fin3403 exam 1 chp 3

The income statement describes the financial performance of a firm over a fixed period such as a quarter or a year

true

The interest payments on corporate bonds are tax-deductible

true

The marginal tax rate would equal the average tax rate for firms with earnings less than $50,000 or more than $18,333,333

true

When analyzing the cash flows from a new project proposal, a company should always use its marginal tax rate

true

Which of the following is NOT included in operating income? A) Cost of goods sold B) Sales C) Taxes D) Operating expenses

Taxes

Stock that is repurchased by the issuing company is called

treasury stock

A balance sheet is a statement of the financial position of the firm on a given date, including its asset holdings, liabilities, and equity

true

A corporation's average tax rate will always be lower than or equal to its marginal tax rate.

true

Beginning cash balance + cash flow from operations + cash flow from investing activities + cash flow from financing activities = ending cash balance

true

Corporate income statements are usually compiled on an accrual, rather than cash, basis

true

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's gross profit?

$15,225,000

8 Table 1 Jones Company Financial Information March 1995 March 1996 Net income $1,500 $3,000 Accounts receivable 750 750 Accumulated depreciation 1,125 1,500 Common stock 4,500 5,250 Capital surplus 7,500 8,250 Retained earnings 1,500 2,250 Accounts payable 750 750 9) Based on the information given in Table 1, calculate the dividends paid in 1996

$2,250

Table 2 Bird Industries, Inc. Balance Sheets 2011 2012 Cash $1,000 $? Accounts receivable 5,000 6,000 Inventories 6,500 6,000 Land 10,000 12,000 Other fixed assets 8,000 9,000 Accumulated depreciation (1,000) (1,600) Total assets $29,500 $? Accounts payable $3,200 $ 6,800 Bonds 4,000 4,000 Common stock 17,000 16,000 Retained earnings 5,300 5,000 Total debt and equity $29,500 $? Bird Industries, Inc. Income Statement Sales $84,000 Cost of goods sold 66,400 Gross profit $17,600 Operating expenses (13,000) Depreciation (600) EBIT $4,000 Interest expense (500) EBT $3,500 Taxes (1,500) Net Income $2,000 10) Based on the information contained in Table 2, what was the total amount of Bird Industries' common stock dividend for 2012?

$2,300

013 U.S. Corporate tax rates are shown below: Taxable Income Marginal 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% RJH Inc. has earnings before taxes of $100,000 in 2013. The company's tax expense will be

$22,250

Grass Gadgets had sales of $30 million and net income of $2 million in 2008. Grass paid a dividend of $1.5 million. Assuming that their beginning balance for retained earnings was $3 million, calculate their ending balance for retained earnings

$3.5 million

2013 U.S. Corporate tax rates are shown below: Taxable Income Marginal 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% Bouffard Co. has earnings before taxes of $100,000,000 in 2013. The company's tax expense will be

$35,000,000

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's income before tax?

$4,360,000

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $8,750,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's net income

$4,731,000

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's EBIT

$5,110,000

Your firm has the following balance sheet statement items: total current liabilities of $805,000; total assets of $2,655,000; fixed and other assets of $1,770,000; and long-term debt of $200,000. What is the amount of the firm's total current assets?

$885,000

Based on the information contained in Table 2, what was Bird Industries' operating profit margin for 22012

4.8%

Your firm has the following balance sheet statement items: total current liabilities of $805,000; total assets of $2,655,000; fixed and other assets of $1,770,000; and long-term debt of $200,000. What is the amount of the firm's net working capital?

80,000

Which of the following represents a source of cash?

A decrease in accounts receivable

In a growing business, negative cash flow from investing activities is normal

true

Which of the following is not a current asset?

Accounts payable

Which of the following would NOT be included as a liability in a corporate balance sheet?

Accumulated Depreciation

Which of the basic financial statements is best used to answer the questions "What does the company own and how is it financed?"

Balance sheet

Firms should compare their gross, operating and net profit margins to past years and other companies in order to A) evaluate the firm's performance. B) identify expenses that seem to be out-of-line C) better manage the reporting of the firm's earnings. D) Both A and B.

Both A and B.

Your firm has the following income statement items: sales of $52,000,000; income tax of $1,880,000; operating expenses of $9,000,000; cost of goods sold of $36,000,000; and interest expense of $800,000. Compute the firm's gross profit margin

C) 30.8%

Which of the following would NOT be included as equity in a corporate balance sheet? A) Cash B) Paid in capital C) Retained earnings D) Common stock

Cash

Which of the basic financial statements is best used to answer the questions "Where did the company's money come from and how was it spent over the preceding year?

Cash flow statement

Which of the following would NOT be included as an asset on a corporate balance sheet?

Common stock

Who owns the retained earnings of a public firm?

Common stockholders

Which of the following does NOT represent cash outflows to the firm? A) Taxes B) Interest payments C) Dividends D) Depreciation

Depreciation

Which of the following is not included in computing EBT (earnings before taxes)?

Dividends

On the income statement, sales revenue, minus cost of goods sold and operating expenses, equals which of the following?

EBIT

Which of the following best represents operating income? A) Income after financing activities B) Earnings before interest and taxes C) Income from capital gains D) Income from discontinued operations

Earnings before interest and taxes

Which of the basic financial statements is best used to answer the question, "How profitable is the business?

Income statement

Which of the following represents an attempt to measure the earnings of the firm's operations over a given time period?

Income statement

Which of the following best represents the stream of income that is available to stockholders? A) Net profit after tax B) Earnings before interest, taxes and dividends C) Gross profit D) Operating profit

Net profit after tax

Which of the following streams of income is not affected by how a firm is financed (whether with debt or equity)

Operating income

Which of the following best describes a balance sheet?

Reports the amount and composition of assets and liabilities at a specified point in time

Which of the basic financial statements is best used to answer questions about changes in owner's equity that are not explained by the income statement?

Statement of shareholder's equity

The balance includes information about the company's assets and liabilities

true

When a company pays a dividend on common stock, it appears as

a reduction in the amount of retained earnings

Patriot Corporation purchased manufacturing equipment with an expected useful life of five years. The purchase of the machinery would be shown as

an asset on the balance sheet

A & K Co. expects to have earnings before taxes of $250,000 to $300,000. The company's marginal tax rate is 39% and its average tax rate about 33%. For every additional dollar A & K pays out in common dividends, its income tax liability will

be unaffected

The change between a firm's beginning cash balance and ending cash balance would equal

cash flow from operations + cash flow from investing activities + cash flow from financing activities

The ratio of ________ to ________ is an indicator of the quality of a firm's earnings

cash flow from operations, net income

A & K Co. expects to have earnings before taxes of $250,000 to $300,000. The company's marginal tax rate is 39% and its average tax rate about 33%. For every additional dollar of interest expense, A & K's taxes will

fall by 39 cents

A firm's balance sheet provides a representation of the current market value of the company.

false

An advantage of balance sheet numbers is that assets reflect current market values

false

Generally Accepted Accounting Principles (GAAP) require companies to smooth earnings by shifting some profits from good years to bad years.

false

Gross plant and equipment minus accumulated depreciation represents the fair market value of a company's fixed assets

false

On an accrual basis income statement, revenues and expenses always match the firm's cash flow

false

Reducing a firm's debt will increase its cash flow.

false

The cash flow statement is an alternative term for the balance sheet

false

The cash flow statement shows amounts that the company has earned but for which it has not yet received cash.

false

The company's gross profit margin is EBIT divided by net sales

false

The highest marginal corporate tax rate is 35%

false

The income statement represents a snapshot of account balances at one point in time

false

The income statement shows a company's earnings since it has been in business

false

Total equity on the balance sheet increases as dividends paid increases.

false

Under current accounting rules, plant and equipment appear on a company's balance sheet valued at replacement value

false

When a corporation sells common stock to investors, the amount is added to revenue on the income statement

false

Net plant and equipment is

gross plant and equipment less accumulated depreciation

Operating cash flow will increase with a decrease in

inventories

The practice of shifting income from good years to poor years in order to show a record of steady growth is

known as earnings management and is considered unethical

Tax tables are based on ________ tax rates.

marginal