Question 1

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 2

The 2018 income statement for John's Gym shows that depreciation expense is $20 million, EBIT is $80 million, and taxes are $24 million. At the end of the year, the balance of gross fixed assets was $102 million. The increase in net operating working capital during the year was $18 million. John's free cash flow for the year was $41 million. What was the beginning of year balance for gross fixed assets?
A)$43 million
B)$85 million
C)$84 million
D)$163 million

Accepted Answer

The answer of The 2018 income statement for John's Gym...

Question 3

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...

Question 4

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

Total assets = $100 million

Debt = 50% of assets = 0.50 x $100 million = $50 million

Current liabilities = $37 million

Long-term debt = $50 million - $37 million = $13 million

Common stock and paid-in surplus = $32 million

Retained earnings = Total assets - Debt - Common stock and paid-in surplus - Current liabilities
= $100 million - $50 million - $32 million - $37 million
= $18 million

Therefore, the balance for long-term debt is $13 million and the balance for retained earnings is $18 million. Option D is the correct answer.

Question 5

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

To calculate EBIT, we use the formula:
EBIT = Net Income + Taxes + Interest Expense
We can rearrange this formula to solve for Net Income:
Net Income = EBIT - Taxes - Interest Expense
Since we are not given any information on interest expense, we can assume it is zero, so we can simplify the formula to:
Net Income = EBIT - Taxes

We know that Tater and Pepper Corp. reported free cash flows of $20 million and investment in operating capital of $15 million, so we can calculate the change in operating capital as:
Δ Operating Capital = Free Cash Flows - Investment in Operating Capital
Δ Operating Capital = $20 million - $15 million
Δ Operating Capital = $5 million

We can use this to calculate the NOPAT (Net Operating Profit After Taxes) as:
NOPAT = EBIT * (1 - Tax Rate) - Δ Operating Capital
We are given that depreciation expense is $8 million, but this does not affect NOPAT, as it is a non-cash expense. We are also given that taxes on the income statement are $12 million, which we can assume represents the total tax expense. Therefore, we can calculate the tax rate as:
Tax Rate = Taxes / EBIT
Tax Rate = $12 million / EBIT

We can now use this information to solve for EBIT as follows:
NOPAT = EBIT * (1 - Tax Rate) - Δ Operating Capital
$20 million = EBIT * (1 - ($12 million / EBIT)) - $5 million
$20 million = EBIT - $12 million + ($5 million / EBIT) * EBIT
$20 million = EBIT - $12 million + $5 million
EBIT = $27 million

Finally, we can calculate Net Income as:
Net Income = EBIT - Taxes
Net Income = $27 million - $12 million
Net Income = $15 million

Therefore, the answer is C) $39,000,000.

Question 6

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. Using this 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 free cash flow is calculated as EBIT minus tax expense plus depreciation. Here, $30 million (EBIT) - $8 million (tax) + $4 million (depreciation) = $26 million. Since the free cash flow is $1 million, the difference of $25 million must be due to changes in working capital, which includes accounts payable. Therefore, the ending balance of accounts payable is $35 million.

Question 7

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

Using the formula for calculating cash flows from the balance sheet:
Cash flow from operations = Change in cash + Cash flows from financing activities + Cash flows from investing activities
$1,025,000 (Ending cash) - $980,000 (Beginning cash) = $45,000 (Change in cash)
Cash flow from operations = $45,000 + ($3,219,000) + ($2,150,000) = $5,414,000. Therefore, the correct answer is B.

Question 8

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 includes all sources of income, including interest and dividends. Therefore, taxable income for Hunt Taxidermy, Inc. is $36.5 million + $1.25 million + $400,000 = $36.62 million. The correct answer is choice D.

Question 9

You have been given the following information for Corky's Bedding Corp.: Net sales = $15,250,000; Cost of goods sold = $5,750,000; Addition to retained earnings = $4,000,000; Dividends paid to preferred and common stockholders = $995,000; Interest expense = $1,150,000. The firm's tax rate is 30 percent. Calculate the depreciation expense for Corky's Bedding Corp.
A)$1,210,000
B)$1,970,000
C)$1,520,000
D)$1,725,000

Accepted Answer

Depreciation expense = Net income - Addition to retained earnings - Dividends paid to preferred and common stockholders + Interest expense= (Net sales - Cost of goods sold - Interest expense) * (1 - Tax rate) - Addition to retained earnings - Dividends paid to preferred and common stockholders + Interest expense= ($15,250,000 - $5,750,000 - $1,150,000) * (1 - 0.30) - $4,000,000 - $995,000 + $1,150,000= $1,210,000

Question 10

Bike and Hike, Inc. started the year with a balance of retained earnings of $100 million and ended the year with retained earnings of $128 million. The company paid dividends of $9 million to the preferred stockholders and $22 million to common stock holders. What was Bike and Hike's net income for the year?
A)$28 million
B)$31 million
C)$59 million
D)$128 million

Accepted Answer

Bike and Hike's net income for the year can be calculated by adding the dividends paid to both preferred and common stockholders to the increase in retained earnings. The increase in retained earnings is $128 million - $100 million = $28 million. Adding the dividends paid to preferred ($9 million) and common stockholders ($22 million) gives $28 million + $9 million + $22 million = $59 million.

Question 11

Zoeckler Mowing & Landscaping's year-end 2011 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 is calculated as total assets minus total liabilities. Total assets = $350,000 (current) + $325,000 (fixed) = $675,000. Total liabilities = $145,000 (current) + $185,000 (long-term) = $330,000. Therefore, stockholders' equity = $675,000 - $330,000 = $345,000.

Question 12

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

To find the balance of inventory, we need to subtract cash and accounts receivable from total current assets and then subtract that from total assets:

Inventory = Total current assets - Cash - Accounts receivable
Inventory = $5 million - 0.12($5 million) - 0.4($5 million)
Inventory = $2.4 million

To find the balance of depreciation, we need to subtract the cost value of gross plant and equipment and other long-term assets from total assets:

Depreciation = Total assets - Gross plant and equipment - Other long-term assets
Depreciation = $17 million - $12 million - $1 million
Depreciation = $4 million

So, the correct answer is A) $2.4 million; $4 million.

Question 13

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 year-end balance in retained earnings can be calculated as:
Beginning balance + Net Income - Dividends
= $205 million + $30 million - ($5 million + $12 million)
= $218 million 
Therefore, the year-end 2018 balance in retained earnings for Mr. Husker's Tuxedos is $218,000,000.

Question 14

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 15

Jamaican Ice Cream Corp. started the year with a balance of retained earnings of $100 million. The company reported net income for the year of $45 million, paid dividends of $2 million to the preferred stockholders and $15 million to common stockholders. What is Jamaican Ice Cream's end of year balance in retained earnings?
A)$38 million
B)$55 million
C)$128 million
D)$162 million

Accepted Answer

The end of year balance in retained earnings is calculated by starting with the beginning balance, adding net income, and subtracting dividends paid. So, $100 million + $45 million - $2 million - $15 million = $128 million.

Question 16

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

The answer of You are evaluating the balance sheet for...

Question 17

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 2012 to 2013. 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 2013.
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

The answer of You are considering an investment in Fields...

Question 18

The 2018 income statement for Betty's Barstools shows that depreciation expense is $100 million, EBIT is $400 million, and taxes are $120 million. At the end of the year, the balance of gross fixed assets was $510 million. The increase in net operating working capital during the year was $94 million. Betty's free cash flow for the year was $625 million. What was the beginning of year balance for gross fixed assets?
A)$359 million
B)$380 million
C)$849 million
D)$1,094 million

Accepted Answer

The formula for free cash flow is FCF = EBIT(1 - tax rate) + depreciation - net capital expenditures - increase in working capital. We are given FCF = $625 million, EBIT = $400 million, depreciation = $100 million, and taxes = $120 million. Rearranging the formula, we can solve for net capital expenditures: 
Net capital expenditures = (EBIT - taxes + depreciation - FCF) / (1 + tax rate)
Plugging in the values, we get: 
Net capital expenditures = ($400m - $120m + $100m - $625m) / (1 + tax rate)
Simplifying, we get: 
Net capital expenditures = -$245m / (1 + tax rate)
Since free cash flow is positive, we know that net capital expenditures must be negative. Therefore, we can solve for the tax rate: 
Tax rate = ($245m) / (EBIT - taxes + depreciation - FCF)
Tax rate = ($245m) / ($400m - $120m + $100m - $625m)
Tax rate = 39.18%
Now that we know the tax rate, we can solve for the beginning balance of gross fixed assets: 
Net capital expenditures = (beginning gross fixed assets + ending gross fixed assets) / 2 - depreciation
-$245m / (1 + 39.18%) = (beginning gross fixed assets + $510m) / 2 - $100m
-$184.91m = (beginning gross fixed assets + $510m) / 2 - $100m
-$584.91m = (beginning gross fixed assets + $510m) / 2
Beginning gross fixed assets + $510m = -$1.17b
Beginning gross fixed assets = $659m
Therefore, the answer is C) $849 million.

Question 19

Soccer Starz, Inc. started the year with a balance of retained earnings of $25 million and ended the year with retained earnings of $32 million. The company paid dividends of $2 million to the preferred stockholders and $6 million to common stockholders. What was Soccer Starz's net income for the year?
A)$7 million
B)$15 million
C)$40 million
D)$49 million

Accepted Answer

Soccer Starz's net income for the year can be calculated as follows:
Net Income = Ending Retained Earnings - Beginning Retained Earnings + Dividends
Net Income = $32 million - $25 million - $2 million (preferred dividends) - $6 million (common dividends)
Net Income = $32 million - $25 million - $8 million
Net Income = $15 million

Question 20

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...

Quiz 2: Reviewing Financial Statements

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.

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.

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. Using this information, what was Martha's Accounts Payable ending balance in 2018?

Zoeckler Mowing & Landscaping's year-end 2011 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.

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?