FINC 3210 CH 2

According to the originators of the U.S. corporate tax code, the only rates are:

35%, 15%, 34%, and 25%

What does stockholders' equity represent?

A residual claim against the firm's assets.

A balance sheet reflects a firms

Accounting value on a specific date

Shareholders' equity equals_____.

Assets minus liabilities

On the balance sheet, assets are listed as their_____ value.

Book

Under GAAP, assets are generally carried on a firm's balance sheet at

Book value and Historical cost

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

Cash Flows

Which of the following is true?

Cash flows can be derived from financial statements

Product costs are usually shown on the income statement under the heading of _____.

Cost of goods sold

The GAAP matching principle requires revenues to be matched with:

Expenses

T or F for financial analists, financial statements and accounting numbers are more important than cash flows

False

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

Fixed commitments

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

GAAP, Cash versus non-cash items, time and costs.

What does GAAP stand for?

Generally Accepted Accounting Principles

The purpose of an _____ is to measure performance over a set period of time.

Income Statement

Period costs are the costs that are allocated to a specific ____.

Interval of time

Which of the following are classified as liabilities on a firms balance sheet?

Long-term debt and Accounts Payable

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

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

Patents, Trademarks, and Buildings

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

Plus depreciation

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

Product costs and Period costs

Changed in capital spending can be negative if

The firm sold more assets than it purchased

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

The firm's actual cash flows

What is the purpose of the income statement?

To measure performance over a set period of time.

T or F: Operating cash flow does not include depreciation or interest

True

______ cost change as the output of the firm changes.

Variable

According to GAAP, when is income reported?

When it is earned or accrued.

When is revenue recognized on an income statement?

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

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

depreciation

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

earnings management