Question 1

The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time,while the income statement measures the firm's financial position at a point in time.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)   Net cash flow (NCF) is defined as follows:NCF = Net income - Depreciation and Amortization.
B)   Changes in working capital have no effect on free cash flow.
C)   Free cash flow (FCF) is defined as follows:FCF = EBIT(1 − T) + Depreciation and Amortization− Capital expenditures required to sustain operations− Required changes in net operating working capital.
D)   Free cash flow (FCF) is defined as follows:FCF = EBIT(1 − T) + Depreciation and Amortization + Capital expenditures.
E)   Net cash flow is the same as free cash flow (FCF) .F) C) and E)
G) All of the above

Question 3

Frederickson Office Supplies recently reported $12,500 of sales,$7,250 of operating costs other than depreciation,and $1,250 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate,and its federal-plus-state income tax rate was 40%.How much was the firm's taxable income,or earnings before taxes (EBT) ?

Accepted Answer

A)   $3,230.00
B)   $3,400.00
C)   $3,570.00
D)   $3,748.50
E)   $3,935.93F) C) and E)
G) C) and D)

Question 4

Other things held constant,which of the following actions would increase the amount of cash on a company's balance sheet?

Accepted Answer

A)   The company purchases a new piece of equipment.
B)   The company repurchases common stock.
C)   The company pays a dividend.
D)   The company issues new common stock.
E)   The company gives customers more time to pay their bills.F) B) and C)
G) B) and E)

Question 5

For managerial purposes,i.e. ,making decisions regarding the firm's operations,the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations.Related to these modifications,which of the following statements is CORRECT?

Accepted Answer

A)   The standard statements make adjustments to reflect the effects of inflation on asset values,and these adjustments are normally carried into any adjustment that managers make to the standard statements.
B)   The standard statements focus on accounting income for the entire corporation,not cash flows,and the two can be quite different during any given accounting period.However,for valuation purposes we need to discount cash flows,not accounting income.Moreover,since many firms have a number of separate divisions,and since division managers should be compensated on their divisions' performance,not that of the entire firm,information that focuses on the divisions is needed.These factors have led to the development of information that is focused on cash flows and the operations of individual units.
C)   The standard statements provide useful information on the firm's individual operating units,but management needs more information on the firm's overall operations than the standard statements provide.
D)   The standard statements focus on cash flows,but managers are less concerned with cash flows than with accounting income as defined by GAAP.
E)   The best feature of standard statements is that,if they are prepared under GAAP,the data are always consistent from firm to firm.Thus,under GAAP,there is no room for accountants to "adjust" the results to make earnings look better.F) D) and E)
G) A) and E)

Question 6

Tibbs Inc.had the following data for the year ending 12/31/2015: Net income = $300;Net operating profit after taxes (NOPAT) = $400;Total assets = $2,500;Short-term investments = $200;Stockholders' equity = $1,800;Total debt = $700;and Total operating capital = $2,300.What was its return on invested capital (ROIC) ?

Accepted Answer

A)   14.91%
B)   15.70%
C)   16.52%
D)   17.39%
E)   18.26%F) All of the above
G) C) and D)

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)   One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital.
B)   If a firm reports positive net income,its EVA must also be positive.
C)   One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.
D)   One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital.
E)   Actions that increase reported net income will always increase net cash flow.F) None of the above
G) A) and B)

Question 8

Hunter Manufacturing Inc.'s December 31,2014 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding.During 2015,Hunter had $250,000 of net income,and it paid out $100,000 as dividends.What was the book value per share at 12/31/2015,assuming that Hunter neither issued nor retired any common stock during 2015?

Accepted Answer

A)   $20.90
B)   $22.00
C)   $23.10
D)   $24.26
E)   $25.47F) A) and E)
G) B) and C)

Question 9

Barnes' Brothers has the following data for the year ending 12/31/2015: Net income = $600;Net operating profit after taxes (NOPAT) = $700;Total assets = $2,500;Short-term investments = $200;Stockholders' equity = $1,800;Total debt = $700;and Total operating capital = $2,100.Barnes' weighted average cost of capital is 10%.What is its economic value added (EVA) ?

Accepted Answer

A)   $399.11
B)   $420.11
C)   $442.23
D)   $465.50
E)   $490.00F) B) and E)
G) B) and C)

Question 10

Lucy's Music Emporium opened its doors on January 1,2015,and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes.The company planned to depreciate its fixed assets over 20 years,but in December 2015 management realized that the assets would last for only 15 years.The firm's accountants plan to report the 2015 financial statements based on this new information.How would the new depreciation assumption affect the company's financial statements?

Accepted Answer

A)   The firm's net liabilities would increase.
B)   The firm's reported net fixed assets would increase.
C)   The firm's EBIT would increase.
D)   The firm's reported 2015 earnings per share would increase.
E)   The firm's cash position in 2015 and 2016 would increase.F) B) and D)
G) C) and D) E

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   If a company pays more in dividends than it generates in net income,its retained earnings as reported on the balance sheet will decline from the previous year's balance.
B)   Dividends paid reduce the net income that is reported on a company's income statement.
C)   If a company uses some of its bank deposits to buy short-term,highly liquid marketable securities,this will cause a decline in its current assets as shown on the balance sheet.
D)   If a company issues new long-term bonds during the current year,this will increase its reported current liabilities at the end of the year.
E)   Accounts receivable are reported as a current liability on the balance sheet.F) B) and E)
G) B) and D)

Question 12

On 12/31/2015,Heaton Industries Inc.reported retained earnings of $675,000 on its balance sheet,and it reported that it had $172,500 of net income during the year.On its previous balance sheet,at 12/31/2014,the company had reported $555,000 of retained earnings.No shares were repurchased during 2015.How much in dividends did Heaton pay during 2015?

Accepted Answer

A)   $47,381
B)   $49,875
C)   $52,500
D)   $55,125
E)   $57,881F) A) and D)
G) A) and C) C

Question 13

Its retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends.Retained earnings are kept in cash or near cash accounts and,thus,these cash accounts,when added together,will always be equal to the firm's total retained earnings.

Accepted Answer

A) True 
 B)False

Question 14

Bartling Energy Systems recently reported $9,250 of sales,$5,750 of operating costs other than depreciation,and $700 of depreciation.The company had no amortization charges,it had $3,200 of outstanding bonds that carry a 5% interest rate,and its federal-plus-state income tax rate was 35%.In order to sustain its operations and thus generate sales and cash flows in the future,the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital.By how much did the firm's net income exceed its free cash flow?

Accepted Answer

A)   $673.27
B)   $708.70
C)   $746.00
D)   $783.30
E)   $822.47F) All of the above
G) B) and D) C

Question 15

Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow,and (3) an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?

Accepted Answer

A)   The company had a sharp increase in its depreciation and amortization expenses.
B)   The company had a sharp increase in its inventories.
C)   The company had a sharp increase in its accrued liabilities.
D)   The company sold a new issue of common stock.
E)   The company made a large capital investment early in the year.F) B) and E)
G) All of the above

Question 16

Interest paid by a corporation is a tax deduction for the paying corporation,but dividends paid are not deductible.This treatment,other things held constant,tends to encourage the use of debt financing by corporations.

Accepted Answer

A) True 
 B)False

Question 17

To estimate the cash flow from operations,depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Accepted Answer

A)   Accrued payroll taxes.
B)   Accounts payable.
C)   Short-term notes payable to the bank.
D)   Accrued wages.
E)   Cost of goods sold.F) All of the above
G) D) and E)

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)   The primary difference between EVA and accounting net income is that when net income is calculated,a deduction is made to account for the cost of common equity,whereas EVA represents net income before deducting the cost of the equity capital the firm uses.
B)   MVA gives us an idea about how much value a firm's management has added during the last year.
C)   MVA stands for market value added,and it is defined as follows:MVA = (Shares outstanding) (Stock price) + Book value of common equity.
D)   EVA stands for economic value added,and it is defined as follows:EVA = EBIT(1 − T) − (Investor-supplied op.capital) × (A − T cost of capital) .
E)   EVA gives us an idea about how much value a firm's management has added over the firm's life.F) A) and B)
G) None of the above

Question 20

Which of the following statements is CORRECT?

Accepted Answer

A)   The statement of cash needs tells us how much cash the firm will require during some future period,generally a month or a year.
B)   The four most important financial statements provided in the annual report are the balance sheet,income statement,cash budget,and the statement of stockholders' equity.
C)   The balance sheet gives us a picture of the firm's financial position at a point in time.
D)   The income statement gives us a picture of the firm's financial position at a point in time.
E)   The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.F) All of the above
G) A) and E)

Exam 2: Financial Statements, Cash Flow, and Taxes

The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time,while the income statement measures the firm's financial position at a point in time.

Correct Answer
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Which of the following statements is CORRECT?

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Other things held constant,which of the following actions would increase the amount of cash on a company's balance sheet?

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Which of the following statements is CORRECT?

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E

Which of the following statements is CORRECT?

Correct Answer
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C

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C

Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow,and (3) an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?

Correct Answer
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Interest paid by a corporation is a tax deduction for the paying corporation,but dividends paid are not deductible.This treatment,other things held constant,tends to encourage the use of debt financing by corporations.

Correct Answer
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To estimate the cash flow from operations,depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Correct Answer
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Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Exam 2: Financial Statements, Cash Flow, and Taxes

The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time,while the income statement measures the firm's financial position at a point in time.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things held constant,which of the following actions would increase the amount of cash on a company's balance sheet?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

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Correct AnswerverifiedE

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedC

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Correct AnswerverifiedC

Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow,and (3) an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?

Correct AnswerverifiedShow Answer

Interest paid by a corporation is a tax deduction for the paying corporation,but dividends paid are not deductible.This treatment,other things held constant,tends to encourage the use of debt financing by corporations.

Correct AnswerverifiedShow Answer

To estimate the cash flow from operations,depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Correct AnswerverifiedShow Answer

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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E

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C

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C

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