Smartbook 2

Which of the following is a variable cost in the short run?

raw materials used in production

In the long-run, ___ are variable

all costs

Which one of these is a correct version of the balance sheet equation?

assets = liabilities + stockholders' equity

What is a primary concern for a bank lending funds to a business for the short term?

Liquidity

Why is positive net working capital important?

It means the firm should have sufficient cash to meet its current obligations

Assets can be described as items that:

a firm owns generate revenue provide market value to the firm

How is income defined?

revenue minus expenses

Under a flat-rate tax, all income levels are taxed at ___

the same marginal rate the same average rate

When a customer purchases an item on credit, the purchase amount is recorded by the seller in which one of these accounts?

accounts receivable

If a company paid $100 dividends, it additionally issued stocks for $10, and repurchased its own stocks for $25, what is the company's cash flow to stockholders?

$115 $100-10+25 = 115

Given the corporate tax rates of 15% on income from $0 to $50,000, 25% on income from $50,001 to $75,000, and 34% on income from $75,001 to $100,000, approximately how much tax would a company pay if it had taxable income of $90,000

$18,850 (.15)(50000)(.25)(25000) (.34)(90000,75000)

The cash flow identity reflects the fact that

a firm generates cash through its various activities cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders

The short run is ___

an imprecise period of time

The short run is a period where there are ___ costs

both fixed and variable

A long-term liability represents a(n) ___

debt that is not due in the coming year

Accounting profit ___ cash flow

differs from

Depreciation is the accountant's estimate of the cost of ___ used up in the production process

equipment

The matching principle of GAAP requires revenues be matched with ___

expenses

Costs that do not change in the short run arise because of ___

fixed commitments

Which of the following are period costs?

general expenses administrative expenses selling costs

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?

The purpose of a(n) ___ is to measure performance over a set period of time

income statement

The price at which willing buyers and sellers would trade is called ___ value

market

A positive operating cash flow indicates that the firm is generating enough cash to ___

pay operating costs

On a balance sheet, total assets must always equal total liabilities plus ___

shareholders' equity

The short run for a firm is the period of time during which ___

some costs are fixed output can vary

The cash flow identity states that cash flow from assets equals cash flows to ___

creditors and stockholders

If you make an extra $1,000 in income and your marginal tax rate is 30 percent while your average tax rate is 20 percent, then you will pay an extra ___ in taxes

$300

If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ___

$50

In March, Al's paid cash for a video game for the store's inventory. In April, it sold the game on credit. In May, Al's received payment for the sale. Based on matching principle, the expense should be recorded in ___ and the income should be reported in ___

April April

What does stockholders' equity represent?

a residual claim against the book value of the firm's assets (the book value of the firm's assets less the book value of its liabilities)

The statement of cash flow explains changes in ___

cash and equivalents

Rank the ease (from easiest to hardest) of turning the following assets into cash

cash equivalents accounts receivable inventory plant and equipment

Non-cash items do not affect ___

cash flow

What should you keep in mind when examining an income statement?

cash versus non-cash items time and costs GAAP

Net working capital plus current liabilities equal ___

current assets

Period costs are the costs that are allocated to a specific ___

interval of time

Which of the following will be found in the liabilities section of a firm's balance sheet?

notes payable long-term bonds issued by the firm

Assets are listed on a balance sheet in which order?

in order of decreasing liquidity

Liquidity refers to the ease of changing ___

assets to cash

Residual value is the amount left over after paying ___

bondholders other debt holders accounts payable

In finance, the value of a firm depends on its ability to generate ___

cash flows

Which of the following is true about the difference between the income statement and cash inflows and outflows?

cost of raw materials purchased on credit are accounts payable rather than cash outflows until they are paid, which may be in a different period sales on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS

Marginal tax rates are the most important tax rates because:

financial decisions are usually based on new cash flows incremental cash flows are taxed at marginal tax rates

Increasing its non-cash liquid assets will enable a firm to do which of the following?

increase its ability to meet short-term obligations increase its ability to avoid financial distress

The ___ tax rate is the tax rate paid on the next dollar of income

marginal

For financial decision-making purposes, the most important tax rate is the ___ tax rate

marginal Because financial decisions are based on new cash flows

Non-cash items are expenses that directly affect ___ but do not directly affect ___

net income cash flow

Which of the following are classified as liabilities on a firm's balance sheet?

notes payable accounts payable

What are two classifications of costs used by financial accountants?

product costs period costs

Which are true concerning product costs?

product costs contain both fixed and variable costs product costs are reported as costs of goods sold

Which of these are generally considered to be short-run fixed costs?

property taxes management salaries rent payments for a warehouse

Which of the following are examples of short-run fixed costs?

rent bond interest

An official accounting statement that helps to explain the change in cash and cash equivalents is called the ______

statement of cash flows

Which of the following are included in the fixed asset portion of a balance sheet?

trademarks buildings

If a firm's net working capital is $120 in 2014 and $100 in 2013, then the change in net working capital is:

+$20 $120-$100=20

What does GAAP stand for?

Generally Accepted Accounting Principles

The use of financial leverage can:

Increase the chance of financial distress and business failure Greatly magnify both gains and losses Increase the potential reward for investors

Which of the following are current assets?

account receivable inventory

Which of these items do NOT appear on a balance sheet?

favorable economic conditions knowledge that has no patent good management