FNAN 300 - Chapter 2

US corporations pay tax at a rate of ______ percent.

21

Current assets plus current liabilities equals net working capital. a. true b. false

b. false

On a balance sheet, total assets must always equal total liabilities plus: a. retained earnings b. shareholders' equity c. net working captial d. fixed assets

b. shareholders' equity

Physical assets are termed ___________ assets. a. intangible b. long-term c. tangible d. current

c. tangible

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 firm earned this period?

- What is the total amount of assets the firm owns? - How much debt is used to finance the firm?

The cash flow that results from the firm's day-to-day activities of producing and selling is called: a. cash flow to creditors b. operating cash flow c. new working capital d. cash flow from assets

b. operating cash flow

According to GAAP, when is income reported? a. whenever the firm decides to report it b. when it is earned or accrued c. when it is first anticipated d. when cash payment is received

b. when it is earned or accrued

Gino's Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners' equity? a. $36,900 b. $66,700 c. $71,600 d. $89,400 e. $106,300

c. $71,600

The more debt a firm has, the greater its: a. degree of operating leverage b. book value c. degree of financial leverage d. retained earnings

c. degree of financial leverage

The last item (or "bottom line") on the income statement is typically the ___________________. a. operating income b. gross income c. operating cash flow d. net income

d. net income

Cash flow refers to ___________. a. the sum of the number of dollars that came in and the number that went out b. only the cash that represents the closing balance of retained earnings c. only the cash that corresponds to the net income for the year d. the difference between the number of dollars that came in and the number that went out

d. the difference between the number of dollars that came in and the number that went out

Long-term liabilities are not due in the current year (from the date of the balance sheet). a. true b. false

a. true

Which of the following is NOT a component of cash flow from assets? a. change in net working capital b. operating cash flow c. financing expenses d. capital spending

c. financing expenses

Cash flow to creditors equals: a. stock repurchased plus interest paid b. interest plus dividends paid c. interest paid minus net new borrowing d. interest paid plus net new borrowing

c. interest paid minus net new borrowing

The price at which willing buyers and sellers would trade is called ___________________ value. a. carrying b. accounting c. market d. book

c. market

Which of the following are classified as fixed assets on the balance sheet? - cash - equipment - buildings - trademark

- equipment - buildings - trademark

For a mature firm, operating cash flow: - is a sign of trouble if negative over a long period of time - cannot be positive for long periods - is usually positive - is usually negative

- is a sign of trouble if negative over a long period of time - is usually positive

Assets can be categorized as (select all that are appropriate) - tangible and intangible assets - short-term and long-term quality - current and fixed assets - fixed and variable assets

- tangible and intangible assets - current and fixed assets

Non-cash items do not affect: a. cash flow b. earnings per share c. net income d. retained earnings

a. cash flow

Net capital spending is equal to the change in net fixed assets plus: a. depreciation b. dividends c. notes payable d. retained earnings

a. depreciation

When a firm smooths earnings to please investors, it is called _________________. a. earnings management b. fair market accounting c. discretionary reporting d. earnings smoothing

a. earnings management

The _______________ tax rate is the tax rate paid on the next dollar of income. a. marginal b. maximum c. average d. minimum

a. marginal

Free cash flow is also known as cash flow from assets. a. true b. false

a. true

Long-term liabilities represent obligations of the firm lasting over ____________. a. 6 months b. 1 year c. 1 month d. 90 days

b. 1 year

With the passage of the Tax Cuts and Job Acts of 2017, corporate tax rates went up. a. true b. false

b. false

Shareholders' equity is best defined as a. the residual value of a firm b. positive net working capital c. the net liquidity of a firm d. cash inflows minus cash outflows e. the cumulative profits of a firm over time

a. the residual value of a firm

Operating cash flow does not include depreciation or interest. a. true b. false

a. true

Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 35 percent. The firm paid out $23,400 in dividends. What is the addition to retained earnings? a. $36,909 b. $34,645 c. $44,141 d. $37,208 e. $40,615

b. $34,645

Current assets are defined as assets that can be turned into cash within _________________ months. a. six b. twelve c. eighteen d. twenty four

b. twelve

Current assets __________ current liabilities equals NWC.

minus

The balance sheet identity shows that stockholders' equity equals assets ____________ liabilities. a. times b. plus c. minus

c. minus

_______________ changes as the output of the firm changes. a. office rent b. fixed cost c. salary expense d. variable cost

d. variable costs

Cash flow to stockholders equals __________________. a. dividends paid plus net new equity raised b. net new equity raised minus dividends paid c. dividends paid minus net new equity raised d. stock repurchased plus dividends paid

c. dividends paid minus net new equity raised

Liquidity refers to the ease of changing a. cash in to other assets b. liabilities to assets c. cash to liabilities d. assets to cash

d. assets to cash

The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the net capital spending? a. −$22,360 b. −$4,780 c. $23,720 d. $58,340 e. $69,800

e. $69,800

Marcie's has sales of $179,600,depreciation of $14,900, costs of goods sold of $138,200, and other costs of $28,400. The tax rate is 35 percent. What is the net income? a. −$1,235 b. $382 c. $1,204 d. $14,660 e. $13,665

a. -$1,235

The short run is a period when there are __________ costs. a. both fixed and variable b. only variable costs c. only cash d. only fixed costs

a. both fixed and variable

A positive operating cash flow indicated that the firm is generating enough cash to: a. pay everyday expenses b. create valuable projects c. pay out a dividend d. repurchase stock

a. pay everyday cash outflows

Changes in capital spending can be negative if a. the firm brought and sold the same amount of assets b. the firm sold more fixed assets than it purchased c. the firm brought more assets than it sold

b. the firm sold more fixed assets than it purchased

Financial leverage refers to a firm's a. net working capital b. use of debit in its capital structure c. organizational structure

b. use of debit in its capital structure

Costs that do not change in the short run arise because of ________________. a. variable commitments b. unfunded commitments c. unknown future events d. fixed commitments

d. fixed commitments

Free cash flow is better described as _______________. a. non-cash expenses b. fixed asset investments c. cash balance after tax payment d. total distributable cash flow

d. total distributable cash flow

According to GAAP, when is revenue recognized on an income statement? - after the related expenses are paid in full - when the earning process is virtually completed - when the value of an exchange of goods or services is known or reliably determined - only when cash has been received for the sale

- when the earning process is virtually completed - when the value of an exchange of goods or services is known or reliably determined

Which of the following are components of cash flow from assets? - net new equity - operating cash flow - net new borrowing - capital spending - change in net working capital

- operating cash flow - capital spending - change in net working capital

Which one of these is considered to be the most liquid? a. equipment and machines b. land c. inventory d. accounts receivable

d. accounts receivable

Which of the following is an example of a non-cash item on an income statement? a. costs b. retained earnings c. dividends d. depreciation

d. depreciation

Suzette's Market had long-term debt of $638,100 at the beginning of the year compared to $574,600 at year-end. If the interest expense was $42,300, what was the firm's cash flow to creditors? a. $21,200 b. $26,700 c. $54,900 d. $102,400 e. $105,800

e. $105,800

Use the following tax table to answer this question: Taxable Income Tax Rate$0-9,525 10% 9,525-38,700 12 38,700-82,500 22 82,500-157,500 24 157,500-200,000 32 200,000-500,000 35 500,000+ 37 Andrews Dried Fruit, LLC has taxable income of $630,000. How much does it owe in taxes? a. $141,750 b. $154,800 c. $198,790 d. $$220,500 e. $$233,100

c. $198,790

A balance sheet reflects a firm's: a. income at a specific time b. economic value over a specified time period c. accounting value on a specific date d. earnings per share over an unspecified time

c. accounting value on a specific date

In finance, the value of a firm depends on its ability to generate ____________. a. net income b. earnings per share c. cash flow d. net working capital

c. cash flow

Which on of the following is an intangible fixed asset? a. inventory b. machinery c. copyright d. account receivable e. building

c. copyright

Net earnings refers to income earned _______________. a. after interest and taxes b. net of operating and administrative costs c. prior to taxes d. before interest and taxes

a. after interest and taxes

In the long-run, costs may be considered as _______________. a. all variable b. some fixe and some variable c. all fixed

a. all variable

Liquidity has two dimensions which are the ability to: a. quickly convert assets into cash without significant loss in value b. convert assets into cash so that value is maximized c. quickly convert assets into cash regardless of loss in value

a. quickly convert assets into cash without significant loss in value

Earnings management is a controversial practice in which corporations ______________ or _______________ their earnings to "smooth out" dips and surges and keep investors calm. a. lie; fudge b. overstate; inflate c. overstate; understate d. change; don't change

c. overstate; understate

The market value of an item is: a. its appraised value b. the amount recorded in the balance sheet it c. the cash value you'd get if you sold it d. the amount you paid it

c. the cash value you'd get if you sold it

How is the average income tax rate computed? a. total taxes paid over the last five years/5 b. last dollar of income earned / amount of tax paid on that dollar of income c. total tax bill / taxable income d. total taxable income / marginal tax rate

c. total tax bill / taxable income

Neiger Flours owes $9,741 in taxes on taxable income of $61,509. If the firm earns $100 more in income, it will owe an additional $22 in taxes. What is the average tax rate on income of $61,609? a. 15.00 percent b. 30.33 percent c. 33.33 percent d. 35.00 percent e. 15.85 percent

e. 15.85 percent

Wes Motors has total assets of $98,300, net working capital of $11,300, owners' equity of $41,600, and long-term debt of $38,600. What is the value of the current assets? a. $21,600 b. $18,100 c. $28,900 d. $29,400 e. $6,800

d. $29,400