Financial Statements, Taxes, and Cash Flow

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A balance sheet is a financial statement that:

reflects a firm’s accounting value on a particular date.

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A current asset is defined as an asset that:

normally converts to cash within one year

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A fixed asset by definition:

has a relatively long life.

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A tangible asset:

s a fixed asset with a physical existence.

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An intangible asset is a:

valuable fixed asset that has no physical existence.

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Shareholders’ equity can be defined as

the residual value of a corporation after all debts have been paid.

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Net working capital is defined as the:

difference between a firm’s current assets and its current liabilities.

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Liquidity is best defined as the:

ease and speed with which an asset can be converted to cash.

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Generally Accepted Accounting Principles (GAAP)

are a common set of procedures and standards for preparing audited financial statements.

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An income statement is a financial statement that:

reflects a firm’s performance over a period of time

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Earnings per share represent the:

amount of net income attributable to each share of stock

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A noncash item is defined as:

an expense charged against revenues that does not affect the cash flow of a firm.

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The average tax rate is defined as the

total tax paid divided by the total taxable income

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The marginal tax rate is defined as the

amount of tax payable on the next taxable dollar earned

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The cash generated from a firm’s normal business activities is referred to as the:

operating cash flow.

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The cash flow from assets can be defined as the

cash available to distribute to the creditors and to the stockholders.

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The net amount of a firm’s cash flows that are spent on fixed assets is called:

net capital spending.

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Free cash flow is another term for the:

cash flow from assets.

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Cash flow to creditors is defined as

interest paid minus net new borrowing

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The amount of the dividends paid minus the net new equity raised is called the:

cash flow to stockholders

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Which one of the following is a current asset?

inventory

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Which one of the following statements is correct concerning fixed assets?

The book value of most fixed assets decreases over time

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Tangible assets

are assets that can be physically touched, such as a computer.

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Intangible assets: I. include trademarks. II. are generally classified as current assets. III. provide no value to a firm. IV. generally have a life of one year or more.

I and IV only

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Which one of the following debts is a current liability?

bill payable to a supplier for the purchase of inventory for resale

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Long-term debt can be computed by:

adding net working capital to total fixed assets and then subtracting owners’ equity.

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Shareholders’ equity includes which of the following? I. paid in surplus II. bonds payable III. common stock IV. retained earnings

I, III, and IV only

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Which of these accounts are included in net working capital? I. accounts payable II. bonds payable III. equipment IV. cash

I and IV only

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

selling shares in the company and using the funds to increase the inventory level

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30. Which of the following will increase the liquidity level of a firm? I. the purchase of inventory for cash II. the sale of inventory on credit III. the sale of inventory for cash IV. the collection of accounts receivable

II, III, and IV only

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Holding highly liquid assets:

tends to reduce the potential profits as compared to holding less liquid assets.

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The greater the degree of financial leverage employed by a firm, the:

greater the level of debt

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Financial leverage:

when overextended greatly magnifies the possibility that a firm will become bankrupt.

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Mark is trying to determine the amount of cash he will receive should he sell all of his firm’s assets. Which asset value should Mark use to estimate this potential cash inflow?

market value

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The market value of land is equal to the:

anticipated selling price if the land were sold today.

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The book value of an asset is equal to the:

initial cost minus the depreciation to date.

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An income statement

reflects the income of a firm based upon the accounting methods employed.

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All else constant, the net income, as computed in the income statement, will increase when:

the tax rate decreases

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Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle? I. when payment is collected for the sale of a good or service II. when the earnings process is virtually completed III. when

II and III only

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Which one of the following is a noncash item?

annual depreciation on a fixed asset

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Angie is analyzing the potential income and cash flows which she might realize if she adds a new product to her sales lineup. The tax rate relevant to this analysis is the:

marginal tax rate.

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Which one of the following best exemplifies the concept of a marginal tax rate?

As the result of opening a new store, the Jones Co. had to pay an additional $1.2 million in taxes.

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Which one of the following will increase the cash flow from assets, all else constant?

a decrease in net capital spending

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A negative cash flow from assets

signals that a firm is relying on external financing for its operations.

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

Operating cash flow increases when

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Capital spending

is the money spent by a firm for net new assets

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A decrease in net working capital:

is a cash inflow for the firm.

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All else constant, net working capital decreases when:

accounts payable increases more than accounts receivable increases

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Party Town Downtown paid $800 in interest last year. During the past year, the company paid $500 on its loans and borrowed an additional $2,000. Which one of the following best describes this situation?

The cash flow to creditors is negative.

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Cash flow to creditors is equal to interest paid minus:

ending long-term debt minus beginning long-term debt

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Cash flow to stockholders:

is positive when the amount of the dividends paid exceeds the amount of net new equity raised.

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A negative cash flow to stockholders indicates that a firm has:

sold additional shares of stock

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Created by: martin.2021