Chapter 2: Financial Statements, Taxes, and Cash Flow
U.S. corporations pay tax at a rate of ___ percent.
21
Which of the following is the balance sheet equation?
Assets equal liabilities plus stockholders' equity.
True or false: Current assets plus current liabilities equals net working capital.
False
The balance sheet identity shows that stockholders' equity equals assets Blank______ liabilities.
minus
The last item (or "bottom line") on the income statement is typically the Blank______.
net income
Which of the following are components of cash flow from assets? -net new borrowing -net new equity -operating cash flow -capital spending -change in net working capital
operating cash flow capital spending change in net working capital
Earnings management is a controversial practice in which corporations Blank______ or Blank______ 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.
On a balance sheet, total assets must always equal total liabilities plus:
shareholder's equity
Physical assets are termed ______ assets.
tangible
Assets can be categorized as:
tangible and intangible assets. current and fixed assets.
The market value of an item is:
that cash value you'd get if you sold it
Cash flow refers to Blank______.
the difference between the number of dollars that came in and the number that went out
How is the average income tax rate computed?
total tax bill/total taxable income
Financial leverage refers to a firm's Blank______.
use of debt in its capital structure
According to GAAP, when is income reported?
when it is earned or accrued
According to GAAP, when is revenue recognized on an income statement?
when the value of an exchange of goods or services is known or reliably determined when the earnings process is virtually completed
Which of these questions can be answered by reviewing a firm's balance sheet? -what is the total amount of assets the firm owns? -how much debt is used to finance the firm? -how much of the firm's net income was paid out in dividends? -how much net income has the fir earned this period?
What is the total amount of assets the firm owns? How much debt is used to finance the firm?
A balance sheet reflects a firm's:
accounting value on a specific date
Net income refers to income earned Blank______.
after interest and taxes
The short run is Blank______.
an imprecise period of time
Liquidity refers to the ease of changing Blank______.
assets to cash
A company's Blank______ tax rate is its tax bill divided by its total taxable income, and its Blank______ 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 Blank______ costs.
both fixed and variable
Which of the following are components of cash flow from assets?
capital spending change in net working capital operating cash flow
Non-cash items do not affect:
cash flow
In finance, the value of a firm depends on its ability to generate Blank______.
cash flows
The more debt a firm has, the greater its:
degree of financial leverage
Which of the following is an example of a non-cash item on an income statement?
depreciation
Cash flow to stockholders equals Blank______.
dividends paid minus net new equity raised
When a firm smooths earnings to please investors, it is called Blank______.
earnings management
True or false: With the passage of the Tax Cuts and Jobs Act of 2017, corporate tax rates went up. True false question.
false
Which of the following is not a component of cash flow from assets? -change in net working capital -operating cash flow -capital spending -financing expenses
financing expenses
Cash flow to creditors equals:
interest paid minus net new borrowing.
The price at which willing buyers and sellers would trade is called Blank______ value.
market
Current assets ___ (plus/minus) current liabilities equals NWC.
minus
