Finance - Chapter 2

Cash flow to stockholders is defined as: 1. the total amount of interest and dividends paid during the past year. 2. the change in total equity over the past year. 3. operating cash flow minus the cash flow to creditors. 4. dividend payments less net new equity raised. 5. cash flow from assets plus the cash flow to creditors.

dividend payments less net new equity raised.

Which one of the following financial statements summarizes a firm's revenue and expenses during a period of time? 1. Market value report 2. Statement of cash flows 3. Balance sheet 4. Tax reconciliation statement 5. Income statement

income statement

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? 1. Statement of cash flows 2. Creditor's statement 3. Balance sheet 4. Income statement 5. Dividend statement

Balance sheet

For the past year, Pellicier Incorporated had depreciation of $2,419, beginning total assets of $23,616, and ending total assets of $21,878. Current assets decreased by $1,356. What was the amount of net capital spending for the year? $1,993 −$382 $2,801 $1,172 $2,037

$2,037 Explanation Net capital spending = $21,878 − 23,616 + 1,356 + 2,419 Net capital spending = $2,037

For the past year, Pellicier, Incorporated, had depreciation of $2,419, beginning total assets of $23,616, and ending total assets of $21,878. Current assets decreased by $1,356. What was the amount of net capital spending for the year? $2,801 −$382 $1,172 $1,993 $2,037

$2,037 Explanation Net capital spending = $21,878 − 23,616 + 1,356 + 2,419 Net capital spending = $2,037

Pavlak Surveyors has beginning current assets of $1,360, beginning current liabilities of $940, ending current assets of $1,720, and ending current liabilities of $1,080. What is the change in net working capital? $190 $1,060 $170 $940 $220

$220 Explanation: Change in NWC = ($1,720 − 1,080) − ($1,360 − 940) Change in NWC = $220

Ryu and Fowler Attorneys has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? $1,800 $600 −$100 $1,700 $300

$300 Explanation NWC = $4,900 − 3,200 − 1,400 NWC = $300

A partner in a law firm expected to earn taxable income of $80,000. Her actual taxable income exceeded this projection by $25,000. Based on the tax table below, how much additional tax did she owe due to the $25,000 increase in taxable income? Taxable Income Tax Rate $ 0 − 9,875 10% 9,875 − 40,125 12 40,125 − 85,525 22 85,525 − 163,300 24 $5,889.50 $5,500.00 $6,000.00 $4,674.00 $5,250.00

$5,889.50 Explanation Additional tax = .22($85,525 − 80,000) + .24[($80,000 + $25,000) − 85,525] Additional tax = $5,889.50

Lewis & Price Corporation paid $700 in dividends and $320 in interest this past year. Common stock remained constant at $6,800 and retained earnings decreased by $180. What is the net income for the year? $180 $1,200 $1,020 $520 $880

$520 Explanation Net income = $700 − 180 Net income = $520

Mikeska Equipment Repair has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities? $7,950 $2,920 $2,050 $6,890 $4,130

$6,890 Explanation: Current assets = $7,390 − 3,910 Current assets = $3,480 Current liabilities = $3,480 − 560 Current liabilities = $2,920 Total liabilities = $2,920 + 3,970 Total liabilities = $6,890

Clark-Phillips, Incorporated, purchased $145,000 in new equipment and sold equipment with a net book value of $68,400 during the year. What is the amount of net capital spending if the depreciation was $38,600? $115,200 −$38,000 $38,000 $76,600 $94,200

$76,600 Explanation: Net capital spending = $145,000 − 68,400 Net capital spending = $76,600

Which one of the following statements related to the cash flow to creditors must be correct? 1. A positive cash flow to creditors means that a firm has increased its long-term debt. 2. If the cash flow to creditors is zero, a firm has no long-term debt. 3. A positive cash flow to creditors represents a net cash outflow from the firm. 4. If the cash flow to creditors is positive, the firm must have borrowed more money than it repaid. 5. If the cash flow to creditors is negative, the firm must have a negative cash flow from assets.

A positive cash flow to creditors represents a net cash outflow from the firm.

Which of the following actions could cause a company's change in net working capital to be negative for a given year? 1. Pay off long-term debt before the due date 2. Use long-term debt to buy a building 3. Borrow money from the bank using a note payable in nine months 4. Purchase additional inventory with cash 5. Increase the dividends paid to stockholders

Borrow money from the bank using a note payable in nine months

Which one of the following is classified as a tangible fixed asset? 1. Goodwill 2. Computer equipment 3. Accounts receivable 4. Inventory 5. Cash

Computer equipment

Which one of the following describes a noncash item? 1. Ownership of intangible assets such as patents 2. Fixed expenses 3. Sales that are made using store credit 4. Expenses that do not consume cash 5. Inventory items purchased using credit

Expenses that do not consume cash

Which one of the following statements concerning net working capital is correct? 1. Net working capital is the amount of cash a firm currently has available for spending. 2. Total assets must increase if net working capital increases. 3. Net working capital excludes inventory. 4. Net working capital increases when inventory is purchased with cash. 5. Net working capital may be a negative value.

Net working capital may be a negative value.

Which one of the following statements concerning corporate income taxes is correct? 1. The marginal tax rate will always be lower than the average tax rate. 2. Corporations pay no tax on their first $50,000 of income. 3. The first 25 percent of corporate income is exempt from taxation. 4. U.S. corporations are exempt from federal taxation. 5. The federal income tax is applied at a flat rate across all levels of taxable income.

The federal income tax is applied at a flat rate across all levels of taxable income.

Cash flow from assets is also known as the firm's: 1. equity structure. 2. free cash flow. 3. capital structure. 4. historical cash flow. 5. hidden cash flow.

free cash flow.

Net capital spending: 1. is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense. 2. reflects the net changes in total assets over a stated period of time. 3. is equal to the net change in the current accounts. 4. is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. 5. is equal to ending net fixed assets minus beginning net fixed assets.

is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

The book value of a firm is: 1. based on historical transactions. 2. equivalent to the firm's market value minus its liabilities. 3. adjusted to the market value whenever the market value exceeds the stated book value. 4. generally greater than the market value when fixed assets are included. 5. a financial, rather than an accounting, valuation.

based on historical transactions.