Chapter 3 Flashcards Preview

FIN 3303 > Chapter 3 > Flashcards

Flashcards in Chapter 3 Deck (13):
1

Which of the following is not contained on the balance sheet?
a. The cumulative historical cost paid for all assets
b. The cumulative historical cost received for all liabilities
c. The cumulative historical amounts of capital raised
d. The cumulative historical costs accrued for all assets
e. How the company has financed the purchase of all assets

b. The cumulative historical cost received for all liabilities

2

Which of the following is correct about the income statement?
a. Tells us how much more liabilities the company had than assets
b. Tells us whether the company is on cash or accrual accounting
c. Tells us about activity for all transactions over a given period of time
d. Tells us about activity for certain transactions over a given period of time
e. All of the above are correct

d. Tells us about activity for certain transactions over a given period of time

3

What is the significance of the statement of cash flows?
a. Picks up where the income statement stops
b. Informs investors on where their dividends are coming from
c. Contains information on dividend distribution dates
d. Informs debtors when they will be issuing new bonds
e. The statement of cash flows is not significant

a. Picks up where the income statement stops

4

What is a major difference between the individual and corporate income tax codes?
a. Progressive tax rates
b. Dividend income is taxable
c. Carry-back and carry-forward provisions
d. Flat tax rate
e. There is no difference

c. Carry-back and carry-forward provisions

5

Sooner Corp. is currently producing a cash flow return of $22 each year. If investors require a 16% rate of return, what should the stock price be?
a. $22.00
b. $110.00
c. $220.00
d. $120.00
e. $137.50

e. $137.50

Price (or value of the asset) =
Cash Flow to be received/Investors Required Return (as a decimal fraction) =
$22/0.16 = $137.50

6

1. Which of the following items encompass the corporate income tax code:
a. Corporations are able to take advantage of accelerated depreciation to lower their tax burdens
b. Dividends are not taxed since they have already been taxed separately within the corporation
c. The corporate income tax code applies to both incorporated businesses and unincorporated businesses as well as “S” corporations and LLCs
d. All of the Above
e. a+b

a. Corporations are able to take advantage of accelerated depreciation to lower their tax burdens

7

3. Which of the following are sources of cash?
a. Sale of stock
b. Decrease in Accounts Receivable (Asset)
c. Depreciation
d. Increase in Accounts Payable (Liability)
e. All of the Above

e. All of the Above

8

4. Free cash flow is..
a. Calculated in accordance to an organization’s operating, investing and insurance activities
b. Gives us a historical observation of cumulative costs in accordance with the assets and liabilities
c. Can never be negative
d. Used often to value a company in relation to the company’s assets.
e. Represents the amount of before-tax, net cash flow available to the business owner that the business owner is “free” to invest and distribute

d. Used often to value a company in relation to the company’s assets.

9

6. Which of the following are correctly categorized with a financial statement they might appear on:
a. Total Liabilities and Equity (Income Statement)
b. Asset Sales (Cash Flow Statement –operating activities)
c. An increase or decrease in Accounts Receivable (Cash Flow Statement – operating activities)
d. EBITDA (Cash Flow Statement- investing activities)
e. Net Income (Cash Flow Statement- Calculated from the sum of operating, investing and financing cash flows)

c. An increase or decrease in Accounts Receivable (Cash Flow Statement – operating activities)

10

Balance Sheet

A statement of a firm's financial position at a specific point in time.

11

Income Statement

Shows the firm's sales and cost (and thus profits) during some past period.

12

Statement of Cash Flows

Shows how much cash the firm began the year with, how much cash it ended up with, and what it did to increase or decrease its cash.

13

Statement of Stockholders Equity

Shows the amount of equity the stockholders had at the start of the year, the items that increased or decreased equity, and the equity at the end of the year.