Question 1

Assume you are the financial officer of a major firm.The president of the firm has just stated that she wishes to reduce the firm's investment in current assets since those assets provide little,if any,return to the firm.How would you respond to this statement?

Accepted Answer

While it is true that current assets pro...

Question 2

Shareholders' equity:

Accepted Answer

A)  increases in value anytime total assets increases.
B)  is equal to total assets plus total liabilities.
C)  decreases whenever new shares of stock are issued.
D)  includes long-term debt, preferred stock, and common stock.
E)  represents the residual value of a firm.F) B) and E)
G) A) and E)

Question 3

Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes?
I.interest expense
II.taxes
III.costs of goods sold
IV.depreciation

Accepted Answer

A)  IV only
B)  II and IV only
C)  I and III only
D)  I and IV only
E)  I, II, and IV onlyF) All of the above
G) A) and C)

Question 4

The 2010 balance sheet of The Beach Shoppe showed long-term debt of $2.1 million,and the 2011 balance sheet showed long-term debt of $2.3 million.The 2011 income statement showed an interest expense of $250,000.What was the cash flow to creditors for 2011?

Accepted Answer

A)  -$200,000
B)  -$150,000
C)  $50,000
D)  $200,000
E)  $450,000F) A) and D)
G) A) and C)

Question 5

You recently purchased a grocery store.At the time of the purchase,the store's market value equaled its book value.The purchase included the building,the fixtures,and the inventory.Which one of the following is most apt to cause the market value of this store to be lower than the book value?

Accepted Answer

A)  a sudden and unexpected increase in inflation
B)  the replacement of old inventory items with more desirable products
C)  improvements to the surrounding area by other store owners
D)  construction of a new restricted access highway located between the store and the surrounding residential areas
E)  addition of a stop light at the main entrance to the store's parking lotF) B) and D)
G) B) and E)

Question 6

Suppose you are given the following information for Bayside Bakery: sales = $30,000; costs = $15,000; addition to retained earnings = $4,221; dividends paid = $469; interest expense = $1,300; tax rate = 30 percent.What is the amount of the depreciation expense?

Accepted Answer

A)  $4,820
B)  $5,500
C)  $7,000
D)  $8,180
E)  $9,500F) A) and C)
G) C) and D)

Question 7

Which one of the following is classified as an intangible fixed asset?

Accepted Answer

A)  accounts receivable
B)  production equipment
C)  building
D)  trademark
E)  inventoryF) All of the above
G) B) and D)

Question 8

Which one of the following statements related to liquidity is correct?

Accepted Answer

A)  Liquid assets tend to earn a high rate of return.
B)  Liquid assets are valuable to a firm.
C)  Liquid assets are defined as assets that can be sold quickly regardless of the price obtained.
D)  Inventory is more liquid than accounts receivable because inventory is tangible.
E)  Any asset that can be sold within the next year is considered liquid.F) B) and E)
G) A) and D)

Question 9

As long as a firm maintains a positive cash balance,why is it essential to review the firm's cash flows?

Accepted Answer

Firms can have positive cash balances be...

Question 10

Winston Industries had sales of $843,800 and costs of $609,900.The firm paid $38,200 in interest and $18,000 in dividends.It also increased retained earnings by $62,138 for the year.The depreciation was $76,400.What is the average tax rate?

Accepted Answer

A)  32.83 percent
B)  33.33 percent
C)  38.17 percent
D)  43.39 percent
E)  48.87 percentF) A) and C)
G) C) and D)

Question 11

Noncash items refer to:

Accepted Answer

A)  accrued expenses.
B)  inventory items purchased using credit.
C)  the ownership of intangible assets such as patents.
D)  expenses which do not directly affect cash flows.
E)  sales which are made using store credit.F) C) and E)
G) B) and C)

Question 12

Net capital spending:

Accepted Answer

A)  is equal to ending net fixed assets minus beginning net fixed assets.
B)  is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.
C)  reflects the net changes in total assets over a stated period of time.
D)  is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital.
E)  is equal to the net change in the current accounts.F) A) and D)
G) B) and C)

Question 13

Crandall Oil has total sales of $1,349,800 and costs of $903,500.Depreciation is $42,700 and the tax rate is 34 percent.The firm does not have any interest expense.What is the operating cash flow?

Accepted Answer

A)  $129,152
B)  $171,852
C)  $179,924
D)  $281,417
E)  $309,076F) A) and B)
G) A) and D)

Question 14

Which term relates to the cash flow which results from a firm's ongoing,normal business activities?

Accepted Answer

A)  operating cash flow
B)  capital spending
C)  net working capital
D)  cash flow from assets
E)  cash flow to creditorsF) C) and D)
G) B) and E)

Question 15

Which one of the following is NOT included in cash flow from assets?

Accepted Answer

A)  accounts payable
B)  inventory
C)  sales
D)  interest expense
E)  cash accountF) B) and E)
G) A) and C)

Question 16

The higher the degree of financial leverage employed by a firm,the:

Accepted Answer

A)  higher the probability that the firm will encounter financial distress.
B)  lower the amount of debt incurred.
C)  less debt a firm has per dollar of total assets.
D)  higher the number of outstanding shares of stock.
E)  lower the balance in accounts payable.F) D) and E)
G) All of the above

Question 17

The cash flow related to interest payments less any net new borrowing is called the:

Accepted Answer

A)  operating cash flow.
B)  capital spending cash flow.
C)  net working capital.
D)  cash flow from assets.
E)  cash flow to creditors.F) C) and E)
G) All of the above

Question 18

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

Accepted Answer

A)  mean
B)  residual
C)  total
D)  average
E)  marginalF) B) and D)
G) A) and B)

Question 19

Which one of the following statements is correct concerning a corporation with taxable income of $125,000?

Accepted Answer

A)  Net income minus dividends paid will equal the ending retained earnings for the year.
B)  An increase in depreciation will increase the operating cash flow.
C)  Net income divided by the number of shares outstanding will equal the dividends per share.
D)  Interest paid will be included in both net income and operating cash flow.
E)  An increase in the tax rate will increase both net income and operating cash flow.F) A) and B)
G) A) and C)

Question 20

The _____ tax rate is equal to total taxes divided by total taxable income.

Accepted Answer

A)  deductible
B)  residual
C)  total
D)  average
E)  marginalF) A) and C)
G) All of the above

Exam 2: Financial Statements,Taxes,and Cash Flow

Shareholders' equity:

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The cash flow related to interest payments less any net new borrowing is called the:

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The _____ tax rate is equal to total taxes divided by total taxable income.

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Suppose you are given the following information for Bayside Bakery: sales = $30,000; costs = $15,000; addition to retained earnings = $4,221; dividends paid = $469; interest expense = $1,300; tax rate = 30 percent.What is the amount of the depreciation expense?

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Which one of the following statements is correct concerning a corporation with taxable income of $125,000?

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Assume you are the financial officer of a major firm.The president of the firm has just stated that she wishes to reduce the firm's investment in current assets since those assets provide little,if any,return to the firm.How would you respond to this statement?

Correct AnswerverifiedWhile it is true that current assets pro...View AnswerShow Answer

Noncash items refer to:

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Crandall Oil has total sales of $1,349,800 and costs of $903,500.Depreciation is $42,700 and the tax rate is 34 percent.The firm does not have any interest expense.What is the operating cash flow?

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Which one of the following statements related to liquidity is correct?

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You recently purchased a grocery store.At the time of the purchase,the store's market value equaled its book value.The purchase included the building,the fixtures,and the inventory.Which one of the following is most apt to cause the market value of this store to be lower than the book value?

Correct AnswerverifiedShow Answer

The 2010 balance sheet of The Beach Shoppe showed long-term debt of $2.1 million,and the 2011 balance sheet showed long-term debt of $2.3 million.The 2011 income statement showed an interest expense of $250,000.What was the cash flow to creditors for 2011?

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Which one of the following is classified as an intangible fixed asset?

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The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

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As long as a firm maintains a positive cash balance,why is it essential to review the firm's cash flows?

Correct AnswerverifiedFirms can have positive cash balances be...View AnswerShow Answer

Which term relates to the cash flow which results from a firm's ongoing,normal business activities?

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Which one of the following is NOT included in cash flow from assets?

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Net capital spending:

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Winston Industries had sales of $843,800 and costs of $609,900.The firm paid $38,200 in interest and $18,000 in dividends.It also increased retained earnings by $62,138 for the year.The depreciation was $76,400.What is the average tax rate?

Correct AnswerverifiedShow Answer

The higher the degree of financial leverage employed by a firm,the:

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Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes? I.interest expense II.taxes III.costs of goods sold IV.depreciation

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While it is true that current assets pro...
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Firms can have positive cash balances be...
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