Deck 2: Accounting Statements and Cash Flow

Question 1

Noncash items refer to:

A) the credit sales of a firm.
B) the accounts payable of a firm.
C) the costs incurred for the purchase of intangible fixed assets.
D) expenses charged against revenues that do not directly affect cash flow.
E) all accounts on the balance sheet other than cash on hand.

Answer 1

expenses charged against revenues that do not directly affect cash flow.

Question 2

The balance sheet is based on which following equality:

A) Fixed Assets (Stockholder's equity + Current Assets
B) Assets (Liabilities + Stockholder's equity
C) Assets (Current Long Term Debt + Retained earnings
D) Fixed Asset (Liabilities + Stockholder's equity

Answer 2

Assets (Liabilities + Stockholder's equity

Question 3

Which of the following is not included in the computation of operating cash flow?

A) Earnings before interest and taxes.
B) Interest paid.
C) Depreciation.
D) Current taxes.

Answer 3

Interest paid.

Question 4

Which of the following statements concerning the income statement is not true?

A) It measures performance over a specific period of time.
B) It determines after-tax income of the firm.
C) It includes deferred taxes.
D) It does not include depreciation.
E) It treats interest as an expense.

Question 5

The earnings before interest and taxes, EBIT, on the income statement provides results on

A) the post financing effect on the earnings capability of the firm
B) the operating income for the period
C) the gross margin of the firm
D) the extraordinary items of the firm for the period

Question 6

Assets are listed on the balance sheet in order of:

A) decreasing liquidity.
B) decreasing size.
C) increasing size.
D) relative life.

Question 7

Balance sheet assets are:

A) all relatively illiquid.
B) listed at current market value.
C) listed at market value as of the most recent fiscal year.
D) listed at cost.

Question 8

The TimeNow Corporation had 2010 fixed assets of $1345, current assets of 260, current liabilities of 180 and shareholder's equity of 775. What was the net working capital for TimeNow in 2010?

A) 260
B) 180
C) 80
D) 390

Question 9

Intangible fixed assets would include:

A) building.
B) machinery.
C) trademarks.
D) equipment.

Question 10

According to GAAP, revenue is recognized as income when:

A) a contract is signed to perform a service or deliver a good.
B) the transaction is complete and the goods or services delivered.
C) payment is received.
D) income taxes are paid.

Question 11

Fixed assets can be either tangible or intangible. Intangible assets are:

A) property, plant and equipment
B) can be converted to cash in the normal course of business
C) can be very valuable, although they have no physical presence, such as trademarks or patents
D) are highly liquid

Question 12

_____ refers to the firm's dividend payments less any net new equity raised.

A) Operating cash flow
B) Capital spending
C) Net working capital
D) Cash flow from creditors
E) Cash flow to stockholders

Question 13

The TimeNow Corporation had 2010 fixed assets of $1345, current assets of 260, current liabilities of 180 and shareholder's equity of 775. The 2009 fixed assets were 1300, current assets of 220, long-term liabilities of 390 and shareholder's equity of 750. What was the change in net working capital for TimeNow in 2010?

A) 80
B) 20
C) 60
D) 160

Question 14

The carrying value or book value of the assets:

A) in Canada is determined under GAAP and is based on the cost f the asset
B) represents the true market value according to GAAP
C) are always the best measure of the company's value to an investor
D) are always higher than the replacement cost of the assets.

Question 15

The primary distinction between tangible and intangible assets is that:

A) intangible assets have a physical existence while tangible assets do not.
B) intangible assets do not have a physical existence while tangible assets do.
C) since tangible assets do not have a physical existence they do not show up on the balance sheet.
D) since intangible assets do not have a physical existence they do not show up on the balance sheet.

Question 16

Under GAAP the value of all the firm's assets are reported at:

A) Carrying value or market value.
B) Book value or liquidation value.
C) Market value or Carrying value.
D) Book value or Carrying value.

Question 17

Accounting liquidity is defined as:

A) the amount of cash the firm has
B) the turnover ratio
C) the ability of the assets to generate income
D) the ease and quickness with which assets can be converted to cash

Question 18

Net capital spending is equal to:

A) net additions to Net Working Capital.
B) the net change in fixed assets.
C) net income plus depreciation.
D) total cash flow to stockholders less interest and dividends paid.

Question 19

Of the following assets, which is the generally the least liquid?

A) Marketable securities.
B) Cash.
C) Inventory.
D) Accounts receivable.

Question 20

What is the effect on net working capital if the corporation decides to increase their investment in inventory and pay for it with cash?

A) increase in NWC.
B) decrease in NWC.
C) depends on the amount of the investment.
D) no effect.
E) depends on the amount of cash.

Question 21

The Hi-Lite Corp. had a profitable year and their ROE was 14.4%. The company paid out $1.20 of their earnings of $3.00 for the year. What is Hi-Lite's sustainable growth?

A) 17.2%
B) 8.60%
C) 5.76%
D) 43.2%

Question 22

Midget Co. has a profit margin on sales of 4% and a ROE of 18%. If Midget's debt-to-equity ratio is .8, what is the total asset turnover ratio?

A) 2.500
B) 5.625
C) 2.000
D) 10.125

Question 23

When making financial decisions related to assets, you should:

A) always consider market values.
B) place more emphasis on book values than on market values.
C) rely primarily on the value of assets as shown on the balance sheet.
D) only consider market values if they are less than book values.

Question 24

Donny Dell Inc. had a days in inventory (based on 365 days) of 5. Cost of goods sold were $4,526. Net working capital was $70 and total current assets were $400. What is Donny Dell's quick ratio?

A) 11.315
B) 1.024
C) 4.829
D) 14.00

Question 25

Tan Co. had total operating revenues of $720 over the past year. During that time, average receivables were $90. What was the average collection period (ACP) given a 365-day year?

A) 8.00 days.
B) 4.56 days.
C) 40.97 days.
D) 45.63 days.

Question 26

Dividends per share is equal to dividends paid:

A) divided by the par value of common stock.
B) divided by the total number of shares outstanding.
C) divided by total shareholders' equity.
D) multiplied by the par value of the common stock.
E) multiplied by the total number of shares outstanding.

Question 27

Donny Dell Inc. had a days in inventory of 5 (based on 365 days). The inventory turnover was:

A) 5
B) 60
C) 73
D) can not be figured without the inventory value

Question 28

Calculate net income based on the following information. Sales = $250.00
Cost of goods sold = $160.00
Depreciation = $35.00
Interest paid = $20.00
Tax rate = 34%

A) $23.10
B) $11.90
C) $35.00
D) $46.20
E) $36.30

Question 29

For any individual period the firm cashflows are a circular flow of funds, this means

A) the cashflows are always invested in fixed assets
B) that cashflows are always in a spiral away from the firm
C) that firm cashflows must be borrowed externally to be reinvested in the economy
D) that all cashflows generated by the firm must equal the cashflows paid to the creditors and shareholders.

Question 30

From the following income statement information, calculate Johnson's after tax cash flow from operations. Net sales = $2,500
Cost of goods sold = $1050
Operating expenses = $490
Depreciation = $300
Tax rate = 34%

A) $660.00
B) $990.00
C) $1257.00
D) $735.60
E) $1059.00

Question 31

Mirotronic Co. has an average receivables turnover of 4 times. Sales are $20,000. What is the collection period?

A) 91.25 days
B) 90 days
C) 1.37 days
D) 21.92 days

Question 32

Cash flow to shareholder is defined as:

A) total cash flow from the firm plus cash flow to the bondholders.
B) repurchases of equity less cash dividends paid plus new equity sold.
C) cash flow from operations less cash flow to creditors.
D) cash dividends plus repurchases of equity minus new equity sold.

Question 33

Dorr Corp. had an ROA of 8%. Dorr's profit margin was 4% on sales of $250. What were total assets?

A) $125.
B) $500.
C) $30.
D) $220.80.

Question 34

Donny Dell Inc.'s cost of goods sold were $4,526. They had net working capital of $70 and total current assets were $400. If inventory was 62 what is the current ratio of Donny Dell?

A) 7.3
B) 5.71
C) 1.21
D) 4.71

Question 35

Earnings per share is equal to:

A) net income divided by the total number of shares outstanding.
B) net income divided by the par value of the common stock.
C) gross income multiplied by the par value of the common stock.
D) operating income divided by the par value of the common stock.
E) net income divided by total shareholders' equity.

Question 36

The Cliplink Company has an equity multiplier of 3.36? What are the debt ratio and debt to equity ratios of Cliplink?

A) .70, 2.36
B) 2.36, .70
C) .30, .70
D) can not be calculated without values for debt or equity

Question 37

Which of the following is not a use of Net Working Capital?

A) Retirement of long-term debt.
B) Dividends.
C) Sale of equity.
D) Acquisition of fixed assets.

Question 38

The primary source of the firm's cashflow is usually:

A) net income.
B) tax credits.
C) earnings before interest and depreciation minus taxes.
D) capital spending after taxes.
E) working capital requirements.

Question 39

The cashflow of the firm is defined as the cashflow of the assets. This cashflow must be equal to:

A) cashflow to equity minus cashflow to debtholders.
B) cashflow to debtholders minus cashflow to equity.
C) cashflow to governments plus cashflow to equity.
D) cashflow to equity plus cashflow to debtholders.

Question 40

Over the year, the Rigem Co. had cash flow from operations of $938, and had net capital spending of $225. In addition, the firm's Net Working Capital increased by $73. What was Rigem's total cash flow?

A) $1,236
B) $748
C) $640
D) $786

Question 41

Assuming that the current ratio is currently 2, which of the following actions will increase it?

A) Purchasing inventory with cash?
B) Purchasing inventory on short-term credit?
C) Paying off a short-term bank loan with long-term debt.
D) A customer paying an overdue bill.

Question 42

What is the change in the net working capital from 2009 to 2010?

Question 43

The Hi-Lite Corp. had a profitable year and their ROE was 14.4%. The company paid out $1.20 of their earnings of $3.00 for the year. The market price of their stock at year end was $28. What was Hi-Lite's price-earnings ratio?

A) 23.33
B) 9.33
C) 4.03
D) 12.10

Question 44

The Simmons Company reported retained earnings in 2009 of $4750. In 2010, Simmons earned $1120 before taxes and paid a dividend of $730. Simmon's tax rate is 34%. What is Simmons' retained earnings.

Question 45

Cos Co.'s after-tax net income was $120. Their interest paid was $50. Assuming the corporate tax is 40%, what is Cos CO.'s interest coverage ratio?

A) 6.7.
B) 2.4.
C) 1.44.
D) 4.0.

Question 46

Grady's Candies paid a total of $32 million in dividends in 2010. In addition, the company issued $22.5 million in new stock in that year. What was Grady's cash flow to stockholder's in 2010?

Question 47

The Lo-Gro Co. in 2010 had equity of $15 million, net income of $1,800,000 of which 60% was paid out as dividends. The sustainable growth rate for the Lo-Gro Co. is:

A) 0.48%.
B) 4.80%.
C) 0.72%.
D) 7.20%.

Question 48

Logit Co. paid dividends of $400. And retained 33.33% of their earnings. The sales for the year were $12,000 and total assets of 10,000. What was the rate of return on assets?

A) 5%
B) 6%
C) 10%
D) 12%

Question 49

What is the cash flow of the firm for 2010?

Question 50

Based on the following information, calculate stockholders equity:
cash = $5.00
accounts payable = $12.00
other current liabilities = $65.00
accounts receivable = $20.00
inventory = $50.00
net fixed assets = $175.00
long-term debt = $40.00

Question 51

The Lo-Gro Co. in 2010 had equity of $15 million, net income of $1,800,000 of which 60% was paid out as dividends. The ROE and retained earnings for the Lo-Gro Co. are:

A) 1.2%; $720,000.
B) 4.8%; $720,000.
C) 12%; $1,080,000.
D) 12%; $720,000.

Question 52

Discuss the difference between book values and market values on the balance sheet and explain which is more important to the financial manager and why.

Question 53

Sin Co. stock sells for $28.00 per share. The total market value of the equity is $40 million. The market-to-book ratio is 7. What is the book value per share?

A) $128.00.
B) $196.00.
C) $1.43.
D) $4.00.

Question 54

The Paymore Co. reported the following long-term liabilities and stockholder's equity for 2010:



In 2010, Paymore earned $125 in net income and paid a $40 dividend. What is the 2010 total common shareholder equity figure?

Question 55

Pion Inc. reported current assets of $80 and fixed assets of $150 as of December 31. The company, as of December 31, also reports current liabilities of $72 and long-term liabilities of $149. Calculate Pion's shareholder's equity.