FIN301 practice ch.2 – Flashcards
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balance sheet
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The financial statement showing a firm's accounting value on a particular date is the
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an item currently owned by the firm that will convert to cash within the next 12 months
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A current asset is
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that do not come due for at least 12 months
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The long-term debts of a firm are liabilities
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current assets minus current liabilities
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Net working capital is defined as
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liquid
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A(n) ____ asset is one which can be quickly converted into cash without significant loss in value
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income statement
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The financial statement summarizing a firm's accounting performance over a period of time is the
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expenses charged against revenues that do not directly affect cash flow
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Noncash items refer to
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Cash flow from operating activities
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refers to the cash flow that results from the firm's ongoing, normal business activities
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Cash flow from investing
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refers to the changes in net capital assets
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Net working capital
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refers to the difference between a firm's current assets and its current liabilities
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Cash flow from operations
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is calculated by adding back non-cash expenses to net income and adjusting for changes in current assets and liabilities.
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Cash flow to creditors
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refers to the firm's interest payments less any net new borrowing
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Cash flow to stockholders
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refers to the firm's dividend payments less any net new equity raised
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divided by the total number of shares outstanding
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Dividends per share is equal to dividends paid
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II and IV only
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Which of the following are included in current assets? I. equipment II. inventory III. accounts payable IV. cash
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II and III only
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Which of the following are included in current liabilities? I. note payable to a supplier in eighteen months II. debt payable to a mortgage company in nine months III. accounts payable to suppliers IV. loan payable to the bank in fourteen months
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must be offset by an equal increase in liabilities and shareholders' equity.
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An increase in total assets
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accounts receivable
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Which one of the following accounts is generally the most liquid
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Balance sheet accounts are listed in order of decreasing liquidity
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Which one of the following statements concerning liquidity is correct?
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valuable to a firm even though liquid assets tend to be less profitable to own
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Liquidity is
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II and III only
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Which of the following accounts are included in shareholders' equity? I. interest paid II. retained earnings III. capital surplus IV. long-term debt
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is based on historical cost
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Book value
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always consider market values
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When making financial decisions related to assets, you should
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depreciation reduces both the pretax income and the net income
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As seen on an income statement
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matched with revenues
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According to Generally Accepted Accounting Principles, costs are
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is a non-cash expense that is recorded on the income statement
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Depreciation
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depreciation
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An increase in which one of the following will cause the operating cash flow to increase?
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the ending net working capital can be positive, negative, or equal to zero
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A firm starts its year with a positive net working capital. During the year, the firm acquires more short-term debt than it does short-term assets. This means that
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outflow when interest is paid on outstanding debt.
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The cash flow to creditors includes the cash
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the dividends paid exceed the net new equity raised
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Cash flow to stockholders must be positive when
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Assets = Liabilities + Stockholder's Equity
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Which equality is the basis for the balance sheet?
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decreasing liquidity
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Assets are listed on the balance sheet in order of
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requires a repayment of a stated amount and interest over the period. allows the bondholders to sue the firm if it defaults.
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Debt is a contractual obligation that
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cost
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Under GAAP, a firm's assets are reported at
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It measures performance over a specific period of time. It determines after-tax income of the firm. It includes deferred taxes. It treats interest as an expense.
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Which of the following statements concerning the income statement is true?
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Interest paid
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Which of the following is not included in the computation of operating cash flow?
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the net change in fixed assets
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Net capital spending is equal to
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cash dividends plus repurchases of equity minus new equity financing
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Cash flow to stockholders is defined as
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cash that the firm is free to distribute to creditors and stockholders
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Free cash flow is
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cash flow to equity plus cash flow to debtholders
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The cash flow of the firm must be equal to
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Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities
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Which of the following are all components of the statement of cash flows?
