FIN 320F Unit 4

Roscoe's fixed assets were purchased three years ago for $1.8 million. These assets can be sold to Stewart's today for $1.2 million. Roscoe's current balance sheet shows net fixed assets of $960,000, current liabilities of $348,000, and net working capital of $121,000. If all the current assets were liquidated today, the company would receive $518,000 cash. The book value of the firm's assets today is _____ and the market value is ____.

$1,429,000; $1,718,000 Book value = $121,000 + 348,000 + 960,000 = $1,429,000 Market value = $518,000 + 1,200,000 = $1,718,000

Rusty Antiques has a marginal tax rate of 39percent and an average tax rate of 26.9 percent. If the firm owes $37,265 in taxes, how much taxable income did it earn?

$139,957 Tax = $37,265 / .269 = $138,532

Last year, The Pizza Joint 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 34 percent, what was the amount of the depreciation expense?

$2,503 Earnings before interest and taxes = [($6,230 + 2,500)/(1 -.34)] + $1,620 = $14,847 Depreciation = $104,650-87,300-14,847 = $2,503

Lester's Fried Chick'n 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

AV Sales has net revenue of $513,000 and costs of $406,800. The depreciation expense is $43,800,interest paid is $11,200, and dividends for the year are$4,500. The tax rate is 33 percent. What is the addition to retained earnings?

$38,804 Addition to retained earnings = [($513,000 -406,800-43,800 -11,200)(1 -.33)] - $4,500 = Addition to retained earnings = $29,804

The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the net capital spending?

$69,800 Net capital spending = $371,920 -348,200 + 46,080 = $69,800

Holly 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 28 percent. How much net income did the firm earn for the period?

$8,671 Net income = ($509,600 -448,150 -36,100 -12,400)(1 -.28) = $9,324

Pharrell, Inc., has sales of $596,000, costs of $262,000, depreciation expense of $65,500, interest expense of $32,500, and a tax rate of 40 percent. The firm paid out $41,500 in cash dividends. What is the addition to retained earnings? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

100,100 ± .1% Explanation: The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income statement Sales $ 596,000 Costs 262,000 Depreciation 65,500 EBIT $ 268,500 Interest 32,500 Taxable income $ 236,000 Taxes (40%) 94,400 Net income $ 141,600 The dividends paid plus the addition to retained earnings must equal net income, so: Net income = Dividends + Addition to retained earnings $141,600 = $41,500 + Addition to retained earnings Addition to retained earnings = $141,600 - 41,500 Addition to retained earnings = $100,100

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,395,000, $139,000 in the common stock account, and $2,640,000 in the additional paid-in surplus account. The December 31, 2016, balance sheet showed long-term debt of $1,570,000, $149,000 in the common stock account, and $2,940,000 in the additional paid-in surplus account. The 2016 income statement showed an interest expense of $93,500 and the company paid out $144,000 in cash dividends during 2016. The firm's net capital spending for 2016 was $950,000, and the firm reduced its net working capital investment by $124,000. What was the firm's 2016 operating cash flow, or OCF? (A negative answer should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

578,500 ± .1% Explanation: The cash flow to creditors is the interest paid, minus any net new borrowing, so: Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTDend - LTDbeg) Cash flow to creditors = $93,500 - ($1,570,000 - 1,395,000) Cash flow to creditors = -$81,500 The cash flow to stockholders is the dividends paid minus any new equity raised. So, the cash flow to stockholders is: (Note that APIS is the additional paid-in surplus.) Cash flow to stockholders = Dividends paid - Net new equity Cash flow to stockholders = Dividends paid - [(Commonend + APISend) - (Commonbeg + APISbeg)] Cash flow to stockholders = $144,000 - [($149,000 + 2,940,000) - ($139,000 + 2,640,000)] Cash flow to stockholders = -$166,000 We know that cash flow from assets is equal to cash flow to creditors plus cash flow to stockholders. So, cash flow from assets is: Cash flow from assets = Cash flow to creditors + Cash flow to stockholders Cash flow from assets = -$81,500 - 166,000 Cash flow from assets = -$247,500 We also know that cash flow from assets is equal to the operating cash flow minus the change in net working capital and the net capital spending. We can use this relationship to find the operating cash flow. Doing so, we find: Cash flow from assets = OCF - Change in NWC - Net capital spending -$247,500 = OCF - (-$124,000) - ($950,000) OCF = -$247,500 - 124,000 + 950,000 OCF = $578,500

Able Co. has $267,000 in taxable income and Bravo Co. has $1,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $10,000. The additional project will increase Able Co.'s taxes by _____ and Bravo Co.'s taxes by ____.

Able Co. tax = $10,000 ×.39 = $3,900 Bravo Co. tax = $10,000 ×.34 = $3,400

eiger Flours owes $16,929 in taxes on taxable income of $61,509. If the firm earns $100 more in income, it will owe an additional $48 in taxes. What is the average tax rate on income of $61,609?

Average tax rate = ($16,929 + 48)/$61,609 = .2756, or 27.56 percent

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $5.1 million. The machinery can be sold to the Romulans today for $7.3 million. Klingon's current balance sheet shows net fixed assets of $3.9 million, current liabilities of $820,000, and net working capital of $141,000. If all the current accounts were liquidated today, the company would receive $935,000 cash. What is the book value of Klingon's total assets today? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Book value of total assets $ 4,861,000 correct

You are given the following information for Sookie's Cookies Co.: sales = $52,000; costs = $38,800; addition to retained earnings = $2,400; dividends paid = $975; interest expense = $1,480; tax rate = 40 percent. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Calculate the net income. Net income $ 3,375 correct Calculate the taxable income. Taxable income $ 5,625 correct Calculate the EBIT. EBIT $ 7,105 correct Calculate the depreciation expense. Depreciation expense $ 6,095 correct

You are given the following information for Sookie's Cookies Co.: sales = $51,700; costs = $39,100; addition to retained earnings = $2,925; dividends paid = $960; interest expense = $1,510; tax rate = 30 percent. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Calculate the net income. Net income $ 3,885 correct Calculate the taxable income. Taxable income $ 5,550 correct Calculate the EBIT. EBIT $ 7,060 correct Calculate the depreciation expense. Depreciation expense $ 5,540 correct

or the past year, LP Gas, Inc., had cash flow from assets of $38,100 of which $21,500 flowed to the firm's stockholders. The interest paid was $2,300. What is the amount of the net new borrowing?

Cash flow to creditors = $38,100 -21,500 = $16,600 Net new borrowing = $2,300 - 16,600 = -$14,300

Six months ago, Benders Gym repurchased $140,000 of its common stock. The company pays regular dividends totaling $18,500 per quarter. What is the amount of the cash flow to stockholders for the past year if 1,200 new shares were issued and sold for $38 a share?

Cash flow to stockholders = ($18,500 ×4) -[(1,200 × $38) - $140,000] = $168,400

Which one of the following is an intangible fixed asset?

Copyright

Dockside Warehouse has net working capital of $42,400, total assets of $519,300, and net fixed assets of $380,200. What is the value of the current liabilities?

Current liabilities = $519,300 -380,200 -42,400 = $96,700

Cornerstone 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 ending long-term debt?

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

Based on the recognition principle, revenue is recorded on the financial statements when the: I. payment is collected for the sale of a good or service. II. earnings process is virtually complete. III. value of a sale can be reliably determined. IV. product is physically delivered to the buyer.

II and III only

The financial statements of Blue Fin 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?

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

Holly 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 28 percent. How much net income did the firm earn for the period?

Net income = ($509,600 -448,150 -36,100 -12,400)(1 -.28) = $9,324

For the year, Uptowne Furniture had sales of $818,790, costs of $748,330, and interest paid of $24,450. The depreciation expense was $56,100 and the tax rate was 34 percent. At the beginning of the year, the firm had retained earnings of $172,270 and common stock of $260,000. At the end of the year, retained earnings was $158,713 and common stock was $280,000. Any tax losses can be used. What is the amount of the dividends paid for the year?

Net income = [($818,790 -748,330-56,100 -24,450)(1 -.34)] =-$6,659 Dividends paid = -$6,659 - ($158,713-172,270) = $6,898

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 of $29,700 and dividends of $19,000. What is the amount of the net new borrowing?

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

Plenti-Good Foods 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?

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

Gino's Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners' equity?

Owners' equity = $29,800 + 64,800 -23,000 = $71,600

Which one of the following statements concerning the balance sheet is correct?

Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt.

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $5.1 million. The machinery can be sold to the Romulans today for $7.3 million. Klingon's current balance sheet shows net fixed assets of $3.9 million, current liabilities of $820,000, and net working capital of $141,000. If all the current accounts were liquidated today, the company would receive $935,000 cash. What is the sum of the NWC and market value of fixed assets? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Sum $ 8,235,000 correct

EXPLANATION: Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $5.1 million. The machinery can be sold to the Romulans today for $7.3 million. Klingon's current balance sheet shows net fixed assets of $3.9 million, current liabilities of $820,000, and net working capital of $141,000. If all the current accounts were liquidated today, the company would receive $935,000 cash. 1) What is the book value of Klingon's total assets today? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) 2) What is the sum of the NWC and market value of fixed assets? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

To find the book value of assets, we first need to find the book value of current assets. We are given the NWC. NWC is the difference between current assets and current liabilities, so we can use this relationship to find the book value of current assets. Doing so, we find: NWC = Current assets - Current liabilities Current assets = $141,000 + 820,000 Current assets = $961,000 Now we can construct the book value of assets. Doing so, we get: Book Value Current assets $ 961,000 Fixed assets 3,900,000 Total assets $ 4,861,000 All of the information necessary to calculate the market value of the NWC and the fixed assets is given, so: Market Value NWC $ 935,000 Fixed assets 7,300,000 Total $ 8,235,000

ANC Plastics has net working capital of $15,400, current assets of $39,200, equity of $46,600, and long-term debt of $22,100.

What is the amount of the net fixed assets? $50,800 $56,900 $45,500 $48,100 $53,300 Net fixed assets = $22,100 + 46,600- 15,400 = $53,300

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,390,000, $138,000 in the common stock account and $2,630,000 in the additional paid-in surplus account. The December 31, 2016, balance sheet showed long-term debt of $1,560,000, $148,000 in the common stock account and $2,930,000 in the additional paid-in surplus account. The 2016 income statement showed an interest expense of $93,000 and the company paid out $143,000 in cash dividends during 2016. The firm's net capital spending for 2016 was $940,000, and the firm reduced its net working capital investment by $123,000.

What was the firm's cash flow to creditors during 2016? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Cash flow to creditors $ -77,000 correct What was the firm's cash flow to stockholders during 2016? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Cash flow to stockholders $ -167,000 correct What was the firm's cash flow from assets during 2016? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Cash flow from assets $ -244,000 correct What was the firm's operating cash flow during 2016? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Operating cash flow $ 573,000 correct

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 increase.

The corporate tax structure in the U.S. is based on a:

modified flat-rate tax.

A negative cash flow to stockholders indicates a firm:

received more from selling stock than it paid out to shareholders.

An income statement prepared according to GAAP:

records expenses based on the matching principle.