Question 1

A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200.What is the amount of the shareholders' equity?

Accepted Answer

Shareholders' equity can be calculated as follows:
Shareholders' Equity = Common Stock + Paid-in Surplus
Shareholders' Equity = $6,200 + $9,100
Shareholders' Equity = $15,300

Therefore, the correct answer is (C).

Question 2

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

Net working capital is calculated as current assets minus current liabilities. Current assets can be found by subtracting fixed assets from total assets, which gives $4,900 - $3,200 = $1,700. Current liabilities in this case are the short-term debt, which is $1,400. Therefore, net working capital is $1,700 - $1,400 = $300.

Question 3

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

Net income = Increase in common stock + Decrease in retained earnings - Dividends - Interest
Net income = $1,200 - $310 - $1,300 - $920
Net income = $-330 + $990
Net income = $660, which is option B.

Question 4

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

Earnings before taxes = $843,800 - $609,900 - $76,400 - $38,200 = $119,300Net income = $18,000 + $62,138 = $80,138Taxes = $119,300 - $80,138 = $39,162Tax rate = $39,162/$119,300 = 32.83 percent

Question 5

Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411.During the year, assets with a combined book value of $6,943 were sold.Depreciation for the year was $42,822.What is the amount of net capital spending?

Accepted Answer

Net capital spending = $209,411 - $218,470 + $42,822 = $33,763

Question 6

A positive cash flow to stockholders indicates which one of the following with certainty?

Accepted Answer

A positive cash flow to stockholders means that the company returned more money to its stockholders than it took in from them. This occurs when dividends paid out to stockholders exceed any new equity the company raised from them, such as from selling new shares of stock.

Question 7

Bonner Collision has shareholders' equity of $141,800.The firm owes a total of $126,000 of which 60 percent is payable within the next year.The firm net fixed assets of $161,900.What is the amount of the net working capital?

Accepted Answer

Net working capital = Current assets - Current liabilities
Current liabilities = 60% of $126,000 = $75,600
Current assets = Shareholders' equity - Total liabilities - Net fixed assets
Current assets = $141,800 - $126,000 - $161,900 = -$146,100
Since current assets cannot be negative, we know there is an error in our calculation. It is most likely that we made a mistake while calculating current liabilities. 
Let's check: 
Current liabilities = (60/100)*$126,000 = $75,600
Current assets = $141,800 - $75,600 - $161,900 = -$95,700
Again, current assets cannot be negative. This time we made an error while calculating shareholders' equity. 
Shareholders' equity = Current liabilities + Net fixed assets + Net working capital
Since we are trying to find net working capital, we can rearrange the above equation to solve for it:
Net working capital = Shareholders' equity - Current liabilities - Net fixed assets
Net working capital = $141,800 - $75,600 - $161,900 = $30,300
Therefore, the amount of net working capital is $30,300, which corresponds to answer choice B.

Question 8

Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360?

Accepted Answer

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

Question 9

Which one of the following statements related to the cash flow to creditors is correct?

Accepted Answer

A positive cash flow to creditors indicates that the firm is paying out more money to its creditors than it is receiving from new borrowings, which represents a net cash outflow from the firm to its creditors.

Question 10

Four years ago, Velvet Purses purchased a mailing machine at a cost of $176,000.This equipment is currently valued at $64,500 on today's balance sheet but could actually be sold for $58,900.This is the only fixed asset the firm owns.Net working capital is $57,200 and long-term debt is $111,300.What is the book value of shareholders' equity?

Accepted Answer

To find the book value of shareholders' equity, we need to subtract the total liabilities from the total assets. Total assets in this case are the current value of the mailing machine ($64,500) and the net working capital ($57,200), which comes to $121,700. Total liabilities are the long-term debt, which is $111,300. 
Book value of shareholders' equity = total assets - total liabilities = $121,700 - $111,300 = $10,400. 
Therefore, the best choice is (C).

Question 11

Net capital spending:

Accepted Answer

The answer of Net capital spending:
...

Question 12

A firm has net working capital of $640.Long-term debt is $4,180, total assets are $6,230, and fixed assets are $3,910.What is the amount of the total liabilities?

Accepted Answer

Current assets = $6,230 - $3,910 = $2,320Current liabilities = $2,320 - $640 = $1,680Total liabilities = $1,680 + $4,180 = $5,860

Question 13

Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense.The addition to retained earnings is $418 and net new equity is $500.The tax rate is 35 percent.Sales are $15,900 and depreciation is $680.What are the earnings before interest and taxes?

Accepted Answer

First, we need to find the earnings before interest and taxes (EBIT): 
EBIT = Earnings + Interest Expense + Taxes 
We already know interest expense is $511, and we can find the total taxes paid: 
Tax paid = (Earnings + Interest Expense - Dividends - Depreciation) x Tax rate 
Tax paid = (Earnings + $511 - $75 - $680) x 0.35 
Tax paid = (Earnings - $244) x 0.35 
Tax paid = 0.35Earnings - $85.4

We know that the addition to retained earnings is $418 and net new equity is $500: 
Addition to retained earnings = Net income - Dividends paid 
$418 = Net income - $75 
Net income = $493

Net new equity = $500 = Net income - Dividends paid 
$500 = $493 - $75 
$500 = $418 + $75 + Earnings - $244 - 0.35Earnings 
$500 = $149 + 0.65Earnings 
$351 = 0.65Earnings 
Earnings = $540

Plug Earnings and Interest Expense back into the EBIT formula: 
EBIT = $540 + $511 - ($540 x 0.35) 
EBIT = $1,269.46

Therefore, the best choice is B

Question 14

Andre's Bakery has sales of $687,000 with costs of $492,000.Interest expense is $26,000 and depreciation is $42,000.The tax rate is 35 percent.What is the net income?

Accepted Answer

Net income = ($687,000 - $492,000 - $26,000 - $42,000) (1 - .35) = $82,550

Question 15

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

Earnings before interest and taxes = $1,349,800 - $903,500 - $42,700 = $403,600Tax = $403,600 × .34 = $137,224Operating cash flow = $403,600 + $42,700 - $137,224 = $309,076

Question 16

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

An increase in depreciation expense will decrease net income because depreciation is an expense that reduces the taxable income. However, it will increase the cash flow from assets because depreciation is a non-cash charge, which means it reduces net income but does not involve an actual outflow of cash, thereby increasing cash flow.

Question 17

Jake owns The Corner Market which he is trying to sell so that he can retire and travel.The Corner Market owns the building in which it is located.This building was built at a cost of $647,000 and is currently appraised at $819,000.The counters and fixtures originally cost $148,000 and are currently valued at $65,000.The inventory is valued on the balance sheet at $319,000 and has a retail market value equal to 1.2 times its cost.Jake expects the store to collect 98 percent of the $21,700 in accounts receivable.The firm has $26,800 in cash and has total debt of $414,700.What is the market value of this firm?

Accepted Answer

Market value of firm = $819,000 + $65,000 + 1.2($319,000) + .98($21,700) + $26,800 - $414,700 = $900,166

Question 18

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

The answer of The tax rates are as shown.Nevada Mining...

Question 19

Which one of the following is NOT included in cash flow from assets?

Accepted Answer

The answer of Which one of the following is NOT...

Question 20

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash.What is the amount of the current assets?

Accepted Answer

Current assets = $520 + $190 + $70 = $780

Quiz 2: Corporate Governance