Question 1

Which of the following statements is CORRECT?

Accepted Answer

Corporations are allowed a dividends-received deduction, which can exclude a portion of their dividend income from taxable income, though the specific percentage can vary and may not always be 50%. However, among the options provided, this is the closest to accurate regarding tax treatment of dividends for corporations.

Question 2

Which of the following items is NOT normally considered a current asset?

Accepted Answer

Bonds are a long-term asset and are not considered a current asset. The other options listed (accounts receivable, inventory, cash, short-term marketable securities) are all examples of current assets.

Question 3

​Analysts who follow Howe Industries recently noted that,relative to the previous year,the company's net cash provided from operations increased,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Accepted Answer

B) The company making large investments in fixed assets could explain the situation where net cash provided from operations increased, but cash as reported on the balance sheet decreased. This is because the cash generated from operations might have been used to purchase fixed assets, leading to a decrease in cash holdings despite the operational success.

Question 4

Which of the following statements is CORRECT?

Accepted Answer

Small corporations that qualify under the Tax Code can elect not to pay corporate taxes but then each stockholder must report his or her pro rata shares of the firm's income as personal income and pay taxes on that income. This refers to the concept of pass-through taxation, where the income or losses of the business are passed through to the individual shareholders or partners and taxed at their personal income tax rates.

Question 5

A loss incurred by a corporation

Accepted Answer

Corporate tax laws have evolved, and as of the latest information available, losses can now be carried forward indefinitely to offset future taxable income, though the percentage of taxable income that can be offset may be capped. This change allows corporations more flexibility in managing their tax liabilities over time.

Question 6

Below are the 2018 and 2019 year-end balance sheets for Tran Enterprises: Liabilities and equity:
 The firm has never paid a dividend on its common stock,and it issued $2,400,000 of 10-year,non-callable,long-term debt in 2018.As of the end of 2019,none of the principal on this debt had been repaid.Assume that the company's sales in 2018 and 2019 were the same.Which of the following statements must be CORRECT?

Accepted Answer

The answer of Below are the 2018 and 2019 year-end...

Question 7

Below is the common equity section (in millions)of Timeless Technology's last two year-end balance sheets: ​
 The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

Accepted Answer

The answer of Below is the common equity section (in...

Question 8

Austin Financial recently announced that its net income increased sharply from the previous year,yet its net cash provided from operations declined.Which of the following could explain this performance?

Accepted Answer

The answer of Austin Financial recently announced that its net...

Question 9

Which of the following statements is CORRECT?

Accepted Answer

Option D correctly defines operating income and what it includes. Option A is incorrect as higher depreciation reduces taxable income, thus reducing the tax bill. Option B is partially correct, as cash flow is shown at the bottom of the statement, but it is not the lowest entry. Option C is incorrect as depreciation is a non-cash expense that does not affect the firm's cash balance. Option E is incorrect as depreciation is subtracted from revenues to determine taxable income and, therefore, does affect reported profits.

Question 10

Which of the following statements is CORRECT?

Accepted Answer

EVA stands for "economic value added" and is defined as EVA = NOPAT - (Total invested capital)(AT cost of capital %). Option A is incorrect because MVA stands for "market value added" and is calculated by adding the market value of equity to the book value of equity. Option B is incorrect because EVA represents net income after deducting the cost of equity capital, not before. Option C is incorrect because MVA gives us an idea of how much value the management has created over the long term, not just the last year. Option D is also incorrect because EVA gives us an idea of how much value management has created in the current period, not over the firm's entire lifespan.

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A decrease in accounts payable indicates that a company has paid off some of its liabilities, which means cash has flowed out of the business. In the operating activities section of the statement of cash flows, this decrease is subtracted from net income to reflect the cash outflow.

Question 12

Which of the following statements is CORRECT?

Accepted Answer

The statement of cash flows provides information about the inflow and outflow of cash during a given accounting period. It reflects cash flows from operating activities, investing activities, and financing activities. Option A is incorrect because the statement of cash flows does reflect the effects of buying or selling fixed assets under investing activities. Option B is incorrect because the statement of cash flows only reflects the total amount of cash, not where it is located. Option C is incorrect because the statement of cash flows does reflect the effects of changes in working capital under operating activities. Option D is incorrect because the statement of cash flows does reflect cash obtained by selling new common stock under financing activities.

Question 13

Which of the following statements is CORRECT?

Accepted Answer

C is correct because it accurately describes the components of free cash flow (FCF), which includes earnings before interest and taxes (EBIT) adjusted for taxes, plus depreciation, minus capital expenditures required to sustain operations, and minus required changes in net operating working capital. This formula captures the essence of FCF as the cash that a company generates after accounting for the cash outflows to support operations and maintain its capital assets.

Question 14

Which of the following statements is CORRECT?

Accepted Answer

If a firm is more profitable than average, investors will likely have higher expectations for the company's future earnings and growth potential, leading to a higher stock price compared to the book value per share. The other statements are all incorrect. A firm's DPS should not necessarily exceed its EPS, as the firm may choose to retain some earnings for reinvestment rather than paying them out to shareholders as dividends. Net income does not need to exceed EBIT, as interest and tax expenses can reduce net income even if EBIT is high. The amount of depreciation a firm has in a year will not necessarily have a direct impact on its EPS, as EPS is calculated by dividing net income by the number of outstanding shares.

Question 15

Which of the following factors would explain how a company's cash balance could have increased even though the company had a negative cash flow last year?

Accepted Answer

Selling a new issue of bonds would generate cash inflow, which could increase the company's cash balance even if it had negative cash flow from operations last year.

Question 16

Which of the following statements is CORRECT?

Accepted Answer

The income statement is designed to show the firm's revenues, expenses, and net income during a specific period of time, usually one year. Therefore, statement E is the only correct statement as it accurately describes the purpose of an income statement. The other statements contain inaccuracies or are overly simplistic. For example, while the cash account is an important element of a firm's financial statements, it is just one of many components that can be manipulated by creative accounting practices. Similarly, the reported income of two firms can vary widely based on factors such as accounting policies, estimates, and judgments, even if they follow generally accepted accounting principles (GAAP).

Question 17

Which of the following statements is CORRECT?

Accepted Answer

Option B correctly explains that interest paid to an individual is taxed at the individual's regular tax rate, which in 2018 could be as high as 37%, while qualified dividends received are taxed at a maximum rate of 15% for most individuals. The other statements in the options are incorrect or incomplete.

Question 18

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Accepted Answer

Cost of goods sold is an expense item that appears on the income statement and not on the balance sheet. The rest of the options are current liabilities and can be found on the balance sheet.

Question 19

Which of the following statements is CORRECT?

Accepted Answer

Option A is incorrect because some actions that increase reported net income (such as recognizing revenue before receiving cash payments) may actually decrease cash flow. Option C is incorrect because EVA already accounts for the cost of equity capital. Option D is incorrect because EVA measures the amount by which a company's net operating profit exceeds its cost of capital, so achieving the same level of operating income with more total invested capital would decrease EVA. Option E is incorrect because EVA measures how much value a firm creates for its shareholders in excess of the required return, and positive net income does not necessarily mean that the firm is creating value for shareholders. Option B is correct because EVA is calculated as after-tax net operating profit minus the total cost of capital, and reducing total invested capital while maintaining the same level of operating income would increase EVA.

Question 20

On its 12/31/19 balance sheet,Barnes Inc showed $510 million of retained earnings,and exactly that same amount was shown the previous year.Assuming that no earnings restatements were issued,which of the following statements is CORRECT?

Accepted Answer

Since the retained earnings amount did not change from the previous year, any dividends paid must have been exactly equal to the earnings for the year, allowing the retained earnings balance to remain constant.

Quiz 3: Financial Statements,cash Flow and Taxes

Which of the following statements is CORRECT?

Which of the following items is NOT normally considered a current asset?

Analysts who follow Howe Industries recently noted that,relative to the previous year,the company's net cash provided from operations increased,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Which of the following statements is CORRECT?

A loss incurred by a corporation

Below is the common equity section (in millions) of Timeless Technology's last two year-end balance sheets: The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

Austin Financial recently announced that its net income increased sharply from the previous year,yet its net cash provided from operations declined.Which of the following could explain this performance?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following factors would explain how a company's cash balance could have increased even though the company had a negative cash flow last year?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Which of the following statements is CORRECT?

On its 12/31/19 balance sheet,Barnes Inc showed $510 million of retained earnings,and exactly that same amount was shown the previous year.Assuming that no earnings restatements were issued,which of the following statements is CORRECT?

Quiz 3: Financial Statements,cash Flow and Taxes

Which of the following statements is CORRECT?

Which of the following items is NOT normally considered a current asset?

​Analysts who follow Howe Industries recently noted that,relative to the previous year,the company's net cash provided from operations increased,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Which of the following statements is CORRECT?

A loss incurred by a corporation

Below is the common equity section (in millions) of Timeless Technology's last two year-end balance sheets: ​ The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

Austin Financial recently announced that its net income increased sharply from the previous year,yet its net cash provided from operations declined.Which of the following could explain this performance?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following factors would explain how a company's cash balance could have increased even though the company had a negative cash flow last year?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Which of the following statements is CORRECT?

On its 12/31/19 balance sheet,Barnes Inc showed $510 million of retained earnings,and exactly that same amount was shown the previous year.Assuming that no earnings restatements were issued,which of the following statements is CORRECT?

Analysts who follow Howe Industries recently noted that,relative to the previous year,the company's net cash provided from operations increased,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Below is the common equity section (in millions) of Timeless Technology's last two year-end balance sheets: The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?