1. _____ refers to the cash flow that results from the firm's ongoing, normal
business activities.
Net working capital
Cash flow to creditors
Cash flow from operating activities
Cash flow from assets
Capital spending
(2)
2. Which of the following are included in current assets?
I. equipment II. Inventory
III. accounts payable IV. cash
II and IV only
III and IV only
II, III, and IV only
I and III only
I, II, and IV only
(2)
3. When making financial decisions related to assets, you should:
place more emphasis on book values than on market values.
always consider market values.
place primary emphasis on historical costs.
only consider market values if they are less than book values.
(2)
rely primarily on the value of assets as shown on the balance sheet.
4. Your _____ tax rate is the amount of tax payable on the next taxable
dollar you earn.
residual
marginal
deductible
total
average
(0)
5.
What is the cash flow to creditors for 2011?
-$35 →
$205
$170
$135
-$170
Cash flow to creditors = $35 - ($410 - $340) = -$35
(2)
6. _____ refers to the changes in net capital assets.
Cash flow from assets
Net working capital
Cash flow to creditors
Operating cash flow
Cash flow from investing
(0)
7. One of the reasons why cash flow analysis is popular is because:
cash flows are hard to understand.
it is easy to manipulate, or spin the cash flows.
None of these.
→
it is difficult to manipulate, or spin the cash flows. cash flows are more subjective than net income.
(0)
8. Martha's Enterprises spent $2,500 to purchase equipment three years ago.
This equipment is currently valued at $2,000 on today's balance sheet but could actually be sold for $2,200. Net working capital is $300 and long-term debt is $900. Assuming the equipment is the firm's only fixed asset, what is the book value of shareholders' equity?
$1,400 →
$1,600
The answer cannot be determined from the information
provided $1,900
$1,100
Book value of shareholders' equity = $2,000 + $300 - $900 = $1,400
(2)
9. _____ is calculated by adding back noncash expenses to net income and
adjusting for changes in current assets and liabilities.
Operating cash flow
Cash flow from operations
Cash flow to creditors
Net working capital
Capital spending
(2)
10. Your _____ tax rate is the total taxes you pay divided by your taxable
income.
residual
deductible
total
average
marginal
(2)
11.
What is net capital spending for 2011?
$57
$0
-$57
$477
-$250
Net capital spending = $1,413 - $1,680 + $210 = -$57
(2)
12. A(n) ____ asset is one which can be quickly converted into cash without
significant loss in value.
current
liquid
fixed
long-term
intangible
(0)
13. An increase in total assets:
can only occur when a firm has positive net income.
means that net working capital is also increasing.
requires an investment in fixed assets.
→
must be offset by an equal increase in liabilities and shareholders' equity.
means that shareholders' equity must also increase.
(2)
14. The financial statement showing a firm's accounting value on a particular
date is the:
statement of cash flows.
shareholders' equity sheet.
income statement.
tax reconciliation statement.
balance sheet.
(2)
15. Noncash items refer to:
the accounts payable of a firm.
the credit sales of a firm.
all accounts on the balance sheet other than cash on hand.
expenses charged against revenues that do not directly affect cash flow.
the costs incurred for the purchase of intangible fixed assets.
(2)
16. _____ refers to the firm's interest payments less any net new borrowing.
Capital spending
Cash flow to creditors
Net working capital
Cash flow from shareholders
Operating cash flow
(2) 17
.
What is the cash flow of the firm for 2011?
$3,100
$485
$1,340
$2,590
$430
Operating cash flow = $1,930 + $1,370 - $455 = $2,845; Change in net working capital = ($7,310 - $2,570) - ($6,225 - $2,820) = $1,335; Net capital spending = $10,670 - $10,960 + $1,370 = $1,080; Cash flow of the firm = $2,845 - $1,335 - $1,080 = $430
(2)
18. Which one of the following assets is generally the most liquid?
buildings
patents
equipment
inventory
accounts receivable
(2)
19. As seen on an income statement:
interest expense is added to earnings before interest and taxes to get pretax income.
the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses. interest is deducted from income and increases the total taxes incurred.
depreciation is shown as an expense but does not affect the taxes payable.
(2)
depreciation reduces both the pretax income and the net income.
20. The financial statement summarizing a firm's accounting performance
over a period of time is the:
statement of cash flows.
tax reconciliation statement.
balance sheet.
shareholders' equity sheet.
income statement.
(2)
21. Which of the following accounts are included in shareholders' equity?
I. interest paid
II. retained earnings III. capital surplus IV. long-term debt
II and III only
I and III only
I and II only
I and IV only
II and IV only
(2)
22. An increase in which one of the following will cause the operating cash
flow to increase?
taxes
costs
changes in the amount of net fixed capital
depreciation
net working capital
(2)
23. A current asset is:
an item currently owned by the firm.
the market value of all items currently owned by the firm.
an item that the firm expects to own within the next year.
the amount of cash on hand the firm currently shows on its balance sheet.
(2)
an item currently owned by the firm that will convert to cash within the next 12 months.
24. Awnings Incorporated has beginning net fixed assets of $560 and ending
net fixed assets of $720. Assets valued at $210 were sold during the year. Depreciation was $50. What is the amount of capital spending?
$210
$110
$420
$300
$160
Net capital spending = $720 - $560 + $50 = $210
(2)
25. A firm starts its year with a positive net working capital. During the year,
the firm acquires more short-term debt than it does short-term assets. This means that:
accounts payable increased and inventory decreased during the year.
both accounts receivable and inventory decreased during the year.
the ending net working capital can be positive, negative, or equal to zero.
the beginning current assets were less than the beginning current liabilities.
the ending net working capital will be negative.
(0)
26. At the beginning of the year, long-term debt of a firm is $310 and total
debt is $350. At the end of the year, long-term debt is $280 and total debt is $370. The interest paid is $50. What is the amount of the cash flow to creditors?
-$30
→
$80 $0
$30
$20
Cash flow to creditors = $50 - ($280 - $310) = $80
(2)
27. Dividends per share is equal to dividends paid:
multiplied by the par value of the common stock.
divided by total shareholders' equity.
multiplied by the total number of shares outstanding.
divided by the par value of common stock.
divided by the total number of shares outstanding.
(0)
28. Thompson's Jet Skis has operating cash flow of $218. Depreciation is $45
and interest paid is $35. A net total of $69 was paid on long-term debt. The firm spent $180 on fixed assets and increased net working capital by $38. What is the amount of the cash flow to stockholders?
-$104 →
$142
$114
-$28
$28
Cash flow of the firm = $218 - $38 - $180 = $0; Cash flow to creditors = $35 - (-$69) = $104; Cash flow to stockholders = $0 - $104 = -$104
(2)
29. Debt is a contractual obligation that:
allows the bondholders to sue the firm if it defaults.
Both requires a repayment of a stated amount and interest over the period; and allows the bondholders to sue the firm if it defaults.
Both requires the payout of residual flows to the holders of these instruments; and requires a repayment of a stated amount and interest over the period.
requires the payout of residual flows to the holders of these instruments.
(0)
requires a repayment of a stated amount and interest over the period.
30. Book value:
is adjusted to market value whenever the market value exceeds the stated book value.
generally tends to exceed market value when fixed assets are included.
is more of a financial than an accounting valuation.
is equivalent to market value for firms with fixed assets.
→
is based on historical cost.
(2)
31. Which of the following are included in current liabilities?
I. Note payable to a supplier in eighteen months
II. Debt payable to a mortgage company in nine months III. Accounts payable to suppliers
IV. Loan payable to the bank in fourteen months
I and III only
I, II, and III only
II, III, and IV only
II and III only
III and IV only
(2)
32. The carrying value or book value of assets:
is always the best measure of the company's value to an investor.
is always higher than the replacement cost of the assets.
is determined under GAAP and is based on the cost of the asset.
represents the true market value according to GAAP.
None of these.
(2)
33. Net working capital is defined as:
current assets minus current liabilities.
total assets minus total liabilities.
current liabilities minus shareholders' equity.
total liabilities minus shareholders' equity.
fixed assets minus long-term liabilities.
(2)
34. Mart's Boutique has sales of $670,000 and costs of $460,000. Interest
expense is $50,000 and depreciation is $55,000. The tax rate is 34%. What is the net income?
$69,300
$138,600
$35,700
$105,000
$210,000
Taxable income = $670,000 - $460,000 - $50,000 - $55,000 = $105,000; Tax = .34($105,000) = $35,700; Net income = $105,000 - $35,700 = $69,300
(0)
35.
What is the taxable income for 2011?
$800 →
$780
$360
$640
$520
Net income = $160 + $360 = $520; Taxable income = $520 ÷ (1 - .35) = $800
(2)
36. Which of the following statements concerning the income statement is
true?
It measures performance over a specific period of time.
It includes deferred taxes.
It treats interest as an expense.
It determines after-tax income of the firm.
All of these.
(2)
37. The cash flow of the firm must be equal to:
None of these.
cash flow to stockholders minus cash flow to debtholders.
cash flow to governments plus cash flow to stockholders.
cash flow to debtholders minus cash flow to stockholders.
cash flow to stockholders plus cash flow to debtholders.
(2)
38.
What are the sales for 2011?
$4,600
$4,225
$4,815
$4,385
$5,000
Sales = $1,015 + $375 + $3,210 = $4,600
(2)
39. _____ refers to the firm's dividend payments less any net new equity
raised.
Net working capital
Operating cash flow
Cash flow from creditors
Cash flow to stockholders
Capital spending
(2) 40
.
What is the amount of net new borrowing for 2011?
$25
-$25
$225
$0
-$225
Net new borrowing = $8,100 - $7,875 = $225
(2) 41.
What is the operating cash flow for 2011?
$800
$1,015
$1,110
$1,390
$520
Earnings before interest and taxes = $800 + $215 = $1,015; Operating cash flow = $1,015 + $375 - ($800 - $520) = $1,110
(2)
42. Brad's Company has equipment with a book value of $500 that could be
sold today at a 50% discount. Its inventory is valued at $450 and could be sold to a competitor for that amount. The firm has $100 in cash and
customers owe it $250. What is the accounting value of its liquid assets?
$550
$1,050
$800
$100
$1,300
Liquid assets = $450 + $100 + $250 = $800
(2)
43.
What is the net working capital for 2011?
$345
$1,005
$405
$805
$812
Net working capital = $75 + $502 + $640 - $405 = $812
(2)
44. Which of the following are all components of the statement of cash flows?
Cash flow from operating activities, cash flow from investing activities, and cash flow from divesting activities
None of these.
Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities
Cash flow from brokering activities, cash flow from profitable activities, and cash flow from non-profitable activities
Cash flow from internal activities, cash flow from external activities, and cash flow from financing activities
(2)
45.
What is the operating cash flow for 2011?
$367
$353
$297
$143
$325
Earnings before interest and taxes = $785 - $460 - $210 = $115; Taxable income = $115 - $35 = $80; Taxes = .35($80) = $28; Operating cash flow = $115 + $210 - $28 = $297
(2)
46. Your firm has net income of $198 on total sales of $1,200. Costs are $715
and depreciation is $145. The tax rate is 34%. The firm does not have interest expenses. What is the operating cash flow?
$241
$383
$485
$93
$340
Earnings before interest and taxes = $1,200 - $715 - $145 = $340; Tax = [$198 ÷ (1 - .34)] - $198 = $102; Operating cash flow = $340 + $145 - $102 = $383
(2)
47. Calculate net income based on the following information. Sales are $250,
cost of goods sold is $160, depreciation expense is $35, interest paid is $20, and the tax rate is 34%.
$11.90
$35.00
$36.30
$46.20
$23.10
((Sales - COGS) - Depreciation - Interest) - Taxes = Net Income (($250 - $160) - $35 - $20) - $11.9 = $23.10
(2)
48. Which one of the following statements concerning liquidity is correct?
Trademarks and patents are highly liquid.
If you sold an asset today, it was a liquid asset.
Balance sheet accounts are listed in order of decreasing liquidity.
The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties.
If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid.
(2)
49. Earnings per share is equal to:
net income divided by the total number of shares outstanding.
net income divided by total shareholders' equity.
net income divided by the par value of the common stock.
operating income divided by the par value of the common stock.
gross income multiplied by the par value of the common stock.
(2)
50. Cash flow to stockholders must be positive when:
both the cash flow to assets and the cash flow to creditors are positive.
no income is distributed but new shares of stock are sold.
the net sale of common stock exceeds the amount of dividends paid.
both the cash flow to assets and the cash flow to creditors are negative.
the dividends paid exceed the net new equity raised.
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