Question 1

Johnson's Nursery has net income of $42,500,depreciation expense of $1,800,interest expense of $900,taxes of $1,600,additions to net working capital of $2,300,and capital expenditures of $11,700.What is the amount of the free cash flow?

Accepted Answer

A)  $30,300 
B)  $34,400 
C)  $31,200 
D)  $28,700

Question 2

Calculate the EBIT 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)

Question 3

Which of the following forms of income can individuals defer from taxation?

Accepted Answer

A)  Dividends 
B)  Interest 
C)  Realized capital gains 
D)  Unrealized capital gains

Question 4

If a firm pays taxes,which one of these will reduce net income but increase cash flow?

Accepted Answer

A)  Depreciation expense 
B)  Income taxes 
C)  Cash sales 
D)  Interest expense

Question 5

Businesses that aggressively exploit any means possible to increase current earnings may cross over into fraudulent account practices.

Accepted Answer

A) True 
 B)False

Question 6

Book values are "forward-looking" measures of value.

Accepted Answer

A) True 
 B)False

Question 7

What is the change in cash for a firm with the following: $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

A)  $5,600 
B)  $9,600 
C)  $9,400 
D)  $5,400

Question 8

What is the fundamental difference between IFRS and GAAP?

Accepted Answer

A)  GAAP relies more on general principles but ignores the spirit of those principles. 
B)  GAAP relies more on specific rules and the spirit of the rules. 
C)  GAAP relies more on specific rules but not the spirit of the rules. 
D)  GAAP relies more on general principles as well as the spirit of those rules.

Question 9

A major goal of the Sarbanes-Oxley Act is to:

Accepted Answer

A)  increase transparency in the financial reporting of a firm's activities. 
B)  require firms to provide common-size balance sheets to shareholders. 
C)  lower corporate tax rates. 
D)  require U.S. firms to abide by international accounting standards.

Question 10

The gathering of related revenues and expenses into the same period,regardless of when they were incurred,is:

Accepted Answer

A)  cash-basis accounting. 
B)  market-value accounting. 
C)  book-value accounting. 
D)  accrual accounting.

Question 11

An increase in depreciation expense will (other things equal):

Accepted Answer

A)  increase net income. 
B)  decrease net income. 
C)  increase taxable income. 
D)  decrease the market value of assets.

Question 12

A company may deduct the interest paid to debtholders and the dividends paid to shareholders when calculating its taxable income.

Accepted Answer

A) True 
 B)False

Question 13

A balance sheet may be considered backward-looking from the perspective that it:

Accepted Answer

A)  works backward, starting with net income. 
B)  records historic, not current values. 
C)  cannot forecast the future. 
D)  records costs over many previous periods.

Question 14

The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its investments and financing activities.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  Cash provided by operations. 
B)  Cash flows from investments. 
C)  Cash provided by (used for) financing activities. 
D)  Current liabilities.

Question 16

The purchase of new equipment is a use of cash,and it reduces the firm's net cash balance.

Accepted Answer

A) True 
 B)False

Question 17

Interest expense appears in the operations section of the statement of cash flows because:

Accepted Answer

A)  firms cannot operate without incurring interest expense. 
B)  its payment is not within managerial discretion. 
C)  it is paid to finance a firm's inventory. 
D)  none of the options; interest expense appears in the financing section of the statement of cash flows.

Question 18

The payment of interest expense is considered a financing activity in the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Assume tax rates on single individuals are 10% on taxable income up to $9,275,15% on income of $9,276 to $37,650 and 25% on income of $37,651 to $91,150.What is the tax liability for a single individual with $52,000 of taxable income,which includes $2,000 of dividends?

Accepted Answer

A)  $8,771.25 
B)  $9,103.50 
C)  $8,603.50 
D)  $8,356.25

Question 20

If the value of a firm's net fixed assets equals the value of the accumulated depreciation,from an accounting context the fixed assets are:

Accepted Answer

A)  new. 
B)  fully depreciated. 
C)  one-half depreciated. 
D)  equal in value to the firm's current assets.

Exam 3: Accounting and Finance

Johnson's Nursery has net income of $42,500,depreciation expense of $1,800,interest expense of $900,taxes of $1,600,additions to net working capital of $2,300,and capital expenditures of $11,700.What is the amount of the free cash flow?

Calculate the EBIT 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 forms of income can individuals defer from taxation?

If a firm pays taxes,which one of these will reduce net income but increase cash flow?

Businesses that aggressively exploit any means possible to increase current earnings may cross over into fraudulent account practices.

Book values are "forward-looking" measures of value.

What is the change in cash for a firm with the following: $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 is the fundamental difference between IFRS and GAAP?

A major goal of the Sarbanes-Oxley Act is to:

The gathering of related revenues and expenses into the same period,regardless of when they were incurred,is:

An increase in depreciation expense will (other things equal) :

A company may deduct the interest paid to debtholders and the dividends paid to shareholders when calculating its taxable income.

A balance sheet may be considered backward-looking from the perspective that it:

The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its investments and financing activities.

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

The purchase of new equipment is a use of cash,and it reduces the firm's net cash balance.

Interest expense appears in the operations section of the statement of cash flows because:

The payment of interest expense is considered a financing activity in the statement of cash flows.

Assume tax rates on single individuals are 10% on taxable income up to $9,275,15% on income of $9,276 to $37,650 and 25% on income of $37,651 to $91,150.What is the tax liability for a single individual with $52,000 of taxable income,which includes $2,000 of dividends?

If the value of a firm's net fixed assets equals the value of the accumulated depreciation,from an accounting context the fixed assets are: