Finance- Chapter 3 Practice
17. Rogue Industries reported the following items for the current year: Sales= $3,000,000; Cost of Goods Sold= $1,500,000; Depreciation Expense= $170,000; Administrative Expenses= $150,000; Interest Expense= $30,000; Marketing Expenses= $80,000; and Taxes= $300,000. Rogue's operating income is equal to:
$1,100,000
32. Enigma has the following financial information: *Net income-$70,000 *Taxable Income (EBT)-$100,000 *Interest Expense-$20,000 *Depreciation Expense-$15,000 *Tax Expense-$30,000 *Increase in Current Assets-$20,000 *Increase in A/P and Accruals- $10,000 *Decrease in Gross Fixed Assets-$100,000 No changes were made in interest payable or taxes payable. Based on the information in the table above, what is Enigma's cash flow from operations?
$105,000
15. The December 31, 2009 balance sheet shows net fixed assets of $150,000 and the December 31, 2010 balance sheet shows net fixed assets of $250,000. Depreciation expense for 2009 is $25,000 and depreciation expense for 2010 is $35,000. Based on this information, the cost of fixed assets purchased during 2010 is:
$135,000
18. Use the following info to calculate the company's accounting net income for the year: *Credit Sales-$800,000 *Cash Sales-$500,000 *Operating Expenses on Credit-$200,000 *Cash Operating Expenses-$700,000 *Accounts Receivable (Beg. of Year)-$50,000 *Accounts Receivable (End of Year)-$80,000 *Accounts Payable (Beg. of Year)-$50,000 *Accounts Payable (End of Year)-$100,000 *Corporate Tax Rate-40%
$240,000
20. Implification Corp. has sales of $4,250,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000. The firm's interest expense is $250,000, and the corporate tax rate is 40%. What is the firm's tax liability?
$360,000
22. California Retailing Inc. has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000. The firm's interest expense is $250,000, and the corporate tax rate is 40%. What is California Retailing's net income?
$390,000
29. Siskiyou Corp. has cash of $75,000; short-term notes payable of $100,000; accounts receivables of $275,000; accounts payable of $135,000: inventories of $350,000; and accrued expenses of $75,000. What is the firm's net working capital?
$390,000
28. Universal Financial, Inc. has total current assets of $1,200,000; long-term debt of $600,000; total current liabilities of $500,000; and long-term assets of $800,000. How much is the firm's net working capital?
$700,000
21. California Retailing Inc. has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000. What is California Retailing's EBIT?
$900,000
30. Look at the Chapter 3 Practice Problems packet for this question!
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25. All of the following statements about balance sheets are true EXCEPT?
Balance sheets show average asset balances over a one-year period.
16. Company A and Company B both report the same level of sales and net income. Therefore:
Both A and B will report the same Net Profit Margin.
31. A company borrows $2,000,000 and uses the money to purchase high technology machinery for its operations. These are examples of:
Cash flow from financing and cash flow from investing.
27. Which of the following accounts does NOT belong on the asset side of a balance sheet?
Common Stock
2. T/F- Owners equity increases each period by the amount of the corporation's positive net cash flow:
False
4. T/F- The more debt a company uses to finance its assets, the lower will be its operating income due to higher interest expense:
False
6. T/F- Common-sized balance sheets show each account as a percentage of total sales to help analysts in comparing companies of different sizes:
False
8. T/F- Accounting rules specify that assets on the balance sheet must be reported at current market value, because this is the valuation most useful to potential investors:
False
9. T/F- The profit and loss (income) statement is compiled on a cash basis:
False
7. T/F- Intangible assets such as copyrights and goodwill are not included on the balance sheet because they are impossible to value objectively:
False- intangible assets are included on the balance sheet.
1. T/F- An income statement reports a firm's cumulative revenues and expenses from the inception of the firm through the income statement date:
False- it shows the profit and loss
5. T/F- Changes in depreciation expense do not affect operating income because depreciation is a non-cash expense:
False- regardless, the depreciation is deducted from taxes & is shown as an expense in the income statement.
10. T/F- A balance sheet reflects the current market value of a firm's assets and liabilities:
False- the balance sheet records historically at cost price.
12. T/F- A company with negative net income will also have negative operating cash flow:
False- you can have negative earnings, yet positive cash flow.
19. Which of the following represents an attempt to measure the net results of the firm's operations (revenues versus expenses) over a given time period?
Income Statement
26. Which of the following accounts belongs on the asset side of a balance sheet?
Inventory
23. Gross profit is equal to:
Sales- Cost of Goods Sold.
11. T/F- The balance sheet reflects the accounting equation: Assets= Liabilities + Owners' Equity:
True
13. T/F- According to accrual accounting, revenues are recognized when earned and expenses are recognized when incurred:
True
14. T/F- The statement of cash flow explains the changes that took place in the firm's cash balance over the period of interest:
True
3. T/F- Common-sized income statements restate the numbers in the income statement as a percentage of sales to assist in the comparison of a firm's financial performance across time and with competitors:
True
24. Wheeler Corporation had retained earnings as of 12/31/2010 of $15 million. During 2011, Wheeler's net income was $7 million. The retained earnings balance at the end of 2011 was equal to $20 million. Therefore:
Wheeler paid a dividend in 2010 of $2 million.
