FN312 CH 2 HW REVIEW

Ch 2: How much is operating cash flow for ABC Corporation? -EBIT = $1588 -Depreciation = $130 -Beginning net fixed assets = $1650 -Net new equity raised = $450 -Taxes = $424

1588 + 130 - 424 = 1294

Ch 2: What is the net working capital for XYZ company? -Current Assets = $300 -Net Fixed Assets = $1500 -Current Liabilities = $240 -Long-term Debt = $700 -Owner's Equity = $860

300 - 240 = 60

Ch 2: Lewis & Price Corporation paid $700 in dividends and $320 in interest this past year. Common stock remained constant at $6800 and retained earnings decreased by $180. What is the net income for the year?

700 - 180 = 520

Ch 2: Which one of the following accounts is the most liquid? -Inventory -Building -Accounts Receivable -Equipment -Land

Accounts receivable

Ch 2: An income statement prepared using GAAP will show revenue when it is:

Accrued

Ch 2: The cash flow that is available for distribution to a corporation's creditors and stockholders is called the: -Operating cash flow -Net capital spending -Net working capital -Cash flow from assets -Cash flow to stockholders

Cash flow from assets

Ch 2: Cash flow from assets equals:

Cash flow to creditors + cash flow to stockholders

Ch 2: The __________ tax rate is the percentage of the last dollar you earned that must be paid in taxes

Marginal

Ch 2: The Somerville Corporation has cost of goods sold of $11518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent?

296 + 420 / .79 = 906.33

Ch 2: Herrera Corporation has total sales of $3110400 and costs of $2776000. Depreciation is $258000 and the tax rate is 21 percent. The firm is all equity financed. What is the operating cash flow?

318356

Ch 2: Net working capital is defined as:

Current assets - current liabilities

Ch 2: Barnett Saddlery had beginning net fixed assets of $218470 and ending fixed assets of $209411. During the year, assets with a book value of $6943 were sold. Depreciation for the year was $42822. What is the amount of net capital spending?

33763

Ch 2: The book value of a firm is: -Equivalent to the firm's market value minus its liabilities -A financial, rather than an accounting, valuation -Generally greater than the market value when fixed assets are included -Based on historical transactions -Adjusted to the market value whenever the market value exceeds the stated book value

Based on historical transactions

Ch 2: Cash flow to stockholders is defined as: -The total amount of interest and dividends paid during the last year -The change in total equity over the past year -Cash flow from assets plus the cash flow to creditors -Operating cash flow minus the cash flow to creditors -Dividend payments less net new equity raised

Dividend payments less net new equity raised

Ch 2: Which one of the following describes a noncash item? -Fixed expenses -Inventory items purchased using credit -Ownership of intangible assets such as patents -Expenses that do not consume cash -Sales that are made using store credit

Expenses that do not consume cash

Ch 2: Cash flow from assets is also known as the firm's -Capital structure -Equity structure -Hidden cash flow -Free cash flow -Historical cash flow

Free cash flow

Ch 2: For a firm that must pay income taxes, depreciation expense: -Increases expenses and lowers taxes -Increases the net fixed assets as shown on the balance sheet -Reduces both the net fixed assets and the costs of a firm -Is a noncash expense that increases the net income -Decreases net fixed assets, net income, and operating cash flows

Increases expenses and lowers taxes

Ch 2: The first thing reported on an income statement would usually be:

Revenues

Ch 2: Based on the tax table below, what is the average tax rate for a sole proprietor with taxable income of $155000? -$0-9875: 10% -$9875-40125: 12% -$40125-85525: 22% -$85525-163300: 24%

20.18%

Ch 2: You recently purchased a restaurant that had equal market and book values. The purchase included the building, fixtures, and inventory. Which one of the following would be most likely to cause the market value of the restaurant to fall below its book value? -A sudden an unexpected increase in inflation -The replacement of old menu items with more desirable products -A pandemic that required restaurants to limit the number customers allowed inside -Construction of new sidewalks and street lighting -Addition of a movie theater and music venues nearby

A pandemic that required restaurants to limit the number of customers inside

Ch 2: The Balance Sheet Identity is:

Assets = Liabilities + Owner's Equity

Ch 2: Total income taxes divided by total taxable income equals the __________ tax rate

Average

Ch 2: The cash flow related to interest payments less any net new borrowing is called the: -Operating cash flow -Capital spending cash flow -Net working capital -Cash flow from assets -Cash flow to creditors

Cash flow to creditors

Ch 2: The size of a company's tax bill is determined by the tax __________

Code

Ch 2: A __________ __________ is one that has a life of less than one year, meaning they must be paid within the year

Current liability

Ch 2: Net working capital represents current assets plus current liabilities T/F

False

Ch 2: Which one of the following financial statements summarizes a firm's revenue and expenses during a period of time? -Income statement -Balance sheet -Statement of cash flows -Tax reconciliation statement -Market value report

Income statement

Ch 2: Which of the following is classified as a current asset? -Accounts payable -Patent -Inventory -Notes payable -Office furniture

Inventory

Ch 2: __________ tax rate is the amount of tax payable on the next dollar earned

Marginal

Ch 2: Which one of the following statements concerning net working capital is correct? -Net working capital increases when inventory is purchased with cash -Net working capital may be a negative value -Total assets must increase if net working capital increases -Net working capital excludes inventory -Net working capital is the amount of cash a firm currently has available for spending

Net working capital may be a negative value

Ch 2: When considering net working capital, a project will generally need all of the following, except: -Some cash on hand to pay any expenses that arise -An initial investment in inventories and accounts receivables -Some financing in the form of accounts payable -A balance that represents the investment in net working capital -Only long-term assets to get the project started

Only long-term assets to get the project started

Ch 2: The cash flow that results from a company's ongoing, normal business activities is called: -Operating cash flow -Capital spending -Net working capital -Cash flow from assets -Cash flow to creditor

Operating cash flow

Ch 2: As the degree of financial leverage increases, the: -Probability a firm will encounter financial distress increases -Amount of a firm's total debt increases -Less debt a firm has per dollar of total assets -Number of outstanding shares of stock increases -Accounts payable balance decreases

Probability a firm will encounter financial distress increases

Ch 2: Shareholder's Equity: -Is referred to as a firm's financial leverage -Is equal to total assets plus total liabilities -Represents the residual value of a firm -Includes patents, preferred stock, and common stock -Decreases whenever new shares of stock are issued

Represents the residual value of a firm

Ch 2: Cookies by Casey has sales of $487000 with costs of $263000. Interest expense is $26000 and depreciation is $42000. The tax rate is 21 percent. What is the net income?

(487000 - 263000 - 26000 - 42000) - .21% = 123240

Ch 2: Ryu and Fowler Attorneys has total assets of $4900, fixed assets of $3200, long-term debt of $2900, and short-term debt of $1400. What is the amount of net working capital

(4900 - 3200) - 1400 = 300

Ch 2: The balance sheet of Perez printing shows $680 in inventory, $2140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. How much net working capital does the company have?

(680 + 210 + 80) - 250 = 720

Ch 2: Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? -Income statement -Creditor's statement -Balance sheet -Statement of cash flows -Dividend statement

-Balance sheet

Ch 2: At the beginning of the year, the long-term debt of a firm was $72,918 and total debt was $138,407. At the end of the year, long-term debt was $68,219 and total debt was $145,838. The interest paid was $6,430. What is the amount of the cash flow to creditors?

11129

Ch 2: Hinojosa Music has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. The company will sell $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?

1328

Ch 2: How much is cash flow to creditors for ABC Corporation? -EBIT = $1588 -Depreciation = $130 -Beginning net fixed assets = $1650 -Interest Paid = $150 -Net new equity raised = $450 -Net new borrowing = $110 -Taxes = $424

150 - 110 = 40

Ch 2: Franklin Corporation just paid taxes of $152,000 on taxable income of $512,000. The marginal tax rate is 35% for the company. What is the average tax rate for the Franklin Corporation?

152000 / 512000 = 30%

Ch 2: Bianchi Crafts has an operating cash flow of $4,267 and depreciation of $1,611. Current assets decreased by $1,356 while current liabilities decreased by $2,662, and net fixed assets decreased by $382 during the year. What is free cash flow for the year?

1732

Ch 2: At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital?

21903

Ch 2: An equity owner of McKissik and Khan Consulting, LLC earned $145000 in taxable income from the firm. Based on the tax table below, how much will the owner owe in income taxes? -$0-9875: 10% -$9875-40125: 12% -$40125-85525: 22% -$85525-163300: 24%

28879.50

Ch 2: The balance sheet for the Capella Corporation is as follows: -Current Assets: $300 -Net Fixed Assets: $1200 -Current Liabilities: $110 -Long-term Debt: $500 -Shareholders' Equity: $890 What is the net working capital for Capella Corporation?

300 - 110 = 290

Ch 2: Net Capital spending: -Is equal to ending net fixed assets minus beginning net fixed assets -Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense -Reflects the net changes in total assets over a stated period of time -Is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital -Is equal to the net change in the current accounts

Is equal to zero if the decrease in net fixed assets is equal to the depreciation expense