Question 1

Cash flow to stockholders is defined as:

Accepted Answer

Cash flow to stockholders includes cash dividends paid out plus any repurchases of equity (which reduce the number of outstanding shares) minus any new equity financing (such as issuing new shares). This reflects the cash flow specifically to the owners of the company's stock, as opposed to cash flow from financing or cash flow to creditors.

Question 2

Given the tax rates as shown,what is the average tax rate for a firm with taxable income of $126,500?

Accepted Answer

To find the average tax rate, we need to calculate the total amount of taxes paid and divide it by the taxable income.

For a taxable income of $126,500, the tax liability is calculated as follows:

- On the first $50,000: 15% = $7,500 
- On the next $25,000: 25% = $6,250 
- On the next $25,000: 34% = $8,500 
- On the next $26,500: 39% = $10,335

Total taxes paid = $32,585

The average tax rate is therefore:

Average tax rate = Total taxes paid / Taxable income 
= $32,585 / $126,500 
= 0.2576 or 25.76%

Therefore, the answer is C, 25.76%.

Question 3

Which of the following statements concerning the income statement is true?

Accepted Answer

The answer of Which of the following statements concerning the...

Question 4

Under GAAP,a firm's assets are reported at:

Accepted Answer

According to GAAP (Generally Accepted Accounting Principles), a firm's assets are reported at their historical cost or original purchase price, which includes all costs necessary to acquire the asset and get it ready for use. This is known as the cost principle and is intended to provide a reliable, verifiable, and objective basis for reporting a firm's financial position. Reporting assets at their market value, liquidation value, or intrinsic value is not considered appropriate under GAAP as these values can be subjective and may not reflect the true economic value of the asset.

Question 5

According to generally accepted accounting principles (GAAP),revenue is recognized as income when:

Accepted Answer

According to GAAP, revenue should be recognized as income when the transaction is complete and the goods or services are delivered. This is also known as the "earnings approach," which requires that revenue be recorded when the earnings process is complete, and the company has transferred control of the goods or services to the customer. The other options, such as signing a contract, requesting payment, or paying income taxes, are not relevant to the recognition of revenue under GAAP.

Question 6

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 percent.The firm does not have interest expenses.What is the operating cash flow?

Accepted Answer

Operating cash flow (OCF) is calculated as net income plus depreciation and taxes. Here, OCF = $198 (net income) + $145 (depreciation) + $102 (taxes, calculated as $198 / (1 - 0.34) - $198) = $383.

Question 7

Net capital spending is equal to:

Accepted Answer

Net capital spending represents the net change in fixed assets, which are typically long-term assets used in the production of goods and services. It is calculated by subtracting the proceeds from the sale of fixed assets from the cost of acquiring or replacing those assets. This measure is important for evaluating a company's future growth potential and its ability to maintain and upgrade its production capabilities.

Question 8

At the beginning of the year,a firm has current assets of $360 and current liabilities of $190.At the end of the year,the current assets are $510 and the current liabilities are $240.What is the change in net working capital?

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. At the beginning of the year, it is $360 - $190 = $170. At the end of the year, it is $510 - $240 = $270. The change in net working capital is $270 - $170 = $100.

Question 9

Brad's Company has equipment with a book value of $500 that could be sold today at a 50 percent discount.Its inventory is valued at $400 and could be sold to a competitor for that amount.The firm has $50 in cash and customers owe them $300.What is the accounting value of its liquid assets?

Accepted Answer

Liquid assets = $400 + 50 + 300 = $750

Question 10

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

Accepted Answer

Interest paid is a financing activity and is not included in the computation of operating cash flow, which only considers cash flows from operating activities such as earnings before interest and taxes, depreciation, and current taxes.

Question 11

Martha's Enterprises spent $2,400 to purchase equipment three years ago.This equipment is currently valued at $2,000 on today's balance sheet but could actually be sold for $2,000.Net working capital is $300 and long-term debt is $900.Assuming the equipment is the firm's only fixed asset,what is the book value of shareholders' equity?

Accepted Answer

Book value of shareholders' equity can be calculated as:
Total Assets - Total Liabilities

Total Assets = Value of equipment ($2,000) + Net Working Capital ($300)
Total Liabilities = Long-term debt ($900)

Therefore, book value of shareholders' equity = ($2,000 + $300) - $900 = $1,400. Hence, the correct answer is D.

Question 12

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?

Accepted Answer

First, subtract interest expense and depreciation from the total expenses: 
$480,000 - $40,000 - $60,000 = $380,000 
Next, calculate the taxable income by subtracting total expenses from sales: 
$640,000 - $380,000 = $260,000 
Finally, calculate the net income by multiplying the taxable income by the tax rate and subtracting the result from the taxable income: 
$260,000 x 0.34 = $88,400 
$260,000 - $88,400 = $171,600 
Therefore, the net income is $171,600 or $39,600 after deducting depreciation and interest expense. The correct answer is B.

Question 13

Free cash flow is:

Accepted Answer

Free cash flow is the amount of cash that the firm generates after spending the money required to maintain or expand its asset base. It represents the cash that the firm is free to distribute to creditors and stockholders. Option A is incorrect because free cash flow is not without cost to the firm. Option B is incorrect because net income plus taxes are not the components of free cash flow. Option C is incorrect because an increase in net working capital is a use of cash and not a source of cash.

Question 14

The tax rates are as shown.Your firm currently has taxable income of $74,000.How much additional tax will you owe if you increase your taxable income by $20,000?

Accepted Answer

To calculate the additional tax, we need to find the marginal tax rate which applies to the additional $20,000 of taxable income. The marginal tax rate is 32%, as it falls in the $77,401-$165,000 taxable income bracket.

Therefore, the additional tax owed is:

$20,000 x 0.32 = $6,400

Adding this to the current tax owed of $17,490 (using the tax bracket of $38,701-$82,500), we get:

$17,490 + $6,400 = $23,890

This means that the additional tax owed if taxable income is increased by $20,000 is $6,710 (not including any other deductions or credits).

Therefore, the best choice is B.

Question 15

Teddy's Pillows has beginning net fixed assets of $600 and ending net fixed assets of $730.Assets valued at $400 were sold during the year.Depreciation was $50.What is the amount of net capital spending?

Accepted Answer

Net capital spending is the difference between ending net fixed assets and beginning net fixed assets, adjusted for depreciation and asset sales.

Net capital spending = (Ending net fixed assets - Beginning net fixed assets) + Depreciation - Asset sales

Net capital spending = ($730 - $600) + $50 - $400 = $180

Question 16

The cash flow of the firm must be equal to:

Accepted Answer

The cash flow of the firm is distributed between equity holders and debtholders, so it equals the cash flow to equity plus cash flow to debtholders.

Question 17

A firm has $300 in inventory,$600 in fixed assets,$200 in accounts receivables,$100 in accounts payable,and $50 in cash.What is the amount of the current assets?

Accepted Answer

Current assets are the sum of inventory, accounts receivable, and cash, which is $300 + $200 + $50 = $550. Fixed assets and accounts payable are not included in current assets.

Question 18

The total assets are $1200,the fixed assets are $700,long-term debt is $600,and short-term debt is $400.What is the amount of net working capital?

Accepted Answer

The answer of The total assets are $1200,the fixed assets...

Question 19

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

Accepted Answer

The three components of the statement of cash flows are cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. Option A and B have incorrect terms, and option D's components are not commonly included in the statement of cash flows.

Question 20

At the beginning of the year,long-term debt of a firm is $270 and total debt is $340.At the end of the year,long-term debt is $290 and total debt is $390.The interest paid is $40.What is the amount of the cash flow to creditors?

Accepted Answer

Total debt = Long-term debt + Short-term debt
Initial short-term debt = $340 - $270 = $70
Final short-term debt = $390 - $290 = $100

Change in short-term debt = $100 - $70 = $30
Change in long-term debt = $290 - $270 = $20

Cash flow to creditors = interest paid - net increase in long-term debt
Cash flow to creditors = $40 - $20 = $20

Therefore, the answer is (C). $20.

Quiz 2: Financial Statements Cash Flow