Fin305 Exam 2 Practice Quizzes

A company that is running "lean and mean:" A. has a total asset turnover ratio that is high B. is utilizing fewer of its assets for generation of sales C. has a high liquidity ratio D. has low gross profit margin

A. has a total asset turnover ratio that is high

the income statement: A. is a financial statement that summarizes a firm's revenues and expenses over a period of time. B. is a financial statement that shows the firm's financial position at a particular point in time. C. is a financial statement that summarizes a firm's revenues and expenses at a particular point in time. D. details the firm's assets and liabilities over a period of time.

A. is a financial statement that summarizes a firm's revenues and expenses over a period of time.

The capital budget would include which of the following items? A. plant & equipment B. marketable securities C. common stock D. inventory

A. plant & equipment

Which of the following items on the income statement and balance sheet is least likely vary spontaneously with sales? A. plant and equipment B. accounts payable C. accrued expenses D. cost of goods sold

A. plant and equipment

The common equity section of the balance sheet includes each of the following except: A. preferred stock B. capital in excess of par C. common stock D. retained earnings

A. preferred stock

Each of the following items represents a liability with the exception of: A. prepaid expenses B. notes payable C. long-term debt D. accrued expenses

A. prepaid expenses

Which of the following is a use of cash that would appear on the statement of cash flows? A. purchase of marketable securities B. decrease in accounts receivable C. accumulated depreciation D. receipt of interest payments

A. purchase of marketable securities

Becker and Company had $150,000 in EBT. Using the schedule below, what was their effective tax rate? Before-Tax Income (EBT) 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% A. equal to the marginal tax rate B. 28% C. 25% D. 39%

B. 28%

Kerney's EBT is $450,000. What is the marginal tax rate? Before-Tax Income (EBT) 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% A. 25% B. 34% C. 15% D. 35%

B. 34%

Each of the following items on the income statement and balance sheet tend to vary spontaneously with sales except? A. cost of goods sold B. accumulated depreciation C. selling expenses D. taxes

B. accumulated depreciation

A net profit margin of 3.76% means: A. for every dollar of sales, income of $3.76 is generated B. for every dollar of sales, income of $.0376 is generated C. for every dollar of equity, income of $.0376 is generated D. for every dollar of assets, income of $3.76 is generated

B. for every dollar of sales, income of $.0376 is

A significantly higher average collection period than the industry average suggests (ceteris paribus): A. high profit levels B. poor credit decisions C. low liquidity levels D. rapid collection of accounts

B. poor credit decisions

The Modified DuPont equation is most accurately described as a function of: A. profitability and debt B. return on assets and debt load C. return on equity D. asset utilization

B. return on assets and debt load

Additional funds needed represents: A. the amount to be borrowed B. the amount needed to achieve the necessary asset growth C. long-term funds needed D. the desired short-term to long-term debt ratio of the firm

B. the amount needed to achieve the necessary asset growth

If the inventory turnover ratio is very high relative to industry averages: A. the firm has too high a level of inventory B. the firm may be losing sales if its inventory is too low C. the firm has good total assets management practices D. the firm has too many items that the customers probably do not want

B. the firm may be losing sales if its inventory is too low

Sales will grow from $100,000 this year to $150,000 next year. Preferred dividends were $10,000 this year. What is the new projected amount of preferred dividends? A. $ 5,000 B. $ 1,500 C. $ 10,000 D. $15,000

C. $ 10,000

Given the following information, calculate earnings per share: Interest expense 40,000 Net income 400,000 Preferred dividends paid 65,000 Common dividends paid 100,000 Common stock outstanding 100,000 A. 3.60 B. 1.95 C. 3.35 D. 2.35

C. 3.35

Which of the following items on the income statement and balance sheet is most likely to vary spontaneously with sales? A. notes payable B. common stock C. accrued expenses D. capital in excess of par

C. accrued expenses

According to accounting principles: A. net working capital should equal zero B. depreciation is a cash expense C. operating expenses during the year are tied to revenues they helped to generate D. current assets should equal current liabilities

C. operating expenses during the year are tied to revenues they helped to generate

The first accounting variable that needs to be estimated so that the pro forma financial statements can be prepared is: A. total assets B. equity C. sales D. cost of goods sold

C. sales

When doing the first set of pro forma financial statements, A. net income is always positive B. the balance sheet always balances C. the balance sheet may not balance D. more than one of the above

C. the balance sheet may not balance

A current ratio of 0.9 means: A. the firm has $0.90 of current liabilities for every $1.00 of current assets B. the firm has $0.90 of fixed assets for every $1.00 of current assets C. the firm has $0.90 of current assets for every $1.00 of current liabilities D. the firm has a debt ratio of 90%

C. the firm has $0.90 of current assets for every $1.00 of current liabilities

Return on equity is most accurately described as a measure of: A. return on assets combined with liquidity B. the return available to all stockholders in the company C. the return on capital based on common stockholder investment D. is the amount of net income paid to retained earnings after allowing for dividends paid

C. the return on capital based on common stockholder investment

Which of the following equations best describes net working capital? A. total assets - total liabilities B. cash + inventory-accounts payables C. total assets - fixed assets - current liabilities D. fixed assets - long-term liabilities

C. total assets - fixed assets - current liabilities

Given a debt/total asset ratio of 75% and a ROE of 12% we know that: A. the owners of XYZ are financing 75% of the firm's assets in order to receive a 12% return on their personal investment in the company's stock B. Profits equal 12% of the firm's sales C. the firm can cover interest payments with $0.25 of every dollar left for profit D. 25% of assets are financed with owners' equity

D. 25% of assets are financed with owners' equity

Which of the following is a source of cash that would appear on the statement of cash flows? A. increase in gross fixed assets B. increase in marketable securities C. decrease in notes payable D. increase in accrued expenses

D. increase in accrued expenses

Return on equity is a measure of the firm's: A. liquidity B. asset utilization C. debt level D. profitability

D. profitability

On the pro forma balance sheet, which accounting variable is least likely to vary by a constant percent of sales? A. accounts receivable B. accounts payable C. inventory D. retained earnings

D. retained earnings

The balancing problem in forecasting refers to which of the following? A. how many dividends the company should pay out B. where the firm should borrow new funds C. where new interest payments should be placed D. the cost of new debt and its impact on forecasting retained earnings

D. the cost of new debt and its impact on forecasting retained earnings

A debt/equity ratio of 8.1 means: A. the firm is financing the company with 81% borrowed funds B. the firm has 81 times more equity than debt C. debt is turning over 8.1 times a year D. the firm has 8.1 times more debt than equity

D. the firm has 8.1 times more debt than equity