BUS 370 Chapter 3

A balance sheet is a statement of the financial position of the firm on a given​ date, including its asset​ holdings, liabilities, and equity. True False

True

A​ corporation's average tax rate will always be lower than or equal to its marginal tax rate. True False

True

Corporate income statements are usually compiled on an​ accrual, rather than​ cash, basis. True False

True

The balance includes information about the​ company's assets and liabilities. True False

True

The interest payments on corporate bonds are tax−deductible. True False

True

​(Working with the income​ statement) If the Marifield Steel Fabrication Company earned $ 514 comma 000$514,000 in net income and paid a cash dividend of $ 269 comma 000$269,000 to its​ stockholders, what are the​ firm's earnings per share if the firm has 98 comma 00098,000 shares of stock​ outstanding? The​ company's earnings per share are ​______​ (Round to the nearest​ cent.)

$5.24

Which of the following is NOT a current​ asset? A. Accounts payable B. Accounts receivable C. Cash D. Inventory

A. Accounts payable

Which of the following does NOT represent cash outflows to the​ firm? A. Depreciation B. Taxes C. Interest payments D. Dividends

A. Depreciation

Operating cash flow will increase with a decrease in A. inventories. B. current liabilities. C. depreciation expense. D. capital expenditures.

A. inventories.

Stock that is repurchased by the issuing company is called A. treasury stock. B. retained capital. C. par value stock. D. paid in capital.

A. treasury stock.

Your firm has the following income statement​ items: sales of​ $50,250,000; income tax of​ $1,744,000; operating expenses of​ $10,115,000; cost of goods sold of​ $35,025,000; and interest expense of​ $750,000. What is the amount of the​ firm's gross​ profit? A. ​$15,225,000 B. ​$6,632,000 C. ​$5,000,110 D. ​$18,000,000

A. ​$15,225,000

Your firm has the following income statement​ items: sales of​ $50,250,000; income tax of​ $1,744,000; operating expenses of​ $10,115,000; cost of goods sold of​ $35,025,000; and interest expense of​ $750,000. What is the amount of the​ firm's EBIT? A. ​$5,110,000 B. ​$4,630,000 C. ​$15,552,000 D. ​$58,000,000

A. ​$5,110,000

Which of the following represents an attempt to measure the earnings of the​ firm's operations over a given time​ period? A. Cash flow statement B. Income statement C. Balance sheet D. None of the above

B. Income statement

When a company pays a dividend on common​ stock, it appears as A. a current liability on the balance sheet. B. a reduction in the amount of retained earnings. C. an expense on the income statement. D. dividend payments have no effect on the financial statements.

B. a reduction in the amount of retained earnings.

International Financial Reporting Standards​ (IFRS) A. are growing in acceptance for use by U.S. companies. B. are not acceptable for use by U.S. companies. C. have completely replaced GAAP since 2007. D. are far more complicated and rigid than GAAP.

B. are not acceptable for use by U.S. companies.

A​ & K Co. expects to have earnings before taxes of​ $250,000 to​ $300,000. The​ company's marginal tax rate is​ 39% and its average tax rate about​ 33%. For every additional dollar A​ & K's pays out in common​ dividends, it's income tax liability will A. fall by 39 cents. B. be unaffected. C. increase by 39 cents. D. fall by about 33 cents.

B. be unaffected.

A​ & K Co. expects to have earnings before taxes of​ $250,000 to​ $300,000. The​ company's marginal tax rate is​ 39% and its average tax rate about​ 33%. For every additional dollar of interest​ expense, A​ & K's taxes will A. increase by 39 cents. B. fall by 39 cents. C. be unaffected. D. fall by about 33 cents.

B. fall by 39 cents.

The most important tax rates. for financial decisions are​ ________ tax rates. A. average B. marginal C. capital gains D. implied

B. marginal

2015 U.S. Corporate tax rates are shown​ below: Taxable Income Marginal Tax Rate ​$0−​$50,000 ​15% ​$50,001−​$75,000 ​25% ​$75,001−​$100,000 ​34% ​$100,001−​$335,000 ​39% ​$335,001−​$10,000,000 ​34% ​$10,000,001−​$15,000,000 ​35% ​$15,000,001−​$18,333,333 ​38% Over​ $18,333,333 ​35% RJH Inc. has earnings before taxes of​ $100,000 in 2015. The​ company's tax expense will be A. ​$25,000. B. ​$22,250. C. ​$34,000. D. ​$24,670.

B. ​$22,250.

2015 U.S. Corporate tax rates are shown​ below: Taxable Income Marginal Tax Rate ​$0minus−​$50,000 ​15% ​$50,001−​$75,000 ​25% ​$75,001−​$100,000 ​34% ​$100,001−​$335,000 ​39% ​$335,001−​$10,000,000 ​34% ​$10,000,001−​$15,000,000 ​35% ​$15,000,001−​$18,333,333 ​38% Over​ $18,333,333 ​35% Bouffard Co. has earnings before taxes of​ $100,000,000 in 2015. The​ company's tax expense will be A. ​$3,500,000. B. ​$35,000,000. C. ​$31,875,000. D. ​$36,500,000.

B. ​$35,000,000.

Your firm has the following income statement​ items: sales of​ $52,000,000; income tax of​ $1,880,000; operating expenses of​ $9,000,000; cost of goods sold of​ $36,000,000; and interest expense of​ $800,000. Compute the​ firm's gross profit margin. A. ​8.3% B. ​30.8% C. ​69.2% D. ​13.5%

B. ​30.8%

Which of the basic financial statements is best used to answer the questions​ "What does the company own and how is it​ financed?" A. Income statement B. Statement of​ shareholder's equity C. Balance sheet D. Cash flow statement

C. Balance sheet

Which of the basic financial statements is best used to answer the questions​ "Where did the​ company's money come from and how was it spent over the preceding​ year?" A. Statement of​ shareholder's equity B. Income statement C. Cash flow statement D. Balance sheet

C. Cash flow statement

Which of the following is NOT included in computing EBT​ (earnings before​ taxes)? A. Cost of goods sold B. Depreciation expense C. Dividends D. Marketing expenses

C. Dividends

Which of the following best represents operating​ income? A. Income after financing activities B. Income from discontinued operations C. Earnings before interest and taxes D. Income from capital gains

C. Earnings before interest and taxes

Which of the basic financial statements is best used to answer the​ question, "How profitable is the​ business?" A. Accounts receivable aging schedule B. Statement of​ shareholder's equity C. Income statement D. Balance sheet

C. Income Statement

On the income​ statement, sales​ revenue, minus cost of goods sold and operating​ expenses, equals A. Net profit. B. Net income available to preferred shareholders. C. Net operating income​ (EBIT). D. Retained earnings.

C. Net operating income​ (EBIT).

Which of the following represents a source of​ cash? A. payment of dividends B. an increase in inventories C. a decrease in accounts receivable D. a decrease in accounts payable

C. a decrease in accounts receivable

The revenue recognition principle requires that A. only the amount of revenue for which cash will be received in the current fiscal year be recognized in the current year. B. allows considerable latitude in the timing of revenue recognition. C. revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered. D. revenue be recognized only after cash payment has been received.

C. revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered.

Use Bird​ Industry's summary financial statements to answer the following questions. Bird​ Industries, Inc. Balance Sheets 2016 2017 Cash ​$1,000 ​$? Accounts receivable ​5,000 ​ 6,000 Inventories ​6,500 ​ 6,000 Land ​10,000 ​ 12,000 Other fixed assets ​8,000 ​ 9,000 Accumulated depreciation ​(1,000) ​(1,600) Total assets ​$29,500 ​ $? Accounts payable ​$3,200 ​ $ 6,800 Bonds ​4,000 ​ 4,000 Common stock ​17,000 ​ 16,000 Retained earnings ​5,300 ​ 5,000 Total debt and equity ​$29,500 ​ $? Bird​ Industries, Inc. Income Statement Sales ​$84,000 Cost of goods sold ​66,400 Gross profit ​$17,600 Operating expenses ​(13,000) Depreciation ​(600) EBIT ​$4,000 Interest expense ​(500) EBT ​$3,500 Taxes ​(1,500) Net Income ​$2,000 Use​ Bird's financial statements to determine the total amount of Bird​ Industries' common stock dividend for 2017. A. ​$2,000 B. ​$800 C. ​$2,300 D. Cannot be determined with available information

C. ​$2,300

Your firm has the following income statement​ items: sales of​ $50,250,000; income tax of​ $1,744,000; operating expenses of​ $8,750,000; cost of goods sold of​ $35,025,000; and interest expense of​ $750,000. What is the amount of the​ firm's net​ income? A. ​$2,616,000 B. ​$7,775,000 C. ​$4,731,000 D. ​$255,223

C. ​$4,731,000

Use the information to answer the question below. Jones Company Financial Information Net income ​$1,500 ​$3,000 Accounts receivable 750 750 Accumulated depreciation ​1,125 ​1,500 Common stock ​4,500 ​5,250 Capital surplus ​7,500 ​8,250 Retained earnings ​1,500 ​2,250 Accounts payable 750 750 Based on the information given in Table​ 1, calculate the dividends paid in 2017. A. ​$2,250 B. ​$3,000 C. ​$750 D. ​$3,750

C. ​$750

Use Bird​ Industry's summary financial statements to answer the following questions. Bird​ Industries, Inc. Balance Sheets 2016 2017 Cash ​$1,000 ​$? Accounts receivable ​5,000 ​ 6,000 Inventories ​6,500 ​ 6,000 Land ​10,000 ​ 12,000 Other fixed assets ​8,000 ​ 9,000 Accumulated depreciation ​(1,000) ​(1,600) Total assets ​$29,500 ​ $? Accounts payable ​$3,200 ​ $ 6,800 Bonds ​4,000 ​ 4,000 Common stock ​17,000 ​ 16,000 Retained earnings ​5,300 ​ 5,000 Total debt and equity ​$29,500 ​ $? Bird​ Industries, Inc. Income Statement Sales ​$84,000 Cost of goods sold ​66,400 Gross profit ​$17,600 Operating expenses ​(13,000) Depreciation ​(600) EBIT ​$4,000 Interest expense ​(500) EBT ​$3,500 Taxes ​(1,500) Net Income ​$2,000 Use Bird​ Industries' financial statements to determine​ Bird's operating profit margin for 2017. A. ​2.4% B. ​4.2% C. ​4.8% D. ​21%

C. ​4.8%

Which of the following would NOT be included as a liability in a corporate balance​ sheet? A. Notes payable B. Bonds C. Accounts payable D. Accumulated Depreciation

D. Accumulated Depreciation

Firms should compare their​ gross, operating and net profit margins to past years and other companies in order to A. evaluate the​ firm's performance. B. identify expenses that seem to be out−of−line C. better manage the reporting of the​ firm's earnings. D. Both A and B.

D. Both A and B.

Which of the following would NOT be included as an asset on a corporate balance​ sheet? A. Buildings B. Inventory C. Accounts receivable D. Common stock

D. Common stock

Who owns the retained earnings of a public​ firm? A. The IRS B. Bondholders C. Preferred stockholders D. Common stockholders

D. Common stockholders

On a balance​ sheet, equity equals A. Fixed assets minus long-term debt. B. Long term debt plus preferred stock plus common stock plus retained earnings. C. Current assets plus fixed assets. D. Total assets minus total liabilities.

D. Total assets minus total liabilities.

Patriot Corporation purchased manufacturing equipment with an expected useful life of five years. The purchase of the machinery would be shown as A. an expense on the income statement. B. an expense on the balance sheet. C. both an expense and an asset. D. an asset on the balance sheet.

D. an asset on the balance sheet.

The historical cost principle requires that A. assets be be valued at their average cost over the last three years. B. historical costs be used on both the income statement and the balance sheet. C. raw materials costs be recognized at their average price over the last three years. D. assets be valued at their cost when they were acquired.

D. assets be valued at their cost when they were acquired.

The change between a​ firm's beginning cash balance and ending cash balance would equal A. the change in current assets minus the change in current liabilities. B. total assets minus total liabilities minus total​ stockholders' equity. C. net income plus new borrowing minus asset purchases. D. cash flow from operations​ + cash flow from investing​ activities+cash flow from financing activities

D. cash flow from operations​ + cash flow from investing​ activities+cash flow from financing activities

Grass Gadgets had sales of​ $30 million and net income of​ $2 million in 2015. Grass paid a dividend of​ $1.5 million. Assuming that their beginning balance for retained earnings was​ $3 million, calculate their ending balance for retained earnings. A. ​$4 million B. ​$3 million C. ​$2.5 million D. ​$3.5 million

D. ​$3.5 million

Your firm has the following income statement​ items: sales of​ $50,250,000; income tax of​ $1,744,000; operating expenses of​ $10,115,000; cost of goods sold of​ $35,025,000; and interest expense of​ $750,000. What is the amount of the​ firm's income before​ tax? A. ​$25,115,000 B. ​$750,000 C. ​$10,865,000 D. ​$4,360,000

D. ​$4,360,000

Your firm has the following balance sheet statement​ items: total current liabilities of​ $805,000; total assets of​ $2,655,000; fixed and other assets of​ $1,770,000; and long−term debt of​ $200,000. What is the amount of the​ firm's total current​ assets? A. ​$1,550,000 B. ​$325,000 C. ​$600,000 D. ​$885,000

D. ​$885,000

Gross plant and equipment minus accumulated depreciation represents the fair market value of a​ company's fixed assets. True False

False

On an accrual basis income​ statement, revenues and expenses always match the​ firm's cash flow. True False

False

The cash flow statement is an alternative term for the balance sheet. True False

False

The income statement represents a snapshot of account balances at one point in time. True False

False

The income statement shows a​ company's earnings since it has been in business. True False

False

Total equity on the balance sheet increases as dividends paid increases. True False

False

​(Related to Checkpoint​ 3.2) ​ (Working with the balance​ sheet) The Caraway Seed Company grows heirloom tomatoes and sells their seeds. The heirloom tomato plants are preferred by many growers for their superior flavor. At the end of the most recent year the firm had current assets of $ 48,600 net fixed assets of $251,800​, current liabilities of $30,400​, and​ long-term debt of $99,300. a. Calculate​ Caraway's stockholders' equity. b. What is the​ firm's net working​ capital? c. If​ Caraway's current liabilities consist of $ 18 comma 900$18,900 in accounts payable and $ 11 comma 500$11,500 in​ short-term debt​ (notes payable), what is the​ firm's net working​ capital? a. Calculate​ Caraway's stockholders' equity. ​Caraway's stockholders' equity is ​_________ . ​(Round to the nearest​ dollar.) b. What is the​ firm's net working​ capital? The​ firm's net working capital is ​_______. ​ (Round to the nearest​ dollar.) c. If​ Caraway's current liabilities consist of $18,900 in accounts payable and $11,500 in​ short-term debt​ (notes payable), what is the​ firm's net working​ capital? ​ (Select the best choice​ below.) A. The​ firm's net working capital will change by $11,500​, ​i.e., net working capital equals $29,700. B. The​ firm's net working capital will change by $ 18,900 + $11,500​, ​i.e., net working capital equals $48,600. C. The​ firm's net working capital will not​ change, i.e., net working capital equals $18,200. D. The​ firm's net working capital will change by $18,900​, ​i.e., net working capital equals $37,100

a. $170700 b. $18200 c. The​ firm's net working capital will not​ change, i.e., net working capital equals $18,200.