deferred taxes - Accounts payable

Which of the following are classified as liabilities on a firm's balance sheet?

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

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

-Accounting value on a specific date -Economic value at a specific time

A balance sheet reflects a firm's ___.

Accounts receivable

A customer has yet to pay the bill for products purchased on credit. This debt is recorded in which balance sheet account?

-15% -34% -25% -35%

According to the originators of the US corporate tax code, the only rates are:

Interest paid minus net new borrowing

Cash flow to creditors equals:

Dividends paid minus net new equity raised

Cash flow to stockholders equals: ____

-Equipment -Fixed assets

Depreciation is the accountant's estimate of the cost of ___ used in the production process matched with the benefits produced from owning it.

-Equipment -Fixed assets

Depreciation is the accountants's estimate of the cost of ___ used in the production process matched with the benefits produced from owning it.

True

T/F: Operating cash flow does not reflect depreciation or interest.

Expenses

The GAAP matching principle requires revenues it be matched with:

Creditors and equity investors

The cash flow identity states that cash flow from assets equals cash flows to ___.

Degree of financial leverage

The more debt a firm has, the greater its:

An imprecise period of time

The short run is ___.

Variable

___ cost change as the output of the firm changes.

Earning management

When a firm smooths earnings t please investors, it is called ___.

-Period costs -Product costs

What are two ways in which financial accountants usually classify costs?

Cost of goods sold

Product costs are usually shown in the income statement under the heading of ____.

1. Cash equivalents 2. Accounts receivable 3. Inventory 4. Plant and equipment

Rank the ease (from easiest to hardest) of turning the following assets into cash.

False

T/F: For financial analysis, financial statements and accounting numbers are more important than cash flows.

Income statement

The purpose of a(n)____ is to measure performance over a set period of time.

Both fixed and variable

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

Marginal

The___ tax rate is the tax rate paid on the next dollar of income.

-Book value -Historical cost

Under GAAP, asses are generally carried on a firm's balance sheet at ____.

Use of debt in its capital structure

Financial leverage refers to a firm's ___.

Use of debt in its capital structure

Financial leverage refers to a firm's___.

$50 **(200-150)

If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ___.

Cash flows

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

$600,000 (1 - 0.34 - 0.05 - 0.01) x $1mil = $600,000

In the Federal marginal tax bracket is 34%, the state marginal tax bracket is 5%, and the local marginal tax bracket is 1%, how much money will a corporation keep if it makes another $1,000,000 in taxable income?

1 year

Long-term liabilities represent obligations of the firm lasting over ___.

Depriciation

Net capital spending is equal to the change in net fixed assets plus:

Plus (+) depriciation

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

are less than

Net working capital will be negative when current assets ___ current liabilities.

Expenses; do not directly affect

Non-cash items are ___ that __ cash flow.

Net income; cash flow

Non-cash items are expenses that directly affect ___ but do not directly affect ___ .

General accepted accounting principles

What does GAAP stand for?

Product

The total production costs incurred in a period are called ___ costs.