Chapter 2
lowers taxes
Depreciation does which of the following for a profitable firm?
tangible fixed assets
delivery trucks are classified as:
may be continually increasing in size
if a firm has a negative cash flow from assets every year for several years, the firm:
ending NFA - beginning NFA + depreciation
net capital spending =
current asses - current liabilities
net working capital:
the cash that a firm generates from its normal business activities
operating cash flow is defined as:
balance sheet
the financial statement that summarizes a firm's accounting value as of a particular date is:
is equal to the estimated current cash value of those assets
the market value of a firm's fixed assets:
the costs of producing an item should be recorded when the sale of that item is recorded as revenue
the matching principle states that:
sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined
the recognition principle states that:
increase in depreciation
what of the following will increase the cash flow from assets for a tax paying firm
copyright
which is an intangible fixed asset?
reputation of the firm
which is included in the market value of a firm but not in the book value
the market value tends to provide a better guide to the actual worth of an asset than does the book value
which of the following concerning market and book values is correct?
the earnings process is virtually complete the value of a sale can be reliably determined
which of the following determine when revenue is recorded on the financial statements based on the recognition principle?
cash flow from assets
which of the following has nearly the same meaning as free cash flow?
increase in accounts payable
an increase in which of the following will decrease owners' equity?
revenue
an increase in which of the following will increase net income?
depreciation
an increase in which of the following will increase operating cash flow for a profitable, tax paying firm?
positive cash flow from assets
which of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period
paid in surplus
which of the following is an equity account?
the market value is the expected selling price in today's economy
which of the following is correct concerning a firm's fixed assets?
shareholder's equity is the residual value of a firm
which of the following is correct?
average tax rate
which of the following is defined as the total tax paid divided by the total taxable income?
accounts payable
which of the following is included in net working capital?
marginal tax rate
which of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?
Net income is distributed either to dividends or retained earnings
which of the following related to the income statement is correct?
increase in current liabilities with no change in current assets for the period
which of the following relates to a negative change in net working capital
assets are listed in descending order of liquidity
which of the following statements concerning the balance sheet is correct?
making a payment on a long term debt
which of the following will decrease the NWC of a firm?
cash purchase of inventory
which of the following will decrease the liquidity level of a firm?
sale of a fixed asset
which of the following will increase cash flow from assets but not affect the operating cash flow?
noncash item
which one of the following decreases net income but does not affect the operating cash flow of a firm which owes no taxes for the current year?
invoice from a supplier for inventory purchased
which one of the following is included in net working capital?
can be sold quickly at close to full value
highly liquid assets
records expenses based on the matching principle
an income statement prepared according to GAAP
had to decrease
Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:
positive cash flow to stockholders
Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which of the following assuming that no new shares were issued?
received more from selling stock than it paid out to shareholders
a negative cash flow to stockholders indicates a firm:
OCF - change in NWC - NCS
cash flow from assets is defined as:
beginning long term debt - ending long term debt + interest paid
cash flow to creditors =
interest paid - net new borrowing
cash flow to creditors:
dividends paid - net new equity raised
cash flow to stockholders
Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes.
example of marginal taxation:
increases the potential return to the shareholders
financial leverage:
can still manipulate their earnings to some degree
firms that compile financial statements according to GAAP:
net fixed assets - long term debt + net working capital
shareholder's equity =
income statement
the accounting statement which measures the revenues, expenses, and net income of a firm over a period of time:
modified flat tax rate
the corporate tax structure in the U.S. is based on a:
