Question 1

You have been given the following information for Kaye's Krumpet Corp.: Net sales = $150,000; Gross profit = $100,000; Addition to retained earnings = $20,000; Dividends paid to preferred and common stockholders = $8,000; Depreciation expense = $50,000.The firm's tax rate is 30 percent.What are the cost of goods sold and the interest expense for Kaye's Krumpet Corp.?

Accepted Answer

A)  $10,000, and $50,000, respectively 
B)  $50,000, and $10,000, respectively 
C)  $50,000, and $22,000, respectively 
D)  $62,000, and $10,000, respectively

Question 2

Soccer Starz,Inc.started the year with a balance of retained earnings of $25 million and ended the year with retained earnings of $32 million.The company paid dividends of $2 million to the preferred stock holders and $6 million to common stock holders.What was Soccer Starz's net income for the year?

Accepted Answer

A)  $7 million 
B)  $15 million 
C)  $40 million 
D)  $49 million

Question 3

Lemmon Inc.lists fixed assets of $100 on its balance sheet.The firm's fixed assets have recently been appraised at $140.The firm's balance sheet also lists current assets at $15.Current assets were appraised at $16.50.Current liabilities book and market values stand at $12 and the firm's long-term debt is $40.Calculate the market value of the firm's stockholders' equity.

Accepted Answer

A)  $156.50 
B)  $112.50 
C)  $104.50 
D)  $144.50

Question 4

A firm has sales of $690,EBIT of $300,depreciation of $40,and fixed assets increased by $265.If the firm's tax rate is 40 percent and there were no increases in net operating working capital,what is the firm's free cash flow?

Accepted Answer

A)  $15 
B)  $75 
C)  -$45 
D)  -$55

Question 5

You have been given the following information for Romeo's Rockers Corp.: Net sales = $5,200,000; Cost of goods sold = $2,100,000; Addition to retained earnings = $1,000,000; Dividends paid to preferred and common stockholders = $400,000; Interest expense = $200,000.The firm's tax rate is 30 percent.What is the depreciation expense for Romeo's Rockers Corp.?

Accepted Answer

A)  $900,000 
B)  $1,100,000 
C)  $1,500,000 
D)  $1,600,000

Question 6

A firm has sales of $50,000,EBIT of $10,000,depreciation of $4,000,and fixed assets increased by $2,000.If the firm's tax rate is 30 percent and a $1,000 increase in net operating working capital,what is the firm's free cash flow?

Accepted Answer

A)  $10,000 
B)  $9,000 
C)  $8,000 
D)  $1,200

Question 7

You have been given the following information for Sherry's Sandwich Corp.: Net sales = $300,000; Gross profit = $100,000; Addition to retained earnings = $30,000; Dividends paid to preferred and common stockholders = $8,500; Depreciation expense = $25,000.The firm's tax rate is 30 percent.What are the cost of goods sold and the interest expense for Sherry's Sandwich Corp.?

Accepted Answer

A)  $20,000, and $200,000, respectively 
B)  $100,000, and $20,000, respectively 
C)  $200,000, and $20,000, respectively 
D)  $200,000, and $36,500, respectively

Question 8

Ultra Inc.had $100 million in retained earnings at the beginning of the year.During the year,the firm paid $0.25 per share dividend and generated $2.00 earnings per share.The firm has 10 million shares outstanding.At the end of year,what was the level of retained earnings for GW?

Accepted Answer

A)  $100 million 
B)  $117.5 million 
C)  $120 million 
D)  $145 million

Question 9

Hair Etc.has total assets of $15 million.Twenty percent of these assets are financed with debt of which $1 million is current liabilities.The firm has no preferred stock but the balance in common stock and paid-in surplus is $8 million.Using this information what is the balance for long-term debt and retained earnings on Hair Etc.'s balance sheet?

Accepted Answer

A)  $1 million, $8 million 
B)  $2 million, $4 million 
C)  $2 million, $8 million 
D)  $3 million, $4 million

Question 10

Which financial statement reconciles net income earned during a given period and any cash dividends paid within that period using the change in retained earnings between the beginning and end of the period?

Accepted Answer

A)  balance sheet 
B)  income statement 
C)  statement of retained earnings 
D)  statement of cash flows

Question 11

You are evaluating the balance sheet for Ultra Corporation.From the balance sheet you find the following balances: cash and marketable securities = $10,000,accounts receivable = $2,000,inventory = $20,000,accrued wages and taxes = $1,000,accounts payable = $3,000,and notes payable = $10,000.Calculate Ultra's net working capital.

Accepted Answer

A)  $ 8,000 
B)  $18,000 
C)  $28,000 
D)  $32,000

Question 12

The 2018 income statement for Paige's Purses shows that depreciation expense is $10 million,EBIT is $25 million,EBT is $15 million,and the tax rate is 30 percent.At the beginning of the year,the balance of gross fixed assets was $80 million and net operating working capital was $30 million.At the end of the year gross fixed assets was $100 million.Paige's free cash flow for the year was $20 million.What is their end of year balance for net operating working capital?

Accepted Answer

A)  $10.5 million 
B)  $14 million 
C)  $20.5 million 
D)  $30.5 million

Question 13

Swimmy,Inc.had $400,000 in 2018 taxable income.Using the tax schedule from Table 2.3,what are the company's 2018 income taxes,average tax rate,and marginal tax rate,respectively?

Accepted Answer

A)  $22,100, 5.53%, 34% 
B)  $113,900, 28.48%, 34% 
C)  $136,000, 34.00%, 34% 
D)  $136,000, 39.00%, 34%

Question 14

Which of these is the term for the ease of conversion of an asset into cash at a fair value?

Accepted Answer

A)  liquidity 
B)  fair Market Value (FMV) 
C)  book Value 
D)  current Asset

Question 15

Reed's Birdie Shot,Inc.'s 2018 income statement lists the following income and expenses: EBIT = $550,000,interest expense = $43,000,and net income = $300,000.Calculate the 2018 taxes reported on the income statement.

Accepted Answer

A)  $85,000 
B)  $107,000 
C)  $309,000 
D)  $207,000

Question 16

Common stockholders' calculating equity divided by number of shares of common stock outstanding is the formula for

Accepted Answer

A)  earnings per share (EPS). 
B)  dividends per share (DPS). 
C)  book value per share (BVPS). 
D)  market value per share (MVPS).

Question 17

Which of the following is a use of cash?

Accepted Answer

A)  The firm takes its depreciation expense. 
B)  The firm sells some of its fixed assets. 
C)  The firm issues more long-term debt. 
D)  The firm decreases its accrued wages and taxes.

Question 18

Eccentricity,Inc.had $300,000 in 2018 taxable income.Using the tax schedule from Table 2.3,what are the company's 2018 income taxes,average tax rate,and marginal tax rate,respectively?

Accepted Answer

A)  $22,250, 7.42%, 39% 
B)  $78,000, 26.00%, 39% 
C)  $100,250, 33.42%, 39% 
D)  $139,250, 46.42%, 39%

Question 19

Oakdale Fashions Inc.had $255,000 in 2018 taxable income.If the firm paid $82,100 in taxes,what is the firm's average tax rate?

Accepted Answer

A)  34.70% 
B)  32.20% 
C)  29.90% 
D)  28.20%

Question 20

You are considering an investment in Fields and Struthers,Inc.and want to evaluate the firm's free cash flow.From the income statement,you see that Fields and Struthers earned an EBIT of $52 million,paid taxes of $10 million,and its depreciation expense was $5 million.Fields and Struthers' gross fixed assets increased by $38 million from 2012 to 2013.The firm's current assets increased by $20 million and spontaneous current liabilities increased by $12 million.Calculate Fields and Struthers' operating cash flow (OCF),investment in operating capital (IOC),and free cash flow (FCF)for 2013.

Accepted Answer

A)  OCF = $42,000,000; IOC = $37,000,000; FCF = $5,000,000 
B)  OCF = $47,000,000; IOC = $37,000,000; FCF = $10,000,000 
C)  OCF = $42,000,000; IOC = $46,000,000; FCF = -$4,000,000 
D)  OCF = $47,000,000; IOC = $46,000,000; FCF = $1,000,000

Exam 2: Reviewing Financial Statements