Exam 6: Accounting for Financial Management

Which of the following would be most likely to occur in the year after Congress,in an effort to increase tax revenue,passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales,other operating costs,and tax rates are not affected,and assume that the same depreciation method is used for tax and stockholder reporting purposes.

Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow last year,even though the cash on its balance sheet increased?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

DeYoung Devices Inc.,a new high-tech instrumentation firm,is building and equipping a new manufacturing facility.Assume that currently its equipment must be depreciated on a straight-line basis over 10 years,but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years.If the legislation becomes law,which of the following would occur in the year following the change?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

A security analyst obtained the following information from Prestopino Products' financial statements: ∙Retained earnings at the end of 2014 were $700,000,but retained earnings at the end of 2015 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 flow (NCF)for 2015 was $150,000. On the basis of this information,which of the following statements is CORRECT?

Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

For managerial purposes,i.e.,making decisions regarding the firm's operations,the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP)are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations.Related to these modifications,which of the following statements is CORRECT?

Below is the common equity section (in millions)of Fethe Industries' last two year-end balance sheets: 2015 2014 Common stock \ 2,000 \ 1,000 Retained earnings 2,000 2,340 Total common equity The company has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

The LeMond Corporation just purchased a new production line.Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis,but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years.Other things held constant,which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Rao Corporation has the following balance sheet.How much net operating working capital does the firm have? Cash \ 10 Accounts payable \ 20 Short-term investments Accruals 20 Accounts receivable 50 Notes payable 50 Inventory 40 Current liabilities 90 Current assets \ 130 Long-term debt 0 Net fixed assets 100 Common equity 30 Retained earnings 50 Total assets \ 230 Total liab. \& equity \ 230

The annual report contains four basic financial statements: the income statement,balance sheet,statement of cash flows,and statement of stockholders' equity.

Assets other than cash are expected to produce cash over time,but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

NNR Inc.'s balance sheet showed total current assets of $1,875,000 plus $4,225,000 of net fixed assets.All of these assets were required in operations.The firm's current liabilities consisted of $475,000 of accounts payable,$375,000 of 6% short-term notes payable to the bank,and $150,000 of accrued wages and taxes.Its remaining capital consisted of long-term debt and common equity.What was NNR's total investor-provided operating capital?

Net operating working capital is equal to operating current assets minus operating current liabilities.

The interest and dividends paid by a corporation are considered to be deductible operating expenses,hence they decrease the firm's tax liability.

If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense,this would probably encourage companies to use more debt financing than they presently do,other things held constant.

Hunter Manufacturing Inc.'s December 31,2014 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding.During 2015,Hunter had $250,000 of net income,and it paid out $100,000 as dividends.What was the book value per share at 12/31/2015,assuming that Hunter neither issued nor retired any common stock during 2015?