Ch 2

The Plaza Cafe has an operating cash flow of $83,770, depreciation expense of $43,514, and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows: What is the amount of the cash flow from assets?

Cash flow from assets = $83,770- ($597,913-599,608 + 43,514) - [($129,204-139,827) - ($138,590-143,215)] = $47,949

During the past year, 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 on its old debt by $18,400. What is the amount of the cash flow to creditors?

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

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

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?

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

For the year, Movers United has net income of $31,800, net new equity of $7,500, and an addition to retained earnings of $24,200. What is the amount of the dividends paid?

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

Cash flow to stockholders is defined as:

dividends paid minus net new equity raised.

Cash flow to creditors is defined as:

interest paid minus net new borrowing.

Given a profitable firm, depreciation:

lowers taxes.

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

marginal tax rate.

Shareholders' equity is equal to:

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

The matching principle states that:

the costs of producing an item should be recorded when the sale of that item is recorded as revenue.

Shareholders' equity is best defined as:

the residual value of a firm

The Toy Store has beginning retained earnings of $318,423. For the year, the company earned net income of $11,318 and paid dividends of $7,500. The company also issued $25,000 worth of new stock. What is the value of the retained earnings account at the end of the year?

$322,241 Retained earnings = $318,423 + 11,318-7,500 = $322,241

Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of $19,300, and owners' equity of $21,100. What is the value of the net working capital?

$10,400 Net working capital = $21,100 + 8,600 -19,300 = $10,400

W. S. Movers had $138,600 in net fixed assets at the beginning of the year. During the year, the company purchased $27,400 in new equipment. It also sold, at a price of $5,300, some old equipment that had a book value of $2,100. The depreciation expense for the year was $6,700. What is the net fixed asset balance at the end of the year?

$157,200 Ending net fixed assets = $138,600 + 27,400 -2,100 -6,700 = $157,200

The Embroidery Shoppe had beginning retained earnings of $18,670. During the year, the company reported sales of $83,490, costs of $68,407, depreciation of $8,200, dividends of $950, and interest paid of $478. The tax rate is 34 percent. What is the retained earnings balance at the end of the year?

$21,947.30 Net income = ($83,490 -68,407 -8,200 -478) ×(1 -.34) = $4,227.30 Ending retained earnings = $18,670 + 4,227.30-950 = $21,947.30

Wes Motors has total assets of $98,300, net working capital of $11,300, owners' equity of $41,600, and long-term debt of $38,600. What is the value of the current assets?

$29,400 Current liabilities = $98,300-38,600 -41,600 = $18,100 Current assets = $11,300 + 18,100 = $29,400

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?

$3,414 Earnings before interest and taxes = [($6,230 + 2,500)/(1 -.34)] + $1,620 = $14,847 Depreciation = $104,650-87,300-14,847 = $2,503

Leslie Printing 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

Lew's Auto Repair has cash of $18,600, accounts receivable of $34,500, accounts payable of $28,900, inventory of $97,800, long-term debt of $142,000, and net fixed assets of $363,800. The firm estimates that if it wanted to cease operations today it could sell the inventory for $85,000 and the fixed assets for $349,000. The firm could collect 100 percent of its receivables as they are secured. What is the market value of the firm's assets?

$487,100 Market value = $18,600 + 34,500 + 85,000 + 349,000 = $487,100

Donner 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

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?

$53,300 Net fixed assets = $22,100 + 46,600- 15,400 = $53,300

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?

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

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?

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

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

Assets are listed in descending order of liquidity.

Which one of the following is an intangible fixed asset?

Copyright

The Pretzel Factory 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 34 percent?

EBIT = $821,300 -698,500 -28,400 = $94,400 Tax = ($94,400 -8,400) ×.34 = $29,240 OCF = $94,400 + 28,400 -29,240 = $93,560

Which one of these is correct?

Net income is distributed either to dividends or retained earnings.

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

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

Assume a company has sales of $423,800, production costs of $297,400, other expenses of $18,500, depreciation expense of $36,300, interest expense of $2,100, taxes of $23,600, and dividends of $12,000. In addition, you're told that during the year the firm issued $4,500 in new equity and redeemed $6,500 in outstanding long-term debt. If net fixed assets increased by $7,400 during the year, what was the addition to net working capital?

OCF = $423,800 -297,400 -18,500 -23,600 = $84,300 NCS = $7,400 + 36,300 = $43,700 CFA = CFC + CFS = [$2,100 - (-6,500)] + [$12,000 -4,500] = $16,100 Add to NWC = OCF - NCS - CFA = $84,300 -43,700 -16,100 = $24,500

Donegal's has compiled the following information: What is the operating cash flow for the year?

Operating cash flow = $406,300-218,900-38,600-34,100 = $114,700

Use the following tax table to answer this question: BT Trucking has taxable income of $617,429. How much does it owe in taxes?

Total tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($235,000) + .34($617,429-335,000) = $209,925.86 Because the marginal and average tax rates are the same at this level of income, the tax can also be computed as: Total tax = .34($617,429) = $209,925.86

Highly liquid assets:

can be sold quickly at close to full value.

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation.

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.

Market values:

reflect expected selling prices given the current economic situation.

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.