Finance 300: Chapter 2

According to the originators of the current U.S. corporate tax code, the only rates are: (Select all that apply) A.) 34% B.) 35% C.) 40% D.) 25% E.) 15%

A.) 34% B.)35% D.) 25% E.) 15%

What does stockholders equity represent? A.) A residual claim against the firms assets B.) A residual claim against the firm liabilities C.) A fixed claim against the firms assets D.) A fixed claim against the firms liabilites

A.) A residual claim against the firms assets

Which of the following is shown on the left hand side of the balance sheet? A.) Liabilities B.) Stockholders equity C.) Assets

C.) Assets

The more debt a firm has, the greater its: A.) Degree of financial leverage B.) Book value C.) Degree of operating leverage D.) Retained earnings

C.) Degree of operating leverage.

Liquidity refers to the ease of changing A.) Cash into liabilities B.) Assets to cash C.) Cash into other assets D.) Liabilities to assets

b.) Assets to cash

If a firms current assets are $100 and its current liabilities are $80, then its networking capital is: A.) 80 B.) 20 C.) -20 D.) 100

B.) $20

Net Working Capital Equals A.) Current assets minus current liabilities B.) Current liabilities minus current assets C.) Total assets minus total liabilities D.) Fixed assets minus long-term liabilities

A.) Current assets minus current liabilities.

Physical assets are termed ______ assets. A.) Current B.) Intangible C.) Long-term D.) tangible

C.) Tangible

What is the purpose of the income statement? A.) To show the accumulation of assets and liabilities B.) To identify the cash inflows and outlflows C.) To measure performance over a set period of time. D.) To identify the amount of cash spent on various expenses.

C.) To measure performance over a set period of time.

Assets can be categorized as: A.) Tangible and Intangible B.) Fixed and variable C.) Current and Fixed D.) Short-term and Long-term

A.) Tangible and Intangible C.) Current and Fixed

What should you keep in mind when examining an income statement? (Select all that apply) A.) time and costs B.) Asset composition C.) Cash versus non-cash items D.) GAAP

A.) Time and Costs C.) Cash versus non-cash items D.) GAAP

A balance sheet reflects a firm's: A.) Income over a specific time period B.) Account value on a specific date C.) Economic value at a specific time D.) Earnings per share over an unspecified time.

B.) Accounting value on a specific date

In the long-run, costs may be considered as _____. A.) Some fixed and some variable B.) All variable C.) All fixed

B.) All variable

Under GAAP, assets are generally carried on a firms balance sheet at ______. (Select all that apply) A.) Market Value B.) Book value C.) Salvage Value D.) Historical Cost

B.) Book value D.) Historical cost

For a mature firm, operating cash flow: A.) is usually negative B.) Is usually positive C.) Cannot be positive for long periods D.) Is a sign of trouble if negative over a long period of time.

B.) Is usually positive D.) Is a sign of trouble if negative over a long period of time

A positive operating cash flow indicates that the firm is generating enough cash to: A.) Repurchase stock B.) Pay operating costs C.) Create valuable projects D.) Pay out a dividend

B.) Pay operating costs

When is revenue recognized on an income statement? (Select all that apply) A.) After the related expenses are paid in full B.) When the exchange of goods and services is completed C.) When the earnings process is virtually completed D.) When cash has been received for sale

B.) When the exchange of goods or services is completed C.) When the earnings process is virtually completed.

Depreciation is the accountants estimate of the cost of _____ used in the production process matched with the benefits produced from owning it. (Select all that apply) A.) Cash B.) Inventory C.) Fixed assets D.) Equipment

C.) Fixed assets D.) Equipment

On a balance sheet, total assets must always equal total liabilities plus: A.) retained earnings B.) fixed assets C.) shareholders equity D.) net working capital

C.) Shareholders equity

Cash flow to creditors equals: A.) Stock repurchased plus interest paid B.) Interest paid plus net new borrowing C.) Interest plus dividends paid D.) Interest paid minus net new borrowing

D.) Interest paid minus net borrowing

The last line or (bottom line) of the income statement is typically A.) Operating Cash Flow B.) Operating Income C.) Gross Income D.) Net Income

D.) Net Income

The price at which buyers and sellers would trade is called ____ value. A.) Carrying B.) Book C.) Accounting D.) Market

D.) Market

Which of the following is an example of a non-cash item shown on an income statement? A.) Costs B.) Dividends C.) Depreciation D.) Retained Earnings

C.) Depreciation

Marginal tax rates are the most important tax rates because: (Select all that apply) A.) Incremental cash flows are taxed at marginal tax rates B.) Financial decisions are usually based on pervious changes in cash flows C.) Financial decisions are usually based on new cash flows. D.) Because the IRS says so

A.) Incremental cash flows are taxed at marginal tax rates. C.) Financial decisions are usually based on new cash flows.

For financial decision-making purposes, the most important tax rate is the _____ tax rate. A.) Marginal B.) Flat C.) Fair D.) Average

A.) Marginal

What are two ways in which financial accountants usually classify costs? (Select all that apply) A.) Period Costs B.) Product costs C.) Variable costs D.) Fixed costs

A.) Period costs B.) Product costs

If you make an extra $1000 in income and your marginal tax rate is 30% while your average tax rate is 20%, then you will pay _____ in taxes on this extra income. A.) $250 B.) $300 C.) $200 D.) $100

B.) $300

Which of the following are components of cash flow from Assets? (Select all that apply) A.) Net new borrowing B.) Capital Spending C.) Net new equity D.) Change in net working capital E.) Operating Cash Flow

B.) Capital Spending D.) Change in net working capital E.) Operating cash flow

Liquidity has two dimensions which are the ability to: A.) Quickly convert assets into cash regardless of loss in value B.) Quickly convert assets into cash without significant loss in value C.) Convert assets into cash so that value is maximized.

B.) Quickly convert assets into cash without significant loss in value.

Rank the ease (from easiest to hardest) of turning the following assets into cash. Plant and equipment Cash equivalents Accounts receivable Inventory

Cash equivalents Accounts receivable Inventory Plant and equipment