Financial Management Chapter 2 Quiz

Which one of the following accounts is the most liquid?

Accounts receivable

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Balance Sheet

The cash flow related to interest payments less any net new borrowing is called the:

Cash flow to creditors

Net working capital is defined as:

Current assets minus current liabilities

Which of the following is (are) included in the market value of a firm but is (are) excluded from the firm's book value? I. Value of management skills. II. Value of a copyright. III. Value of the firm's reputation. IV. Value of employee's experience.

I, III, and IV

Which one of the following is true according to generally accepted accounting principles?

Income is recorded based on the realization principle

Which one of the following statements concerning net working capital is correct?

Net working capital increases when inventory is sold for cash at a profit

You have gathered this information on JJ Enterprises: What is the net working capital for 2015?

$2,131 Net working capital = $418 + 578 + 1,598 - 463 = $2,131 Assets-Current Liabilities = Net working capital

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders?

$20,680 Cash flow from assets = $48,450 - (-$1,330) - 24,000 = $25,780 Cash flow to creditors = $2,480 - (-$2,620) = $5,100 Cash flow to stockholders = $25,780 - 5,100 = $20,680

You have gathered this information on JJ Enterprises: What is the change in net working capital from 2014 to 2015?

$57 Change in net working capital = ($418 + 578 + 1,598 - 463) - ($672 + 601 + 1,215 - 414) = $57 = Networking capital 2015 - Net working capital 2014

At the beginning of the year the balance sheet of The Outlet showed $800,000 in the common stock account and $2.6 million in the additional paid-in surplus account. The end-of-year balance sheet showed $872,000 and $4.8 million in the same two accounts, respectively. The company paid out $150,000 in cash dividends during the year. What is the cash flow to stockholders for the year?

-$2,122,000 Cash flow to stockholders = $150,000 - [($872,000 + 4,800,000) - ($800,000 + 2,600,000) = -$2,122,000

Boyer Enterprises had $200,000 in taxable income. What is the firm's average tax rate based on the rates shown in the following table?

30.63 percent Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($200,000 - 100,000) = $61,250 Average tax rate = $61,250 / $200,000 = .3063, or 30.63 percent

Which one of the following statements concerning net working capital is correct?

Net working capital may be a negative value

Which one of the following is classified as a tangible fixed asset?

Production equipment

Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year. The depreciation was $76,400. What is the average tax rate?

32.83 percent Earnings before taxes = $843,800 - 609,900 - 76,400 - 38,200 = $119,300 Net income = $18,000 + 62,138 = $80,138 Taxes = $119,300 - 80,138 = $39,162 Tax rate = $39,162 / $119,300 = .3283, or 32.83 percent

The following information pertains to Galaxy Interiors: What is the amount of the noncash expenses for 2015?

$1,611 The noncash expense is the depreciation in the amount of $1,611.

The 2010 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.3 million, and the 2011 balance sheet showed long-term debt of $2.55 million. The 2011 income statement showed an interest expense of $190,000. What was the firm's cash flow to creditors during 2011?

$-60,000 Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTD end - LTD beg ) Cash flow to creditors = $190,000 - ($2,550,000 - 2,300,000) Cash flow to creditors = -$60,000

You have gathered this information on JJ Enterprises: What is the cash flow from assets for 2015?

$1,542 Operating cash flow = ($7,202 - 4,460 - 1,196) + $1,196 - 317 = $2,425 Net capital spending = $7,330 - 7,700 + 1,196 = $826 Change in net working capital = ($418 + 578 + 1,598 - 463) - ($672 + 601 + 1,215 - 414) = $57 Cash flow from assets = $2,425 - 826 - 57 = $1,542

The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____.

$4,600,000; $3,900,000 Book value = ($725,000 + 1,375,000) + 2,500,000 = $4,600,000 Market value = $1,900,000 + 2,000,000 = $3,900,000

The following information pertains to Galaxy Interiors: What is the cash flow to creditors for 2015?

$432 Cash flow to creditors = $1,282 - ($10,650 - 9,800) = $432

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

$6,890 Current assets = $7,390 - 3,910 = $3,480 Current liabilities = $3,480 - 560 = $2,920 Total liabilities = $2,920 + 3,970 = $6,890

Noncash items refer to:

Expenses which do not directly affect cash flows

Which one of these sets forth the common set of standards and procedures by which audited financial statements are prepared?

Generally Accepted Accounting Principles

Which of the following are current assets? I. Cash II. Trademark III. Accounts receivable IV. Notes payable

I and III only

Depreciation for a tax-paying firm:

Increases expenses and lowers taxes