Question 1

Which of the following is the term within the GAAP framework whereby firms can engage in a process of controlling their earnings,otherwise known as "smoothing" their earnings,as long as it's not taken to an extreme.
A) commingling
B) delisting
C) window dressing
D) earnings management

Accepted Answer

The term within the GAAP framework whereby firms can engage in a process of controlling their earnings, also known as "smoothing" their earnings, is called earnings management. This involves making strategic accounting choices to manipulate financial statements to meet desired financial goals. While some level of earnings management is allowed, extreme manipulation or misrepresentation is not acceptable.

Question 2

A firm has sales of $10,000,EBIT of $3,000,depreciation of $400,and fixed assets increased by $2,000.If the firm's tax rate is 30 percent and there were no increases in net operating working capital,what is the firm's free cash flow?
A) $7400
B) $600
C) $500
D) -$1,220

Accepted Answer

[3,000 - (3,000 × 0.3) + 400] - 2,000 = FCF = $500.

Question 3

A firm has sales of $50,000,EBIT of $10,000,depreciation of $4,000,and fixed assets increased by $2,000.If the firm's tax rate is 30 percent and a $1,000 increase in net operating working capital,what is the firm's free cash flow?
A) $10,000
B) $9,000
C) $8,000
D) $1,200

Accepted Answer

[10,000 - (10,000 × 0.3) + 4,000] - (2000 + 1,000) = FCF = $8,000.

Question 4

Ultra Inc.had $100 million in retained earnings at the beginning of the year.During the year,the firm paid $0.25 per share dividend and generated $2.00 earnings per share.The firm has 10 million shares outstanding.At the end of year,what was the level of retained earnings for GW?
A) $100 million
B) $117.5 million
C) $120 million
D) $145 million

Accepted Answer

100m + (2.00 × 10m) - (0.25 × 10m) = $117.5m.

Question 5

You are evaluating the balance sheet for Ultra Corporation.From the balance sheet you find the following balances: cash and marketable securities = $10,000,accounts receivable = $2,000,inventory = $20,000,accrued wages and taxes = $1,000,accounts payable = $3,000,and notes payable = $10,000.Calculate Ultra's net working capital.
A) $ 8,000
B) $18,000
C) $28,000
D) $32,000

Accepted Answer

(10,000 + 2,000 + 20,000) - (1,000 + 3,000 + 10,000) = 18,000.

Quiz 2: Reviewing Financial Statements

Which of the following is the term within the GAAP framework whereby firms can engage in a process of controlling their earnings,otherwise known as "smoothing" their earnings,as long as it's not taken to an extreme.

A firm has sales of $10,000,EBIT of $3,000,depreciation of $400,and fixed assets increased by $2,000.If the firm's tax rate is 30 percent and there were no increases in net operating working capital,what is the firm's free cash flow?

A firm has sales of $50,000,EBIT of $10,000,depreciation of $4,000,and fixed assets increased by $2,000.If the firm's tax rate is 30 percent and a $1,000 increase in net operating working capital,what is the firm's free cash flow?

Ultra Inc.had $100 million in retained earnings at the beginning of the year.During the year,the firm paid $0.25 per share dividend and generated $2.00 earnings per share.The firm has 10 million shares outstanding.At the end of year,what was the level of retained earnings for GW?