SB 2

Which of the following are fixed assets?

Buildings Plant Land

If you think of the balance sheets as a snapshot, then the _____ can be thought of as a video covering the period between before and after pictures.

income statement

The fact that the balance sheets are listed at _____ means that there is no necessary connection between the total assets and the value of the firm.

at cost

Cash flow to_______ is interest paid less net new borrowing.

creditors

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

creditors and stockholders

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

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

less than Changes in capital spending can be negative when the acquisition of fixed assets is less than the sale of fixed assets. The formula is: Capital spending = Acquisition of fixed assets - sale of fixed assets.

An income statement reflects activity that occurs _____ while a balance sheet reflects values ____.

over a period of time; as of a specific date

Which of the following will be found in the liabilities section of a firm's balance sheet?

Long-term bonds issued by the firm Notes payable

Noncash items do not affect _____.

cash flow

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

cash flows

The matching principle of GAAP requires revenues be matched with _____.

expenses

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

Buildings Trademarks

Which of the following do not directly affect cash flow?

Depreciation

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

Notes payable Accounts payable

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

net income; cash flow

In the long run, all costs are

variable

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?

For financial managers, the accounting value of the stock is not an especially important concern; it is the____ value that matters.

market

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.)

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

Accounts receivable

Which of the following are period costs?

Administrative expenses General expenses Selling costs

Which of the following are examples of short-run fixed costs?

Bond interest Rent

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

Capital spending = Ending net fixed assets - beginning net fixed assets + depreciation.

Which one of the following is true?

Cash flows can be derived from financial statements.

Which of the following are examples of noncash items on an income statement?

Depreciation

For financial analysis, financial statements and accounting numbers are more important than cash flows.

False

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

GAAP cash versus noncash items time and costs

How are assets on a balance sheet listed?

In order of decreasing liquidity

Which of the following is true about the difference between the income statement and cash inflows and outflows?

Income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS. Sales on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period. 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.

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.

Which of the following is a current asset?

Inventory

Why is positive net working capital important?

It means the firm should have sufficient cash to meet its current obligations.

Which of these items do NOT appear on a balance sheet?

Knowledge that has no patent Favorable economic conditions Good management

Which of the following are fixed assets?

Land Buildings Plant

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

Management salaries Rent payments for a warehouse Property taxes

Which are true concerning product costs?

Product costs are reported as costs of goods sold. Product costs contain both fixed and variable costs.

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

Raw materials used in production.

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

Shareholders

Which is true of taxes?

They can be one of the largest cash outflows a firm experiences.

How is the average income tax rate computed?

Total tax bill/Total taxable income

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 value of an exchange of goods or services can be reliably determined

What does a balance sheet reflect about a firm?

accounting value on a specific date

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

accounts payable

The cash flow identity states that cash flows from ______ should equal cash flows to creditors and equity investors.

assets

Which one of the following represents what a firm owns at a given point in time?

assets

Residual value is the amount left over after paying ________________.

bondholders accounts payable other debt holders

On the balance sheet, assets are listed at their _____ value.

book

The statement of cash flow explains changes in _____.

cash and equivalents

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

cash equivalent accounts receivable inventory plant

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

Accounting profit ____ cash flow.

differs from

Cash flow to stockholders equals ____.

dividends paid minus net new equity raised

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

equipment

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

fixed

Which one of these is the most illiquid?

fixed assets

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

fixed commitments

The shareholders are the _____ in line to receive payment when a firm is forced to sell assets to pay off debt.

last

Holding too many liquid assets can be harmful for a firm because such assets are generally _____.

less profitable

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 one of the following complies with GAAP?

matching revenues with expenses

A company's _____ cash flows reflect whether its cash flows from business operations can cover its everyday cash outflows.

operating

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

operating cash flow

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

product

Accountants usually distinguish between _____ costs and _____ costs.

product; period

Assets can be described as items that _____.

provide market value to the firm a firm owns generate revenue

In general, revenue should be recognized at the time of_____ , which is not necessarily the same time as the money is collected.

sale

The last (residual) claimants to be paid by a firm are the ______.

stockholders

hen looking at the income statement, the financial manager should keep in mind GAAP, cash versus noncash items, and _ and costs.

time

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

working capital

If a firm's net working capital goes from $150 in 2020 to $130 in 2021, then the change in net working capital is:

−$20

If you make an extra $1,000 in income and your marginal tax rate is 30 percent while your average tax rate is 20 percent, then you will pay an extra ______ in taxes.

$300

The use of financial leverage can:

- greatly magnify both gains and losses - increase the potential reward for investors - increase the chance of financial distress and business failure

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.

If you earn an extra $100 of taxable income this year and owe taxes of $34 on that income, then your marginal tax rate is _____ percent.

34

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

50

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

A bank is primarily concerned with whether the firm will pay back the loan; thus liquidity is most important.

What is depreciation?

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

Increasing its noncash liquid assets will enable a firm to do which of the following?

Increase its ability to meet short-term obligations Increase its ability to avoid financial distress

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

True

Which one of these is considered to be the most liquid?

accounts recievable

net income refers to money earned

after interest and taxes

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

income statement

A decrease in depreciation expense ______ earnings per share.

increases

Book value of assets is generally:

not what the assets are actually worth

The difference between the total assets and total liabilities is shareholders' or ______ equity.

owners

Free cash flow is better described as ____.

total distributable cash flow