Chapter 2 SmartBook

Question 1

Which one of the following is true?

Financial statements explicitly show costing and pricing of individual products

Cash flows can be derived from financial statements.

Cash flows always exceed earnings.

Earnings, net income, and cash flows are identical.

Answer 1

• Cash flows can be derived from financial statements

Question 2

A balance sheet reflects a firms _____ value on a particular date.

Answer 2

Accounting

Question 3

Most importanty, assets provide ______ to the firm.

Answer 3

Value

Question 4

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

True false question

Answer 4

True

Question 5

Another name for short-term management is ______ management

Answer 5

Working capital

Question 6

Financial statements are frequently a key source of information for financial decisions.

True false question

Answer 6

True

Question 7

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

Answer 7

Liquidity

Question 8

Which one of the following represents what a firm owns at a given point in time?

Answer 8

Its assets

Question 9

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

Answer 9

Accounts receivable

Question 10

Assets can be described as items that _____.

A: a firm owns

B: are always the same amount as a firm’s liabilities

C: provide market value to the firm

D: generate revenue

Answer 10

A, C and D

Question 11

The more debt a firm has, the greater its:

Answer 11

degree of financial leverage

Question 12

A long-term liability represents a(n) _____.

Answer 12

debt that is not due in the coming year

Question 13

Under GAAP, U.S. firms must carry assets at:

Answer 13

Book Value

Question 14

Net working capital equals current assets ______ current liabilities.

Answer 14

Minus

Question 15

Net income refers to money earned ______.

Answer 15

after interest and taxes

Question 16

Liquidity refers to the ease of changing ____

Answer 16

assets to cash

Question 17

The matching principle of GAAP requires revenues be matched with _____.

Answer 17

Expenses

Question 18

A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?

Answer 18

Accounts receivable

Question 19

Noncash items do not affect _______.

Answer 19

Cash Flow

Question 20

The use of financial leverage can:

A: Greatly magnify both gains and losses.

B: Increase the potential reward for investors.

C: Decrease the noncash expenses incurred by the firm.

D: Increase the chance of financial distress and business failure.

Answer 20

A, B and D

Question 21

On the balance sheet, assets are listed at their _____ value.

Answer 21

Book

Question 22

In the long run, all costs are _____.

Answer 22

Variable

Question 23

How is income defined?

Answer 23

Revenue minus expenses

Question 24

The short run is a period when there are ______ costs.

Answer 24

both fixed and variable

Question 25

The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.

Answer 25

Matching

Question 26

______ costs change as the output of the firm changes.

Answer 26

Variable

Question 27

Noncash items are expenses that directly affect _____ but do not directly affect ______.

Answer 27

Net income; cash flow

Question 28

Why is it important for accounting standards to become more comparable across countries?

Answer 28

Increasing globalization of business makes it necessary to understand financial reporting by firms that follow other accounting standards.

Question 29

The more debt a firm has, the greater its:

Answer 29

degree of financial leverage

Question 30

True or false: Taxes can be a large cash outflow for a corporation.

Answer 30

True

Question 31

In the long run, ________ are variable.

Answer 31

All costs

Question 32

The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.

Answer 32

21%

Question 33

The short run is ______.

Answer 33

an imprecise period of time

Question 34

If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.

Answer 34

10

Question 35

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

Answer 35

Raw materials used in productions

Question 36

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

Answer 36

Statement of cash flows

Question 37

In recent years, U.S. accounting standards have become more closely tied to:

Answer 37

IFRS

Question 38

Which is true of taxes?

Answer 38

They can be one of the largest cash outflows a firm experiences

Question 39

The cash flow identity reflects the fact that: A: cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. B: operating cash flow is the same as operating income. C: a firm generates cash through its various activities. D: cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders.

Answer 39

A, C and D

Question 40

The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.

Answer 40

Flat

Question 41

Cash generated from a firm's normal business activities is called _____.

Answer 41

Operating cash flows

Question 42

How is the average income tax rate computed?

Answer 42

Total tax bill/Total taxable income

Question 43

If a firm's net working capital is $120 in 2021 and $100 in 2020, then the change in net working capital is:

Answer 43

+$20

Question 44

The statement of cash flow explains changes in _____.

Answer 44

cash and equivalents

Question 45

Cash flow to stockholders equals:

Answer 45

Dividends paid minus net new equity raised

Question 46

The total of cash flow to creditors and cash flow to stockholders is called _____.

Answer 46

Cash flow from assets

Question 47

True or false: Operating cash flow includes capital spending and working capital requirements.

Answer 47

False

Question 48

If a firm's net working capital goes from $150 in 2020 to $130 in 2021, then the change in net working capital is:

Answer 48

-$20

Question 49

Cash flow to stockholders is dividends paid (minus/plus) net new equity raised.

Answer 49

minus

Question 50

Cash flow to stockholders equals:

Answer 50

Dividends paid minus net new equity raised