Question 1

Which one of the following statements concerning net working capital is correct?

Accepted Answer

A)  The lower the value of net working capital the greater the ability of a firm to meet its current obligations.
B)  An increase in net working capital must also increase current assets.
C)  Net working capital increases when inventory is sold for cash at a profit.
D)  Firms with equal amounts of net working capital are also equally liquid.
E)  Net working capital is a part of the operating cash flow.F) C) and E)
G) None of the above

Question 2

What is the net working capital for 2012?

Accepted Answer

A)  -$175
B)  $338
C)  $1,262
D)  $1,945
E)  $4,941F) A) and B)
G) B) and E)

Question 3

Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919. The beginning and ending total debt balances were $84,652 and $78,613, respectively. The interest paid was $4,767. What is the amount of the cash flow to creditors?

Accepted Answer

A)  -$1,641
B)  -$1,272
C)  $1,272
D)  $7,418
E)  $11,175F) A) and B)
G) A) and C)

Question 4

What is the cash flow to creditors for 2012?

Accepted Answer

A)  -$1,020
B)  -$1,100
C)  $280
D)  $1,580
E)  $1,760F) A) and C)
G) A) and D)

Question 5

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

Accepted Answer

A)  The addition to retained earnings is equal to net income plus dividends paid.
B)  Credit sales are recorded on the income statement when the cash from the sale is collected.
C)  The labor costs for producing a product are expensed when the product is sold.
D)  Interest is a non-cash expense.
E)  Depreciation increases the marginal tax rate.F) None of the above
G) B) and C)

Question 6

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) A) and B)
G) All of the above

Question 7

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 D)
G) A) and B)

Question 8

For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.

Accepted Answer

A)  depreciation
B)  net capital spending
C)  change in net working capital
D)  taxes
E)  production costsF) A) and E)
G) A) and B)

Question 9

Which of the following are included in the market value of a firm but are excluded from the firm's book value?
I. value of management skills
II. value of a copyright
III. value of the firm's reputation
IV. value of employee's experience

Accepted Answer

A)  I only
B)  II only
C)  III and IV only
D)  I, II, and III only
E)  I, III, and IV onlyF) C) and D)
G) A) and E)

Question 10

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital?

Accepted Answer

A)  -$100
B)  $300
C)  $600
D)  $1,700
E)  $1,800F) B) and E)
G) A) and B)

Question 11

The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000?

Accepted Answer

A)  $8,080
B)  $8,130
C)  $8,155
D)  $8,170
E)  $8,190F) A) and B)
G) A) and C)

Question 12

What is net new borrowing for 2012?

Accepted Answer

A)  -$1,300
B)  -$1,020
C)  $880
D)  $1,020
E)  $1,300F) D) and E)
G) B) and E)

Question 13

Which one of the following represents the most liquid asset?

Accepted Answer

A)  $100 account receivable that is discounted and collected for $96 today
B)  $100 of inventory which is sold today on credit for $103
C)  $100 of inventory which is discounted and sold for $97 cash today
D)  $100 of inventory that is sold today for $100 cash
E)  $100 accounts receivable that will be collected in full next weekF) All of the above
G) B) and C)

Question 14

An increase in the depreciation expense will do which of the following?
I. increase net income
II. decrease net income
III. increase the cash flow from assets
IV. decrease the cash flow from assets

Accepted Answer

A)  I only
B)  II only
C)  I and III only
D)  II and III only
E)  II and IV onlyF) A) and B)
G) B) and E)

Question 15

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

Accepted Answer

A)  -$210
B)  $990
C)  $1,610
D)  $1,910
E)  $2,190F) B) and D)
G) All of the above

Question 16

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders?

Accepted Answer

A)  $5,100
B)  $7,830
C)  $18,020
D)  $19,998
E)  $20,680F) B) and E)
G) None of the above

Question 17

What is the amount of net new borrowing for 2012?

Accepted Answer

A)  -$1,812
B)  -$1,738
C)  $240
D)  $662
E)  $850F) None of the above
G) A) and C)

Question 18

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends. During the year, the company sold $75,000 worth of common stock. What is the cash flow to stockholders?

Accepted Answer

A)  -$75,000
B)  -$26,360
C)  -$2,040
D)  $123,640
E)  $147,960F) A) and D)
G) A) and E)

Question 19

Assume you are a credit manager in charge of approving commercial loans to business firms. Identify three aspects of a firm's cash flows you would review and explain the type of information you hope to gain from reviewing each of those five aspects.

Accepted Answer

Student answers will vary but here are s...

Question 20

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) All of the above
G) A) and D)

Exam 2: Financial Statements, Taxes, and Cash Flow

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders?

Correct AnswerverifiedShow Answer

Which of the following are included in the market value of a firm but are excluded from the firm's book value? I. value of management skills II. value of a copyright III. value of the firm's reputation IV. value of employee's experience

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000?

Correct AnswerverifiedShow Answer

Assume you are a credit manager in charge of approving commercial loans to business firms. Identify three aspects of a firm's cash flows you would review and explain the type of information you hope to gain from reviewing each of those five aspects.

Correct AnswerverifiedStudent answers will vary but here are s...View AnswerShow Answer

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

Correct AnswerverifiedShow Answer

What is the cash flow to creditors for 2012?

Correct AnswerverifiedShow Answer

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

What is the amount of net new borrowing for 2012?

Correct AnswerverifiedShow Answer

For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.

Correct AnswerverifiedShow Answer

Which one of the following represents the most liquid asset?

Correct AnswerverifiedShow Answer

What is net new borrowing for 2012?

Correct AnswerverifiedShow Answer

An increase in the depreciation expense will do which of the following? I. increase net income II. decrease net income III. increase the cash flow from assets IV. decrease the cash flow from assets

Correct AnswerverifiedShow Answer

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

Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919. The beginning and ending total debt balances were $84,652 and $78,613, respectively. The interest paid was $4,767. What is the amount of the cash flow to creditors?

Correct AnswerverifiedShow Answer

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

Correct AnswerverifiedShow Answer

What is the net working capital for 2012?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning net working capital is correct?

Correct AnswerverifiedShow Answer

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends. During the year, the company sold $75,000 worth of common stock. What is the cash flow to stockholders?

Correct AnswerverifiedShow Answer

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital?

Correct AnswerverifiedShow Answer

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Student answers will vary but here are s...
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