Finance 450
Which of the following are classified as liabilities on the firm's balance sheet?
-Long-term debt -Accounts Payable
Which of the following is an example of a non-cash item on an income statement? -depreciation -costs -dividends -retained earnings
Depreciation
What should you keep in mind when examining an income statement?
Gaap, cash versus non-cash items, time and costs
For financial decision-making purposes, the most important tax rate is the ___ tax rate
Marginal
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
The last item on the income statement is typically the?
Net income
Cash flow to stockholders equals _____
dividends paid minus net new equity raised
Costs that do not change in the short run arise because of _____
fixed commitments
Which of the following is a current asset?
inventory
For a mature operating cash flow:
it is a sign of trouble if negative over a long period of time and is usually positive
On the balance sheet, assets are listed at their _____ value
market
The price at which willing buyers and sellers would trade is called _____ value
market
Non-cash items are expenses that directly affect _____ but do not directly affect ______
net income; cash flow
A primary reason that accounting income differs from cash flow is that an income statement contains _______
noncash items
What is Liquidity?
the speed and ease with which an asset can be converted to cash
Common stockholders are entitled to the difference between _____ and _____
total assets ; total liabilities
If dividends are $100, stock sold is $10, and stock repurchased is $25, what is the cash flow to stockholders?
$115
If a firm's current assets are $100 and its current liabilities are $80, then its net working capital is:
$20
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 (100-60+10)
If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:
-$50
What are components of cash flow from assets?
-Change in net working capital -Capital spending -Operating cash flow
What are the components of cash flow from assets?
-Change in net working capital -Operating cash flow -Capital spending
Which of the following are classified as fixed assets on the balance sheet?
-Equipment -Buildings -Trademark
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
According to GAAP, when is revenue recognized on an income statement?
-When the earnings process is virtually completed and when the value of an exchange of goods or services is known or reliably determined.
Non-cash items are ______ that _____ cash flow.
-expenses; do not directly affect
Marginal tax rates are the most important tax rates because:
-financial decisions are usually based on new cash flows -incremental cash flows are taxed at marginal tax rates
Long-term liabilities represent obligations of the firm lasting over _____
1 year
Rank the ease of turning the following assets into
1. Cash equivalents 2. accounts receivable 3. Inventory 4. Plant and equipment
According to the originators of the current U.S. corporate tax code, the only rates are:
15%, 25%, 34%, 35%
What does stockholders' equity represent?
A residual claim against the firm's assets
A customer has yet to pay the bill for products purchased on credit. The customer's trade credit is recorded in which balance sheet account?
Accounts receivable
Net working capital will be negative when current assets _____ current liabilities
Are less than
liquidity refers to the ease of changing ____ to _____
Assets to cash
Product costs are usually shown on the income statement under the heading of _______
COGS
In finance, the value of a firm depends on its ability to generate _____
Cash flows
When a firm smooths earning to please investors, it is called?
Earnings management
depreciation is the accountant's estimate of the cost of _____ used in production process matched with the benefits produced from owning it
Equipment and fixed assets
What does GAAP stand for?
Generally Accepted Accounting Principles
Physical assets are termed ______ assets?
Tangible
What is the purpose of the income statement?
To measure performance over a set period of time
Free cash flow is better described as?
Total distributable cash flow
How is the average income tax rate computed?
Total tax bill / Total taxable income
(T/F) Free cash flow is very similar to cash flow from assets
True
T or F: Operating cash flow does not include depreciation or interest?
True
Current assets ______ exceed current liabilities in a healthy firm
Usually
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
In the long-run, costs may be considered as ________
all variable
The cash flow identity states that the cash flow from _____ should equal cash flows to creditors and equity investors
assets
Under GAAP, assets are generally carried on a firm's balance sheet at ______
book value and historical cost
The more debt a firm has the greater its?
degree of financial leverage
Changes in capital spending can be negative if?
the firm sold more assets than it purchased
On which side of the balance sheet do liabilities appear?
the right side
