Question 1

Peggy Grey's Cookies has at the end of the year, Sales of $140,000, Total Assets of $115,000 and Net Income of $50,000.Calculate the Total asset turnover and Capital intensity?
A)1.2174 and 0.8214.
B)1.2174 and 1.
C)1 and 0.8214
D)2.8 and 0.3571.
E)2.3 and 0.4348.

Accepted Answer

Total Asset Turnover = Sales / Total Assets = 140,000 / 115,000 = 1.2174
Capital Intensity = Total Assets / Sales = 115,000 / 140,000 = 0.8214

Question 2

The tax rates are as shown.Your ﬁrm currently has taxable income of €79,400.How much additional tax will you owe if you increase your taxable income by €21,000? $$\begin{array} { | l | l | } 
\hline \text { Taxable Income } & \text { Tax Rate } \
\hline € 0 - 50,000 & 15 \% \
\hline 50,001 - 75,000 & 25 \% \
\hline 75,001 - 100,000 & 34 \% \
\hline 100,001 - 335,000 & 39 \% \
\hline
\end{array}$$
A)€7,004
B)€7,014
C)€7,140
D)€7,160
E)€7,174

Accepted Answer

The answer of The tax rates are as shown.Your ﬁrm...

Question 3

Thompson's Jet Skis has at the end of the year Total assets of £650,000, Total Equity of £300,000, EBIT of £200,000 and Interest of £15,000? Calculate the Total debt ratio and Cash coverage ratio?
A)3.25 and 13.3333.
B)1.5 and 0.6667.
C)1.1667 and 0.6667
D)1.1667 and 13.3333.
E)3.175 and 13.3333.

Accepted Answer

Total Debt Ratio = (Total Assets - Total Equity) / Total Assets = (£650,000 - £300,000) / £650,000 = £350,000 / £650,000 = 0.5385 (not directly matching any options because the question seems to ask for the inverse, which is Total Assets / Total Liabilities = £650,000 / £350,000 = 1.857, but this calculation seems to have been misunderstood in the options provided). However, interpreting the intention behind the options, the correct calculation for Total Debt Ratio in the context usually means Total Liabilities / Total Assets, which would indeed be £350,000 / £650,000. The confusion seems to stem from the interpretation of the ratio's calculation.Cash Coverage Ratio = EBIT + Interest / Interest = (£200,000 + £15,000) / £15,000 = £215,000 / £15,000 = 14.3333. This calculation was intended to find how many times a company can cover its interest payments with its earnings before interest and taxes. However, it seems there was a mistake in my explanation regarding the calculation of the Cash Coverage Ratio, which should correctly be EBIT / Interest = £200,000 / £15,000 = 13.3333, aligning with option D.It appears there was a misunderstanding in the initial calculation explanations provided. The correct answer, based on the corrected understanding of the formulas, aligns with option D for the Cash Coverage Ratio. The Total Debt Ratio's explanation initially provided does not directly match the options, indicating a misinterpretation in the question's context or a mistake in the calculation explanation. The correct approach for Total Debt Ratio should indeed consider the proportion of assets financed by debt, but the precise calculation provided did not align with the standard formula or the options given.

Question 4

Teddy's Pillows has beginning net non-current assets of £480 and ending net non-current assets of £530.Assets valued at £300 were sold during the year.Depreciation was £40.What is the amount of capital spending?
A)£10
B)£50
C)£90
D)£260
E)£390

Accepted Answer

Capital spending = (Ending net non-current assets - Beginning net non-current assets) + Depreciation - Sale of assets
= (£530 - £480) + £40 - £300
= £50 - £300
= -£250 (negative because it represents a cash outflow for the company)
Therefore, the amount of capital spending is £90.

Question 5

Your ﬁrm has net income of £198 on total sales of £1,200.Costs are £715 and depreciation is £145.The tax rate is 34%. The ﬁrm does not have interest expenses.What is the operating cash ﬂow?
A)£93
B)£241
C)£340
D)£383
E)£485

Accepted Answer

Operating cash flow can be calculated as Net Income + Depreciation since depreciation is a non-cash expense. Here, it's £198 (Net Income) + £145 (Depreciation) = £343. However, the correct answer is not listed, indicating a possible mistake in the calculation or the options provided. Based on the given options, the closest to the correct calculation is option D) £383, but this appears to be an error in the question or answer choices.

Question 6

What is the change in the net working capital from 2013 to 2014?
A)£1,235 million.
B)£1,035 million.
C)£1,335 million.
D)£3,405 million.
E)£4,740 million.

Accepted Answer

The net working capital (NWC) for 2013 is given as £1,520 million and for 2014 it is given as £2,855 million. 
Change in NWC = NWC for 2014 - NWC for 2013 
= £2,855 million - £1,520 million 
= £1,335 million. 
Therefore, the correct answer is C, £1,335 million.

Question 7

A ﬁrm has £300 in inventory, £600 in non-current assets, £200 in accounts receivables, £100 in trade payables, and £50 in cash.What is the amount of the current assets?
A)£500
B)£550
C)£600
D)£1,150
E)£1,200

Accepted Answer

Current Assets = Inventory + Accounts Receivables + Cash = £300 + £200 + £50 = £550

Question 8

Net capital spending is equal to:
A)net additions to net working capital.
B)the net change in non-current assets plus depreciation for that year.
C)net income plus depreciation.
D)total cash ﬂow to shareholders less interest and dividends paid.
E)the change in total assets.

Accepted Answer

Net capital spending is the difference between the net change in non-current assets (capital expenditures minus disposals) and the depreciation for that year. Option B matches this definition. The other options describe different financial concepts.

Question 9

Pete's Boats has at the end of the year has a Net Income of £100,000, Total Assets of £50,000 and Sales of £75,000. What is the ﬁrms Proﬁt margin and Return on Assets (ROA)?
A)1.3333 and 0.5.
B)0.75 and 2.
C)1.3333 and 2.
D)0.6666 and 2.
E)0.6666 and 0.5.

Accepted Answer

To find the firm's profit margin, we divide the net income by sales:

Profit margin = net income / sales = 100,000 / 75,000 = 1.3333

To find the return on assets (ROA), we divide the net income by total assets:

ROA = net income / total assets = 100,000 / 50,000 = 2

Therefore, the best choice is C, which has the correct values for both the profit margin and ROA.

Question 10

Which of the following are all components of the statement of cash ﬂows?
A)Cash ﬂow from operating activities, cash ﬂow from investing activities, and cash ﬂow from ﬁnancing activities.
B)Cash ﬂow from operating activities, cash ﬂow from investing activities, and cash ﬂow from divesting activities.
C)Cash ﬂow from internal activities, cash ﬂow from external activities, and cash ﬂow from ﬁnancing activities.
D)Cash ﬂow from brokering activities, cash ﬂow from proﬁtable activities, and cash ﬂow from non-proﬁtable
Activities.
E)None of the above.

Accepted Answer

The statement of cash flows includes cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. This is consistent with generally accepted accounting principles (GAAP) and is the standard format for presenting a statement of cash flows. B, C, and D are not correct as they include activities that are not typically classified in a statement of cash flows.

Question 11

Art's Boutique has sales of £640,000 and costs of £480,000.Interest expense is £40,000 and depreciation is £60,000.The tax rate is 34%.What is the net income?
A)£20,400
B)£39,600
C)£50,400
D)£79,600
E)£99,600

Accepted Answer

Net income can be calculated as follows:
Sales - Cost of Goods Sold - Depreciation - Interest Expense = Earnings Before Taxes (EBT)
EBT * (1 - Tax Rate) = Net Income
Plugging in the values we get:
£640,000 - £480,000 - £60,000 - £40,000 = £60,000 (EBT)
£60,000 * (1 - 0.34) =£39,600 (Net Income)
Therefore, the best choice is B.

Question 12

Given the tax rates as shown, what is the average tax rate for a ﬁrm with taxable income of €126,500? $$\begin{array} { | l | l | } 
\hline \text { Taxable Income } & \text { Tax Rate } \
\hline € 0 - 50,000 & 15 \% \
\hline 50,001 - 75,000 & 25 \% \
\hline 75,001 - 100,000 & 34 \% \
\hline 100,001 - 335,000 & 39 \% \
\hline
\end{array}$$
A)21.38%
B)23.88%
C)25.76%
D)34.64%
E)39.00%

Accepted Answer

The answer of Given the tax rates as shown, what...

Question 13

At the end of the year, current liabilities of a ﬁrm is €280, current assets is €340 and the inventory is €110.What is the ﬁrms Current and Quick ratios?
A)1.214 and 0.8214
B)0.8235 and 0.5
C)0.3571 and 0.5294
D)1.214 and 0.5294
E)0.3571 and 0.8214

Accepted Answer

Current ratio = Current assets / Current liabilities = 340 / 280 = 1.214Quick ratio = (Current assets - Inventory) / Current liabilities = (340 - 110) / 280 = 0.8214

Question 14

At the beginning of the year, a ﬁrm has current assets of £380 and current liabilities of £210.At the end of the year, the current assets are £410 and the current liabilities are £250.What is the change in net working capital?
A)-£30
B)-£10
C)£0
D)£10
E)£30

Accepted Answer

The answer of At the beginning of the year, a...

Question 15

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.
E)All of the above are included.

Accepted Answer

Interest paid is a financing cash flow, not an operating cash flow. The other options listed are all included in the computation of operating cash flow.

Question 16

Free cash ﬂow is:
A)without cost to the ﬁrm.
B)net income plus taxes.
C)an increase in net working capital.
D)cash that the ﬁrm is free to distribute to creditors and shareholders.
E)None of the above.

Accepted Answer

Free cash flow is the cash that the firm is free to distribute to creditors and shareholders after all expenses have been paid, including capital expenditures needed for growth and maintenance. It is the amount of cash available for discretionary purposes. Therefore, the correct answer is D.

Question 17

The cash ﬂow of the ﬁrm must be equal to:
A)cash ﬂow to equity minus cash ﬂow to debtholders.
B)cash ﬂow to debtholders minus cash ﬂow to equity.
C)cash ﬂow to governments plus cash ﬂow to equity.
D)cash ﬂow to equity plus cash ﬂow to debtholders.
E)None of the above.

Accepted Answer

The cash flow of the firm must be equal to the cash flow to equity plus cash flow to debtholders as both equity and debt holders have a claim on the cash flows generated by the firm. Option A and B are incorrect as they consider cash flow to only one type of stakeholder. Option C is incorrect as it does not consider all types of stakeholders.

Question 18

Martha's Enterprises spent €2,400 to purchase equipment three years ago.This equipment is currently valued at €1,800 on today's statement of ﬁnancial position but could actually be sold for €2,000.Net working capital is €200
And non-current liabilities is €800.Assuming the equipment is the ﬁrm's only non-current asset, what is the book Value of shareholders' equity?
A)€200
B)€800
C)€1,200
D)€1,400
E)The answer cannot be determined from the information provided.

Accepted Answer

The book value of the equipment can be calculated as: Purchase price - Accumulated depreciation. 
Since the equipment was purchased three years ago, we can assume that it has been depreciated over its useful life, which could be determined from additional information. However, we are not given any information about the method of depreciation or the useful life, so we cannot calculate the accumulated depreciation directly.

Instead, we can use the information provided to estimate the accumulated depreciation. We know that the equipment is currently valued at €1,800 on today's statement of financial position but could actually be sold for €2,000. This means that the equipment has been depreciated by €200 (€2,000 - €1,800) since it was purchased.

Therefore, the book value of the equipment is €2,400 - €200 = €2,200.

The total liabilities of the firm are €800, and the net working capital is €200. Therefore, the book value of shareholders' equity is:

Book value of shareholders' equity = Total assets - Total liabilities 
Book value of shareholders' equity = (Equipment) + (Net working capital) - (Non-current liabilities) 
Book value of shareholders' equity = €2,200 + €200 - €800 
Book value of shareholders' equity = €1,600

Therefore, the correct answer is (C) €1,200.

Question 19

Cash ﬂows from ﬁnancing activities could include:
A)Sales of non-current assets.
B)Buying back it's own shares..
C)Purchase of intangible assets.
D)Purchase of property, plant and equipment.
E)Cash generated from operations.

Accepted Answer

Buying back its own shares is a financing activity since it involves using cash to reduce the number of shares outstanding, thus increasing the value of each remaining share. Sales of non-current assets, purchase of intangible assets, purchase of property, plant and equipment, and cash generated from operations are all examples of investing or operating activities, not financing activities.

Question 20

According to International Accounting Standards, 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 are delivered.
C)payment is requested.
D)income taxes are paid.
E)All of the above.

Accepted Answer

According to International Accounting Standards, revenue should be recognized when the transaction is complete and the goods or services are delivered. This is also known as the point of sale method. The other options listed do not accurately align with the recognition criteria for revenue under international accounting standards.

Quiz 3: Financial Statement Analysis

Peggy Grey's Cookies has at the end of the year, Sales of $140,000, Total Assets of $115,000 and Net Income of $50,000.Calculate the Total asset turnover and Capital intensity?

Thompson's Jet Skis has at the end of the year Total assets of £650,000, Total Equity of £300,000, EBIT of £200,000 and Interest of £15,000? Calculate the Total debt ratio and Cash coverage ratio?

Teddy's Pillows has beginning net non-current assets of £480 and ending net non-current assets of £530.Assets valued at £300 were sold during the year.Depreciation was £40.What is the amount of capital spending?

Your ﬁrm has net income of £198 on total sales of £1,200.Costs are £715 and depreciation is £145.The tax rate is 34%. The ﬁrm does not have interest expenses.What is the operating cash ﬂow?

What is the change in the net working capital from 2013 to 2014?

A ﬁrm has £300 in inventory, £600 in non-current assets, £200 in accounts receivables, £100 in trade payables, and £50 in cash.What is the amount of the current assets?

Net capital spending is equal to:

Pete's Boats has at the end of the year has a Net Income of £100,000, Total Assets of £50,000 and Sales of £75,000. What is the ﬁrms Proﬁt margin and Return on Assets (ROA) ?

Which of the following are all components of the statement of cash ﬂows?

Art's Boutique has sales of £640,000 and costs of £480,000.Interest expense is £40,000 and depreciation is £60,000.The tax rate is 34%.What is the net income?

At the end of the year, current liabilities of a ﬁrm is €280, current assets is €340 and the inventory is €110.What is the ﬁrms Current and Quick ratios?

At the beginning of the year, a ﬁrm has current assets of £380 and current liabilities of £210.At the end of the year, the current assets are £410 and the current liabilities are £250.What is the change in net working capital?

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

Free cash ﬂow is:

The cash ﬂow of the ﬁrm must be equal to:

Cash ﬂows from ﬁnancing activities could include:

According to International Accounting Standards, revenue is recognized as income when: