Question 1

How can we cross check the statement of cash flows?

Accepted Answer

The answer of How can we cross check the statement...

Question 2

Use the table for the question(s)below.
Income Statement for Xenon Manufacturing:
 
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.Calculate the operating margin for 2014 and 2015.What does the change in the operating margin between these two years imply about the company?
A)The efficiency of Xenon Manufacturing has significantly risen between 2014 and 2015.
B)The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2014 and 2015.
C)The efficiency of Xenon Manufacturing has significantly fallen between 2014 and 2015.
D)The leverage of Xenon Manufacturing fell slightly between 2014 and 2015.
E)The revenues available to equity holders fell slightly between 2014 and 2015.

Accepted Answer

The answer of Use the table for the question(s)below.
Income Statement...

Question 3

The management of public companies are not legally required to disclose any off balance sheet transactions.

Accepted Answer

The management of public companies are required by the Securities and Exchange Commission (SEC) to disclose significant off balance sheet transactions in their financial statements, as they pose a risk to investors and affect the financial health of the company. Failure to disclose such information can result in legal consequences.

Question 4

A software company acquires a smaller company in order to acquire the patents that it holds.Where will the cost of this acquisition be recorded on the statement of cash flows?
A)as an outflow under Operating Activities
B)as an outflow under Investment Activities
C)as an outflow under Financial Activities
D)The acquisition would not be recorded on the statement of cash flows.
E)as an inflow under Financial Activities

Accepted Answer

The acquisition of a smaller company to acquire patents is considered an investment activity and the cost of acquisition will be recorded as an outflow of cash under the Investment Activities section of the statement of cash flows.

Question 5

Use the table for the question(s)below.
 
-Refer to the income statement above.Luther's net profit margin for the year ending December 31,2014 is closest to:
A)1.8%
B)2.7%
C)5.4%
D)16.7%
E)18.3%

Accepted Answer

The answer of Use the table for the question(s)below.
 
-Refer...

Question 6

Farhan's Fences has retained earnings of $2.5 million,after paying dividends of $1.5 million.What was the firm's payout ratio?
A)0.38
B)0.60
C)0.63
D)1.50
E)1.67

Accepted Answer

The answer of Farhan's Fences has retained earnings of $2.5...

Question 7

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Accepted Answer

The answer of What will be the effect on the...

Question 8

Use the table for the question(s)below.
Income Statement for Xenon Manufacturing:
 
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.Calculate the gross margin for 2014 and 2015.What does the change in the gross margin between these two years imply about the company?
A)The efficiency of Xenon Manufacturing has significantly risen between 2014 and 2015.
B)The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2014 and 2015.
C)The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2014 and 2015.
D)The leverage of Xenon Manufacturing fell slightly between 2014 and 2015.
E)The revenues available to equity holders fell slightly between 2014 and 2015.

Accepted Answer

The answer of Use the table for the question(s)below.
Income Statement...

Question 9

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.If all amounts shown above are in millions of dollars,what was AOS Industries' change in retained earnings for 2015?
A)$1.3 million
B)$1.7 million
C)$2.1 million
D)$5.4 million
E)$3.2 million

Accepted Answer

The change in retained earnings is typically calculated as net income minus dividends paid. The statement of cash flows would provide information on net income and dividends, allowing for the calculation of the change in retained earnings.

Question 10

Which type of transactions must be disclosed in the management discussion and analysis?
A)transactions that significantly affect the firm's leverage
B)off balance sheet transactions
C)off income statement transactions
D)very large transactions
E)transactions that reduce the firm's net income

Accepted Answer

Off balance sheet transactions must be disclosed in the management discussion and analysis as they can significantly impact the financial position and risk profile of the firm, even though they are not recorded on the balance sheet.

Question 11

Use the table for the question(s)below.
 
-Refer to the income statement above.Luther's operating margin for the year ending December 31,2014 is closest to:
A)1.8%
B)2.7%
C)5.4%
D)6.8%
E)16.7%

Accepted Answer

Operating margin is calculated as Operating Income divided by Revenue. Without the specific numbers from the income statement, the exact calculation can't be performed, but the correct answer is chosen based on the information provided in the question.

Question 12

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.In 2015,AOS Industries had contemplated buying a new warehouse for $2 million,the cost of which would be depreciated over 10 years.If AOS Industries has a tax rate of 25%,what would be the impact on the amount of cash held by AOS at the the end of the 2015?
A)It would have $2,00,000 less cash at the end of 2015.
B)It would have $1,950,000 less cash at the end of 2015.
C)It would have $150,000 less cash at the end of 2015.
D)It would have an additional $50,000 in cash at the end of 2015.
E)It would have $1,800,000 less cash at the end of 2015.

Accepted Answer

The purchase of the new warehouse for $2 million would result in a cash outflow of $2 million. However, since the cost would be depreciated over 10 years, the depreciation expense for 2015 would be $200,000 ($2 million divided by 10 years). Since AOS Industries has a tax rate of 25%, the tax savings from this depreciation expense would be $50,000 ($200,000 multiplied by 25%). Therefore, the net cash outflow for the investment would be $1,950,000 ($2 million minus $50,000), and consequently, AOS Industries would have $1,950,000 less cash at the end of 2015.

Question 13

Use the table for the question(s)below.
Income Statement for Xenon Manufacturing:
 
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.Calculate the gross margin for 2014 and 2015.What does the change in the net profit margin between these two years imply about the company?
A)The efficiency of Xenon Manufacturing has significantly risen between 2014 and 2015.
B)The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2014 and 2015.
C)The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2014 and 2015.
D)The leverage of Xenon Manufacturing fell slightly between 2014 and 2015.
E)The revenues available to equity holders fell slightly between 2014 and 2015.

Accepted Answer

The answer of Use the table for the question(s)below.
Income Statement...

Question 14

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.Which of the following is TRUE of AOS Industries' operating cash flows?
A)It collected more cash from its customers than they charged.
B)It sold more inventory than it bought.
C)It charged more on its accounts payable than it paid back.
D)It charged less on its accounts payable than it paid back.
E)It used $1.4 million of its cash on depreciation and amortization.

Accepted Answer

Depreciation and amortization are non-cash expenses, so they do not use cash. The statement about charging more on accounts payable than paying back implies an increase in accounts payable, which is a source of cash in operating activities, making it a true statement about operating cash flows.

Question 15

Solid State Software has retained earnings of $42 million,after paying dividends of $10 million.What was the firm's payout ratio?
A)0.24
B)0.81
C)0.19
D)0.62
E)4.20

Accepted Answer

The answer of Solid State Software has retained earnings of...

Question 16

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

Accepted Answer

The answer of What is the need for the notes...

Question 17

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.What were AOS Industries' major means of raising money in 2015?
A)from investment activities
B)by sale of stock
C)from its operations
D)by issuing debt
E)from short-term bank loans

Accepted Answer

AOS Industries raised money in 2015 by issuing debt.

Question 18

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts,if TRUE,in the firm's management discussion and analysis (MD&A)?
A)that a large number of funds were allocated to advertising to increase awareness of the firm's brand in new areas it had expanded into this year
B)that some senior members of the management team have retired in this financial year
C)that the company has lost a class action suit brought against the firm by its employees and is expected to have to pay a large amount of damages
D)that the firm has plans to expand into the organic food business in the next financial year by purchasing several small organic food retailers
E)that food prices have increased,increasing the firm's costs

Accepted Answer

The MD&A section is meant to provide insights into the financial condition and operations of the company. A significant legal loss with expected large damages would have a material impact on the firm's financial position and must be disclosed.

Question 19

Use the table for the question(s)below.
 
-Refer to the income statement above.Luther's return on equity (ROE)for the year ending December 31,2015 is closest to:
A)2.0%
B)6.5%
C)8.4%
D)12.7%
E)32.5%

Accepted Answer

Return on Equity (ROE) = Net Income/Shareholder's Equity.
From the table, we have:
Net Income = $50,000
Shareholder's Equity = $595,000
Therefore, ROE = $50,000/$595,000 = 0.084 or 8.4%.
The closest option to this value is C) 8.4%.

Question 20

Use the table for the question(s)below.
 
-Refer to the income statement above.Luther's return on assets (ROA)for the year ending December 31,2015 is closest to:
A)2.0%
B)6.5%
C)8.4%
D)12.7%
E)32.5%

Accepted Answer

The answer of Use the table for the question(s)below.
 
-Refer...

Quiz 2: Introduction to Financial Statement Analysis

How can we cross check the statement of cash flows?

The management of public companies are not legally required to disclose any off balance sheet transactions.

A software company acquires a smaller company in order to acquire the patents that it holds.Where will the cost of this acquisition be recorded on the statement of cash flows?

Use the table for the question(s) below. -Refer to the income statement above.Luther's net profit margin for the year ending December 31,2014 is closest to:

Farhan's Fences has retained earnings of $2.5 million,after paying dividends of $1.5 million.What was the firm's payout ratio?

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Use the table for the question(s) below. AOS Industries Statement of Cash Flows for 2015 -Consider the above statement of cash flows.If all amounts shown above are in millions of dollars,what was AOS Industries' change in retained earnings for 2015?

Which type of transactions must be disclosed in the management discussion and analysis?

Use the table for the question(s) below. -Refer to the income statement above.Luther's operating margin for the year ending December 31,2014 is closest to:

Use the table for the question(s) below. AOS Industries Statement of Cash Flows for 2015 -Consider the above statement of cash flows.Which of the following is TRUE of AOS Industries' operating cash flows?

Solid State Software has retained earnings of $42 million,after paying dividends of $10 million.What was the firm's payout ratio?

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

Use the table for the question(s) below. AOS Industries Statement of Cash Flows for 2015 -Consider the above statement of cash flows.What were AOS Industries' major means of raising money in 2015?

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts,if TRUE,in the firm's management discussion and analysis (MD&A) ?

Use the table for the question(s) below. -Refer to the income statement above.Luther's return on equity (ROE) for the year ending December 31,2015 is closest to:

Use the table for the question(s) below. -Refer to the income statement above.Luther's return on assets (ROA) for the year ending December 31,2015 is closest to: