Fin 3200, Chapter 2
On the balance sheet, assets are listed at their ___________ value.
Book
Non-cash items do not affect:
Cash flow
Product costs are usually shown on the income statement under the heading of _____________________.
Cost of goods sold
When a firm smooths earnings to please investors, it is called ___________________.
Earnings management
The GAAP matching principle requires revenues to be matched with:
Expenses
Costs that do not change in the short run arise because of ________________.
Fixed commitments
Cash flow to creditors equals:
Interest paid minus net new borrowing
The price at which willing buyers and sellers would trade is called _____________ value.
Market
Net capital spending is equal to ending net fixed assets minus beginning net fixed assets ____________.
Plus depreciation
Liquidity has two dimensions which are the ability to:
Quickly convert assets into cash without significant loss in value
Stockholder's equity is always shown on the _____________ of the balance sheet.
Right side
On a balance sheet, total assets must always equal total liabilities plus:
Shareholder's equity
Who is entitled to the residual value of a firm's cash flows?
Shareholders
What is the purpose of the income statement?
To measure performance over a set period of time
Long-term liabilities are not due in the current year (from the date of the balance sheet)
True
True of False: Operating cash flow does not include depreciation or interest
True
Current assets ______________ exceed current liabilities in a healthy firm.
Usually
Financial leverage refers to a firm's ______________.
use of debt in its capital structure
According to the originators of the current U.S. corporate tax code, the only rates are:
15%, 25%, 34%, 35%
What does stockholder's equity represent?
A residual claim against the firm's total assets
A customer has yet to pay the bill for products purchased from Firm A on credit. This customer's trade credit is recorded in which of Firm A's balance sheet accounts?
Accounts receivable
Net earnings refer to income earned _________________
After interest and taxes
In the long-run, costs may be considered as ________________.
All variable
The cash flow identity states that cash flows from ________________ should equal cash flows to creditors and equity investors.
Assets
If dividends are $100, stock sold is $10, and stock repurchased is $25, what is the cash flow to stockholders?
$115 100-(10-25)= $115
If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is __________.
$50
If 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?
(1-0.34-0.05-0.01) x 1,000,000 = $600,000
If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:
-$50
A company's _______________ tax rates 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
1. Average 2. Marginal
Which of the following are classified as fixed assets on the balance sheet?
1. Buildings 2. Equipment 3. Land
Rank the ease (from easiest to hardest) of turning the following assets into cash.
1. Cash equivalences 2. Accounts receivable 3. Inventory 4. Plant and equipment
What should you keep in mind when examining an income statement?
1. Cash versus non-cash items 2. GAAP 3. Time and costs
Assets can be categorized as:
1. Current and fixed assets 2. tangible and intangible assets
Depreciation is the accountant's estimate of the cost of _____________ used in the production process matched with the benefits produced from owning it.
1. Equipment 2. Fixed assets
Under GAAP, assets are generally carried on a firm's balance sheet at _________________.
1. Historical costs 2. Book value
Which of these questions can be answered by reviewing a firm's balance sheet?
1. How much debt is used to finance the firm? 2. What is the total amount of assets the firm owns?
Marginal tax rates are the most important tax rates because:
1. Incremental cash flows are taxed at marginal tax rates 2. Financial decisions are usually based on new cash flows
For a mature firm, operating cash flow:
1. Is usually positive 2. is a sign of trouble if negative over a long period of time
Non-cash items are expenses that directly affect _______________ but do not directly affect __________________.
1. Net income 2. Cash flow
Which of the following are components of cash flow from assets?
1. Operating cash flow 2. Change in net working capital 3. Capital spending
According to GAAP, when is revenue recognized on an income statement?
1. When the earnings process is virtually complete 2. When the value of an exchange of goods or services is known or reliably determined