Question 1

Explain the difference between a market-value balance sheet and a book-value balance sheet.

Accepted Answer

For some assets, depreciation expense is an accurate portrayal of reduction in market value.However, it is not at all uncommon for market value to be distinctly different from depreciated book value.This can be especially True for land, which is not depreciated but has often appreciated if it has been on the books for a long period of time.In a similar manner, liabilities may have a different market value if market interest rates on similar liabilities have changed sufficiently since the liability was issued.Finally, investors and analysts may have critical information about the future prospects for the firm that has not been incorporated into current generally accepted accounting principles.

Question 2

Determine earnings before interest and taxes, net income and also the cash flow from operations for the following firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods sold, $20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $10,000 purchase of productive equipment, no changes in working capital, and a tax rate of 34%.

Accepted Answer

The answer of Determine earnings before interest and taxes, net...

Question 3

Which of the following is correct for a fully depreciated asset?

Accepted Answer

A) Market value is zero 
B) Market value is greater than book value 
C) Book value is greater than market value 
D) The relationship between market and book values is indeterminable 
A) Market value is zero 
B) Market value is greater than book value 
C) Book value is greater than market value 
D) The relationship between market and book values is indeterminable D

Question 4

In a statement of cash flows, which category includes depreciation expense?

Accepted Answer

A) Operations 
B) Investments 
C) Financing 
D) None of the above; depreciation is a non-cash expense. 
A) Operations 
B) Investments 
C) Financing 
D) None of the above; depreciation is a non-cash expense.

Question 5

What is the firm's net income?

Accepted Answer

The answer of What is the firm's net income?...

Question 6

Net working capital is calculated by taking the difference between:

Accepted Answer

A) Total assets and total liabilities 
B) Inventory and accounts payable 
C) Current assets and current liabilities 
D) Cash and long-term debt 
A) Total assets and total liabilities 
B) Inventory and accounts payable 
C) Current assets and current liabilities 
D) Cash and long-term debt

Question 7

If market interest rates have increased since a company last borrowed long-term funds, the market value of these long-term funds will likely be:

Accepted Answer

A) greater than their book value 
B) less than their book value 
C) Equal to their book value 
D) Unknown without knowing the maturity of the debt 
A) greater than their book value 
B) less than their book value 
C) Equal to their book value 
D) Unknown without knowing the maturity of the debt

Question 8

Which of the following is more likely to be correct if market value of equity is less than book value of equity?

Accepted Answer

A) Investors anticipate excellent earning potential 
B) Investors anticipate low earning potential 
C) Assets have been fully depreciated 
D) The company is bankrupt 
A) Investors anticipate excellent earning potential 
B) Investors anticipate low earning potential 
C) Assets have been fully depreciated 
D) The company is bankrupt

Question 9

Calculate cash inflow (outflow) from financing activities given the following information: acquisition of business operations $925; disposal of property $605; disposal of intangible asset $175; interest received $80; proceeds of share issue $1,400; repayment of loan $195; dividends paid $200.

Accepted Answer

A) Outflow of $180 
B) Outflow of $65 
C) Inflow of $1,395 
D) Inflow of $220 
A) Outflow of $180 
B) Outflow of $65 
C) Inflow of $1,395 
D) Inflow of $220

Question 10

Foreign corporations may be more likely in the future to develop their financial statements according to GAAP so that:

Accepted Answer

A) They can reduce or avoid the payment of income taxes 
B) Maintain reserves that are hidden from shareholders 
C) They can adhere to less stringent accounting standards 
D) Their stock qualifies for listing on U.S.exchanges 
A) They can reduce or avoid the payment of income taxes 
B) Maintain reserves that are hidden from shareholders 
C) They can adhere to less stringent accounting standards 
D) Their stock qualifies for listing on U.S.exchanges

Question 11

The Net Income figure on an income statement is calculated before deducting:

Accepted Answer

A) Interest expense 
B) Depreciation expense 
C) Cash dividends 
D) Tax liability 
A) Interest expense 
B) Depreciation expense 
C) Cash dividends 
D) Tax liability

Question 12

Which of the following cash outflows does not reduce a firm's net income?

Accepted Answer

A) Income taxes 
B) Interest expense 
C) Dividends 
D) Depreciation expense 
A) Income taxes 
B) Interest expense 
C) Dividends 
D) Depreciation expense

Question 13

Which statement is correct about the tax treatment of dividend income and capital gains received inside pension funds?

Accepted Answer

A) Dividends are taxable while capital gains are not taxable 
B) Capital gains are taxable while dividends are not taxable 
C) Both dividends and capital gains are taxable 
D) Neither dividends nor capital gains are taxable 
A) Dividends are taxable while capital gains are not taxable 
B) Capital gains are taxable while dividends are not taxable 
C) Both dividends and capital gains are taxable 
D) Neither dividends nor capital gains are taxable

Question 14

Marginal tax rates are based on:

Accepted Answer

A) Net income 
B) Total income 
C) An additional dollar of income 
D) Earnings before interest and taxes 
A) Net income 
B) Total income 
C) An additional dollar of income 
D) Earnings before interest and taxes

Question 15

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold:

Accepted Answer

A) Will be recognized in the first period 
B) Will be recognized in the second period 
C) Will be recognized when payment is received 
D) Will be split between both periods 
A) Will be recognized in the first period 
B) Will be recognized in the second period 
C) Will be recognized when payment is received 
D) Will be split between both periods

Question 16

Calculate the EBIT (Earnings Before Interest and Taxes) for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense.

Accepted Answer

A) $500,000 
B) $380,000 
C) $0 
D) $120,000 
A) $500,000 
B) $380,000 
C) $0 
D) $120,000

Question 17

Which of the following statements appears correct for a corporation with a negative net income in both the present and the last fiscal year?

Accepted Answer

A) This year's loss can be carried back, but last year's loss cannot be used 
B) Neither of the losses can be used to reduce taxes 
C) Both losses can be carried forward but not backward 
D) Both losses can be carried forward and backward, within certain time limits 
A) This year's loss can be carried back, but last year's loss cannot be used 
B) Neither of the losses can be used to reduce taxes 
C) Both losses can be carried forward but not backward 
D) Both losses can be carried forward and backward, within certain time limits

Question 18

What is the change in cash balance for a firm with: $10,000 cash flow from operations; $1,600 cash used for new investment; a reduction in the level of debt of $2,000; $1,000 in cash dividends; and $200 in depreciation expense?

Accepted Answer

The answer of What is the change in cash balance...

Question 19

What happens when moving from net income to cash flows as the result of an increase in inventory balances?

Accepted Answer

A) Cash flows increase 
B) Cash flows decrease 
C) Cash flows are unchanged 
D) The change in cash flows cannot be determined 
A) Cash flows increase 
B) Cash flows decrease 
C) Cash flows are unchanged 
D) The change in cash flows cannot be determined

Question 20

Consider the firm described in the following paragraph.It spends $200 to produce goods in period 1.In period 2 it sells half of those goods for $150, but doesn't collect payment until one period later.In period 3, it sells the other half of the goods for $150, and collects on these sales in period 4.Calculate the profits and the cash flows for this firm in periods 1-4 by completing a table as shown below.

Accepted Answer

The profits for the firm are recognized

Exam 3: Accounting and Finance

Explain the difference between a market-value balance sheet and a book-value balance sheet.

Which of the following is correct for a fully depreciated asset?

In a statement of cash flows, which category includes depreciation expense?

What is the firm's net income?

Net working capital is calculated by taking the difference between:

If market interest rates have increased since a company last borrowed long-term funds, the market value of these long-term funds will likely be:

Which of the following is more likely to be correct if market value of equity is less than book value of equity?

Calculate cash inflow (outflow) from financing activities given the following information: acquisition of business operations $925; disposal of property $605; disposal of intangible asset $175; interest received $80; proceeds of share issue $1,400; repayment of loan $195; dividends paid $200.

Foreign corporations may be more likely in the future to develop their financial statements according to GAAP so that:

The Net Income figure on an income statement is calculated before deducting:

Which of the following cash outflows does not reduce a firm's net income?

Which statement is correct about the tax treatment of dividend income and capital gains received inside pension funds?

Marginal tax rates are based on:

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold:

Calculate the EBIT (Earnings Before Interest and Taxes) for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense.

Which of the following statements appears correct for a corporation with a negative net income in both the present and the last fiscal year?

What is the change in cash balance for a firm with: $10,000 cash flow from operations; $1,600 cash used for new investment; a reduction in the level of debt of $2,000; $1,000 in cash dividends; and $200 in depreciation expense?

What happens when moving from net income to cash flows as the result of an increase in inventory balances?

Goals and Governance of the Firm

Financial Markets and Institutions

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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