Fin 120 Chapter 3

The Wexler Corp. had the following for the past fiscal year: Net Income 17,000 EBIT 32,000 Taxes 6,000 Changes in working capital 7,000 increase Depreciation 11,000 What is Wexler Corporation's Cash Flow to Investors from Operating Activity?

$ 37,000

Use the following information to answer this question: Hadlock Industries has the following amounts for the year ending 6/30/2011: Increase in inventories $ 28 Purchased treasury stock $ 17 Purchased Property and equipment $ 18 Net income $ 330 Decrease in accrued income taxes $ 42 Depreciation and amortization $ 112 Decrease in accounts payable $ 10 Increase in accounts receivable $ 26 Increase in Long-term debt $ 100 What was Hadlock Industries' Cash Flow from Investing for the year ending 6/30/2011?

- $ 18

If Toronto Motors Had an EBIT of $22.5M, Interest of $7M and is taxed at an average rate of 32% what is their Net Income?

10.5M

An increase in treasury stock increases the cash balance.

False

Cash flows from operating activities relate to the buying and selling of long-term assets

False

Earnings per share are measured by dividing earnings-before-interest-and-taxes (EBIT) by the number of shares outstanding.

False

If a company values its inventory using the FIFO method, when the firm makes a sale in a rising price environment, it assumes the sale is from the newest, highest-cost inventory.

False

Preparing a market-value balance sheet is rather straightforward because it is easy to obtain market values for all assets and liabilities.

False

The book value of a firm is always equal to its market value.

False

Treasury stock is the investment a firm holds in another company.

False

Trident Corporation had the following cash flows in the current year. Which one of the following is a financing activity cash flow?

Preferred dividends to the tune of $330,000 paid to shareholders

The generally accepted accounting principles (GAAP) are set by the

The Financial Accounting Standards Board (FASB).

Average tax rates can be equal to marginal tax rates for very high income earners.

True

In a rising price environment, a company using the LIFO method assumes that the sale of a product is from the newest, highest-cost inventory.

True

The key financial statement that ties the other three statements together is the balance sheet, which summarizes the firm's investment and financing activities at a point in time.

True

The major disadvantages of market-value accounting include

all of these are disadvantages of market-value accounting. the difficulty in estimating the current value for some assets. the resulting numbers are potentially open to abuse. the difficulty in applying some of the valuation models used to estimate market values

According to the realization principle, revenue from a sale of the firm's products are recognized

at the time of the sale.

Accounting statements are

based on historical data.

Which of the following would not appear as an asset on a company's balance sheet?

common stock

Interest is a tax-deductible expense. This causes firms to have a preference for

financing with bonds

Which of the following is a tax deductible expense for a corporation?

interest paid

Which of the following balance sheet items generally takes the longest time to convert to cash?

inventory

The income statement is

like a video recording of a firm's revenues and expenses during a period of time.

Which of the following would appear as a liability on a company's balance sheet?

notes payable

Annual reports are prepared by a firm's management to

provide overview of the firm's financial and operating performance.

A firm's net income may be greater than its net cash flows because the firm

sold merchandise on credit

Your uncle, who has a second home in Bethany Beach, Delaware, is planning to sell it in the next few weeks. You are interested in buying this beachside property, so your agent negotiates a price for the house with your uncle's agent. This transaction is an example of

the assumption of arm's-length transactions.