Question 1

Nel's Place has total sales of $1,200,costs are $715,and depreciation is $145.The tax rate is 34 percent.The firm does not have any interest expense.What is the operating cash flow?

Accepted Answer

Earnings before interest and taxes = $1,200 - 715 - 145 = $340Tax = .34($340)= $115.60Operating cash flow = $340 + 145 - 115.60 = $369.40

Question 2

Why is depreciation added as a part of the capital spending formula?

Accepted Answer

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Question 3

A firm has $800 in inventory,$1,400 in fixed assets,$500 in accounts receivables,$100 in net working capital,and $50 in cash.What is the amount of the current liabilities?

Accepted Answer

Current liabilities = ($50 + 500 + 800)- $100 = $1,250

Question 4

At the beginning of the year,a firm had 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

Change in net working capital = ($510 - 240)- ($360 - 190)= $100

Question 5

Total assets are $1,500,fixed assets are $1,100,long-term debt is $600,and short-term debt is $300.What is the amount of net working capital?

Accepted Answer

Net working capital = ($1,500 - 1,100)- $300 = $100

Question 6

Identify three cash flows that occur between a firm and its stockholders.Indicate the direction of the cash flow in each case.

Accepted Answer

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Question 7

A firm has beginning retained earnings of $4,200 and ending retained earnings of $4,650.What is the amount of dividends paid if the firm earned a net income of $1,950?

Accepted Answer

Dividends paid = $1,950 - ($4,650 - 4,200)= $1,500

Question 8

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

Accepted Answer

Tax = .15($50,000)+ .25($25,000)+ .34($25,000)+ .39($126,500 - 100,000)= $32,585Average tax rate = $32,585/$126,500 = .2576,or 25.76%

Question 9

The tax rates are as shown.Your firm currently has taxable income of $74,000.How much additional tax will the firm owe if it increases its taxable income by $25,000?

Accepted Answer

Additional tax = .25($1,000)+ .34($24,000)= $8,410

Question 10

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 $2,200.Net working capital is $300 and long-term debt is $1,100.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 = $2,000 + 300 - 1,100 = $1,200

Question 11

A firm has total equity of $1,890,net working capital of $150,long-term debt of $890,and current liabilities of $720.What is the amount of the net fixed assets?

Accepted Answer

Net fixed assets = $890 + 1,890 - 150 = $2,630

Question 12

Pete's Boats has beginning long-term debt of $180 and ending long-term debt of $210.The beginning and ending total debt balances are $340 and $360,respectively.The interest paid is $30.What is the amount of the cash flow to creditors?

Accepted Answer

Cash flow to creditors = $30 - ($210 - 180)= $0

Question 13

Teddy's Pillows had 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 = $730 - 600 + 50 = $180

Question 14

Identify three items that are included on an income statement but excluded from operating cash flows.Explain the reason for each exclusion.

Accepted Answer

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Question 15

Peggy Grey's Cookies has net income of $360.The firm pays out 50 percent of the net income to its shareholders as dividends.During the year,the company sold $44 worth of common stock.What is the cash flow to stockholders?

Accepted Answer

Cash flow to stockholders = .50($360)- $44 = $136

Question 16

Thompson's Jet Skis has operating cash flow of $258.Depreciation is $45 and interest paid is $53.A net total of $79 was paid on long-term debt.The firm spent $210 on fixed assets and increased net working capital by $48.What is the amount of the cash flow to stockholders?

Accepted Answer

CF(A)= $258 - 48 - 210 = $0;CF(B)= $53 - (-$79)= $132;CF(S)= $0 - 132 = -$132

Question 17

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 18

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 $70.What is the amount of the cash flow to creditors?

Accepted Answer

Cash flow to creditors = $70 - ($290 - 270)= $50

Question 19

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 percent.What is the net income?

Accepted Answer

Taxable income = ($640,000 - 480,000 - 40,000 - 60,000)(1 - .34)= $39,600

Question 20

Lester's has $23,600 in sales,$13,200 in cost of goods sold,$2,300 in depreciation,$900 in interest expense,and $6,200 in selling,general,and administrative expenses.The firm owes no taxes for this year.What is the amount of the period costs that are included in the operating cash flow?

Accepted Answer

Period costs = Selling,general,and administrative expenses = $6,200Cost of goods sold is a product cost,depreciation is a non-cash expense,and interest expense is a cash flow to creditors.

Quiz 2: Financial Statements and Cash Flow