FA Final Practice Questions
Which of the following is an example of owners' equity? Select all that apply. Shares of a competitor's stock owned by the business Cash received from owner contributions Net income for the first four months of the fiscal year
Net income for the first four months of the fiscal year All revenues and expenses, and therefore Net Income, are part of the owners' equity of the business.
Which ratio measures the ability of a company to make a profit relative to revenue generated during a period? gross profit margin days sales in receivable profit margin days purchases outstanding
Profit Margin Profit Margin (Net Income/Sales) measures the ability of a company to make a profit relative to revenue generated during a period.
The Peach Pit, a restaurant, has Net Income of $25,000, Sales of $55,000, Assets of $115,000, and no debt. What is their ROE? 21.7% 4.29% 2.17% 42.9%
ROE = (Net Income / Sales) X (Sales / Assets) X (Assets / Equity) If a company has no debt, then their equity multiplier is 1. (25,000/55,000) * (55,000/115,000) * 1 = 21.7%
Metafacturing Inc. rented a new piece of equipment on January 1st and agreed to pay an annual rental fee of $24,000 at the end of each of the next 10 years. The weighted average cost of capital of the company is 8%. The present value of $1 for 10 years at 8% is 0.46319 The present value of an ordinary annuity of $1 for 10 years at 8% is 6.71008 What is the Present Value of the rental payments over 10 years? $180,000 $55,945 $8,337 $161,042
The correct answer is: $161,042 It is calculated by multiplying the annual payment by the present value of an annuity factor. $24,000 * 6.71008 = $161,042
Which of the following companies is most likely to have a negative Cash Conversion Cycle? A discount retailer A farmer who sells corn to a distributor A manufacturer who makes high-quality steam evaporators for nuclear power plants A car dealership that provides their own in-house financing
A discount retailer A discount retailer sells most of its inventory quickly and for cash, while delaying payments to suppliers.
Initech finances their business using a combination of equity and liabilities. Which of the following numbers is most likely Initech's equity multiplier? -1 0 1 1.5
The correct answer is 1.5. A company that finances using only equity will have an equity multiplier of 1. Any amount over 1 shows the proportion financed using liabilities. Since Initech uses a combination of equity and liabilities to finance operations, the only option that would most likely be their equity multiplier is option 4, 1.5.
Wise Guys Consulting receives payment in full totaling $9,000 from a client for services which were rendered and invoiced the previous month. What would be the impact at the time the payment is received?
The correct answer is to debit Cash (an asset) for $9,000 as the company now has the cash and credit Accounts Receivable (also an asset) for $9,000 as the company no longer has the right to receive cash.
How quickly and easily an item can be converted to cash is known as:
liquidity
The Generally Accepted Accounting Principles (GAAP) establish that companies should depreciate a long-lived physical asset, because: costs should be matched with the benefits that are realized over multiple periods not all assets are paid in cash at the time they are purchased it is an explicit transaction beyond the current period assets lose value in the long term
costs should be matched with the benefits that are realized over multiple periods
A company is considering buying a diagnostic piece of equipment for $250,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $40,000. The company expects the machine to be able to generate after-tax revenues of $33,000 in each of the 10 years, and then it will sell the machine for $40,000 at the end of 10 years. The sum of the undiscounted cash flows is $370,000. The discount rate is 7%. The net present value is calculated to be $2,112. Which of the following statements is true? The company should not buy the equipment because the NPV is less than the annual revenues expected. The company should not buy the equipment because the NPV is less than the initial cost of the equipment. The company should buy the equipment because the sum of the undiscounted cash flows is greater than the initial cost of the equipment. The company should buy the equipment because the NPV is positive.
The company should buy the equipment because the NPV is positive. As long as the NPV is positive, even if it is a very small positive number, it means the company will earn a return greater than its discount rate, so it is a good investment.
A company has retained earnings of $94,000 as of December 31, 2014. The Pro-forma income statement projects net income of $22,000 for 2015. The company expects to declare their annual dividend on March 15, 2015 of $0.70 per share and has a total of 100,000 shares outstanding. What will the projected retained earnings account be as of December 31, 2015? $186,000 $46,000 $16,000 $2,000
To calculate the projected retained earnings, you add the projected 2015 net income of $22,000 to the beginning balance of $94,000 carried over from 2014. Then you must subtract $70,000 for the dividend of $0.70 per share times the 100,000 shares outstanding. $94,000 + $22,000 - $70,000 = $46,000
How does the following transaction impact cash flow? Receiving cash for goods or services yet to be provided Positive (Increase) No Impact Negative (Decrease)
positive (increase) Although revenue is not recognized until goods or services are provided, cash is received at the time of this transaction.
Which of the following would cause a decrease to liabilities? Select all that apply. A company pays $550, which is the current portion due on a long term bank loan A company sells $1,000 worth of gift cards A company prepays for 12 months of landscaping services A company pays off the remaining amount of their mortgage loan After one month, a company recognizes revenue equal to 1/12 of an annual magazine subscription they sold to a customer
A company pays $550, which is the current portion due on a long term bank loan A company pays off the remaining amount of their mortgage loan After one month, a company recognizes revenue equal to 1/12 of an annual magazine subscription they sold to a customer
Using the Indirect Method to create the Statement of Cash Flows, which of the following options are correct in describing what must be done to convert net income to operating cash flow? (Please select all that apply.) A gain is subtracted from net income. A loss is subtracted from net income. Depreciation and amortization are subtracted from net income. An increase in operating current assets is subtracted from net income. A decrease in operating current liabilities is subtracted from net income. A decrease in operating current assets is subtracted from net income. An increase in operating current liabilities is subtracted from net income.
A gain, an increase in operating current assets, and a decrease in operating current liabilities would all need to be subracted from net income in order to convert net income into operating cash flow when using the indirect method to create the Statement of Cash Flows.
Which of the following statements is NOT true in relation to the Gordon Growth Model? Terminal value is the present value of infinite cash flows expected in the future. A higher discount rate results in a higher terminal value. The Gordon Growth Model assumes that the growth rate will remain fixed. A higher growth rate results in a higher terminal value.
A higher discount rate results in a higher terminal value. This statement is not true. A higher discount rate results in a lower terminal value.
Based on this income statement for Company ZYX for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for Gain or Loss in calculating cash flow from Operating Activities using the indirect method? Adjustment of (16,000) in the Operating Section Adjustment of 16,000 in the Operating Section Adjustment of 30,000 in the Operating Section Adjustment of 16,000 in the Investing Section
Adjustment of (16,000) in the Operating Section The total cash flows received from both the sale of equipment and the sale of debt investment are investing activities and not operating activities. The net of the gain and loss is a gain of $16,000. To eliminate this gain, the $16,000 amount should be subtracted from net income. Since the gain would have increased net income, this subtraction ensures that the net effect on cash flow from operations is zero.
Breeze Inc. receives payment of $800,000 for 4 wind turbines that were delivered and invoiced on credit in the previous month. How would this receipt impact the accounting equation of Breeze Inc.?
Assets increase by $800,000 because the company receives cash, and assets also decrease by $800,000 because the company no longer has a right to receive the cash (the receivable previously recorded at the time of the sale).
A company purchased a building for $850,000 on January 1, 2010. As of December 31, 2014, $200,000 of accumulated depreciation had been recorded related to this building. The building was sold to another party for $1,250,000 on January 1, 2015. On the sale of this building, the company should recognize: A gain of $650,000 A loss of $650,000 A gain of $600,000 A loss of $600,000
At the sale date, the building's net book balue was $650,000 ($850,000 original cost less $200,000 accumulated depreciation). Since it was sold for $1,250,000, which is more than the net book value, the company should recognize a gain of $600,000.
Company A has a shorter Average Collection Period than Company B using the formula 365 / (Credit Sales / Average AR Balance). Which of the following statements is true regarding these two companies? Company A has a lower percentage of credit sales than Company B. Company A is more efficient in collecting receivables from customers than Company B. Company A is more efficient in generating revenue than Company B.
Company A is more efficient in collecting receivables from customers than Company B. Average Collection Period = 365 / AR Turnover = 365 / (Credit Sales / Average AR Balance) Accounts Receivable Turnover is an indicator of a business' ability and efficiency in collecting receivables from customers.
Company A has a higher Inventory Turnover Ratio than Company B. Which of the following statements is true regarding these two companies? Company A has a lower average inventory level than Company B. Company A has more inventory than Company B. Company A is more efficient in using its inventory to generate revenue.
Company A is more efficient in using its inventory to generate revenue. Inventory Turnover = Cost of goods sold / Average inventory Inventory Turnover measures the number of times inventory is sold or used in a time period. It is an indicator of operating efficiency.
Company A has a higher Accounts Payable Turnover Ratio than Company B. Which of the following statements is true regarding these two companies? Company A has a longer Average Collection Period than Company B. Company A has a lower percentage of credit purchases than Company B. Company A is paying suppliers at a faster rate than Company B.
Company A is paying suppliers at a faster rate than Company B. Accounts Payable Turnover = Credit Purchases / Average Accounts Payable Balance Accounts Payable Turnover measures the number of times a company can pay off its average account payable balance during a time period.
Which of the following companies would likely have the LEAST difficulty making the interest payments on its debts? Company A with Net Income of $100,000, Interest Expense of $25,000, and Tax Expense of $15,000 Company B with Net Income of $100,000, Interest Expense of $30,000, and Tax Expense of $10,000 Company C with Net Income of $100,000, Interest Expense of $25,000, and Tax Expense of $20,000
Company C will likely have the least difficulty making interest payments on its debt, because it has the highest Interest Coverage Ratio. The Interest Coverage Ratio can be calculated as ( EBIT / Interest Expense ) Company A has an EBIT of $140,000 ( $100,000 + $25,000 + $15,000 ) Company A's Interest Coverage Ratio is 5.6 ( $140,000 / $25,000 ) Company B has an EBIT of $140,000 ( $100,000 + $30,000 + $10,000 ) Company B's Interest Coverage Ratio is 4.7 ( $140,000 / $30,000 ) Company C has an EBIT of $145,000 ( $100,000 + $25,000 + $20,000 ) Company C's Interest Coverage Ratio is 5.8 ( $145,000 / $25,000 )
Bob's Burgers has an Inventory Turnover of 6.0, an Accounts Receivable Turnover of 8.5, and an Accounts Payable Turnover of 10.1. What is the length of their Cash Conversion Cycle? 4.4 139.8 67.6 54.0
Days Inventory + Average Collection Period - Days Purchases Outstanding = Cash Conversion Cycle Days Inventory = 365 / Inventory Turnover Average Collection Period = 365 / Accounts Receivable Turnover Days Purchases Outstanding = 365 / Accounts Payable Turnover ( 365 / 6.0 + 365 / 8.5 - 365 / 10.1 ) = 67.6
Which of the following measures does not reflect a company's profitability? gross profit margin days sales in accounts receivable EBIAT profit margin
Days Sales in Accounts Receivable Days Sales in Accounts Receivable is the average number of days a company takes to collect payments on goods sold. It is not related to profitability.
Suppose that on January 1, 2016 PepsiCo purchased a patent on a production process and it expected that this patent would have value for 10 years. The patent was recorded on the books for $4,800,000. Record the transaction: What will the entry look like to record amortization for the month of January, 2016?
Debit Amortization Expense for $40,000 and credit Accumulated Amortization for $40,000.
On January 1, 2016, Flathound Properties received $22,800 from a tenant as rent for all of 2016. How would this receipt be recorded on Flathound Properties' books on 1/1/2016?
Debit Cash for $22,800 and credit Deferred Revenue for $22,800.
Suppose a piece of plant equipment that PepsiCo put into service on January 1, 2014 at a total cost of $300,000 with an expected useful life of 5 years and a salvage value of $60,000 is sold on June 30, 2018 for $60,000. The accumulated depreciation is $216,000. Record this Transaction: What would the journal entry look like to record this sale?
Debit Cash for $60,000, credit Property, Plant & Equipment for $300,000, debit Accumulated Depreciation for $216,000, and debit Gain/Loss on Disposal of Assets for $24,000.
Johnny's Drive-in pays its employees bi-weekly. The first payday of 2014 will be on January 3 and will compensate employees for work done from December 18-31, 2013. Because the employee work was performed in 2013, the wages expense should be recorded in 2013. Record the Transaction: What adjusting entry will need to be made? Total compensation to be paid for the 2 week period is $100,000.
Debit Wages Expense for $100,000 and credit Wages Payable for $100,000.
Which of the following items is NOT related to a company's ability to pay off its debts? current ratio quick ratio debt to equity ratio
Debt to Equity Ratio Debt to Equity Ratio measures a company's leverage, not ability to pay off debts.
Which of the following is an example of a Product Cost? Select all that apply. Direct Labor Office Depreciation Administrative Expense Manufacturing Overhead Sales Staff Salary
Direct Labor and Manufacturing Overhead are considered Product Costs and will be added to the cost of Inventory in a manufacturing business.
The income statement reflects a company's: Financial position over a given period of time. Financial position at a given point in time. Financial performance over a given period of time. Financial performance at a given point in time.
Financial performance over a given period of time
Leak Geeks, a plumbing supply company, sold $25,000 of plumbing supplies to one of their larger customers. The supplies had an inventory value of $12,000. How will the revenue and cash inflow from this transaction impact the accounting equation of Leak Geeks? How will the related expense from this transaction impact the accounting equation of Leak Geeks?
First, assets increase by $25,000 because the company now has that amount of cash, and owners' equity increases by $25,000 to recognize the revenue associated with the sale. At the same time, assets decrease by $12,000 because the company no longer has the supplies, and owners' equity decreases by $12,000 to recognize the expense associated with the sale.
Gold Zone Inc., a jewelry designer and manufacturer, sold watches to Jill's Jewelry Shop for $1,500. Gold Zone spent $800 manufacturing the watches and Jill's Jewelry Shop has 30 days to pay for this order after they receive it.First, how will the recognition of the receivable and revenue for the transaction impact the accounting equation at the time of the sale? Next, Gold Zone needs to show that the inventory was sold and recognize an expense for the cost of goods sold for $800. How will such a recognition impact the accounting equation? below. Lastly, Gold Zone received payment from Jill's Jewelry Shop 30 days after the initial purchase.How would the accounting equation be impacted when the payment is received?
First, the sale increases assets (accounts receivable) by $1,500. The sale also increases revenue, which increases owners' equity by $1,500. At the same time, the sale decreases assets (inventory) by $800. The cost of goods sold is an expense, so it decreases owners' equity by $800. Finally, the receipt of payment increases assets (cash) by $1,500. The receipt of payment also decreases assets (accounts receivable) by $1,500. Roll over the color-outlined areas to find out more about your answers.
Which of the following is an example of a revenue? Select all that apply. Gopher Co. is a designer and manufacturer of promotional clothing and accessories. Gopher delivered T-shirts to a customer and sent an invoice to the customer for $2,000. Lauren owns a coffee shop. A customer came to the shop and purchased a cappuccino and a bag of coffee beans. The customer paid $40 at the time of purchase. SKI manufacturing, an auto parts manufacturer in Iceland, received an order valued at 1 million Icelandic Krona. They also received 100,000 Icelandic Krona as a down payment.
Gopher Co. is a designer and manufacturer of promotional clothing and accessories. Gopher delivered T-shirts to a customer and sent an invoice to the customer for $2,000. The revenue has been earned because the goods were delivered. Lauren owns a coffee shop. A customer came to the shop and purchased a cappuccino and a bag of coffee beans. The customer paid $40 at the time of purchase. The revenue has been both earned (because the cappuccino and a bag of coffee beans were provided) and realized (because the cash was received).
For the year 2015, Dark Horse Corp.'s sales revenue was $1,600,000. Cost of goods sold (COGS) was 40% of sales revenue. Their income statement shows that operating expense was $150,000. What was Dark Horse Corp.'s gross profit for 2015?
Gross Profit is equal to Sales Revenue minus Cost of Goods Sold, in this case $1,600,000 - $640,000 = $960,000. The Cost of Goods Sold of $640,000 is found by multiplying $1,600,000 by 40%.
Suppose for the year 2015, Speedy Chef, a fast food restaurant, had a Gross Profit of $1,281,648. Speedy Chef had the following expenses: Cost of Goods Sold $1,251,167 Selling Expense $70,578 Rent Expense $156,941 Utilities Expense $73,994 Insurance Expense $35,148 Wages $505,245 General & Administrative $24,358 Miscellaneous $32,968 Interest Expense $4,059 Income Tax Expense $60,596 What would Speedy Chef's Income Before Taxes be for 2015
Income Before Taxes is calculated by subtracting Operating Expenses and Non-Operating Expenses from Gross Profit (note that Cost of Goods Sold has already been subtracted to get Gross Profit, and Income Tax Expense should not be subtracted to get Income Before Taxes so these two figures can be ignored in this case). $1,281,648 - $70,578 - $156,941 - $73,994 - $35,148 - $505,245 - $24,358 - $32,968 - $4,059 = $378,357
Company A is a large passenger airline. As part of their annual internal budget process, they do a sensitivity analysis of their revenue forecast over their existing routes and schedules. The analysis evaluates the impact of a three percent decline in passenger revenue compared to a three percent increase. Which of the following expenses would show the largest change in the analysis? Aircraft maintenance expense Salary expense for the flight crew Depreciation and amortization expense Income tax expense
Income tax expense
When projecting financial statements, which of the following accounts is difficult to forecast using the percent of sales method? accounts receivable accounts payable interest expense cost of sales
Interest Expense Normally, Accounts Receivable, Accounts Payable, and Cost of Sales will trend in a direct relationship with sales. However, Interest Expense is more dependent upon the level of borrowings which does not necessarily track with sales.
What is free cash flow? It is "free" money, which means it is available at a 0% interest rate. It is the amount of cash that a business could be expected to generate from its normal operations. Free Cash Flow is another name for Net Income. It is the total amount of money being transferred into and out of a business.
It is the amount of cash that a business could be expected to generate from its normal operations. Free cash flow is the amount of cash that a business could be expected to generate from its normal operations.
An automotive parts company that sells to automotive manufacturers is forecasting revenue as part of its internal budgeting and planning process. Which of the following is LEAST likely to be important in its forecasting assumptions? Expected number of customers Customer acquisition and retention rates Profitability of customer orders Level of long-term debt
Level of long-term debt The level of long-term debt would not likely impact the revenue forecast.
Which of the following would be considered a long term liability account? Wages Payable Accounts Payable Mortgage Payable Sales Tax Payable
Mortgage Payable Mortgage payable is a liability account that represents the unpaid balance related to a mortgage. This balance is the portion of the payable that is not due in a year or less. Therefore, it is a long-term liability account.
A CFO of a start-up company is evaluating the timing of a significant capital expenditure. He was previously at a mature company that used a discount rate of 8% so he used the same rate at the start-up company. Which of the following would be impacted if the discount rate were raised to reflect the risk of the start-up company? Internal rate of return payback period return on investment net present value
Net present value NPV is the only one of the answer choices that is impacted by the discount rate.
Which of the following are steps in the closing process? Select all that apply. Nominal accounts are reset to zero. Real accounts are reset to zero. Net income is transferred to the cash account on the balance sheet. Net income is transferred to the retained earnings account on the balance sheet. The retained earnings account is reset to zero.
Nominal accounts are reset to zero. Net income is transferred to the retained earnings account on the balance sheet.
UDeliver, a moving rental truck company, paid $3,600 on 1/1/2016 for 12 months of insurance coverage on a fleet of trucks for the coming year.What would be the impact on this date? What would be the impact on March 31, 2016 when UDeliver makes an adjustment to reflect that three months of the insurance coverage has been used up?
On January 1, 2016, Prepaid Insurance (an asset) increases with a debit of $3,600 and Cash (an asset) decreases with a credit of $3,600. On March 31, 2016, Insurance Expense (part of owners' equity) increases with a debit of $900 and Prepaid Insurance (an asset) decreases with a credit of $900.
Which of the following options is an example of a liability? The private mortgage of a CEO Outstanding preferred stock A bond purchased at a premium Payment received in advance from a customer
Payment received in advance from a customer
On July 1st, a company paid $12,000 for an annual insurance policy covering the month of July through the following June. Which of the following statements reflects how this payment would be recorded on July 1st under the accrual method? Cash would be debited for $12,000, and accrued insurance would be credited for $12,000 Insurance expense would be debited for $12,000, and cash would be credited for $12,000 Prepaid insurance would be debited for $12,000, and cash would be credited for $12,000 Prepaid insurance would be debited for $12,000, and accrued insurance would be credited for $12,000
Prepaid insurance would be debited for $12,000, and cash would be credited for $12,000
You have just reviewed the financial statements of Penelope's Candy Store (PCS). You have determined that PCS has a Profit Margin of 19%. How do you explain this to owner Penelope Hassey? For every $19 in sales, $100 ended up in Net Income. For every $100 in sales, $19 ended up in Net Income. 19% of Net Income was generated by Profit Margin. 19% of sales were generated by Net Income.
Profit Margin (Net Income/Sales) measures the ability of a company to make a profit relative to revenue generated during a period. A Profit Margin of 19% tells us that for every $100 in sales, $19 ended up in Net Income.
Which of the following will cause assets and owner's equity to decrease? Declare dividends on outstanding shares Repurchase common shares for cash Sell used plant equipment and realize a gain Pay off the principle and interest of a long-term debt
Repurchase common shares for cash
Which of the following items would NOT be shown on a statement of cash flows created using the indirect method? net income retained earnings cash, beginning of year cash, end of year
Retained Earnings This is the correct answer! Retained earnings is never shown on the statement of cash flows.
Which of the following options impact the investing section of the statement of cash flows? (Select all that apply) Sale of investment securities Proceeds from issuance of common stock Payments made in connection with business acquisitions Stock-based compensation expense Financing working capital
Sale of investment securities Financing working capital
Which of the following is INCORRECT in determining free cash flows? Adjust net income for interest expense Subtract capital expenditures Subtract depreciation Subtract change in working capital
Subtract depreciation This is the correct answer! It is NOT true. You ADD BACK depreciation in determining free cash flows.
A Deferred Tax Asset arises when: Taxable Income is less than Income Before Taxes due to a permanent difference. Taxable Income is less than Income Before Taxes due to a temporary timing difference. Taxable Income exceeds Income Before Taxes due to a temporary timing difference. Taxable Income exceeds Income Before Taxes due to a permanent difference.
Taxable Income exceeds Income Before Taxes due to a temporary timing difference. When a Deferred Tax Asset arises it means a company is recognizing Tax Expense now on an amount of income that will be reflected in the financial records later.
Suppose Waterman Cable Company lent $125,000 to Comcast. On December 31, 2015, Comcast paid back the $125,000 and also paid $3,000 interest to Waterman Cable Company. Under U.S.GAAP, what would be the impact of the repayment on Waterman Cable Company's statement of cash flows using the direct method? The $125,000 would be shown as an increase in the funds in the Financing Section but the $3,000 would be shown as an increase in the Investing Section. The $128,000 would be shown as an increase in the funds in the Operating Section. The $125,000 would be shown as an increase in the funds in the Investing Section but the $3,000 would be shown as an increase in the Operating Section. The $128,000 would be shown as an increase in the funds in the Investing Section.
The $125,000 received should be an increase in the Investing Section and, under U.S.GAAP, the $3,000 interest received should be included in the Operating Section.
Suppose Tritex Manufacturing lent $225,000 to Invivo Pharma. On December 31, 2015, Invivo paid back the $225,000 and also paid $10,000 interest to Tritex. Under U.S.GAAP, what would be the impact of the repayment on Tritex's statement of cash flows using the direct method? The $225,000 would be shown as an increase in the funds in the Financing Section but the $10,000 would be shown as an increase in the Investing Section. The $235,000 would be shown as an increase in the funds in the Operating Section. The $225,000 would be shown as an increase in the funds in the Investing Section but the $10,000 would be shown as an increase in the Operating Section. The $235,000 would be shown as an increase in the funds in the Investing Section.
The $225,000 received should be an increase in the Investing Section and, under U.S.GAAP, the $10,000 interest received should be included in the Operating Section.
The Mayflower, a seafood restaurant, had the following liabilities by the end of 2015: Accounts Payable $60,000 Wages Payable $100,000 Unearned Revenue $125,000 (60% will be earned in 2016) Notes Payable $140,000 ($45,000 payable in 2016) What is the amount that The Mayflower should report as Total Current Liability on its balance sheet as of December 31, 2015?
The Total Current Liability reported would be the sum of Accounts Payable, Wages Payable, $75,000 of Unearned Revenue, and $45,000 of Notes Payable. 60,000 + 100,000 + 75,000 + 45,000 = $280,000
Which of the following cash flows should be used in an NPV calculation to determine which project to pursue? (Select all that apply.) The cash inflows expected as a result of the project This is correct! It is an incremental cash flow that would only be received if the project were undertaken. Recurring cash flows from ongoing current operations This is not a relevant cash flow because it would be recurring regardless of which project is pursued. Investment needed to be made by the company to undertake the project This is correct! It is an incremental cash flow that would only be incurred if the project is undertaken. Capital expenditures related to upkeep of existing equipment This is not a relevant cash flow because it would be incurred regardless of which project is pursued.
The cash inflows expected as a result of the project This is correct! It is an incremental cash flow that would only be received if the project were undertaken. Investment needed to be made by the company to undertake the project This is correct! It is an incremental cash flow that would only be incurred if the project is undertaken.
A company under IFRS standards decides to include interest paid in the Financing Section of their Statement of Cash Flows. How will this company's Statement of Cash Flows differ from how it would appear if the company were abiding by US GAAP standards? There will be no difference in the statements. The company under IFRS will have lower cash flow in the financing section and higher cash flow in the operating section than the company under US GAAP. The company under IFRS will have lower cash flow in the financing section and lower cash flow in the operating section than the company under US GAAP. The company under IFRS will have higher cash flow in the financing section and lower cash flow in the operating section than the company under US GAAP. The company under IFRS will have higher cash flow in the financing section and higher cash flow in the operating section than the company under US GAAP.
The company under IFRS will have lower cash flow in the financing section and higher cash flow in the operating section because interest paid is a use of cash (so the financing section's cash flow is decreased). The company under US GAAP would be required to include interest paid in the operating section, which lowers cash flows for that section.
Suppose Red Barn Outfitters presents the following information in its 2015 financial statements: Net Sales $6B Cost of Sales $4B Income Tax Expense $0.4B General & Admin Expenses $0.6B Selling & Marketing Expenses $0.5B Interest Expense $0.3B What would the Net Income be in this fiscal year?
The correct answer is $0.2B To get Net Income, we need to subtract from Net Sales the Cost of Sales, all Operating and Admin Expenses as well as Interest and Tax Expense. The calculation would be: $6B - 4B - 0.4B - 0.6B - 0.5B - 0.3B = $0.2B
Suppose Ven Inc's Operating Income for 2015 was $1,750,000. Their income and expenses during the year include the following: Sales, General, & Admin Expense $2,350,000 Interest Income $15,000 Income Taxes $215,000 Depreciation Expense $280,000 What was Ven's Income Before Taxes for 2015?
The correct answer is $1,765,000 Income Before Taxes is equal to Operating Income adjusted for any non-operating activity. In this example, S,G,& A and Depreciation Expenses are operating expenses that have already been deducted to arrive at Operating Income. Income Taxes will be deducted after Income Before Taxes. To get to Income Before Taxes, simply add Interest Income to Operating Income: $1,750,000 + $15,000 = $1,765,000
A project has the estimated cash flows shown below. The discount rate is 8%. Calculate the NPV of this project. t Cash Flows 0 -75,123 1 18,525 2 19,444 Rate: 8% 3 20,166 NPV ($): 4 21,883 5 22,116 6 23,985 7 35,222
The correct answer is $41,511. The correct answer formula is: =NPV(E4,B3:B9)+B2 B2 = -75,123
Clean Air Systems buys a diagnostic piece of equipment for $270,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $50,000. The company expects the machine to be able to generate after-tax cash flows of $43,000 in each of the 10 years, and then it will sell the machine for $50,000 at the end of 10 years. The discount rate is 7%. What is the Net Present Value? t Cash Flows 0 -270,000 1 43,000 2 43,000 Rate (%): 7% 3 43,000 NPV ($): 4 43,000 5 43,000 6 43,000 7 43,000 8 43,000 9 43,000 10 93,000
The correct answer is $57,431. The correct answer formula, which should be entered into cell E5, is the following: =NPV(E4,B3:B12)+B2 Remember, for NPV you have to manually add the negative outflow from time zero related to the initial investment.
Previous QuestionQuestion 19 of 20Next Question A project has the estimated cash flows shown as indicated below. The discount rate is 7%. Calculate the NPV of this project. t Cash Flows 0 -74,000 1 11,822 2 13,004 Rate (%): 7% 3 15,228 NPV ($): 4 22,076 5 21,314
The correct answer is -$7,124 The correct answer formula, which should be entered into cell E5, is the following: NPV(E4,B3:B7)+B2 Remember, for NPV you have to manually add the negative outflow from time zero related to the initial investment.
Company A estimates that it needs 30% of sales in net working capital. In year 1, sales were $1 million and in year 2, sales were $2 million. Associated with the change in net working capital from year 1 to year 2 is a cash: inflow of $300,000. outflow of $300,000. inflow of $600,000. outflow of $600,000.
The correct answer is an outflow of $300,000. The company would need to make a cash investment (outflow) of $300,000 to increase their net working capital from the $300,000 needed to support $1 million of sales to the $600,000 needed to support $2 million of sales.
Which of the following items is an implicit transaction? Recognizing a gain on the sale of equipment Recording payment of monthly interest on loan Recognizing impairment on an intangible asset Recognizing deferred revenue through delivery of goods
The correct answer is recognizing impairment on an intangible asset. This is an implicit transaction because there is not a specific event that triggers the recording of the transaction.
Which of the following items is an explicit transaction? Recognizing expense as equipment is used Recognizing the revenue for inventory sold Recognizing expense for prepaid insurance consumption Accruing for audit fees at the end of the year
The correct answer is recognizing the revenue for inventory sold. This is an explicit transaction because the inventory being sold is the trigger for recording the transaction.
Wise Guys Consulting issues an invoice for $9,000 to one of their clients for services provided. The terms of the invoice call for payment 30 days after the invoice date. What would be the impact at the date the services are completed and invoiced?
The correct answer is to debit Accounts Receivable (an asset) for $9,000 as the company now has the right to receive cash, and credit Revenue (part of owners' equity) for $9,000 to recognize the revenue associated with the sale.
Traxx is a shoe manufacturer. They sold 250 pairs of shoes on credit to Feet of Endurance (FOE) for $16,000. The total manufactured cost of the shoes was $7,000. What is the journal entry to record the revenue on the books of Traxx?
The correct answer is to debit Accounts Receivable for $16,000 as the company now has the right to receive cash and credit Revenue for $16,000 to recognize the revenue associated with the sale.
Cakery Bakery receives $1,000 from a customer on August 5, 2016 for a wedding cake to be delivered on September 19, 2016. What would Cakery Bakery record on their books when they receive this payment?
The correct answer is to debit Cash (an asset) for $1,000 as the company now has the cash and credit Deferred Revenue (a liability) for $1,000 as the company now has an obligation to provide services in the future.
Traxx is a shoe manufacturer. They sold 250 pairs of shoes on credit to Feet of Endurance (FOE) for $16,000. The total manufactured cost of the shoes was $7,000. What is the journal entry to record the cost of the inventory transfer on the books of Traxx?
The correct answer is to debit Cost of Goods Sold for $7,000 to recognize the expense associated with the sale of shoes, and credit Inventory for $7,000 as the company no longer has the inventory.
Cakery Bakery received $1,000 from a customer on August 5, 2016 for a wedding cake to be delivered on September 19, 2016. What would Cakery Bakery record on their books when the cake is successfully delivered?
The correct answer is to debit Deferred Revenue (a liability) for $1,000 as the company no longer has an obligation to provide services and credit Revenue (part of owners' equity) for $1,000 to recognize the revenue associated with the sale.
Keep You in the Know (KYK) magazine received $120,000 cash in annual subscriptions in December 2013. KYK is a monthly publication and all of these subscriptions commence in January 2014. What entry should KYK make on January 31, 2014 related to the subscription services provided for one month?
The correct answer is to debit Deferred Revenue for $10,000 as the company no longer has the liability for one month's worth of subscription, and credit Revenue for $10,000 to recognize the revenue associated with one month's worth of services provided.
Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchase $80,000 of open airline tickets in advance that can be used for a variety of destinations because they need the flexibility and savings provided by such tickets. What entry should Friends International make to record this purchase?
The correct answer is to debit Prepaid Expense for $80,000 as the company now has the right to receive benefits from the prepaid tickets and credit Cash for $80,000 as the company no longer has the cash.
Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchased $80,000 of open airline tickets in advance that can be used for a variety of destinations. Using the accrual method, build the entry to record the use of $40,000 of these tickets on March 15, 2014 for multiple passengers on a flight from New York to Kigali, Rwanda.
The correct answer is to debit Travel Expense for $40,000 to recognize the expense associated with the use of the tickets and credit Prepaid Expense for $40,000 as the company no longer has the right to receive benefits from the prepaid tickets.
How does the following transaction impact cash flow? Recognizing depreciation expense on a piece of equipment purchased six years ago. Positive (Increase) No Impact Negative (Decrease)
The correct answer is: No Impact No cash is actually paid when a company recognizes depreciation expense. This is an implicit transaction related to the passage of time, and therefore, there is no impact on cash flows.
How does the following transaction impact cash flow? Recording an account receivable for the sale of goods to a customer. Positive (Increase) No Impact Negative (Decrease)
The correct answer is: No Impact When a company records an account receivable for goods sold to a customer, it is because they are allowing the customer to pay for the goods at a later date. Since no cash was received at the time of transaction, there is no impact on cash flows.
Suppose Zenon Co. issued a long-term bond and received $250,000 cash from the issuance during 2015. The company also issued 12,000 shares of common stock for $260,000. At the end of the year, Zenon paid $165,000 for the dividend declared last year. What would be the net impact of these transactions on Zenon's 2015 statement of cash flows under US GAAP? $510,000 would be shown as an increase in the Financing Section and the $165,000 would be shown as a decrease in the Operating Section. $260,000 would be shown as an increase in the Financing Section and the $250,000 would be shown as an increase in the Investing Section. $345,000 would be shown as an increase in the Financing Section. $260,000 would be shown as an increase in the Financing Section, the $250,000 would be shown as an increase in the Investing Section, and the $165,000 would be shown as a decrease in the Operating Section.
The correct answer is: the $345,000 would be shown as an increase in the Financing section. $250,000 + $260,000 - $165,000 = $345,000 Cash inflows from issuing long-term bonds and stocks, and cash outflows for paying dividends should be included in the Financing Section.
Which of the following is an example of an expense? Select all that apply. The cost of a home store's inventory of glassware that is thrown away because they were broken. Cash received by a computer repair company for repairs made. Fuel used for a company's delivery trucks last month.
The cost of a home store's inventory of glassware that is thrown away because they were broken. This is an expense related to the ongoing operations of a home store. Fuel used for a company's delivery trucks last month. This is an expense related to an ongoing activity of the business.
Tom's Grocery purchased 5 new cash registers for their new store and they paid $2,400 each for a total of $12,000 on August 1, 2013, the day they were delivered. The cash registers are expected to have useful lives of 5 years and they are not expected to have any salvage value. Tom's Grocery uses straight-line depreciation. The cash registers were recorded as long-lived assets at the time of the purchase and now Tom's needs to make an entry showing the expense related to these cash registers up to December 31, 2013.
The depreciable value of the cash registers is $12,000 and they have an estimated useful life of 5 years (or 60 months), so the monthly depreciation would be $200 per month ($12,000 / 60). To recognize the 5 months' worth of depreciation ($200 per month * 5 months = $1,000) at 12/31/13, the company would record a debit to Depreciation (an expense, part of owners' equity) for $1,000 and a credit to Accumulated Depreciation (a contra-asset, part of assets) for $1,000.
Suppose a manufacturing plant purchased a new heating system in December, 2015 and, after installing and testing the equipment, it was put into service on January 1, 2016. The total cost to put the equipment into service was $55,000; it is expected to have a useful life of 5 years and a salvage value of $5,000. Using the straight-line method of depreciation, what will the entry be to record depreciation for the 6 months ending June 30, 2016?
The depreciable value of the equipment is $50,000 ($55,000 cost - $5,000 salvage value), which means that the manufacturing company will recognize $10,000 of depreciation every year over the 5 year useful life. Thus, the depreciation for the 6 months ending June 30, 2016 is $5,000. The journal entry to record this is a debit to Depreciation Expense (expense account) for $5,000 and a credit to Accumulated Depreciation (contra-asset account) for $5,000.
Which of the following items represents the net income/(loss) for the year? The difference between the revenues/gains and expenses/losses. The difference between the cash receipts and payments. The difference between the funds raised by stock issuance and the dividends paid. The difference between the net increase in assets and in liabilities.
The difference between the revenues/gains and expenses/losses.
Which of the following is measured by the DuPont Framework? The return that a business generates during a period on equity invested in the business by the owners of the business. The return or profit received as a result of investing funds. The number of days between when a company pays for inventory purchases and when a company collects from customers. The number of times a company can cover its interest expense only using its earnings before interest and tax.
The return that a business generates during a period on equity invested in the business by the owners of the business. This is the definition of ROE (Return on Equity), which is measured by the DuPont Framework.
Which of the following is TRUE regarding journal entries: There are always only two accounts affected The total amount debited must equal the total amount credited Journal entries show debits on the right and credits on the left Journal entries show credits first, then debits
The total amount debited must equal the total amount credited
Company A's accounting period goes from January 1 through December 31. Which of the following describes the difference between the trial balance on December 31, 2013 and the trial balance on January 1, 2014? The trial balance on January 1, 2014 does not balance because all nominal accounts were reset in the closing process. The trial balance on January 1, 2014 does not balance because the company has not yet earned any income for the period. The trial balance on January 1, 2014 shows no balance in all nominal accounts because they were closed to retained earnings in the closing process. The trial balance on January 1, 2014 shows no balance in all accounts because the accounting books were reset in the closing process.
The trial balance on January 1, 2014 shows no balance in all nominal accounts because they were closed to retained earnings in the closing process.
On January 1, 2015 Sweetums, a candy manufacturer, sold 15 boxes of their signature chocolate bars to a local retailer for $1,500. Sweetums had paid $720 to produce the chocolate bars. Sweetum's granted credit terms and permitted the retailer to pay in 30 days.On the same day of the sale, Sweetums delivered the chocolate bars to the retail store. Consider both the revenue and cost of this transaction on the books of Sweetums. What would be the impact on January 1, 2015, the date of the sale? On January 30, 2015 Sweetums received payment in full from the local retailer. What would be the impact of this transaction on this date?
This transaction involves both the sale and the related cost of the sale. On 1/1/15, the Revenue account (part of owners' equity) should be increased (with a credit) by $1,500, the amount of the sale, and, since the retailer was given 30 days to pay, Accounts Receivable (an asset) should be increased (with a debit) by the same amount of $1,500. On the cost side, the chocolate bars came from inventory so the Inventory account (an asset) should be reduced (with a credit) by $720, the amount that it cost Sweetums to produce the chocolate bars. The expense should be increased (with a debit) to Cost of Goods Sold (part of owners' equity) for $720. On 1/30/15, receipt of the payment from the retailer means that the Cash account (an asset) should be increased (with a debit) by $1,500 and the Accounts Receivable account (also an asset) should be decreased (with a credit) by $1,500
For the year 2015, McGuire's Auto had Operating Income of $320,000. It also had the following expenses: Salaries and Wages Expense $75,000 Building and Utilities Expense $86,000 Interest Expense $122,000 Income Tax Expense $84,000 Cost of Goods Sold (COGS) for the year was $440,000 What would McGuire's Auto's gross profit be for 2015?
To get to Gross Profit from Operating Income, we must add back any Operating Expenses. In this case we start with $320,000 Operating Income and add back Salaries and Wages Expense of $75,000 and Building and Utilities Expense of $86,000, to get Gross Profit of $481,000.
What denominator amounts does an analyst use to calculate the common size balance sheet and income statement? Current assets and net income, respectively Total assets and operating income, respectively Total assets and sales, respectively Owner's equity and sales, respectively
Total assets and sales, respectively
Which of the following is FALSE regarding Accrual Accounting? Revenues are recorded when earned Accrual accounting follows the matching principle Expenses are recorded as incurred Transactions are only recorded when there is an exchange of cash
Transactions are only recorded when there is an exchange of cash
Which statement about US GAAP and IFRS accounting standards is true? US GAAP requires that assets be divided up into current and non-current assets while IFRS does not require such division. Both US GAAP and IFRS require that owners' equity be listed after liabilities. US GAAP will generally list assets and liabilities in order from most liquid to least liquid while IFRS will generally do the opposite. Both US GAAP and IFRS require that non-current liabilities be listed before current liabilities.
US GAAP will generally list assets and liabilities in order from most liquid to least liquid while IFRS will generally do the opposite. US GAAP lists assets and liabilities in order of liquidity - the most liquid being first. IFRS is generally the opposite.
West Corp. purchased a piece of equipment in January 2014. The accountant of West Corp. decided to use double declining balance method to depreciate this equipment. For 2014, compared with using straight-line depreciation method, the company will have:
Using an accelerated depreciation method as compared to the straight-line method means that a higher depreciation expense will be recognized in the early years so the company will have a lower net income and a higher accumulated depreciation.
How does the following transaction impact cash flow? Paying cash for property insurance covering next 2 years Positive (Increase) No Impact Negative (Decrease)
negative (decrease) How does the following transaction impact cash flow? Paying cash for property insurance covering next 2 years Positive (Increase) No Impact Negative (Decrease)