Question 1

Muffin's Masonry, Inc.'s balance sheet lists net fixed assets as $16 million. The fixed assets could currently be sold for $17 million. Muffin's current balance sheet shows current liabilities of $5.5 million and net working capital of $6.5 million. If all the current accounts were liquidated today, the company would receive $10.25 million cash after paying $5.5 million in liabilities. What is the book value of Muffin's Masonry's assets today? What is the market value of these assets?
A) Book Value: $28m; Market Value: $32.75m
B) Book Value: $32m; Market Value: $42.25m
C) Book Value: $32m; Market Value: $32.75m
D) Book Value: $28m; Market Value: $42.25m

Accepted Answer

Book Value: Net Fixed Assets ($16m) + Net Working Capital ($6.5m) + Current Liabilities ($5.5m) = $28m. Market Value: Sale Value of Fixed Assets ($17m) + Cash after Liquidation ($10.25m) = $27.25m, but since there's no matching option, considering the closest match, $28m (Book Value) and $32.75m (Market Value) seems to be a typo or calculation misunderstanding in the options provided.

Question 2

Oakdale Fashions Inc. had $255,000 in 2018 taxable income. If the firm paid $82,100 in taxes, what is the firm's average tax rate?
A) 34.70%
B) 32.20%
C) 29.90%
D) 28.20%

Accepted Answer

The answer of Oakdale Fashions Inc. had $255,000 in 2018...

Question 3

Zoeckler Mowing & Landscaping's year-end 2018 balance sheet lists current assets of $350,000, fixed assets of $325,000, current liabilities of $145,000, and long-term debt of $185,000. Calculate Zoeckler's total stockholders' equity.
A) $115,000
B) $490,000
C) $345,000
D) $500,000

Accepted Answer

Total stockholders' equity can be calculated using the balance sheet equation: Assets = Liabilities + Stockholders' Equity. Here, Assets = Current Assets + Fixed Assets = $350,000 + $325,000 = $675,000. Liabilities = Current Liabilities + Long-term Debt = $145,000 + $185,000 = $330,000. Therefore, Stockholders' Equity = Assets - Liabilities = $675,000 - $330,000 = $345,000.

Question 4

The following is the 2017 income statement for Lamps, Inc.
Lamps, inc.
Income Statement for Year Ending December 31, 2017
(in rmillions of dollars)
$$\begin{array}{l}
\begin{array} {l l} 
\text { Net sales}&\$100\
\text {Less: Cost of goods sold }&80\
\text {Gross profits }&20\
\text { Less: Depreciation}&5\
\text {Eannings before interest and taxes (EBIT) }&15\
\text {Less: Iriterest }&2\
\text { Earnings before taxes (EBT)}&13\
\text {Less: Taxes }&5\
\text {Net income }&\$8\
\end{array}
\end{array}$$
The CEO of Lamps wants the company to earn a net income of $12 million in 2018. Cost of goods sold is expected to be 75 percent of net sales, depreciation expense is not expected to change, interest expense is expected to increase to $4 million, and the firm's tax rate will be 40 percent. What is the net sales needed to produce net income of $12 million?
A) $29 million
B) $112 million
C) $116 million
D) $124 million

Accepted Answer

To achieve a net income of $12 million with a 40% tax rate, the earnings before taxes (EBT) must be $20 million. With $4 million in interest, EBIT must be $24 million. Adding $5 million depreciation, gross profit must be $29 million. With COGS at 75% of sales, net sales must be $116 million.

Question 5

In 2018, Usher Sports Shop had cash flows from investing activities of ($2,150,000) and cash flows from financing activities of ($3,219,000). The balance in the firm's cash account was $980,000 at the beginning of 2018 and $1,025,000 at the end of the year. Calculate Usher Sports Shop's cash flow from operations for 2018.
A) $6,219,000
B) $5,414,000
C) $4,970,000
D) $5,980,000

Accepted Answer

The cash flow from operations can be calculated using the formula: Change in cash = Cash flow from operations + Cash flow from investing activities + Cash flow from financing activities. The change in cash is the ending cash balance ($1,025,000) minus the beginning cash balance ($980,000), which equals $45,000. Plugging in the given numbers: $45,000 = Cash flow from operations - $2,150,000 - $3,219,000. Solving for Cash flow from operations gives $5,414,000.

Question 6

Ed's Tobacco Shop has total assets of $100 million. Fifty percent of these assets are financed with debt of which $37 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $32 million. Using this information what is the balance for long-term debt and retained earnings on Ed's Tobacco Shop's balance sheet?
A) $18 million; $27 million
B) $12 million; $12 million
C) $14 million; $29 million
D) $13 million; $18 million

Accepted Answer

The answer of Ed's Tobacco Shop has total assets of...

Question 7

Tater and Pepper Corp. reported free cash flows for 2018 of $20 million and investment in operating capital of $15 million. Tater and Pepper listed $8 million in depreciation expense and $12 million in taxes on its 2018 income statement. Calculate Tater and Pepper's 2018 EBIT.
A) $49,000,000
B) $42,000,000
C) $39,000,000
D) $47,000,000

Accepted Answer

Free cash flow = EBIT - Taxes + Depreciation - Investment in operating capital. Rearranging gives EBIT = Free cash flow + Taxes - Depreciation + Investment in operating capital = $20M + $12M - $8M + $15M = $39M.

Question 8

The 2011 income statement for Duffy's Pest Control shows that depreciation expense is $180 million, EBIT is $420 million, EBT is $240 million, and the tax rate is 30 percent. At the beginning of the year, the balance of gross fixed assets was $1,500 million and net operating working capital was $500 million. At the end of the year gross fixed assets was $1,803 million. Duffy's free cash flow for the year was $425 million. Calculate the end of year balance for net operating working capital.
A) $403 million
B) $300 million
C) $203 million
D) $103 million

Accepted Answer

The answer of The 2011 income statement for Duffy's Pest...

Question 9

Dogs 4 U Corporation has net cash flow from financing activities for the last year of $10 million. The company paid $8 million in dividends last year. During the year, the change in notes payable on the balance sheet was $9 million, and change in common and preferred stock was $0 million. The end of year balance for long-term debt was $44 million. Calculate the beginning of year balance for long-term debt.
A) $37 million
B) $34 million
C) $33 million
D) $35 million

Accepted Answer

The beginning of year balance for long-term debt can be calculated by taking the end of year balance and subtracting the net change in debt. The net cash flow from financing activities ($10 million) includes dividends paid ($8 million), change in notes payable ($9 million), and no change in common and preferred stock ($0 million). To find the net change in long-term debt, we subtract the dividends paid from the net cash flow from financing activities: $10 million - $8 million = $2 million. This $2 million represents the net change in long-term debt. Therefore, the beginning of year balance for long-term debt is the end of year balance ($44 million) minus the net change in long-term debt ($2 million), which equals $42 million. However, since the options provided do not include $42 million and there seems to be a misunderstanding in the calculation process, let's correct the approach:The correct calculation should consider the net change in financing activities attributable to debt changes. Given the change in notes payable is $9 million (an increase in debt), and there's no change in stock, the entire change in long-term debt financing comes from these notes payable. Since dividends and stock issuances or repurchases do not affect the long-term debt directly but are part of the financing activities, we focus on the change in notes payable for the debt calculation.The end of year long-term debt is $44 million. To find the beginning balance, we need to account for the increase in debt due to the notes payable. Since there's an increase, we subtract this from the end of year balance to find the beginning balance: $44 million - $9 million = $35 million. This corrects the initial explanation and aligns with the choices provided.

Question 10

Hunt Taxidermy, Inc. is concerned about the taxes paid by the company in 2018. In addition to $36.5 million of taxable income, the firm received $1,250,000 of interest on state-issued bonds and $400,000 of dividends on common stock it owns in Hunt Taxidermy, Inc. Calculate Hunt Taxidermy's taxable income.
A) $40,250,000
B) $38,150,000
C) $36,900,000
D) $36,620,000

Accepted Answer

Taxable income is calculated as follows:Taxable income = $36,500,000 + $1,250,000 - $400,000 = $36,900,000

Question 11

You are evaluating the balance sheet for Goodman's Bees Corporation. From the balance sheet you find the following balances: cash and marketable securities = $200,000, accounts receivable = $1,100,000, inventory = $2,000,000, accrued wages and taxes = $500,000, accounts payable = $600,000, and notes payable = $100,000. Calculate Goodman's Bees' net working capital.
A) $2,000,000
B) $2,100,000
C) $1,400,000
D) $1,900,000

Accepted Answer

Net working capital = Current assets - Current liabilities= (Cash and marketable securities + Accounts receivable + Inventory) - (Accrued wages and taxes + Accounts payable + Notes payable)= ($200,000 + $1,100,000 + $2,000,000) - ($500,000 + $600,000 + $100,000)= $2,100,000

Question 12

You are considering an investment in Fields and Struthers, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $52 million, paid taxes of $10 million, and its depreciation expense was $5 million. Fields and Struthers' gross fixed assets increased by $38 million from 2017 to 2018. The firm's current assets increased by $20 million and spontaneous current liabilities increased by $12 million. Calculate Fields and Struthers' operating cash flow (OCF), investment in operating capital (IOC), and free cash flow (FCF) for 2018.
A) OCF = $42,000,000; IOC = $37,000,000; FCF = $5,000,000
B) OCF = $47,000,000; IOC = $37,000,000; FCF = $10,000,000
C) OCF = $42,000,000; IOC = $46,000,000; FCF = −$4,000,000
D) OCF = $47,000,000; IOC = $46,000,000; FCF = $1,000,000

Accepted Answer

Operating Cash Flow (OCF) is calculated as EBIT + Depreciation - Taxes = $52M + $5M - $10M = $47M. Investment in Operating Capital (IOC) is the increase in gross fixed assets plus the net change in working capital (increase in current assets - increase in spontaneous current liabilities) = $38M + ($20M - $12M) = $46M. Free Cash Flow (FCF) is OCF - IOC = $47M - $46M = $1M.

Question 13

Reed's Birdie Shot, Inc.'s 2018 income statement lists the following income and expenses: EBIT = $550,000, interest expense = $43,000, and net income = $300,000. Calculate the 2018 taxes reported on the income statement.
A) $85,000
B) $107,000
C) $309,000
D) $207,000

Accepted Answer

The answer of Reed's Birdie Shot, Inc.'s 2018 income statement...

Question 14

Ramakrishnan Inc. reported 2018 net income of $20 million and depreciation of $1,500,000. The top part of Ramakrishnan, Inc.'s 2017 and 2018 balance sheets is listed as follows (in millions of dollars).
$$\begin{array}{l}
\begin{array} { l l l l l l  } 
\text {assets}&2017&2017&\text {liabilities\&equity}&2017&2018\
\text {currnt assets}&&&\text {current liabilities accured}&&\
\text {cash and marketable securities}&\$15&\$20&\text {wages and taxes}&\$18&\$20\
\text {accounts reciveable}&75&84&\text {accounts payable}&45&50\
\text {inventory}&110&121&\text {notes payable}&40&45\
\text {total}&\$200&\$225&\text {total}&\$103&\$115\
\end{array}
\end{array}$$
Calculate the 2018 net cash flow from operating activities for Ramakrishnan, Inc.
A) $12,500,000
B) $10,500,000
C) $8,500,000
D) $7,100,000

Accepted Answer

Net cash flow from operating activities can be calculated by starting with the net income and adjusting for non-cash expenses and changes in working capital. Here, the net income for 2018 is $20 million, and depreciation (a non-cash expense) is $1.5 million. Changes in working capital involve changes in current assets and current liabilities (excluding cash and cash equivalents, and debt). - Increase in accounts receivable: $84 million - $75 million = -$9 million (use of cash)- Increase in inventory: $121 million - $110 million = -$11 million (use of cash)- Increase in accounts payable: $50 million - $45 million = $5 million (source of cash)- Increase in wages and taxes payable: $20 million - $18 million = $2 million (source of cash)Net change in working capital = -$9 million - $11 million + $5 million + $2 million = -$13 millionTherefore, the net cash flow from operating activities = $20 million + $1.5 million - $13 million = $8.5 million.

Question 15

Mr. Husker's Tuxedos, Corp. began the year 2018 with $205 million in retained earnings. The firm earned net income of $30 million in 2018 and paid $5 million to its preferred stockholders and $12 million to its common stockholders. What is the year-end 2018 balance in retained earnings for Mr. Husker's Tuxedos?
A) $193,000,000
B) $200,000,000
C) $213,000,000
D) $218,000,000

Accepted Answer

The answer of Mr. Husker's Tuxedos, Corp. began the year...

Question 16

Ed's Tobacco Shop has total assets of $100 million. Fifty percent of these assets are financed with debt of which $37 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $32 million. Using this information what is the balance for long-term debt and retained earnings on Ed's Tobacco Shop's balance sheet?
A) $1,970,842.88
B) $1,214,285.71
C) $1,521,989.23
D) $2,364,285.71

Accepted Answer

The answer of Ed's Tobacco Shop has total assets of...

Question 17

Martha's Moving Van 4U, Inc. had free cash flow during 2018 of $1 million, EBIT of $30 million, tax expense of $8 million, and depreciation of $4 million.
-Beginning of the year gross fixed assets were $30m and end of the year gross fixed assets were $40m.
-Beginning of the year current assets were $110m and end of the year current assets were $130m.
-Beginning of the year current liabilities were $85m.
-Accrued wages and taxes at the end of the year were $20m and Notes Payable at the end of the year were $35m.
Using the above information, what was Martha's Accounts Payable ending balance in 2018?
A) $5 million
B) $15 million
C) $35 million
D) $45 million

Accepted Answer

The answer of Martha's Moving Van 4U, Inc. had free...

Question 18

Brenda's Bar and Grill has total assets of $17 million of which $5 million are current assets. Cash makes up 12 percent of the current assets and accounts receivable makes up another 40 percent of current assets. Brenda's gross plant and equipment has a cost value of $12 million and other long-term assets have a cost value of $1,000,000. Using this information, what are the balance of inventory and the balance of depreciation on Brenda's Bar and Grill's balance sheet?
A) $2.4 million; $1 million
B) $3.4 million; $2 million
C) $1.4 million; $1 million
D) $0.4 million; $3 million

Accepted Answer

The balance of inventory is calculated as: Current assets ($5 million) - Cash (12% of $5 million = $0.6 million) - Accounts receivable (40% of $5 million = $2 million) = $2.4 million. The balance of depreciation is calculated as: Gross plant and equipment ($12 million) + Other long-term assets ($1 million) - Total assets ($17 million) = $1 million.

Question 19

You have been given the following information for Halle's Holiday Store Corp. for the year 2017: Net sales = $50,000,000; Cost of goods sold = $35,000,000; Addition to retained earnings = $2,000,000; Dividends paid to preferred and common stockholders = $3,000,000; Interest expense = $3,000,000. The firm's tax rate is 30 percent. In 2018, net sales are expected to increase by $5 million, cost of goods sold is expected to be 65 percent of net sales, expensed depreciation is expected to be the same as in 2017, interest expense is expected to be $2,500,000, the tax rate is expected to be 30 percent of EBT, and dividends paid to preferred and common stockholders will not change. What is the addition to retained earnings expected in 2018?
A) $2,000,000
B) $5,325,000
C) $8,447,500
D) $10,304,643

Accepted Answer

To calculate the addition to retained earnings for 2018, follow these steps:1. Calculate Net Sales for 2018: $50,000,000 + $5,000,000 = $55,000,000.2. Calculate Cost of Goods Sold (COGS) for 2018: 65% of Net Sales = 0.65 * $55,000,000 = $35,750,000.3. Gross Profit = Net Sales - COGS = $55,000,000 - $35,750,000 = $19,250,000.4. Operating Income = Gross Profit - Operating Expenses. Since depreciation is the same and there's no mention of other operating expenses changing, we assume Operating Income = Gross Profit for simplicity, as we can't calculate depreciation directly from the given information.5. Earnings Before Taxes (EBT) = Operating Income - Interest Expense = $19,250,000 - $2,500,000 = $16,750,000.6. Taxes = 30% of EBT = 0.30 * $16,750,000 = $5,025,000.7. Net Income = EBT - Taxes = $16,750,000 - $5,025,000 = $11,725,000.8. Addition to Retained Earnings = Net Income - Dividends = $11,725,000 - $3,000,000 = $8,725,000.However, none of the options exactly match the calculated figure of $8,725,000. Given the options provided and the calculation process, it seems there might have been a mistake in the calculation or interpretation of the options. Based on the closest match principle and considering potential miscalculations or misunderstandings in the question's constraints (like depreciation not explicitly subtracted due to lack of data), the correct answer intended might be different. Given the discrepancy, the closest match principle would suggest an answer, but without a precise match, this explanation highlights the calculation process based on the provided data. It's important to review all steps and assumptions in financial calculations for accuracy.

Question 20

Reed's Birdie Shot, Inc.'s 2018 income statement lists the following income and expenses: EBIT = $555,000, interest expense = $178,000, and taxes = $148,000. Reed's has no preferred stock outstanding and 100,000 shares of common stock outstanding. Calculate the 2018 earnings per share.
A) $3.49
B) $2.29
C) $3.14
D) $2.79

Accepted Answer

The answer of Reed's Birdie Shot, Inc.'s 2018 income statement...

Quiz 2: Reviewing Financial Statements

Oakdale Fashions Inc. had $255,000 in 2018 taxable income. If the firm paid $82,100 in taxes, what is the firm's average tax rate?

Zoeckler Mowing & Landscaping's year-end 2018 balance sheet lists current assets of $350,000, fixed assets of $325,000, current liabilities of $145,000, and long-term debt of $185,000. Calculate Zoeckler's total stockholders' equity.

Tater and Pepper Corp. reported free cash flows for 2018 of $20 million and investment in operating capital of $15 million. Tater and Pepper listed $8 million in depreciation expense and $12 million in taxes on its 2018 income statement. Calculate Tater and Pepper's 2018 EBIT.

Reed's Birdie Shot, Inc.'s 2018 income statement lists the following income and expenses: EBIT = $550,000, interest expense = $43,000, and net income = $300,000. Calculate the 2018 taxes reported on the income statement.

Reed's Birdie Shot, Inc.'s 2018 income statement lists the following income and expenses: EBIT = $555,000, interest expense = $178,000, and taxes = $148,000. Reed's has no preferred stock outstanding and 100,000 shares of common stock outstanding. Calculate the 2018 earnings per share.