Exam 2: Financial Statements, Cash Flow, and Taxes

The retained earnings account on the balance sheet does not represent cash.Rather, it represents part of stockholders' claims against the firm's existing assets.This implies that retained earnings are in fact stockholders' reinvested earnings.

JBS Inc.recently reported net income of $4,750 and depreciation of $885.How much was its net cash provided (used) by operations, assuming it had no amortization expense, added $200 to inventories, sold none of its fixed assets, and had a $200 increase in accounts payable?

The income statement shows the difference between a firm's income and its costs⎯i.e., its profits⎯during a specified period of time.However, not all reported income comes in the form or cash, and reported costs likewise may not correctly reflect cash outlays.Therefore, there may be a substantial difference between a firm's reported profits and its actual cash flow for the same period.

The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time, while the income statement measures the firm's financial position at a point in time.

Which of the following statements is CORRECT?

Hunter Manufacturing Inc.'s December 31, 2019 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding.During 2020, Hunter had $250,000 of net income, and it paid out $100,000 as dividends.What was the book value per share at 12/31/2020, assuming that Hunter neither issued nor retired any common stock during 2020?

Which of the following statements is CORRECT?

Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%.How much was the firm's taxable income, or earnings before taxes (EBT)?

A security analyst obtained the following information from Prestopino Products' financial statements: ∙ Retained earnings at the end of the previous year were $700,000, but retained earnings at the end of the current year had declined to $320,000. ∙ The company does not pay dividends. ∙ The company's depreciation expense is its only non-cash expense; it has no amortization charges. ∙ The company has no non-cash revenues. ∙ The company's net cash provided (used) by operations for the current year was $150,000. On the basis of this information, which of the following statements is CORRECT?

Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and $1,250 of depreciation.The company had no amortization charges, it had $3,500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 25%.This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $725.By how much will the depreciation change cause the firm's net after-tax income to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Last year Tiemann Technologies reported $10,500 of sales, $6,250 of operating costs other than depreciation, and $1,300 of depreciation.The company had no amortization charges, it had $5,000 of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 25%.This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $750.By how much will net after-tax income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.

To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Which of the following statements is CORRECT?

Zumbahlen Inc.has the following balance sheet.How much total operating capital does the firm have? Cash \ 20.00 Accounts payable \ 30.00 Short-term investments 50.00 Accruals 50.00 Accounts receivable 20.00 Notes payable 30.00 Inventory 60.00 Current liabilities \ 110.00 Current assets \ 150.00 Long-term debt 70.00 Gross fixed assets \ 140.00 Common stock 30.00 Accumulated deprec. 40.00 Retained earnings 40.00 Net fixed assets \ 100.00 Total common equity \ 70.00 Total assets \ 250.00 Total liab. \& equity \ 250.00

The fact that 50% of the interest income received by a corporation is excluded from its taxable income encourages firms to use more debt financing than they would in the absence of this tax law provision.

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000.The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share.By how much do the firm's market and book values per share differ?

Assume that Congress recently passed a provision that will enable Barton's Rare Books (BRB) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate.Prior to the new provision, BRB's net income after taxes was forecasted to be $4 million.Which of the following best describes the impact of the new provision on BRB's financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?