{"id":47454,"date":"2022-03-31T21:33:44","date_gmt":"2022-03-31T21:33:44","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/chapter-2-reviewing-financial-statement\/"},"modified":"2022-03-31T21:33:44","modified_gmt":"2022-03-31T21:33:44","slug":"chapter-2-reviewing-financial-statement","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/chapter-2-reviewing-financial-statement\/","title":{"rendered":"Chapter 2 reviewing financial statement"},"content":{"rendered":"
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Chapter 02<\/span><\/strong><\/p>\n

Reviewing Financial Statements<\/span><\/strong><\/p>\n

\u00a0<\/span>\u00a0<\/span><\/p>\n


Multiple Choice Questions<\/strong>
\u00a0<\/span><\/p>\n

1.\u00a0Which financial statement reports a firm’s assets, liabilities, and equity at a particular point in time?\u00a0
A.\u00a0Balance Sheet
B.\u00a0Income Statement
C.\u00a0Statement of Retained Earnings
D.\u00a0Statement of Cash Flows<\/span><\/p>\n

\u00a0<\/span><\/p>\n

2.\u00a0Which financial statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time\u2014generally one year?\u00a0
A.\u00a0Balance Sheet
B.\u00a0Income Statement
C.\u00a0Statement of Retained Earnings
D.\u00a0Statement of Cash Flows<\/span><\/p>\n

\u00a0<\/span><\/p>\n

3.\u00a0Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?\u00a0
A.\u00a0Balance Sheet
B.\u00a0Income Statement
C.\u00a0Statement of Retained Earnings
D.\u00a0Statement of Cash Flows<\/span><\/p>\n

\u00a0<\/span><\/p>\n

4.\u00a0Which financial statement reconciles net income earned during a given period and any cash dividends paid within that period using the change in retained earnings between the beginning and end of the period?\u00a0
A.\u00a0Balance Sheet
B.\u00a0Income Statement
C.\u00a0Statement of Retained Earnings
D.\u00a0Statement of Cash Flows<\/span><\/p>\n

\u00a0<\/span><\/p>\n

5.\u00a0On which of the four major financial statements would you find the common stock and paid-in surplus?\u00a0
A.\u00a0Balance Sheet
B.\u00a0Income Statement
C.\u00a0Statement of Cash Flows
D.\u00a0Statement of Retained Earnings<\/span><\/p>\n

\u00a0<\/span><\/p>\n

6.\u00a0On which of the four major financial statements would you find the increase in inventory?\u00a0
A.\u00a0Balance Sheet
B.\u00a0Income Statement
C.\u00a0Statement of Cash Flows
D.\u00a0Statement of Retained Earnings<\/span><\/p>\n

\u00a0<\/span><\/p>\n

7.\u00a0On which of the four major financial statements would you find net plant and equipment?\u00a0
A.\u00a0Balance Sheet
B.\u00a0Income Statement
C.\u00a0Statement of Cash Flows
D.\u00a0Statement of Retained Earnings<\/span><\/p>\n

\u00a0<\/span><\/p>\n

8.\u00a0For which of the following would one expect the book value of the asset to differ widely from its market value?\u00a0
A.\u00a0Cash
B.\u00a0Accounts receivable
C.\u00a0Inventory
D.\u00a0Fixed assets<\/span><\/p>\n

\u00a0<\/span><\/p>\n

9.\u00a0Common stockholders’ equity divided by number of shares of common stock outstanding is the formula for calculating\u00a0
A.\u00a0Earnings per share (EPS)
B.\u00a0Dividends per share (DPS)
C.\u00a0Book value per share (BVPS)
D.\u00a0Market value per share (MVPS)<\/span><\/p>\n

\u00a0<\/span><\/p>\n

10.\u00a0This is the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns.\u00a0
A.\u00a0Average tax rate
B.\u00a0Marginal tax rate
C.\u00a0Progressive tax system
D.\u00a0Earnings before tax<\/span><\/p>\n

\u00a0<\/span><\/p>\n

11.\u00a0An equity-financed firm will\u00a0
A.\u00a0pay more in income taxes than a debt-financed firm.
B.\u00a0pay less in income taxes than a debt-financed firm.
C.\u00a0pay the same in income taxes as a debt-finance firm.
D.\u00a0not pay any income taxes.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

12.\u00a0This is cash flow available for payments to stockholders and debt holders of a firm after the firm has made investments in assets necessary to sustain the ongoing operations of the firm.\u00a0
A.\u00a0Net income available to common stockholders
B.\u00a0Cash flow from operations
C.\u00a0Net cash flow
D.\u00a0Free cash flow<\/span><\/p>\n

\u00a0<\/span><\/p>\n

13.\u00a0Which of the following activities result in an increase in a firm’s cash?\u00a0
A.\u00a0Decrease fixed assets
B.\u00a0Decrease accounts payable
C.\u00a0Pay dividends
D.\u00a0Repurchase of common stock<\/span><\/p>\n

\u00a0<\/span><\/p>\n

14.\u00a0These are cash inflows and outflows associated with buying and selling of fixed or other long-term assets.\u00a0
A.\u00a0Cash flows from operations
B.\u00a0Cash flows from investing activities
C.\u00a0Cash flows from financing activities
D.\u00a0Net change in cash and cash equivalents<\/span><\/p>\n

\u00a0<\/span><\/p>\n

15.\u00a0If a company reports a large amount of net income on its income statement during a year, the firm will have\u00a0
A.\u00a0positive cash flow.
B.\u00a0negative cash flow.
C.\u00a0zero cash flow.
D.\u00a0Any of these scenarios are possible.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

16.\u00a0Free cash flow is defined as\u00a0
A.\u00a0Cash flows available for payments to stockholders of a firm after the firm has made payments to all others will claims against it.
B.\u00a0Cash flows available for payments to stockholders and debt holders of a firm after the firm has made payments necessary to vendors.
C.\u00a0Cash flows available for payments to stockholders and debt holders of a firm after the firm has made investments in assets necessary to sustain the ongoing operations of the firm.
D.\u00a0Cash flows available for payments to stockholders and debt holders of a firm that would be tax-free to the recipients.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

17.\u00a0The Sarbanes-Oxley Act requires public companies to ensure that these individuals have considerable experience applying generally accepted accounting principles (GAAP) for financial statements.\u00a0
A.\u00a0External auditors
B.\u00a0Internal auditors
C.\u00a0Chief Financial Officers
D.\u00a0Corporate boards’ audit committees<\/span><\/p>\n

\u00a0<\/span><\/p>\n

18.\u00a0Balance Sheet<\/strong> You are evaluating the balance sheet for Campus Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $400,000, Accounts receivable = $200,000, Inventory = $100,000, Accrued wages and taxes = $10,000, Accounts payable = $300,000, and Notes payable = $600,000. What is Campus’s net working capital?\u00a0
A.\u00a0-$210,000
B.\u00a0$700,000
C.\u00a0$910,000
D.\u00a0$1,610,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

19.\u00a0Balance Sheet<\/strong> Jack and Jill Corporation’s year-end 2009 balance sheet lists current assets of $250,000, fixed assets of $800,000, current liabilities of $195,000, and long-term debt of $300,000. What is Jack and Jill’s total stockholders’ equity?\u00a0
A.\u00a0$495,000
B.\u00a0$555,000
C.\u00a0$1,050,000
D.\u00a0There is not enough information to calculate total stockholder’s equity.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

20.\u00a0Income Statement<\/strong> Bullseye, Inc.’s 2010 income statement lists the following income and expenses: EBIT = $900,000, Interest expense = $85,000, and Net income = $570,000. What is the 2010 Taxes reported on the income statement?\u00a0
A.\u00a0$245,000
B.\u00a0$330,000
C.\u00a0$815,000
D.\u00a0There is not enough information to calculate 2010 Taxes.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

21.\u00a0Income Statement<\/strong> Barnyard, Inc.’s 2010 income statement lists the following income and expenses: EBIT = $500,000, Interest expense = $45,000, and Taxes = $152,000. Barnyard’s has no preferred stock outstanding and 200,000 shares of common stock outstanding. What are its 2010 earnings per share?\u00a0
A.\u00a0$2.50
B.\u00a0$2.275
C.\u00a0$1.74
D.\u00a0$1.515<\/span><\/p>\n

\u00a0<\/span><\/p>\n

22.\u00a0Corporate Taxes<\/strong> Eccentricity, Inc. had $300,000 in 2010 taxable income. Using the tax schedule from Table 2-3, what is the company’s 2010 income taxes, average tax rate, and marginal tax rate, respectively?<\/span><\/p>\n

\u00a0\"\"\u00a0\u00a0
A.\u00a0$22,250, 7.42%, 39%
B.\u00a0$78,000, 26.00%, 39%
C.\u00a0$100,250, 33.42%, 39%
D.\u00a0$139,250, 46.42%, 39%<\/p>\n

\u00a0<\/span><\/p>\n

23.\u00a0Corporate Taxes<\/strong> Swimmy, Inc. had $400,000 in 2010 taxable income. Using the tax schedule from Table 2-3, what is the company’s 2010 income taxes, average tax rate, and marginal tax rate, respectively?<\/span><\/p>\n

\u00a0\"\"\u00a0\u00a0
A.\u00a0$22,100, 5.53%, 34%
B.\u00a0$113,900, 28.48%, 34%
C.\u00a0$136,000, 34.00%, 34%
D.\u00a0$136,000, 39.00%, 34%<\/p>\n

\u00a0<\/span><\/p>\n

24.\u00a0Corporate Taxes<\/strong> Scuba, Inc. is concerned about the taxes paid by the company in 2010. In addition to $5 million of taxable income, the firm received $80,000 of interest on state-issued bonds and $500,000 of dividends on common stock it owns in Boating Adventures, Inc. What is Scuba’s tax liability, average tax rate, and marginal tax rate, respectively?\u00a0
A.\u00a0$1,637,100, 31.79%, 34%
B.\u00a0$1,751,000, 34.00%, 34%
C.\u00a0$1,870,000, 34.00%, 34%
D.\u00a0$1,983,900, 36.07%, 34%<\/span><\/p>\n

\u00a0<\/span><\/p>\n

25.\u00a0Statement of Cash Flows<\/strong> Paige’s Properties Inc. reported 2008 net income of $5 million and depreciation of $1,500,000. The top part Paige’s Properties, Inc.’s 2007 and 2008 balance sheets is listed below (in millions of dollars).<\/span><\/p>\n

\u00a0\"\"\u00a0<\/p>\n

What is the 2008 net cash flow from operating activities for Paige’s Properties, Inc.?\u00a0
A.\u00a0-$13,500,000
B.\u00a0$1,500,000
C.\u00a0$5,000,000
D.\u00a0$6,500,000<\/p>\n

\u00a0<\/span><\/p>\n

26.\u00a0Statement of Cash Flows<\/strong> In 2008, Upper Crust had cash flows from investing activities of ($250,000) and cash flows from financing activities of ($150,000). The balance in the firm’s cash account was $90,000 at the beginning of 2008 and $105,000 at the end of the year. What was Upper Crust’s cash flow from operations for 2008?\u00a0
A.\u00a0$15,000
B.\u00a0$105,000
C.\u00a0$400,000
D.\u00a0$415,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

27.\u00a0Statement of Cash Flows<\/strong> In 2010, Lower Case Productions had cash flows from investing activities of +$50,000 and cash flows from financing activities of +$100,000. The balance in the firm’s cash account was $80,000 at the beginning of 2010 and $65,000 at the end of the year. What was Lower Case’s cash flow from operations for 2010?\u00a0
A.\u00a0$-15,000
B.\u00a0$-150,000
C.\u00a0$-165,000
D.\u00a0$65,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

28.\u00a0Free Cash Flow<\/strong> You are considering an investment in Crew Cut, Inc. and want to evaluate the firm’s free cash flow. From the income statement, you see that Crew Cut earned an EBIT of $23 million, paid taxes of $4 million, and its depreciation expense was $8 million. Crew Cut’s gross fixed assets increased by $10 million from 2007 to 2008. The firm’s current assets increased by $6 million and spontaneous current liabilities increased by $4 million. What is Crew Cut’s operating cash flow, investment in operating capital and free cash flow for 2008, respectively in millions?\u00a0
A.\u00a0$23, $10, $13
B.\u00a0$23, $12, $11
C.\u00a0$27, $10, $17
D.\u00a0$27, $12, $15<\/span><\/p>\n

\u00a0<\/span><\/p>\n

29.\u00a0Free Cash Flow<\/strong> You are considering an investment in Cruise, Inc. and want to evaluate the firm’s free cash flow. From the income statement, you see that Cruise earned an EBIT of $202 million, paid taxes of $51 million, and its depreciation expense was $75 million. Cruise’s gross fixed assets increased by $70 million from 2007 to 2008. The firm’s current assets decreased by $10 million and spontaneous current liabilities increased by $6 million. What is Cruise’s operating cash flow, investment in operating capital, and free cash flow for 2008, respectively, in millions?\u00a0
A.\u00a0$202, $70, $130
B.\u00a0$226, $70, $156
C.\u00a0$226, $54, $172
D.\u00a0$226, $74, $152<\/span><\/p>\n

\u00a0<\/span><\/p>\n

30.\u00a0Free Cash Flow<\/strong> Catering Corp. reported free cash flows for 2008 of $8 million and investment in operating capital of $2 million. Catering listed $1 million in depreciation expense and $2 million in taxes on its 2008 income statement. What was Catering’s 2008 EBIT?\u00a0
A.\u00a0$7 million
B.\u00a0$10 million
C.\u00a0$11 million
D.\u00a0$13 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

31.\u00a0Statement of Retained Earnings<\/strong> TriCycle, Corp. began the year 2008 with $25 million in retained earnings. The firm earned net income of $7 million in 2008 and paid $1 million to its preferred stockholders and $3 million to its common stockholders. What is the year-end 2008 balance in retained earnings for TriCycle?\u00a0
A.\u00a0$25 million
B.\u00a0$28 million
C.\u00a0$32 million
D.\u00a0$36 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

32.\u00a0Statement of Retained Earnings<\/strong> Night Scapes, Corp. began the year 2008 with $10 million in retained earnings. The firm suffered a net loss of $2 million in 2008 and yet paid $2 million to its preferred stockholders and $1 million to its common stockholders. What is the year-end 2008 balance in retained earnings for Night Scapes?\u00a0
A.\u00a0$5 million
B.\u00a0$8 million
C.\u00a0$9 million
D.\u00a0$15 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

33.\u00a0Statement of Retained Earnings<\/strong> Use the following information to find dividends paid to common stockholders during 2008.<\/span><\/p>\n

\u00a0\"\"\u00a0\u00a0
A.\u00a0$3 million
B.\u00a0$4 million
C.\u00a0$10 million
D.\u00a0$17 million<\/p>\n

\u00a0<\/span><\/p>\n

34.\u00a0Balance Sheet<\/strong> Harvey’s Hamburger Stand has total assets of $3 million of which $1 million are current assets. Cash makes up 20 percent of the current assets and accounts receivable makes up another 5 percent of current assets. Harvey’s gross plant and equipment has a book value of $1.5 million and other long-term assets have a book value of $1 million. Using this information, what is the balance of inventory and the balance of depreciation on Harvey’s Hamburger Stand’s balance sheet?\u00a0
A.\u00a0$250,000, $500,000
B.\u00a0$250,000, $1 million
C.\u00a0$750,000, $500,000
D.\u00a0$750,000, $1 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

35.\u00a0Balance Sheet<\/strong> School Books, Inc. has total assets of $18 million of which $6 million are current assets. Cash makes up 10 percent of the current assets and accounts receivable makes up another 40 percent of current assets. School Books’ gross plant and equipment has an original cost of $13 million and other long-term assets have a cost value of $2 million. Using this information, what are the balance of inventory and the balance of depreciation on School Books’ balance sheet?\u00a0
A.\u00a0$3 million, $2 million
B.\u00a0$3 million, $3 million
C.\u00a0$2.4 million, $2 million
D.\u00a0$2.4 million, $3 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

36.\u00a0Balance Sheet<\/strong> Ted’s Taco Shop has total assets of $5 million. Forty percent of these assets are financed with debt of which $400,000 is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $1 million. Using this information what is the balance for long-term debt and retained earnings on Ted’s Taco Shop’s balance sheet?\u00a0
A.\u00a0$400,000, $1 million
B.\u00a0$1.6 million, $2 million
C.\u00a0$1.6 million, $3 million
D.\u00a0$2 million, $3 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

37.\u00a0Balance Sheet<\/strong> Hair Etc. has total assets of $15 million. Twenty percent of these assets are financed with debt of which $1 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $8 million. Using this information what is the balance for long-term debt and retained earnings on Hair Etc.’s balance sheet?\u00a0
A.\u00a0$1 million, $8 million
B.\u00a0$2 million, $4 million
C.\u00a0$2 million, $8 million
D.\u00a0$3 million, $4 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

38.\u00a0Market Value versus Book Value<\/strong> Acme Bricks balance sheet lists net fixed assets as $40 million. The fixed assets could currently be sold for $50 million. Acme’s current balance sheet shows current liabilities of $15 million and net working capital of $12 million. If all the current accounts were liquidated today, the company would receive $77 million cash after paying $15 million in liabilities. What is the book value of Acme’s assets today? What is the market value of these assets?\u00a0
A.\u00a0$12 million, $77 million
B.\u00a0$27 million, $92 million
C.\u00a0$40 million, $50 million
D.\u00a0$67 million, $142 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

39.\u00a0Market Value versus Book Value<\/strong> Glo’s Glasses balance sheet lists net fixed assets as $20 million. The fixed assets could currently be sold for $25 million. Glo’s current balance sheet shows current liabilities of $7 million and net working capital of $3 million. If all the current accounts were liquidated today, the company would receive $9 million cash after paying $7 million in liabilities. What is the book value of Glo’s assets today? What is the market value of these assets?\u00a0
A.\u00a0$10 million, $16 million
B.\u00a0$10 million, $35 million
C.\u00a0$30 million, $35 million
D.\u00a0$30 million, $41 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

40.\u00a0Market Value versus Book Value<\/strong> Rupert’s Rims balance sheet lists net fixed assets as $15 million. The fixed assets could currently be sold for $17 million. Rupert’s current balance sheet shows current liabilities of $5 million and net working capital of $3 million. If all the current accounts were liquidated today, the company would receive $6 million cash after paying $5 million in liabilities. What is the book value of Rupert’s assets today? What is the market value of these assets?\u00a0
A.\u00a0$8 million, $23 million
B.\u00a0$23 million, $25 million
C.\u00a0$23 million, $28 million
D.\u00a0$31 million, $28 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

41.\u00a0Debt versus Equity Financing<\/strong> You are considering a stock investment in one of two firms (AllDebt, Inc. and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $600,000. AllDebt, Inc. finances its $1.2 million in assets with $1 million in debt (on which it pays 10 percent interest annually) and $.2 million in equity. AllEquity, Inc. finances its $1.2 million in assets with no debt and $1.2 million in equity. Both firms pay a tax rate of 30 percent on their taxable income. What are the asset funders’ (the debt holders and stockholders’) resulting return on assets for the two firms?\u00a0
A.\u00a029.17%, and 35%, respectively
B.\u00a037.5%, and 35%, respectively
C.\u00a037.5%, and 37.5%, respectively
D.\u00a050%, and 50%, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

42.\u00a0Debt versus Equity Financing<\/strong> You are considering a stock investment in one of two firms (AllDebt, Inc. and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $3 million. AllDebt, Inc. finances its $6 million in assets with $5 million in debt (on which it pays 5 percent interest annually) and $1 million in equity. AllEquity, Inc. finances its $6 million in assets with no debt and $6 million in equity. Both firms pay a tax rate of 40 percent on their taxable income. What are the asset funders’ (the debt holders and stockholders’) resulting return on assets for the two firms?\u00a0
A.\u00a027.5%, and 30%, respectively
B.\u00a031.67%, and 30%, respectively
C.\u00a033%, and 30%, respectively
D.\u00a050%, and 50%, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

43.\u00a0Debt versus Equity Financing<\/strong> You are considering a stock investment in one of two firms (AllDebt, Inc. and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $400,000. AllDebt, Inc. finances its $800,000 in assets with $600,000 in debt (on which it pays 5 percent interest annually) and $200,000 in equity. AllEquity, Inc. finances its $800,000 in assets with no debt and $800,000 in equity. Both firms pay a tax rate of 30 percent on their taxable income. What are the asset funders’ (the debt holders and stockholders’) resulting return on assets for the two firms?\u00a0
A.\u00a032.375%, and 35.00%,respectively
B.\u00a036.125%, and 35.00%, respectively
C.\u00a046.25%, and 50%, respectively
D.\u00a050%, and 50%, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

44.\u00a0Income Statement<\/strong> You have been given the following information for Fina’s Furniture Corp.:
net sales = $25,500,000;
cost of goods sold = $10,250,000;
addition to retained earnings = $305,000;
dividends paid to preferred and common stockholders = $500,000;
interest expense = $2,000,000.
The firm’s tax rate is 30 percent. What is the depreciation expense for Fina’s Furniture Corp?\u00a0
A.\u00a0$12,100,000
B.\u00a0$12,400,000
C.\u00a0$14,100,000
D.\u00a0$14,400,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

45.\u00a0Income Statement<\/strong> You have been given the following information for Romeo’s Rockers Corp.:
net sales = $5,200,000;
cost of goods sold = $2,100,000;
addition to retained earnings = $1,000,000;
dividends paid to preferred and common stockholders = $400,000;
interest expense = $200,000.
The firm’s tax rate is 30 percent. What is the depreciation expense for Romeo’s Rockers Corp.?\u00a0
A.\u00a0$900,000
B.\u00a0$1,100,000
C.\u00a0$1,500,000
D.\u00a0$1,600,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

46.\u00a0Income Statement<\/strong> You have been given the following information for Nicole’s Neckties Corp.:
net sales = $2,500,000;
cost of goods sold = $1,300,000;
addition to retained earnings = $30,000;
dividends paid to preferred and common stockholders = $300,000;
interest expense = $50,000.
The firm’s tax rate is 40 percent. What is the depreciation expense for Nicole’s Neckties Corp.?\u00a0
A.\u00a0$550,000
B.\u00a0$600,000
C.\u00a0$650,000
D.\u00a0$820,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

47.\u00a0Income Statement<\/strong> You have been given the following information for Sherry’s Sandwich Corp.:
net sales = $300,000;
gross profit = $100,000;
addition to retained earnings = $30,000;
dividends paid to preferred and common stockholders = $8,500;
depreciation expense = $25,000.
The firm’s tax rate is 30 percent. What are the cost of goods sold and the interest expense for Sherry’s Sandwich Corp.?\u00a0
A.\u00a0$20,000, and $200,000, respectively
B.\u00a0$100,000, and $20,000, respectively
C.\u00a0$200,000, and $20,000, respectively
D.\u00a0$200,000, and $36,500, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

48.\u00a0Income Statement<\/strong> You have been given the following information for Kaye’s Krumpet Corp.:
net sales = $150,000;
gross profit = $100,000;
addition to retained earnings = $20,000;
dividends paid to preferred and common stockholders = $8,000;
depreciation expense = $50,000.
The firm’s tax rate is 30 percent. What are the cost of goods sold and the interest expense for Kaye’s Krumpet Corp.?\u00a0
A.\u00a0$10,000, and $50,000, respectively
B.\u00a0$50,000, and $10,000, respectively
C.\u00a0$50,000, and $22,000, respectively
D.\u00a0$62,000, and $10,000, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

49.\u00a0Income Statement<\/strong> You have been given the following information for Ross’s Rocket Corp.:
net sales = $1,000,000;
gross profit = $400,000;
addition to retained earnings = $60,000;
dividends paid to preferred and common stockholders = $90,000;
depreciation expense = $50,000.
The firm’s tax rate is 40 percent. What are the cost of goods sold and the interest expense for Ross’s Rocket Corp.?\u00a0
A.\u00a0$100,000, and $600,000, respectively
B.\u00a0$600,000, and $100,000, respectively
C.\u00a0$600,000, and $200,000, respectively
D.\u00a0$700,000, and $100,000, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\u00a0\u00a0\"\"\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

50.\u00a0Corporate Taxes<\/strong> The Carolina Corporation had a 2010 taxable income of $3,000,000 from operations after all operating costs but before<\/span><\/p>\n

(1) interest charges of $500,000,
(2) dividends received of $75,000,
(3) dividends paid of $1,000,000, and
(4) income taxes.<\/p>\n

Using the tax schedule in Table 2.3, what is Carolina’s income tax liability?
What are Carolina’s average and marginal tax rates on taxable income from operations?\u00a0
A.\u00a0$857,650, 28.59%, 34%, respectively
B.\u00a0$875,500, 29.18%, 34%, respectively
C.\u00a0$875,500, 34.00%, 34%, respectively
D.\u00a0$1,020,000, 34.00%, 34%, respectively<\/p>\n

\u00a0<\/span><\/p>\n

51.\u00a0Corporate Taxes<\/strong> The Ohio Corporation had a 2010 taxable income of $50,000,000 from operations after all operating costs but before<\/span><\/p>\n

(1) interest charges of $500,000,
(2) dividends received of $45,000,
(3) dividends paid of $10,000,000, and
(4) income taxes.<\/p>\n

Using the tax schedule in Table 2.3, what is Ohio’s income tax liability?
What are Ohio’s average and marginal tax rates on taxable income from operations?\u00a0
A.\u00a0$6,416,667, 12.83%, 35%, respectively
B.\u00a0$13,829,725, 27.66%, 35%, respectively
C.\u00a0$17,329,725, 34.66%, 35%, respectively
D.\u00a0$17,340,750, 34.68%, 35%, respectively<\/p>\n

\u00a0<\/span><\/p>\n

52.\u00a0Corporate Taxes<\/strong> The Sasnak Corporation had a 2010 taxable income of $4,450,000 from operations after all operating costs but before<\/span><\/p>\n

(1) interest charges of $750,000,
(2) dividends received of $900,000,
(3) dividends paid of $500,000, and
(4) income taxes.<\/p>\n

Using the tax schedule in Table 2.3, what is Sasnak’s income tax liability?
What are Sasnak’s average and marginal tax rates on taxable income from operations?\u00a0
A.\u00a0$1,349,800, 30.33%, 34%, respectively
B.\u00a0$1,349,800, 34.00%, 34%, respectively
C.\u00a0$1,564,000, 34.00%, 34%, respectively
D.\u00a0$1,564,000, 35.15%, 34%, respectively<\/p>\n

\u00a0<\/span><\/p>\n

53.\u00a0Corporate Taxes<\/strong> The AOK Corporation had a 2008 taxable income of $2,200,000 from operations after all operating costs but before<\/span><\/p>\n

(1) interest charges of $90,000,
(2) dividends received of $750,000,
(3) dividends paid of $80,000, and
(4) income taxes.<\/p>\n

Using the tax schedule in Table 2.3, what is AOK’s income tax liability?
What are AOK’s average and marginal tax rates on taxable income from operations?\u00a0
A.\u00a0$793,900, 34%, 34%, respectively
B.\u00a0$793,900, 36.0864%, 34%, respectively
C.\u00a0$972,400, 34%, 34%, respectively
D.\u00a0$972,400, 44.2%, 34%, respectively<\/p>\n

\u00a0<\/span><\/p>\n

54.\u00a0Corporate Taxes<\/strong> Suppose that in addition to the $5.5 million of taxable income from operations, Emily’s Flowers, Inc. received $500,000 of interest on state-issued bonds and $300,000 of dividends on common stock it owns in Amy’s Iris Bulbs, Inc.
Using the tax schedule in Table 2.3 what is Emily’s Flowers’ income tax liability?
What are Emily’s Flowers’ average and marginal tax rates on total taxable income?\u00a0
A.\u00a0$1,900,600, 34%, 34%, respectively
B.\u00a0$1,972,000, 34%, 34%, respectively
C.\u00a0$2,070,600, 34%, 34%, respectively
D.\u00a0$2,142,000, 34%, 34%, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

55.\u00a0Corporate Taxes<\/strong> Suppose that in addition to the $300,000 of taxable income from operations, Liam’s Burgers, Inc. received $25,000 of interest on state-issued bonds and $50,000 of dividends on common stock it owns in Sodas, Inc.
Using the tax schedule in Table 2.3 what is Liam’s income tax liability?
What are Liam’s average and marginal tax rates on total<\/strong> taxable income?\u00a0
A.\u00a0$106,100, 33.68%, 39%, respectively
B.\u00a0$122,850, 39.00%, 39%, respectively
C.\u00a0$129,500, 34.53%, 39%, respectively
D.\u00a0$139,250, 37.13%, 39%, respectively<\/span><\/p>\n

\u00a0<\/span><\/p>\n

56.\u00a0Statement of Cash Flows<\/strong> Fina’s Faucets, Inc. has net cash flows from operating activities for the last year of $17 million. The income statement shows that net income is $15 million and depreciation expense is $6 million. During the year, the change in inventory on the balance sheet was an increase of $4 million, change in accrued wages and taxes was an increase of $1 million and change in accounts payable was an increase of $1 million. At the beginning of the year the balance of accounts receivable was $5 million. What was the end of year balance for accounts receivable?\u00a0
A.\u00a0$2 million
B.\u00a0$3 million
C.\u00a0$7 million
D.\u00a0$9 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

57.\u00a0Statement of Cash Flows<\/strong> Zoe’s Dog Biscuits, Inc. has net cash flows from operating activities for the last year of $226 million. The income statement shows that net income is $150 million and depreciation expense is $85 million. During the year, the change in inventory on the balance sheet was an increase of $14 million, change in accrued wages and taxes was an increase of $15 million and change in accounts payable was an increase of $10 million. At the beginning of the year the balance of accounts receivable was $45 million. What was the end of year balance for accounts receivable?\u00a0
A.\u00a0$20 million
B.\u00a0$25 million
C.\u00a0$45 million
D.\u00a0$65 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

58.\u00a0Statement of Cash Flows<\/strong> Nickolas’s Nut Farms, Inc. has net cash flows from operating activities for the last year of $25 million. The income statement shows that net income is $15 million and depreciation expense is $6 million. During the year, the change in inventory on the balance sheet was a decrease of $4 million, change in accrued wages and taxes was a decrease of $1 million and change in accounts payable was a decrease of $1 million. At the beginning of the year the balance of accounts receivable was $5 million. What was the end of year balance for accounts receivable?\u00a0
A.\u00a0$2 million
B.\u00a0$3 million
C.\u00a0$7 million
D.\u00a0$9 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

59.\u00a0Statement of Cash Flows<\/strong> Crispy Corporation has net cash flow from financing activities for the last year of $20 million. The company paid $5 million in dividends last year. During the year, the change in notes payable on the balance sheet was an increase of $2 million, and change in common and preferred stock was an increase of $3 million. The end of year balance for long-term debt was $45 million. What was their beginning of year balance for long-term debt?\u00a0
A.\u00a0$15 million
B.\u00a0$20 million
C.\u00a0$25 million
D.\u00a0$35 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

60.\u00a0Statement of Cash Flows<\/strong> Full Moon Productions Inc. has net cash flow from financing activities for the last year of $105 million. The company paid $15 million in dividends last year. During the year, the change in notes payable on the balance sheet was an increase of $40 million, and change in common and preferred stock was an increase of $50 million. The end of year balance for long-term debt was $50 million. What was their beginning of year balance for long-term debt?\u00a0
A.\u00a0$5 million
B.\u00a0$20 million
C.\u00a0$30 million
D.\u00a0$35 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

61.\u00a0Statement of Cash Flows<\/strong> Caf\u00e9 Creations Inc. has net cash flow from financing activities for the last year of $25 million. The company paid $15 million in dividends last year. During the year, the change in notes payable on the balance sheet was a decrease of $40 million, and change in common and preferred stock was an increase of $50 million. The end of year balance for long-term debt was $40 million. What was their beginning of year balance for long-term debt?\u00a0
A.\u00a0$10 million
B.\u00a0$20 million
C.\u00a0$30 million
D.\u00a0$40 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

62.\u00a0Free Cash Flow<\/strong> The 2010 income statement for Pete’s Pumpkins shows that depreciation expense is $250 million, EBIT is $500 million, EBT is $320 million, and the tax rate is 30 percent. At the beginning of the year, the balance of gross fixed assets was $1,600 million and net operating working capital was $640 million. At the end of the year gross fixed assets was $2,000 million. Pete’s free cash flow for the year was $630 million. What is their end of year balance for net operating working capital?\u00a0
A.\u00a0$24 million
B.\u00a0$264 million
C.\u00a0$654 million
D.\u00a0$1,064 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

63.\u00a0Free Cash Flow<\/strong> The 2010 income statement for Lou’s Shoes shows that depreciation expense is $2 million, EBIT is $5 million, EBT is $3 million, and the tax rate is 40 percent. At the beginning of the year, the balance of gross fixed assets was $16 million and net operating working capital was $6 million. At the end of the year gross fixed assets was $20 million. Lou’s free cash flow for the year was $4 million. What is their end of year balance for net operating working capital?\u00a0
A.\u00a0$1.8 million
B.\u00a0$3.8 million
C.\u00a0$5.8 million
D.\u00a0$12.2 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

64.\u00a0Free Cash Flow<\/strong> The 2010 income statement for Paige’s Purses shows that depreciation expense is $10 million, EBIT is $25 million, EBT is $15 million, and the tax rate is 30 percent. At the beginning of the year, the balance of gross fixed assets was $80 million and net operating working capital was $30 million. At the end of the year gross fixed assets was $100 million. Paige’s free cash flow for the year was $20 million. What is their end of year balance for net operating working capital?\u00a0
A.\u00a0$10.5 million
B.\u00a0$14 million
C.\u00a0$20.5 million
D.\u00a0$30.5 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

65.\u00a0Free Cash Flow<\/strong> The 2010 income statement for Betty’s Barstools shows that depreciation expense is $100 million, EBIT is $400 million, and taxes are $120 million. At the end of the year, the balance of gross fixed assets was $510 million. The increase in net operating working capital during the year was $94 million. Betty’s free cash flow for the year was $625 million. What was the beginning of year balance for gross fixed assets?\u00a0
A.\u00a0$359 million
B.\u00a0$380 million
C.\u00a0$849 million
D.\u00a0$1,094 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

66.\u00a0Free Cash Flow<\/strong> The 2010 income statement for John’s Gym shows that depreciation expense is $20 million, EBIT is $80 million, and taxes are $24 million. At the end of the year, the balance of gross fixed assets was $102 million. The increase in net operating working capital during the year was $18 million. John’s free cash flow for the year was $41 million. What was the beginning of year balance for gross fixed assets?\u00a0
A.\u00a0$43 million
B.\u00a0$85 million
C.\u00a0$84 million
D.\u00a0$163 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

67.\u00a0Statement of Retained Earnings<\/strong> Bike and Hike, Inc. started the year with a balance of retained earnings of $100 million and ended the year with retained earnings of $128 million. The company paid dividends of $9 million to the preferred stock holders and $22 million to common stock holders. What was Bike and Hike’s net income for the year?\u00a0
A.\u00a0$28 million
B.\u00a0$31 million
C.\u00a0$59 million
D.\u00a0$128 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

68.\u00a0Statement of Retained Earnings<\/strong> Soccer Starz, Inc. started the year with a balance of retained earnings of $25 million and ended the year with retained earnings of $32 million. The company paid dividends of $2 million to the preferred stock holders and $6 million to common stock holders. What was Soccer Starz’s net income for the year?\u00a0
A.\u00a0$7 million
B.\u00a0$15 million
C.\u00a0$40 million
D.\u00a0$49 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

69.\u00a0Statement of Retained Earnings<\/strong> Jamaican Ice Cream Corp. started the year with a balance of retained earnings of $100 million. The company reported net income for the year of $45 million, paid dividends of $2 million to the preferred stock holders and $15 million to common stock holders. What is Jamaican Ice Cream’s end of year balance in retained earnings?\u00a0
A.\u00a0$38 million
B.\u00a0$55 million
C.\u00a0$128 million
D.\u00a0$162 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

70.\u00a0Income Statement<\/strong> Listed below is the 2008 income statement for Lamps, Inc. <\/span><\/p>\n

\u00a0\"\"\u00a0<\/p>\n

The CEO of Lamps wants the company to earn a net income of $12 million in 2009. Cost of goods sold is expected to be 75 percent of net sales, depreciation expense is not expected to change, interest expense is expected to increase to $4 million, and the firm’s tax rate will be 40 percent. What is the net sales needed to produce net income of $12 million?\u00a0
A.\u00a0$29 million
B.\u00a0$112 million
C.\u00a0$116 million
D.\u00a0$124 million<\/p>\n

\u00a0<\/span><\/p>\n

71.\u00a0Income Statement<\/strong> You have been given the following information for Halle’s Holiday Store Corp. for the year 2008:
net sales = $50,000,000;
cost of goods sold = $35,000,000;
addition to retained earnings = $2,000,000;
dividends paid to preferred and common stockholders = $3,000,000;
interest expense = $3,000,000.
The firm’s tax rate is 30 percent.
In 2009, net sales are expected to increase by $5 million,
cost of goods sold is expected to be 65 percent of net sales,
expensed depreciation is expected to be the same as in 2008,
interest expense is expected to be $2,500,000,
the tax rate is expected to be 30 percent of EBT, and
dividends paid to preferred and common stockholders will not change.
What is the addition to retained earnings expected in 2009?\u00a0
A.\u00a0$2,000,000
B.\u00a0$5,325,000
C.\u00a0$8,447,500
D.\u00a0$10,304,643<\/span><\/p>\n

\u00a0<\/span><\/p>\n

72.\u00a0Free Cash Flow<\/strong> Martha’s Moving Van 4U, Inc. had free cash flow during 2008 of $1 million, EBIT of $30 million, tax expense of $8 million, and depreciation of $4 million. Using this information, what was Martha’s Accounts Payable ending balance in 2008?\u00a0
A.\u00a0$5 million
B.\u00a0$15 million
C.\u00a0$35 million
D.\u00a0$45 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

73.\u00a0You are evaluating the balance sheet for Goodman’s Bees Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $200,000, Accounts receivable = $1,100,000, Inventory = $2,000,000, Accrued wages and taxes = $500,000, Accounts payable = $600,000, and Notes payable = $100,000. Calculate Goodman’s Bees’ net working capital.\u00a0
A.\u00a0$2,000,000
B.\u00a0$2,100,000
C.\u00a0$1,400,000
D.\u00a0$1,900,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

74.\u00a0Zoeckler Mowing & Landscaping’s year-end 2011 balance sheet lists current assets of $350,000, fixed assets of $325,000, current liabilities of $145,000, and long-term debt of $185,000. Calculate Zoeckler’s total stockholders’ equity.\u00a0
A.\u00a0$115,000
B.\u00a0$490,000
C.\u00a0$345,000
D.\u00a0$500,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

75.\u00a0Reed’s Birdie Shot, Inc.’s 2011 income statement lists the following income and expenses: EBIT = $550,000, Interest expense = $43,000, and Net income = $300,000. Calculate the 2011 Taxes reported on the income statement.\u00a0
A.\u00a0$85,000
B.\u00a0$107,000
C.\u00a0$309,000
D.\u00a0$207,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

76.\u00a0Reed’s Birdie Shot, Inc.’s 2010 income statement lists the following income and expenses: EBIT = $555,000, Interest expense = $178,000, and Taxes = $148,000. Reed’s has no preferred stock outstanding and 100,000 shares of common stock outstanding. Calculate the 2010 earnings per share.\u00a0
A.\u00a0$3.49
B.\u00a0$2.29
C.\u00a0$3.14
D.\u00a0$2.79<\/span><\/p>\n

\u00a0<\/span><\/p>\n

77.\u00a0Oakdale Fashions Inc. had $255,000 in 2011 taxable income. If the firm paid $82,100 in taxes, what is the firm’s average tax rate?\u00a0
A.\u00a034.70%
B.\u00a032.20%
C.\u00a029.90%
D.\u00a028.20%<\/span><\/p>\n

\u00a0<\/span><\/p>\n

78.\u00a0Hunt Taxidermy, Inc. is concerned about the taxes paid by the company in 2011. In addition to $36.5 million of taxable income, the firm received $1,250,000 of interest on state-issued bonds and $400,000 of dividends on common stock it owns in Hunt Taxidermy, Inc. Calculate Hunt Taxidermy’s taxable income.\u00a0
A.\u00a0$40,250,000
B.\u00a0$38,150,000
C.\u00a0$36,900,000
D.\u00a0$36,620,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

79.\u00a0Ramakrishnan Inc. reported 2008 net income of $20 million and depreciation of $1,500,000. The top part of Ramakrishnan, Inc.’s 2007 and 2008 balance sheets is listed below (in millions of dollars).<\/span><\/p>\n

\u00a0\"\"\u00a0<\/p>\n

Calculate the 2008 net cash flow from operating activities for Ramakrishnan, Inc.\u00a0
A.\u00a0$12,500,000
B.\u00a0$10,500,000
C.\u00a0$8,500,000
D.\u00a0$7,100,000<\/p>\n

\u00a0<\/span><\/p>\n

80.\u00a0In 2011, Usher Sports Shop had cash flows from investing activities of ($2,150,000) and cash flows from financing activities of ($3,219,000). The balance in the firm’s cash account was $980,000 at the beginning of 2011 and $1,025,000 at the end of the year. Calculate Usher Sports Shop’s cash flow from operations for 2011.\u00a0
A.\u00a0$6,219,000
B.\u00a0$5,414,000
C.\u00a0$4,970,000
D.\u00a0$5,980,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

81.\u00a0You are considering an investment in Fields and Struthers, Inc. and want to evaluate the firm’s free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $52 million, paid taxes of $10 million, and its depreciation expense was $5 million. Fields and Struthers’ gross fixed assets increased by $38 million from 2010 to 2011. The firm’s current assets increased by $20 million and spontaneous current liabilities increased by $12 million. Calculate Fields and Struthers’ operating cash flow (OCF), investment in operating capital (IOC) and free cash flow (FCF) for 2011.\u00a0
A.\u00a0OCF = $42,000,000; IOC = $37,000,000; FCF = $5,000,000
B.\u00a0OCF = $47,000,000; IOC = $37,000,000; FCF = $10,000,000
C.\u00a0OCF = $42,000,000; IOC = $46,000,000; FCF = -$4,000,000
D.\u00a0OCF = $47,000,000; IOC = $46,000,000; FCF = $1,000,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

82.\u00a0Tater and Pepper Corp. reported free cash flows for 2010 of $20 million and investment in operating capital of $15 million. Tater and Pepper listed $8 million in depreciation expense and $12 million in taxes on its 2010 income statement. Calculate Tater and Pepper’s 2010 EBIT.\u00a0
A.\u00a0$49,000,000
B.\u00a0$42,000,000
C.\u00a0$39,000,000
D.\u00a0$47,000,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

83.\u00a0Mr. Husker’s Tuxedos, Corp. began the year 2011 with $205 million in retained earnings. The firm earned net income of $30 million in 2011 and paid $5 million to its preferred stockholders and $12 million to its common stockholders. What is the year-end 2011 balance in retained earnings for Mr. Husker’s Tuxedos?\u00a0
A.\u00a0$193,000,000
B.\u00a0$200,000,000
C.\u00a0$213,000,000
D.\u00a0$218,000,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

84.\u00a0Brenda’s Bar and Grill has total assets of $17 million of which $5 million are current assets. Cash makes up 12 percent of the current assets and accounts receivable makes up another 40 percent of current assets. Brenda’s gross plant and equipment has a cost value of $12 million and other long-term assets have a cost value of $1,000,000. Using this information, what is the balance of inventory and the balance of depreciation on Brenda’s Bar and Grill’s balance sheet?\u00a0
A.\u00a0$2.4 million; $1 million
B.\u00a0$3.4 million; $2 million
C.\u00a0$1.4 million; $1 million
D.\u00a0$0.4 million; $3 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

85.\u00a0Ed’s Tobacco Shop has total assets of $100 million. Fifty percent of these assets are financed with debt of which $37 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $32 million. Using this information what is the balance for long-term debt and retained earnings on Ed’s Tobacco Shop’s balance sheet?\u00a0
A.\u00a0$18 million; $27 million
B.\u00a0$12 million; $12 million
C.\u00a0$14 million; $29 million
D.\u00a0$13 million; $18 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

86.\u00a0Muffin’s Masonry, Inc.’s balance sheet lists net fixed assets as $16 million. The fixed assets could currently be sold for $17 million. Muffin’s current balance sheet shows current liabilities of $5.5 million and net working capital of $6.5 million. If all the current accounts were liquidated today, the company would receive $10.25 million cash after paying $5.5 million in liabilities. What is the book value of Muffin’s Masonry’s assets today? What is the market value of these assets?\u00a0
A.\u00a0Book Value: $28M; Market Value: $32.75M
B.\u00a0Book Value: $32M; Market Value: $42.25M
C.\u00a0Book Value: $32M; Market Value: $32.75M
D.\u00a0Book Value: $28M; Market Value: $42.25M<\/span><\/p>\n

\u00a0<\/span><\/p>\n

87.\u00a0You have been given the following information for Corky’s Bedding Corp.:
Net sales = $15,250,000;
Cost of goods sold = $5,750,000;
Addition to retained earnings = $4,000,000;
Dividends paid to preferred and common stockholders = $995,000;
Interest expense = $1,150,000.
The firm’s tax rate is 30 percent. Calculate the depreciation expense for Corky’s Bedding Corp.\u00a0
A.\u00a0$1,210,000
B.\u00a0$1,970,000
C.\u00a0$1,520,000
D.\u00a0$1,725,000<\/span><\/p>\n

\u00a0<\/span><\/p>\n

88.\u00a0Dogs 4 U Corporation has net cash flow from financing activities for the last year of $10 million. The company paid $8 million in dividends last year. During the year, the change in notes payable on the balance was $9 million, and change in common and preferred stock was $0 million. The end of year balance for long-term debt was $44 million. Calculate the beginning of year balance for long-term debt.\u00a0
A.\u00a0$37 million
B.\u00a0$34 million
C.\u00a0$33 million
D.\u00a0$35 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

89.\u00a0The 2011 income statement for Duffy’s Pest Control shows that depreciation expense is $180 million, EBIT is $420 million, EBT is $240 million, and the tax rate is 30 percent. At the beginning of the year, the balance of gross fixed assets was $1,500 million and net operating working capital was $500 million. At the end of the year gross fixed assets was $1,803 million. Duffy’s free cash flow for the year was $425 million. Calculate the end of year balance for net operating working capital.\u00a0
A.\u00a0$403 million
B.\u00a0$300 million
C.\u00a0$203 million
D.\u00a0$103 million<\/span><\/p>\n

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90.\u00a0The CEO of Tom and Sue’s wants the company to earn a net income of $3.25 million in 2010. Cost of goods sold is expected to be 60 percent of net sales, depreciation expense is $2.9 million, interest expense is expected to increase to $1.050 million, and the firm’s tax rate will be 30 percent. Calculate the net sales needed to produce net income of $3.25 million.\u00a0
A.\u00a0$26.02 million
B.\u00a0$29.36 million
C.\u00a0$21.48 million
D.\u00a0$28.25 million<\/span><\/p>\n

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91.\u00a0All of the following would be a result of changing to the MACRS method of depreciation except _______.\u00a0
A.\u00a0Higher depreciation expense
B.\u00a0Lower taxes in the early years of a project’s life
C.\u00a0Lower taxable income in the early years of a project’s life
D.\u00a0All of these.<\/span><\/p>\n

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92.\u00a0Which of the following is NOT a source of cash?\u00a0
A.\u00a0The firm reduces its inventory.
B.\u00a0The firm pays off some of its long-term debt.
C.\u00a0The firm has positive net income.
D.\u00a0The firm sells more common stock.<\/span><\/p>\n

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93.\u00a0Which of the following is a use of cash?\u00a0
A.\u00a0The firm takes its depreciation expense.
B.\u00a0The firm sells some of its fixed assets.
C.\u00a0The firm issues more long-term debt.
D.\u00a0The firm decreases its accrued wages and taxes.<\/span><\/p>\n

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94.\u00a0Is it possible for a firm to have positive net income and yet to have cash flow problems?\u00a0
A.\u00a0No, this is impossible since net income increases the firm’s cash.
B.\u00a0Yes, this can occur when a firm is growing very rapidly.
C.\u00a0Yes, this is possible if the firm window-dressed its financial statements.
D.\u00a0No, this is impossible since net income and cash are highly correlated.<\/span><\/p>\n

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95.\u00a0All of the following are cash flows from operations except _____________.\u00a0
A.\u00a0Increases or decreases in cash
B.\u00a0Net Income
C.\u00a0Depreciation
D.\u00a0Increases or decreases in accounts payable<\/span><\/p>\n

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96.\u00a0All of the following are cash flows from financing except a(n) _________.\u00a0
A.\u00a0Increase in accounts payable
B.\u00a0Issuing stock
C.\u00a0Stock repurchases
D.\u00a0Paying dividends<\/span><\/p>\n

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97.\u00a0Cash flows available to pay the firm’s stockholders and debt holders after the firm has made the necessary working capital investments, fixed asset investments, and developed the necessary new products to sustain the firm’s ongoing operations is referred to as _________________.\u00a0
A.\u00a0Operating cash flow
B.\u00a0Net operating working capital
C.\u00a0Free cash flow
D.\u00a0None of these.<\/span><\/p>\n

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98.\u00a0Investment in operating capital is __________________________.\u00a0
A.\u00a0The change in assets plus the change in current liabilities
B.\u00a0The change in gross fixed assets plus depreciation
C.\u00a0The change in gross fixed assets plus the change in free cash flow
D.\u00a0None of these.<\/span><\/p>\n

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99.\u00a0A firm had EBIT of $1,000, paid taxes of $225, expensed depreciation at $13, and its gross fixed assets increased by $25. What was the firm’s operating cash flow?\u00a0
A.\u00a0$763
B.\u00a0$737
C.\u00a0$813
D.\u00a0$788<\/span><\/p>\n

\u00a0<\/span><\/p>\n

100.\u00a0Which of the following is an example of a capital structure?\u00a0
A.\u00a015% current assets and 85% fixed assets
B.\u00a010% current liabilities and 90% long-term debt
C.\u00a020% debt and 80% equity
D.\u00a0None of these.<\/span><\/p>\n

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101.\u00a0Lemmon Inc. lists fixed assets of $100 on its balance sheet. The firm’s fixed assets have recently been appraised at $140. The firm’s balance sheet also lists current assets at $15. Current assets were appraised at $16.5. Current liabilities book and market values stand at $12 and the firm’s long-term debt is $40. Calculate the market value of the firm’s stockholders’ equity.\u00a0
A.\u00a0$156.5
B.\u00a0$112.50
C.\u00a0$104.50
D.\u00a0$144.50<\/span><\/p>\n

\u00a0<\/span><\/p>\n

102.\u00a0A firm has operating income of $1,000, depreciation expense of $185 and its investment in operating capital is $400. The firm is 100% equity financed and has a 35% tax rate. What is the firm’s operating cash flow?\u00a0
A.\u00a0$725
B.\u00a0$795
C.\u00a0$835
D.\u00a0$965<\/span><\/p>\n

\u00a0<\/span><\/p>\n

103.\u00a0All of the following are reasons that one should be cautious in interpreting financial statements except ____________.\u00a0
A.\u00a0Firms can take steps to over- or understate earnings at various times.
B.\u00a0It is difficult to compare two firms that use different depreciation methods.
C.\u00a0Financial managers have quite a bit of latitude in using accounting rules to manage their reported earnings.
D.\u00a0All of these are reasons to be cautious in interpreting financial statements.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

104.\u00a0Which of the following statements is correct?\u00a0
A.\u00a0The bottom line on the statement of cash flows equals the change in the retained earnings on the balance sheet.
B.\u00a0The reason the statement of cash flows is important is because cash is what pays the firm’s obligations, not accounting profit.
C.\u00a0If a firm has accounting profit, its cash account will always increase.
D.\u00a0All of these statements are correct.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

105.\u00a0ABC Inc. has $100 in cash on its balance at the end of 2009. During 2010, the firm issued $450 in common stock, reduced its notes payable by $40, purchased fixed assets in the amount of $750 and had cash flows from operating activities of $315. How much cash did ABC Inc. have on its balance sheet at the end of 2010?\u00a0
A.\u00a0$75
B.\u00a0$140
C.\u00a0$225
D.\u00a0-$25<\/span><\/p>\n

\u00a0<\/span><\/p>\n

106.\u00a0LLV Inc. originally forecasted the following financial data for next year: Sales = $1,000, Cost of goods sold = $675 and Interest expense = $90. The firm believes that COGS will always be 67.5% of sales. Due to increased global demand, the firm is now projecting that sales will be 20% higher than the original forecast. What is the additional<\/em> net income (as compared to the original forecast) the firm can expect assuming a 35% tax rate?\u00a0
A.\u00a0$59.45
B.\u00a0$195.00
C.\u00a0$42.25
D.\u00a0$74.00<\/span><\/p>\n

\u00a0<\/span><\/p>\n

107.\u00a0LLV Inc. originally forecasted the following financial data for next year: Sales = $1,000, Cost of goods sold = $710 and Interest expense = $95. The firm believes that COGS will always be 71% of sales. Due to pressure from shareholders, the firm wants to achieve a net income of $150. Assuming the interest expense will remain the same, how large must sales be to achieve this goal? Assume a 35% tax rate.\u00a0
A.\u00a0$1,403.82
B.\u00a0$1,3009.18
C.\u00a0$1,123.34
D.\u00a0$1,296.51<\/span><\/p>\n

\u00a0<\/span><\/p>\n

108.\u00a0A firm has sales of $690, EBIT of $300, depreciation of $40 and fixed assets increased by $265. If the firm’s tax rate is 40% and there were no increases in net operating working capital, what is the firm’s free cash flow?\u00a0
A.\u00a0$15
B.\u00a0$75
C.\u00a0-$45
D.\u00a0-$55<\/span><\/p>\n

\u00a0<\/span><\/p>\n

109.\u00a0GW Inc. had $800 million in retained earnings at the beginning of the year. During the year, the firm paid $.75 per share dividend and generated $1.92 earnings per share. The firm has 100 million shares outstanding. At the end of year, what was the level of retained earnings for GW?\u00a0
A.\u00a0$725 million
B.\u00a0$917 million
C.\u00a0$882 million
D.\u00a0$807 million<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Essay Questions<\/span><\/strong>
\u00a0<\/span><\/p>\n

110.\u00a0LG 5 2-21 Statement of Cash Flows<\/strong> Use the balance sheet and income statement below to construct a statement of cash flows for Betty’s Bakery Corp.<\/span><\/p>\n

\u00a0\"\"\u00a0

<\/span>\u00a0<\/p>\n

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111.\u00a0When might earnings management become an ethical consideration?\u00a0<\/span><\/p>\n


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112.\u00a0How do taxes influence how corporate managers’ and investors’ structure transactions and capitalize their companies?\u00a0<\/span><\/p>\n


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113.\u00a0How would you explain to a friend why market value of a firm is more important to an investor than book value of the firm?\u00a0<\/span><\/p>\n


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114.\u00a0What are free cash flows for a firm? What does it mean when a firm’s free cash flow is negative?\u00a0<\/span><\/p>\n


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\u00a0<\/span><\/p>\n

115.\u00a0What are the costs and benefits of holding liquid securities on a firm’s balance sheet?\u00a0<\/span><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Chapter 02 Reviewing Financial Statements \u00a0\u00a0 Multiple Choice Questions\u00a0 1.\u00a0Which financial statement reports a firm’s assets, liabilities, and equity at a particular point in time?\u00a0A.\u00a0Balance SheetB.\u00a0Income StatementC.\u00a0Statement of Retained EarningsD.\u00a0Statement of Cash Flows \u00a0 2.\u00a0Which financial statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-47454","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/47454","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=47454"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/47454\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=47454"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=47454"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=47454"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}