Exam 3: The Financial System and the Level of Interest Rates

The conventional way of preparing a balance sheet is to list all assets in the order of their:

Annual reports are prepared by a firm's management to:

Rent and insurance are examples of depletion expenses.

During rising prices, a company using the LIFO method assumes that the sale is from the newest, highest-cost inventory.

The balance sheet identity can be stated as: Total assets = Total liabilities + Total stockholders' equity.

Your uncle is planning to sell his second home in Bethany Beach, Delaware in the next few weeks., You are interested in buying this beachside property, so your agent negotiates a price for the house with your uncle's agent. This transaction is an example of:

Depreciation expense is the amount by which a firm's fixed assets are written down after the assets have been used to produce the firm's cash flows.

The realization principle implies that revenue should be recognized only at the time of the sale.

What is the firm's net cash flow provided by (used in) investing activities?

Spartan, Inc., is a manufacturer of automobile parts located in Greenville, South Carolina. At the end of the current fiscal year, the company had net working capital of $157,903. The company showed accounts payables of $94,233, accounts receivables of $83,112, inventory of $171,284, and cash and marketable securities of $12,311. Calculate the amount of notes payables. (Assume that notes payable and accounts payable are the only two current liabilities of the company.)

Explain the following income statement items. a. Amortization expense b. Extraordinary items c. EBITDA

Book value is the amount a firm paid for its assets at the time of purchase.

The assumption of arm's-length transaction states that:

Typical financing activities include cash payments on the principal of long-term debt, cash payments of dividends to shareholders, and cash purchases of treasury stock.

The major disadvantages of market-value accounting include:

The market value of an asset is the amount that a firm would receive for the asset if it were sold on the open market.

Amortization is the amount by which intangible assets like goodwill, patents, license, copyrights, and trademarks are written down in any period that they are utilized by the firm to generate benefits.

The income statement identifies the major sources of revenues generated by the firm and the corresponding expenses that were required to generate those revenues.

Petra, Inc., has $400,000 as current assets, $1.225 million as plant and equipment, and $250,000 as goodwill. In preparing the balance sheet, these assets should be listed in which of the following orders?

Clarity Music Company has a marginal tax rate of 34 percent and an average tax rate of 32 percent this year. It is planning to construct a new recording studio next year. The appropriate tax rate to be applied on the income generated from the new studio is: