Chapter 2 Quiz

1 pts An increase in the depreciation expense will do which of the following for a firm with taxable income of $80,000? I. Increase net income. II. Decrease net income. III. Increase the cash flow from assets. IV. Decrease the cash flow from assets.

II and III only

A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity?

$18,700 (the amount of retained earnings is not provided, so you must use --> Shareholders equity= total assets - total liabilities) $5,900 + $21,200 - $8,400 =$18,700

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, III, and IV only

The ________ tax rate is equal to total taxes divided by total taxable income.

Average

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.

As of 2015, which one of the following statements concerning corporate income taxes is correct?

A firm's tax is computed on an incremental basis.

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

GAAP

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

$1,611 That is A/R amount - a noncash expense

Andre's Bakery has sales of $613,000 with costs of $479,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 25 percent. What is the net income?

$49,500 Sales -Costs -Dep = EBIT EBIT -Interest = EBT EBT * tax rate = taxes EBT-taxes = Net income

The beginning of year balance sheet of The Beach Shoppe showed long-term debt of $2.1 million, while the end of year balance sheet showed long-term debt of $2.3 million. The annual income statement showed an interest expense of $250,000. What was the cash flow to creditors for the year ?

$50,000

Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 32 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings?

$76,320 Sales -Costs -Dep = EBIT EBIT -Interest = EBT EBT * tax rate (32%) = Net income Net income -Dividends paid = Addition to retained earnings

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

$800 Dividends paid = $1,374 - ($2,696 - 2,122) = $800

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

$990 Net income = $1,300 + (-$310) = $990

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($100,000) = $61,250 Average tax rate = $61,250 / $200,000 = .3063

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

Cash flow to creditors.

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

NOT RIGHT = Net working capital is the amount of cash a firm currently has available for spending.

Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $289,740?

Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($189,740) = $96,248.60 Average tax rate = $96,248.60 / $289,740 = .3322, or 33.22 percent

Which one of the following must be true if a firm had a negative cash flow from assets?

The firm utilized outside funding

The percentage of the next dollar you earn that must be paid in taxes is referred to as the ________ tax rate.

marginal