Exam (elaborations)
PEREGRINE-FOUNDATIONS OF BUSINESS FINANCE
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PEREGRINE-FOUNDATIONS OF BUSINESS FINANCE
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PEREGRINE-FOUNDATIONS OF BUSINESS FINANCETrue or false: The one fixed asset that is not depreciated is land because it seldom
declines in value. - Answers- True
__________ liabilities are those due within one year. - Answers- Current
__________-__________ __________ liabilities are due after more than a year, and
may include bonds, mortgages, and long-term loans. - Answers- Long-term debt
Name the three types of accounts listed as current liabilities on balance sheets. -
Answers- (1) Accounts Payable
(2) Notes Payable
(3) Accrued Expenses
Accounts payable - Answers- The amounts owed for credit purchases by a firm
Notes payable - Answers- Outstanding short-term loans, typically from commercial
banks
Accrued expenses - Answers- Costs that have been incurred by a firm which have not
yet been paid; examples of accruals include taxes owed to the government and unpaid
wages
The __________ __________ section of a balance sheet provides information about
the claims against a firm held by investors who own preferred and common shares. -
Answers- Stockholders' equity
The Stockholders' equity section of the balance sheet is reflected in four types of
accounts. These include __________ __________, __________ __________,
__________-__________-__________ __________ ___________ __________
__________, and __________ __________. - Answers- (1) preferred stock
(2) common stock
(3) paid-in-capital excess of par
(4) retained earnings
__________ __________ shows the total proceeds from the sale of preferred stock. -
Answers- Preferred stock
__________-__________-__________ __________ __________ __________
__________ equals the number of shares outstanding multiplied by the original selling
price of the shares, net of the par value. - Answers- Paid-in-capital in excess of par
__________ __________ equals the number of outstanding common shares multiplied
by the par value per share. - Answers- Common stock
, __________ __________ (often $1) is an artifact of earlier pre-computer accounting
methods used to track the number of outstanding shares. It has no relation to the actual
value of the shares. - Answers- Par value
__________ __________ are the cumulative total of the earnings that the firm has
reinvested in its assets and operations since its inception. - Answers- Retained
earnings
The combined value of __________ __________ and __________-__________-
__________ equals the proceeds the firm received when it originally sold shares to
investors (including initial public offerings and rights offerings). - Answers- common
stock, paid-in-capital
The __________ __________ entry on a balance sheet records the value of common
shares that a firm currently holds in reserve. - Answers- treasury stock
The __________ __________ __________ __________ provides a summary of what
cash has gone into and out of a firm because of its operations, investments, and
financing activities during a year. It isolates the firm's operating, investment, and
financing cash flows and reconciles them with changes in its cash and marketable
securities during the year. - Answers- statement of cash flows
A firm's total cash flows can be conveniently divided into three categories. These
include __________ flows, __________ flows, and __________ flows. - Answers-
operating, investment, financing
Operating flows - Answers- Cash inflows and outflows directly related to the production
and sale of products or services
Investment flows - Answers- Cash flows associated with the purchase or sale of fixed
assets and business equity
Financing flows - Answers- Cash flows which result from debt and equity financing
transactions
__________ __________ __________ is the amount of cash flow available to investors
- the providers of debt and equity capital. It represents the net amount of cash flow
remaining after the firm has met all operating needs and has made all required
payments on both long-term (fixed) and short-term (current) investments. - Answers-
Free cash flow
__________ current liability changes occur automatically with changes in sales. They
must, therefore, be deducted from current assets in order to find the net change in
short-term investment for the determination of free cash flow. - Answers- Spontaneous
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