Question 1

Solid State Software has retained earnings of $42 million,after paying dividends of $10 million.What was the firm's payout ratio?

Accepted Answer

C) Net income = Retained Earnings + Dividends = 42 + 10 = 52 million
Payout ratio = Dividends/Net income = 10/52 = 0.19

Question 2

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts,if true,in the firm's management discussion and analysis (MD&A)?

Accepted Answer

The MD&A section of a firm's financial report is meant to provide insights into the company's financial condition, changes in financial condition, and results of operations. A class action suit resulting in a large amount of damages would significantly impact the firm's financial condition and is material information that investors would need to know.

Question 3

Use the table for the question(s) below.
 
-Refer to the income statement above.Luther's return on assets (ROA)for the year ending December 31,2015 is closest to:

Accepted Answer

A) ROA = Net income / Total assets.
This is a little tricky in that Total Assets are not given in the problem. The student must remember the basic balance sheet equation A = L + SE. Total Liabilities and Shareholders' Equity is given and this is the same as Total Assets. So, ROA = 10.6 / 533.1 = 0.020 or 2.0%.

Question 4

Use the table for the question(s) below.
Income Statement for Xenon Manufacturing:
 
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.Calculate the operating margin for 2014 and 2015.What does the change in the operating margin between these two years imply about the company?

Accepted Answer

C) 24 / 202 = 0.12; 16 / 212 = 0.08

Question 5

Use the table for the question(s) below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.What were AOS Industries' major means of raising money in 2015?

Accepted Answer

The answer of Use the table for the question(s) below.
AOS...

Question 6

How can we cross check the statement of cash flows?

Accepted Answer

The answer of How can we cross check the statement...

Question 7

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

Accepted Answer

The answer of What is the need for the notes...

Question 8

Use the table for the question(s) below.
 
-Refer to the income statement above.Luther's net profit margin for the year ending December 31,2014 is closest to:

Accepted Answer

A) Net profit margin = Net income / Total sales = 10.2 / 578.3 = 0.018 or 1.8%

Question 9

Use the table for the question(s) below.
 
-Refer to the income statement above.Luther's operating margin for the year ending December 31,2014 is closest to:

Accepted Answer

C) Operating margin = Operating income / Sales
OM = 31.3 / 578.3 = 0.054 or 5.4%

Question 10

Which type of transactions must be disclosed in the management discussion and analysis?

Accepted Answer

Off balance sheet transactions must be disclosed in the management discussion and analysis as they can significantly impact the financial position of the company. The other options are not necessarily required to be disclosed in the management discussion and analysis.

Question 11

Use the table for the question(s) below.
Income Statement for Xenon Manufacturing:
 
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.Calculate the gross margin for 2014 and 2015.What does the change in the net profit margin between these two years imply about the company?

Accepted Answer

The answer of Use the table for the question(s) below.
Income...

Question 12

A software company acquires a smaller company in order to acquire the patents that it holds.Where will the cost of this acquisition be recorded on the statement of cash flows?

Accepted Answer

The acquisition of a smaller company is considered an investment for the acquiring company. Therefore, the cost of acquisition will be recorded as an outflow under Investment Activities on the statement of cash flows.

Question 13

Use the table for the question(s) below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.Which of the following is true of AOS Industries' operating cash flows?

Accepted Answer

The answer of Use the table for the question(s) below.
AOS...

Question 14

Use the table for the question(s) below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.If all amounts shown above are in millions of dollars,what was AOS Industries' change in retained earnings for 2015?

Accepted Answer

B) 3.2 - 1.5 = $1.7 million

Question 15

Use the table for the question(s) below.
Income Statement for Xenon Manufacturing:
 
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.Calculate the gross margin for 2014 and 2015.What does the change in the gross margin between these two years imply about the company?

Accepted Answer

The answer of Use the table for the question(s) below.
Income...

Question 16

Use the table for the question(s) below.
 
-Refer to the income statement above.Luther's return on equity (ROE)for the year ending December 31,2015 is closest to:

Accepted Answer

C) ROE = Net income / Shareholders' equity = 10.6 / 126.6 = 0.084 or 8.4%

Question 17

Farhan's Fences has retained earnings of $2.5 million,after paying dividends of $1.5 million.What was the firm's payout ratio?

Accepted Answer

A) Net income = Retained Earnings + Dividends = 2.5 + 1.5 = 4 million
Payout ratio = Dividends/Net income = 1.5/4 = 0.38

Question 18

Use the table for the question(s) below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.In 2015,AOS Industries had contemplated buying a new warehouse for $2 million,the cost of which would be depreciated over 10 years.If AOS Industries has a tax rate of 25%,what would be the impact on the amount of cash held by AOS at the the end of the 2015?

Accepted Answer

B) -$2,000,000 +200,000 × 0.25 = -$1,950,000

Question 19

The management of public companies are not legally required to disclose any off balance sheet transactions.

Accepted Answer

The management of public companies are legally required by the Securities and Exchange Commission (SEC) to disclose any off balance sheet transactions in their financial statements. This is to ensure transparency and accuracy in financial reporting.

Question 20

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Accepted Answer

The answer of What will be the effect on the...

Quiz 2: Introduction to Financial Statement Analysis

Solid State Software has retained earnings of $42 million,after paying dividends of $10 million.What was the firm's payout ratio?

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts,if true,in the firm's management discussion and analysis (MD&A) ?

Use the table for the question(s) below. -Refer to the income statement above.Luther's return on assets (ROA) for the year ending December 31,2015 is closest to:

Use the table for the question(s) below. AOS Industries Statement of Cash Flows for 2015 -Consider the above statement of cash flows.What were AOS Industries' major means of raising money in 2015?

How can we cross check the statement of cash flows?

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

Use the table for the question(s) below. -Refer to the income statement above.Luther's net profit margin for the year ending December 31,2014 is closest to:

Use the table for the question(s) below. -Refer to the income statement above.Luther's operating margin for the year ending December 31,2014 is closest to:

Which type of transactions must be disclosed in the management discussion and analysis?

A software company acquires a smaller company in order to acquire the patents that it holds.Where will the cost of this acquisition be recorded on the statement of cash flows?

Use the table for the question(s) below. AOS Industries Statement of Cash Flows for 2015 -Consider the above statement of cash flows.Which of the following is true of AOS Industries' operating cash flows?

Use the table for the question(s) below. AOS Industries Statement of Cash Flows for 2015 -Consider the above statement of cash flows.If all amounts shown above are in millions of dollars,what was AOS Industries' change in retained earnings for 2015?

Use the table for the question(s) below. -Refer to the income statement above.Luther's return on equity (ROE) for the year ending December 31,2015 is closest to:

Farhan's Fences has retained earnings of $2.5 million,after paying dividends of $1.5 million.What was the firm's payout ratio?

The management of public companies are not legally required to disclose any off balance sheet transactions.

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?