Finance 226 Quiz 1

Dakota Pride Farms has sales of $509,600, costs of $448,150, depreciation expense of $36,100, and interest paid of $12,400. The tax rate is 21 percent. How much net income did the firm earn for the period

$10,231 Net income=(509,600 - 448,150 - 36,100 - 12,400) x (1-.21)=10,231

The Milwaukee Printing Company has net income of $26,310 for the year. At the beginning of the year, the firm had common stock of $55,000, paid-in surplus of 11,200 and retained earnings of $48,420. At the end of the year, the firm had total equity of $142,430. The firm paid dividends of $32,500. What is the amount of the net new equity raised during the year?

$34,000 Net new equity=142,430 - 55,000 - 11,200 - (48,420 + 26,310 - 32,500)=34,000

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

$36,800 New fixed assets purchases=98,700 - 84,900 + 13,200 + 9,800=36,800

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 to its old debt by $18,400. What is the amount of the cash flow to creditors

$39,200 Cash flow to creditors=36,800 - 16,000 + 18,400=39,200

One advantage of the corporate form of organization is the

Ability to raise larger sums of equity capital than other organizational forms

The financial statement that summarizes a firm's accounting value as of a particular date is called the

Balance sheet

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

Limited liability companies are primarily designed to

Provide limited liability while avoiding double taxation

Raleigh BBQ has $48,000 in current and $39,000 in current liabilities. Decisions related to these accounts are referred to as:

Working capital management

Lester's Fried Chicken purchased its building 11 years ago at a cost of $189,000. The building is currently valued at $209,000. The firm has other fixed assets that cost $56,000 and are currently valued at $32,000. To date, the firm has recorded a total of $49,000 in depreciation on the various assets it currently owns. Current liabilities are $36,600 and net working capital is $18,400. What is the total book value of the firm's assets?

$251,000 Book value=189,000 - 56,000 - 49,000 + 18,400 + 36,600=251,000

Southwestern Agricultural Cooperative has current liabilities of $162,500, net working capital of $28,560, inventory of $175,800 and sales of $1,941,840. What is the quick ratio

.09 Quick ratio=(28,560 + 162,500 - 175,800)/162,500=.09

You are analyzing a company that has cash of $11,880, accounts receivable of $17,380, fixed assets of $100,000, accounts payable of $54,405, and inventory of $51,590. What is the quick ratio

.54 Quick ratio=(11,880 + 17,380)/54,405=.54

The DuPont identity can be used to help a financial manager determine the 1. Degree of financial leverage used by a firm 2. Operating efficiency of a firm 3. Utilization rate of a firm's assets 4. Rate of return on a firm's assets

1, 2, 3, and 4

In 2021, what was the maximum average tax rate for corporations

21%

A balance sheet shows beginning values of $56,300 for current liabilities and $289,200 for long-term debt. The ending values are $61,900 and $318,400, respectively. The income statement shows interest paid $29,700 and dividends of $19,000. What is the amount of the net new borrowing

$29,200 Net new borrowing=318,400 - 289,200=29,200

Net working capital increases when

Inventory is sold at a profit

A corporation

Is a legal entity separate from its owners

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners

Limited partnership

Quincy Real Estate pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common size income statement for the dividend account will

Vary in direct relation to the net profit percentage

The passage of the Tax Cuts and Jobs Act of 2017 created a revised progressive tax structure, which applies to all of the following except

Corporations

Which one of these transactions will increase the liquidity of a firm

Credit sale of inventory at cost

Which ratio was primarily designed to monitor firms with negative earnings

Price-sales ratio

Corporate shareholders

Have the ability to change the corporation's bylaws

Girabaldi's Pretzels, 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?

$104,740 EBIT=821,300 - 698,500 - 28,400=94,400 Tax=(94,400 - 8,400) x .21=18,060 OCF=94,400 + 28,400 - 18,060=104,740

For year 2020, Precision Masters had sales of $42,900, cost of goods sold of $26,800 depreciation expense of $1,900, interest expense of $1,300 and dividends paid of $1,000. At the beginning of the year, net fixed assets were $14,300, current assets $8,700, and current liabilities were $6,600. At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400. The tax rate was 21 percent. What is the cash flow from assets for 2020?

$12,191 EBIT=(42,900 - 26,800 - 1,900)=14,200 Taxes=(14,200 - 1,300)(.21)=2,709 OCF=14,200 + 1,900 - 2,709=13,391 CFA=13,391 - (13,900 - 14,300 + 1,900) - [(9,200 - 7,400) - (8,700 - 6,600)]=12,191

Last year, Northside Pizza added $6,230 to retained earnings from sales of $104,650. The company had costs of $87,300, dividends of $2,500, and interest paid of $1,620. Given a tax rate of 21 percent, what was the amount of the depreciation expense

$4,679 Earnings before interest and taxes=[(6,230 + 2,500)/(1-.21)] + 1,620=12,671 Depreciation=104,650 - 87,300 - 12,671=4,679

Prospect Avenue Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 21 percent. The firm paid out $23,400 in dividends. What is the addition of retained earnings

$47,147 Addition to retained earnings=[(318,400 - 199,400 - 28,600 - 1,100) x (1-.21)] - 23,400=47,147

Norris Company incurred depreciation expenses of $28,900 last year. The sales were $755,000 and the addition to retained earnings was $10,200. The firm paid interest of $6,200 and dividends of $5,000. The tax rate was 21 percent. What was the amount of the costs incurred by the company

$700,659 Earnings before interest and taxes=[(5,000 + 10,200)/(1 - .21)] + 6,200=25,440.51. Costs=755,000 - 28,900 - 25,440.51=700,659

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

$72,000 Net Fixed assets=31,900 - 62,700 - 22,600 = 72,000

McKendree Industries has current liabilities of $54,900 and accounts receivable of $88,700. The firm has total assets of $395,000 and net fixed assets of $265,100. The owners' equity has a book value of $147,500. What is the amount of the net working capital?

$75,000 Net working capital=395,000 - 265,100 - 54,900=75,000

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

$84,500 Net fixed assets=42,500 + 74,500 - 32,500=84,500

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? 1. Sell the inventory and apply the proceeds to the debt 2. Sell the lighting fixtures from the building and apply the proceeds to the debt 3. Withdraw funds from Maria's personal account at the bank to pay the store's debt 4. Sell any assets Maria owns and apply the proceeds to the store's debt

1, 3, and 4 only

Kahlil's Dog house had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital

1,400 Change in net working capital=(82,600 - 85,100) - (67,200 - 71,100)=1,400

Lily K's has total assets of $726,030, net fixed assets of $556,740, long-term debt of $437,265, and total debt of $583,050. If inventory is $234,765, what is the current ratio

1.16 Current ratio=(726,030 - 556,740)/(538,050 - 437,265)=1.16

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

5,400 Long-term debt=36,400 - 18,800 - 12,200=5,400

Which of the following is not a basic area of finance as described by the text

Accounting

Which of the following statements is is false

Acorns is a creative crowdfunding app, allowing smaller investors to join together to fund design ventures

The shareholders of Qiang's markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of

An agency conflict

The market value of

An asset tends to provide a better guide to the actual worth of that asset than does the book value

Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant

An increase in depreciation

Which one of the following applies to a general partnership

Any one of the partners can be solely liable for all of the partnership's debt

Probably the least effective means of aligning management goals with shareholder interests is

Automatically increasing management salaries on an annual basis

Which one of the following terms is defined as the total tax paid divided by the total taxable income

Average tax rate

Which one of the following is an intangible fixed asset

Copyright

Firms that compile financial statements according to the GAAP

Can still manipulate their earnings to some degree

Which one of the following functions is generally a responsibility assigned to the corporate treasurer

Capital expenditures

Nishaa has been promoted and is now in charge of all external financing. In other words she is in charge of

Capital structure management

Which one of the following is a measure of long-term solvency

Cash coverage ratio

Which one of the following functions should be assigned to the corporate treasurer rather than than to the controller

Cash management

Cash flow to stockholders is defined as

Dividends paid minus net new equity raised

Which one of the following is a capital structure decision

Establishing the preferred debt-equity level

The ratios that are based on financial statement values and used for comparison purposes are called

Financial ratios

When conducting a financial analysis of a firm, financial analysts

Frequently use accounting information

Deandre and Mason both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Deandre and Mason equally share in the decision making and business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General partnership

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital

Had to decrease

The accounting statement that measures the revenues, expenses, and net income of a firm over a period is called the

Income statement

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

Given a profitable firm, depreciation

Lowers taxes

The primary goal of financial management is most associated with increasing the

Market value of the firm

What is the primary goal of financial management for a sole proprietorship

Maximize the market value of the equity

Which of the following statements is correct

Nasdaq has more listed stocks than does the NYSE

Shareholders' equity is equal to

Net fixed assets minus long-term debt plus net working capital

Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year

Noncash item

Paid-in surplus is classified as

Owners' equity

The Sarbanes-Oxley Act

Requires the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results

Which one of the following is the abbreviation for US government coding system that classifies a firm by its specific type of business operations

SIC

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

If a firm has an inventory turnover of 15, the firm

Sells its entire inventory an average of 15 times each year

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts

Sole proprietorship

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n)

Stakeholder

An agency issue is most apt to develop when

The control of a firm is separated from the firm's ownership

Which of the following correctly defines a common chain of command within a corporation

The controller reports directly to the chief financial officer

The sustainable growth rate is based on the premise that

The debt-equity ratio will be held constant

The primary goal of financial management is to maximize

The market value of existing stock

Which one of the following statements about a limited partnership is correct

There must be at least one general partner

Which one of these statements is true concerning the price-earnings (PE) ratio

A high PE ratio may indicate that a firm is expected to grow significantly

Security dealers

Buy and sell from their own inventory

Market values

Reflect expected selling prices given the current economic situation

Lopez Bakery had $236,400 in net fixed assets at the beginning of the year. During the year, the company purchased $53,200 in new equipment. It also sold, at a price of $22,000, some old equipment that had a book value of 5,900. The depreciation expense for the year was $13,400. What is the net fixed asset balance at the end of the year

$270,300 Ending net fixed assets=236,400 - 53,200 - 5,900 - 13,400=270,300

Zoey Pet Supply had $314,000 in net fixed assets at the beginning of the year. During the year, the company purchased $98,200 in new equipment. It also sold, at a price of $10,000 some old equipment that had a book value of $12,500. The depreciation expense for the year was $24,500. What is the net fixed asset balance at the end of the year

$375,200 Ending net fixed assets=314,000 + 98,200 - 12,500 - 24,500=375,200

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 long-term debt

$63,300 Ending long-term debt=64,500 - 16,300 + 4,100 +11,000=63,300

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

$95,700 Cash flow to stockholders=[187,000 - 47,900 - (-28,000)] - 71,400=95,700

The balance sheet of Koehn, Incorporated has the following balances. What is the amount of the change in net working capital

-$1,800 Change in net working capital=(32,800 + 51,600 + 129,200 - 53,600) - (30,300 + 48,200 + 126,500 - 43,200)=-1,800

Trinity industries has sales of $179,600, depreciation of $14,900, cost of good sold of $138,200, and other costs of $28,400. The rate is 21 percent. What is the net income?

-$1,900 EBT=179,600 - 138,200 - 28,400 - 14,900=-1,900

Mader's Camping Supply reduced its general and administrative costs this year. This cost improvement will increase which of the following ratios 1. Profit margin 2. Return on assets 3. Total asset turnover 4. Return on equity

1, 2, and 4 only

Pyri Flours, a sole proprietorship, owes $9,741 in taxes on taxable income of $61,509. If the firm earns $100 more in income, it will owe an additional $22 in taxes. What is average tax rate on income of $61,609

15.85% Average tax rate= (9,741 + 22)/61,609=.1585 or 15.85%

Based on the recognition principle, revenue is recorded on the financial statements when the 1. Payment is collected for the sale of a good or service 2. Earnings process is virtually complete 3. Value of a sale can be reliably determined 4. Product is physically delivered to the buyer

2 and 3 only

A firm has sales of $811,000 for the year. The profit margin is 5.1 percent and the retention ratio is 56 percent. What is the common-size percentage for the dividends paid

2.24% Dividends paid common-size percentage=[811,000 x .051 x (1-.56)]/811,000=.0224 or 2.24%

Medeiros Imporis 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?

293,200 Total book value=41,100 + 54,200 + 82,300 - 234,500 - 118,900=293,200

Xinya Controls has a profit margin of 7.5 percent and net income of $112,545. What is the common-size percentage for the cost of goods sold if that expense amounted to $855,425 for the year

57.01% COGS common-size-percentage=855,245/(112,545/.075)=.5701 or 57.01%

The financial statements of the Santa Domingo Marina reflect depreciation expenses of $41,600 and interest expenses of $27,900 for the year. The current assets increased by $31,800 and the net fixed assets increased by $28,600. What is the amount of the net capital spending for the year

70,200 Net capital spending=28,600 + 41,600=70,200

Production equipment is classified as

A tangible fixed asset

Which one of the following is most apt to align management's priorities with with shareholders' interests

Compensating managers with shares of stock that must be held for a minimum of 3 years

The market value of a firm's fixed assets

Is equal to the estimated current cash value of those assets

The cash ratio is used to evaluate the

Length of time that a firm can pay its bills if no additional cash becomes available

All else held constant, which one of the following will decrease if a firm increases its net income

Price-earnings ratio

Financial statement analysis

Provides useful information that can serve as a basis for forecasting future performance

Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due

Quick ratio

A negative cash flow to stockholders indicates a firm

Received more from selling stock than it paid out to shareholders

Which one of the following is included in the market value of a firm but not in the book value

Reputation of the firm