FIN306 Ch. 2

All else equal, an increase in which one of the following will decrease owners' equity?

increase in accounts payable

Which one of the following relates to a negative change in net working capital?

increase in current liabilities with no change in current assets for the period

Financial leverage:

increases the potential return to the shareholders

Cash flow to creditors is defined as:

interest paid minus net new borrowing

Depreciation does which one of the following for a profitable firm?

lowers taxes

If a firm has a negative cash flow from assets every year for several years, the firm:

may be continually increasing in size

The corporate tax structure in the U.S. is based on a:

modified flat-rate tax

Shareholders' equity is equal to:

net fixed assets minus long-term debt plus net working capital

Which one of the following statements related to the income statement is correct?

net income is distributed either to dividends or retained earnings

Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?

non cash item

Cash flow from assets is defined as:

operating cash flow minus the change in net working capital minus net capital spending

Which one of the following is an equity account?

paid-in surplus

Which one of the following statements concerning the balance sheet is correct?

assets are listed in descending order of liquidity

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

average tax rate

The financial statement that summarizes a firm's accounting value as of a particular date is called the:

balance sheet

Cash flow to creditors is equal to:

beginning long-term debt minus ending long-term debt plus interest pai

Which one of the following is included in net working capital?

invoice from a supplier for inventory purshased

The market value of a firm's fixed assets:

is equal to the estimated current cash value of those assets

Which one of the following will decrease the net working capital of a firm?

making a payment on a long-term debt

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?

positive cash flow from assets

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 one of the following assuming that no new shares were issued?

positive cash flow to stockholders

Which one of the following statements is correct concerning a firm's fixed assets?

the market value is the expected selling price in today's economy

Which one of the following statements concerning market and book values is correct?

the market value tends to provide a better guide to the actual worth of an asset than does the book value

Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant?

an increase in depreciation

Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle? I. Payment is collected for the sale of a good or service. II. The earnings process is virtually complete. III. The value of a sale can be reliably determined. IV. The product is physically delivered to the buyer.

II and III only

Which one of the following is included in net working capital?

accounts payable

Highly liquid assets:

can be sold quickly at close to full value

Firms that compile financial statements according to GAAP:

can still manipulate their earnings to some degree

Which one of the following has nearly the same meaning as free cash flow?

cash flow from assets

Which one of the following will decrease the liquidity level of a firm?

cash purchase of inventory

Which one of the following is an intangible fixed asset?

copyright

Net working capital is defined as:

current assets minus current liabilities

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease

A negative cash flow to stockholders indicates a firm:

received more from selling stock that it paid out to shareholders

An income statement prepared according to GAAP:

records expenses based on the matching principle

Which one of the following is included in the market value of a firm but not in the book value?

reputation of the firm

An increase in which one of the following will increase net income?

revenue

Which one of the following will increase cash flow from assets but not affect the operating cash flow?

sales of a fixed asset

The recognition principle states that:

sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined

Which one of the following statements is correct?

shareholders' equity is the residual value of a firm

Delivery trucks are classified as:

tangible fixed assets

Operating cash flow is defined as:

the cash that a firm generates from its normal business activities

The matching principle states that:

the costs of producing an item should be recorded when the sale of that item is recorded as revenue

The concept of marginal taxation is best exemplified by which one of the following?

Mitchell's Grocer increased sales by $52,000 last year and had to pay an additional $16,000 in taxes

An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?

depreciation

Cash flow to stockholders is defined as:

dividend paid minus net new equity raised

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the:

income statement

Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?

marginal tax rate