Exam 3: Understanding Financial Statements and Cash Flows

Additional Paid in Capital on the balance sheet equals the amount paid by investors for the company's common stock that exceeds the market price of the stock at the time of purchase.

PDQ Corp.has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000.The firm's interest expense is $250,000,and the corporate tax rate is 40%.What is PDQ's tax liability? A) $258,000 B) $260,000 C) $360,000 D) $600,000

Generally accepted accounting principles (GAAP)require finance statements prepared on a cash basis because these statements are most useful for investors and managers.

The balance sheet reflects the accounting equation: Assets = Liabilities + Owners' Equity.

Baron,Inc.has total current assets of $1,200,000; total current liabilities of $500,000; and long-term assets of $800,000.How much is the firm's Total Liabilities & Equity?

In order to be conservative,accrual accounting requires that expenses be recorded when incurred,but revenues are recorded only after the cash has been received.

Which of the following accounts belong in the liability section of a balance sheet?

A company borrows $2,000,000 and uses the money to purchase high technology machinery for its operations.These are examples of

The profit and loss (income)statement is compiled on a cash basis.

Inventories are considered fixed assets because inventory levels remain fairly constant throughout the year.

Please refer to Table 3-1 for the following questions. Table 3-1 Jones Company Financial Information -Based on the information in Table 3-1,calculate the after tax cash flow from operations for 2008 (no assets were disposed of during the year,and there was no change in interest payable or taxes payable).

Gross profit is equal to

The retained earnings balance on IBM's balance sheet at the end of 2010 is equal to IBM's 2010 net income minus dividends paid in 2010.

The accounting book value of an asset represents the historical cost of the asset rather than its current market value or replacement cost.

Corporation A decides to borrow $1,000,000 and use the money to buy back $1,000,000 of its common stock.The corporation pays 6% interest on its borrowed funds which exactly equals the amount of the dividend it used to pay on the common stock it repurchased.Therefore,

Financing activities have no impact on the income statement,but rather are reflected in changes in long-term debt and short-term debt on the balance sheet.

Which of the following accounts belongs in the equity section of a balance sheet?

Company A and Company B both report the same level of sales and net income.Therefore,

Li Retailing reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000.Li's net profit margin is equal to

Earnings available to common shareholders is equal to a corporation's positive net cash flow over a given period,typically one year.