Chapter 2 - Financial Statements, Taxes, and Cash Flow
Physical assets are termed ______________ assets.
tangible
The market value of an item is:
the cash value you'd get if you sold it
Cash flow refers to _____.
the difference between the number of dollars that came in and the number that went out
Which of the following is an example of a non-cash item on an income statement?
depreciation
Cash flow to creditors equals:
interest paid minus net new borrowing
According to the current U.S. corporate tax code, the corporate tax rate in effect for 2019 is:
21%
Which of the following is the balance sheet equation?
Assets equal liabilities plus stockholders' equity.
Which of the following is NOT a component of cash flow from assets?
Financing expenses
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?
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
A balance sheet reflects a firm's:
accounting value on a specific date
Net earnings refers to income earned ______.
after interest and taxes
In the long-run, costs may be considered as ________.
all variable
The short run is ______.
an imprecise period of time
Non-cash items do not affect:
cash flow
Tax rates for propietorships, partnerships, and LLCs __________ with the passage of the Tax Cuts and Jobs Act of 2017.
changed
Assets can be categorized as (select all that are appropriate)
current and fixed, tangible and intangible
The price at which willing buyers and sellers would trade is called ______ value.
market
Current assets _____ (plus/minus) current liabilities equals NWC.
minus
The balance sheet identity shows that stockholders' equity equals assets ______ liabilities.
minus
The last item (or "bottom line") on the income statement is typically the _________.
net income
According to GAAP, 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 is known or reliably determined
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 short run is a period when there are ______ costs.
both fixed and variable
In finance, the value of a firm depends on its ability to generate ______.
cash flows
When a firm smooths earnings to please investors, it is called ________.
earnings management
True or false: Current assets plus current liabilities equals net working capital.
false
Financial leverage refers to a firm's _________.
use of debt in its capital structure
Cash flow to stockholders equals ____.
dividends paid minus net new equity raised
The more debt a firm has, the greater its:
degree of financial leverage
Which of the following are components of cash flow from assets?
Operating cash flow, Capital spending, Change in net working capital
Liquidity refers to the ease of changing _____.
assets to cash
Earnings management is a controversial practice in which corporations ________ or ___________ their earnings to "smooth out" dips and surges and keep investors calm.
overstate; understate
Liquidity has two dimensions which are the ability to:
quickly convert assets into cash without significant loss in value
