R (2) Finance sophia
Cash flow to creditors increases when:
long-term debt is repaid.
Shareholders' equity is best defined as:
the residual value of a firm.
Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant?
An increase in depreciation
Financial Leverage
increases the potential return to the stockholders.
Cash flow to creditors is defined as:
interest paid minus net new borrowing
Net working capital is defined as:
current assets minus current liabilities. available cash minus current liabilities.
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow?
increase in accounts payable
Financial leverage:
increases the potential return to the stockholders.
Medeiros Imports has cash of $41,100 and accounts receivable of $54,200, all of which is expected to be collected. The inventory cost $82,300 and can be sold today for $116,500. The fixed assets were purchased at a total cost of $234,500 of which $118,900 has been depreciated. The fixed assets can be sold today for $138,000. What is the total book value of the firm's assets?
total book value = $41,100 + 54,200 + 82,300 + 234,500 − 118,900 = $293,200
Omar's Market, a sole proprietorship has sales of $43,800, costs of $40,400, depreciation expense of $2,500, and interest expense of $1,100. If the tax rate is 21 percent, what is the operating cash flow, OCF? Assume tax losses can be carried forward and utilized.
EBIT = $43,800 − 40,400 − 2,500 = $900 Tax = ($900 − 1,100) × .21 = −$42 OCF = $900 + 2,500 − (−$42) = $3,442
The matching principle states that:
costs of producing an item should be recorded when the sale of that item is recorded as revenue
National Importers paid $38,600 in dividends and $24,615 in interest over the past year while net working capital increased from $15,506 to $17,411. The company purchased $38,700 in net new fixed assets and had depreciation expenses of $14,784. During the year, the firm issued $20,000 in net new equity and paid off $23,800 in long-term debt. What is the amount of the cash flow from assets?
Cash flow from assets = ($24,615 + 23,800) + ($38,600 − 20,000) = $67,015
Which one of the following is an intangible fixed asset?
Copyright
For the year, Movers United has net income of $31,800, net new equity of $7,500, and an addition to retained earnings of $24,200. What is the amount of the dividends paid?
Dividends paid = $31,800 − 24,200 = $7,600
A firm has earnings before interest and taxes of $27,130, net income of $16,220, and taxes of $5,450 for the year. While the firm paid out $31,600 to pay off existing debt it then later borrowed $42,000. What is the amount of the cash flow to creditors?
Interest = $27,130 − 16,220 − 5,450 = $5,460 Cash flow to creditors = $5,460 + 31,600 − 42,000 = −$4,940
Swearingen United has total owners' equity of $18,800. The firm has current assets of $23,100, current liabilities of $12,200, and total assets of $36,400. What is the value of the long-term debt?
Long-term debt = $36,400 − 18,800 − 12,200 = $5,400
The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the net capital spending?
Net capital spending = $371,920 − 348,200 + 46,080 = $69,800
Preston Financial has ending net fixed assets of $98,700 and beginning net fixed assets of $84,900. During the year, the firm sold assets with a total book value of $13,200 and also recorded $9,800 in depreciation expense. How much did the company spend to buy new fixed assets?
New fixed asset purchases = $98,700 − 84,900 + 13,200 + 9,800 = $36,800
Donegal's has compiled the following information: Sales$ 406,300 Interest paid 21,200 Long-term debt248,700 Owners' equity211,515 Depreciation23,800 Accounts receivable24,400 Other costs38,600 Inventory41,500 Accounts payable22,600 Cost of goods sold218,900 Cash16,300T axes34,100 What is the operating cash flow for the year?
Operating cash flow = $406,300 − 218,900 − 38,600 − 34,100 = $114,700
Di Bacco Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners' equity?
Owners' equity = $29,800 + 64,800 − 23,000 = $71,600
Which one of the following is included in the market value of a firm but not in the book value?
Reputation of the firm
GAAP, as they relate to the income statement includes the recognition principle: to recognize revenue when the earnings process is virtually complete, and the value of an exchange of goods or services is known or can be reliably determined. Which of the following statements is true with regard to this principle?
Revenue is recognized at the time of sale. Costs associated with the sale of that product likewise would be recognized at that time
Net working capital decreases when:
a dividend is paid to current shareholders.
Production equipment is classified as:
a tangible fixed asset
Production equipment is classified as
a tangible fixed asset.
The term "free cash flow" is another term to describe
cash flow from assets.
Operating cash flow is defined as:
he cash that a firm generates from its normal business activities.
The accounting statement that measures the revenues, expenses, and net income of a firm over a period is called the:
income statement.
Shareholders' equity is equal to:
net fixed assets minus long-term debt plus net working capital
Shareholders' equity is equal to:
net fixed assets minus long-term debt plus net working capital.
Paid-in surplus is classified as:
owners' equity.
A negative cash flow to stockholders indicates a firm:
received more from selling stock than it paid out to shareholders
An income statement prepared according to GAAP:
records expenses based on the matching principle.
Net income increases when:
revenue increases.
The recognition principle states that:
sales should be recorded when the earnings process is virtually completed, and the value of the sale can be determined.
Based on the recognition principle, revenue is recorded on the financial statements when the: payment is collected for the sale of a good or service. earnings process is virtually complete. value of a sale can be reliably determined. product is physically delivered to the buyer.
2 &3 only
In 2021, what was the maximum average tax rate for corporations?
21%
Which one of the following statements concerning the balance sheet is correct
Assets are listed in descending order of liquidity.
Which one of the following terms is defined as the total tax paid divided by the total taxable income?
Average tax rate
Outdoor Sports paid $12,500 in dividends and $9,310 in interest over the past year. Sales totaled $361,820 with costs of $267,940. The depreciation expense was $16,500 and the tax rate was 21 percent. What was the amount of the operating cash flow?
EBIT = $361,820 − 267,940 − 16,500 = $77,380 Tax = ($77,380 − 9,310) × .21 = $14,294.70 OCF = $77,380 + 16,500 − 14,294.70 = $79,585
Zhang's fixed assets were purchased three years ago for $1.8 million. These assets can be sold to Stewart's today for $1.2 million. Roscoe's current balance sheet shows net fixed assets of $960,000, current liabilities of $348,000, and net working capital of $121,000. If all the current assets were liquidated today, the company would receive $518,000 cash. The book value of the firm's assets today is _____________ and the market value is _____________
Book value = $121,000 + 348,000 + 960,000 = $1,429,000 Market value = $518,000 + 1,200,000 = $1,718,000
The concept of marginal taxation is best exemplified by which one of the following?
Burke's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes
During the past year, Rend Yard Services paid $36,800 in interest along with $2,000 in dividends. The company issued $3,000 of stock and $16,000 of new debt. The company reduced the balance due on its old debt by $18,400. What is the amount of the cash flow to creditors?
Cash flow to creditors = $36,800 − 16,000 + 18,400 = $39,200
Pacheo's Market had long-term debt of $638,100 at the beginning of the year compared to $574,600 at year-end. If the interest expense was $42,300, what was the firm's cash flow to creditors?
Cash flow to creditors = $42,300 − ($574,600 − 638,100) = $105,800
The Underground Cafe has an operating cash flow of $187,000 and a cash flow to creditors of $71,400 for the past year. The firm reduced its net working capital by $28,000 and incurred net capital spending of $47,900. What is the amount of the cash flow to stockholders for the last year?
Cash flow to stockholders = [$187,000 − 47,900 − (−$28,000)] − $71,400 = $95,700
Al-Sadiq Plumbing Supply currently has $10,500 in cash. The company owes $26,900 to suppliers for merchandise and $47,500 to the bank for a long-term loan. Customers owe the company $33,000 for their purchases. The inventory has a book value of $62,400 and an estimated market value of $65,600. If the store compiled a balance sheet as of today, what would be the book value of the current assets?
Current assets = $10,500 + 33,000 + 62,400 = $105,900
Kat Outfitting currently has $22,500 in cash. The company owes $49,500 to suppliers for merchandise and $52,500 to the bank for a long-term loan. Customers owe the company $41,000 for their purchases. The inventory has a book value of $76,800 and an estimated market value of $72,000. If the store compiled a balance sheet as of today, what would be the book value of the current assets?
Current assets = $22,500 + 41,000 + 76,800 = $140,300
Chun Industries reports the following account balances: inventory of $417,600, equipment of $2,028,300, accounts payable of $224,700, cash of $51,900, and accounts receivable of $313,900. What is the amount of the current assets?
Current assets = $51,900 + 313,900 + 417,600 = $783,400
St. Louis Warehouse has net working capital of $42,400, total assets of $519,300, and net fixed assets of $380,200. What is the value of the current liabilities?
Current liabilities = $519,300 − 380,200 − 42,400 = $96,700
Girabaldi's Preztels, general partnership, has net sales of $821,300 and costs of $698,500. The depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of the firm's operating cash flow if the tax rate is 21 percent
EBIT = $821,300 − 698,500 − 28,400 = $94,400 Tax = ($94,400 − 8,400) × .21 = $18,060 OCF = $94,400 + 28,400 − 18,060 = $104,740
Raymonds's sales for the year were $1,678,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $1,141,000, $304,000, and $143,000, respectively. In addition, the company had an interest expense of $74,000 and a tax rate of 21 percent. What is the operating cash flow for the year?
EBIT = ($1,678,000 − 1,141,000 − 304,000 − 143,000 = $90,000 Tax = ($90,000 − 74,000) × .21 = $3,360 OCF = $90,000 + 143,000 − 3,360 = $229,640
Utamuro Markets has beginning long-term debt of $64,500, which is the principal balance of a loan payable to Centre Bank. During the year, the company paid a total of $16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000. What is the value of the ending long-term debt
Ending long-term debt = $64,500 − 16,300 + 4,100 + 11,000 = $63,300
Utamuro Markets has beginning long-term debt of $64,500, which is the principal balance of a loan payable to Centre Bank. During the year, the company paid a total of $16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000. What is the value of the ending long-term debt?
Ending long-term debt = $64,500 − 16,300 + 4,100 + 11,000 = $63,300
Bolivar Farms had equity of $58,900 at the beginning of the year. During the year, the company earned net income of $8,200 and paid $2,500 in dividends. Also during the year, the company repurchased $3,500 of stock from one of its shareholders. What is the value of the owners' equity at year end?
Ending owners' equity = $58,900 + 8,200 − 2,500 − 3,500 = $61,100
Devante's Auto Repair has cash of $18,600, accounts receivable of $34,500, accounts payable of $28,900, inventory of $97,800, long-term debt of $142,000, and net fixed assets of $363,800. The firm estimates that if it wanted to cease operations today it could sell the inventory for $85,000 and the fixed assets for $349,000. The firm could collect 100 percent of its receivables as they are secured. What is the market value of the firm's assets?
Market value = $18,600 + 34,500 + 85,000 + 349,000 = $487,100
On December 31, 2020, The Water Street Theatre had net fixed assets of $812,650 while the December 31, 2021 balance sheet showed net fixed assets of $784,900. Depreciation for 2021 was $84,900. What was the firm's net capital spending for 2021
Net capital spending = $784,900 − 812,650 + 84,900 = $57,150
De la Cruz Automotive has net working capital of $22,600, current assets of $56,500, equity of $62,700, and long-term debt of $31,900. What is the amount of the net fixed assets?
Net fixed assets = $31,900 + 62,700 − 22,600 = $72,000
Sunny Disposition, Incorporated, has net working capital of $32,500, current assets of $59,000, equity of $74,500, and long-term debt of $42,500. What is the amount of the net fixed assets?
Net fixed assets = $42,500 + 74,500 − 32,500 = $84,500
Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?
Positive cash flow from assets
Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued?
Positive cash flow to stockholders
Porter Jewelers, a sole proprietorship has a marginal tax rate of 32 percent and an average tax rate of 20.9 percent. If the firm owes $34,330 in taxes, how much taxable income did it earn?
Taxable income = $34,330 ÷ .209 = $164,258
Medeiros Imports has cash of $41,100 and accounts receivable of $54,200, all of which is expected to be collected. The inventory cost $82,300 and can be sold today for $116,500. The fixed assets were purchased at a total cost of $234,500 of which $118,900 has been depreciated. The fixed assets can be sold today for $138,000. What is the total book value of the firm's assets
Total book value = $41,100 + 54,200 + 82,300 + 234,500 − 118,900 = $293,200
Nikki Heart Photography has total assets of $31,300, long-term debt of $8,600, net fixed assets of $25,600, and owners' equity of $20,540. What is the value of the net working capital?
urrent assets = $31,300 − 25,600 = $5,700 Current liabilities = $31,300 − 20,540 − 8,600 = $2,160 NWC = $5,700 − 2,160 = $3,540