Chapter 2 Quiz

What is the balance sheet primarily used for?

• To calculate tax rates

• To report revenues and expenses

• To provide a snapshot of assets and liabilities

• To show a firm's cash flow

Which of the following is considered a current asset?

• Buildings

• Land

• Inventory

• Goodwill

What does the balance sheet identity state?

• Liabilities = Assets + Equity

• Equity = Assets - Liabilities

• Assets = Revenues - Expenses

• Assets = Liabilities + Stockholders’ Equity

What is the primary purpose of the income statement?

• To measure performance over a specified period

• To show the firm's assets and liabilities

• To calculate cash flow from assets

• To report tax obligations

What is the equation for net income?

• Net Income = Assets - Liabilities

• Net Income = Cash Flow - Capital Spending

• Net Income = Revenue - Expenses

• Net Income = Revenue + Expenses

Which principle requires matching expenses to the period of revenue recognition?

• Cost Principle

• Revenue Recognition Principle

• Conservatism Principle

• GAAP Matching Principle

What is the federal corporate tax rate in the U.S. after the TCJA of 2017?

• 15%

• 35%

• 21%

• 30%

What is the average tax rate?

• Total income / total expenses

• Tax rate on the next dollar earned

• Total assets / total liabilities

• Total taxes paid / taxable income

If a firm's taxable income increases by $1 million, which tax rate should be used for analysis?

• Flat tax rate

• Marginal tax rate

• Effective tax rate

• Average tax rate

What does cash flow from assets (CFFA) consist of?

• Cash Flow to Creditors + Cash Flow to Stockholders

• Operating Cash Flow - Net Capital Spending - Changes in NWC

• Net Income + Depreciation - Taxes

• Total Assets - Total Liabilities