Question 1

Allocation of the historic costs of fixed assets against the annual revenue they generate is called

Accepted Answer

The allocation of the historic costs of fixed assets against the annual revenue they generate is called amortization. Net profits and gross profits are related to the overall profitability of the business, while variable costing is a method of cost accounting.

Question 2

Cash flows directly related to production and sale of the firm's products and services are called

Accepted Answer

Cash flows directly related to production and sale of the firm's products and services are called operating flows. Financing flows refer to cash flows related to raising and repaying capital, while investment flows refer to cash flows related to purchase and sale of long-term assets.

Question 3

Under CCA, an asset which originally cost $100,000 is being depreciated using a 4% CCA rate. Thedepreciation expense in year 1 is___________ .

Accepted Answer

The answer of Under CCA, an asset which originally cost...

Question 4

The tax deductibility of expenses___________their after-tax cost.

Accepted Answer

The tax deductibility of expenses reduces the taxable income, therefore reducing the amount of tax owed.

Question 5

Corporations experiencing operating losses are allowed to

Accepted Answer

Corporations with operating losses can carryback the losses for up to 3 years and carryforward for up to 7 years, as per the tax laws. Therefore, option D is the correct choice. Options A, B, and C have incorrect carryback and carryforward timeframes.

Question 6

A firm has year end 2001 and 2002 retained earnings balances of $670,000 and $560,000,respectively. The firm paid $10,000 in dividends in 2002. The firm's net income after taxes in 2002is ___________.

Accepted Answer

The answer of A firm has year end 2001 and...

Question 7

Earnings available to common shareholders are defined as net income

Accepted Answer

Earnings available to common shareholders are the portion of net income that is available to be distributed as dividends to common shareholders. This amount is calculated by subtracting preferred dividends from net income after taxes. Option B is incorrect because earnings available to common shareholders are calculated after taxes, not before taxes. Option C is incorrect because common dividends would be deducted from net income to calculate earnings available to all shareholders, not just common shareholders. Option D is incorrect because it does not take into account preferred dividends.

Question 8

All of the following are operating cash flows EXCEPT

Accepted Answer

Operating cash flows relate to the day-to-day operations of a business, such as revenue and expenses. An increase or decrease in current liabilities (A) can affect cash flows, as can net income after taxes (B) and amortization expense (C). However, an increase or decrease in fixed assets (D) would be considered a cash flow from investing activities, not operating activities.

Question 9

Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow for the year are

Accepted Answer

The net profit for the year is the revenue earned minus the cost of goods sold, which is $10,000 - $7,000 = $3,000. However, since the firm has not yet collected the payment, the cash flow is negative $7,000 (the cost of the merchandise). Therefore, the correct answer is C.

Question 10

Candy Corporation has pretax profits of $1.2 million, an average tax rate of 34 percent, and it pays preferred dividends of $50,000. There are 100,000 shares outstanding and no interest expenses. What is Candy Corporation's earnings per share?

Accepted Answer

First, calculate the after-tax profits:
$1,200,000 x (1-0.34) = $792,000

Then subtract the preferred dividends:
$792,000 - $50,000 = $742,000

Finally, divide by the number of outstanding shares:
$742,000 / 100,000 = $7.42

Therefore, the correct answer is C.

Question 11

For the year ended December 31, 2003, a corporation had cash flow from operating activities of$12,000, cash flow from investment activities of -$10,000, and cash flow from financing activities of$4,000. The Statement of Cash Flows would show a

Accepted Answer

The net cash flow is calculated by adding cash flows from operating, investing, and financing activities: $12,000 (operating) - $10,000 (investing) + $4,000 (financing) = $6,000 net increase.

Question 12

A corporation had an operating loss in 2002. All prior years had positive earnings. In utilizing thetax laws on carrybacks and carryforwards on operating losses a corporation

Accepted Answer

The answer of A corporation had an operating loss in...

Question 13

The cash flows from operating activities of the firm include

Accepted Answer

Cash flows from operating activities include any inflows or outflows related to the day-to-day operations of the business. The cost of raw materials is an example of an outflow related to the production process and would be included in operating cash flows. Interest expense, stock repurchases, and dividends paid are examples of financing or investing activities and would not be included in operating cash flows.

Question 14

RUFF 5ANDPAPER CO.
Balance Sheets
For the Years Ended 2002 and 2003

$\begin{array}{lrr}&2003&2002\\hline
\text { Assets }
\text { Cash } & 800 & 600 \
\text { Marketable securities } & 200 & 200 \
\text { Accounts receivable } & 1,200 & 1,000 \
\text { Inventories } & 2,000 & 1,800 \
\text { Gross fixed asset } & 3,000 & 2,800\
\text { Less Accumulated amortization }&1,000&800\
\text { Net fixed assets }&2,000&2,000\&---&---\\text { Total assets }&6,200&5,600\\
\text { Liabilities }\\text { Accounts payable } & 200 & 100 \
\text { Notes payable } & 800 & 900 \
\text { Accruals } & 100 & 100 \
\text { Long-term debt } & 2,000 & 1,500\\text { Stockholders' equity }\\text { Common stock } & 2,500 & 2,500 \
\text { Retained eamings } & 600 & 500\&---&----\\text { Total liabilities and equity }&6,200&5,600
\end{array}$
-The amortization expense for 2003 is___________

Accepted Answer

The amortization expense for 2003 is the difference in accumulated amortization between 2003 and 2002, which is $1,000 - $800 = $200.

Question 15

Parliament allows Canadian corporations to exclude from taxes 100 percent of dividends receivedfrom other Canadian corporations. Parliament did this to

Accepted Answer

Parliament allows this exclusion to prevent triple taxation, which can occur when dividends are taxed at the corporate level, then again when distributed to another corporation, and finally when distributed to individual shareholders.

Question 16

All of the following are true EXCEPT

Accepted Answer

Corporations may pay taxes on only 30 percent of the dividends received from other corporations, depending on their percentage of ownership (A). Capital gains is taxed as ordinary income (C), and interest income received by a corporation is also taxed as ordinary income (D).

Question 17

The cash flows from operating activities of the firm include

Accepted Answer

The cash flows from operations include expenses directly related to running the business, such as labor expense. Taxes paid and dividends paid are cash flows from financing activities, while interest expense is a cash flow from investing activities.

Question 18

Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average taxrate for Jennings, Inc.?

Accepted Answer

Average tax rate = Tax liability / Pretax income
Average tax rate = $170,000 / $500,000
Average tax rate = 0.34 or 34%

Question 19

In Canada, the Board of Directors are generally

Accepted Answer

The answer of In Canada, the Board of Directors are...

Question 20

Cash flows that result from debt and equity financing transactions, including incurrence andrepayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends orrepurchase stock are called

Accepted Answer

Financing flows refer to the cash flows that result from debt and equity financing transactions. Options A and C refer to investment flows and operating flows, respectively, which are different categories of cash flows. Option D is not the correct answer as the other options provide a more accurate description of the given scenario.

Quiz 2: Financial Statements, Cash Flows, and Taxes

Allocation of the historic costs of fixed assets against the annual revenue they generate is called

Cash flows directly related to production and sale of the firm's products and services are called

Under CCA, an asset which originally cost $100,000 is being depreciated using a 4% CCA rate. Thedepreciation expense in year 1 is___________ .

The tax deductibility of expenses___________their after-tax cost.

Corporations experiencing operating losses are allowed to

A firm has year end 2001 and 2002 retained earnings balances of $670,000 and $560,000,respectively. The firm paid $10,000 in dividends in 2002. The firm's net income after taxes in 2002is ___________.

Earnings available to common shareholders are defined as net income

All of the following are operating cash flows EXCEPT

Candy Corporation has pretax profits of $1.2 million, an average tax rate of 34 percent, and it pays preferred dividends of $50,000. There are 100,000 shares outstanding and no interest expenses. What is Candy Corporation's earnings per share?

For the year ended December 31, 2003, a corporation had cash flow from operating activities of$12,000, cash flow from investment activities of -$10,000, and cash flow from financing activities of$4,000. The Statement of Cash Flows would show a

A corporation had an operating loss in 2002. All prior years had positive earnings. In utilizing thetax laws on carrybacks and carryforwards on operating losses a corporation

The cash flows from operating activities of the firm include

Parliament allows Canadian corporations to exclude from taxes 100 percent of dividends receivedfrom other Canadian corporations. Parliament did this to

All of the following are true EXCEPT

The cash flows from operating activities of the firm include

Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average taxrate for Jennings, Inc.?

In Canada, the Board of Directors are generally

Cash flows that result from debt and equity financing transactions, including incurrence andrepayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends orrepurchase stock are called