Question 1

The assumption of arm's-length transaction states that

Accepted Answer

A)  both parties to a transaction can act independently of each other and make economically rational decisions. 
B)  both parties to a transaction must have had previous transactions. 
C)  one of the parties to the transaction is a bank that has full knowledge of the firm's creditworthiness. 
D)  none of the above 
A)  both parties to a transaction can act independently of each other and make economically rational decisions. 
B)  both parties to a transaction must have had previous transactions. 
C)  one of the parties to the transaction is a bank that has full knowledge of the firm's creditworthiness. 
D)  none of the above

Question 2

The balance sheet identity can be stated as Total assets = Total liabilities + Total stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true?

Accepted Answer

A)  Only 20 percent of interest income is taxable income for a corporation. 
B)  Dividend income is fully taxable income. 
C)  Interest paid on debt obligations is a tax-deductible business expense. 
D)  Dividends paid to stockholders are a tax-deductible business expense. 
A)  Only 20 percent of interest income is taxable income for a corporation. 
B)  Dividend income is fully taxable income. 
C)  Interest paid on debt obligations is a tax-deductible business expense. 
D)  Dividends paid to stockholders are a tax-deductible business expense.

Question 4

When prices are falling, valuing inventory using the LIFO method rather than FIFO gives

Accepted Answer

A)  inventory a higher value but lowers net income. 
B)  inventory a lower value and also lowers net income. 
C)  both inventory and net income a higher value. 
D)  inventory a lower value and net income a higher value. 
A)  inventory a higher value but lowers net income. 
B)  inventory a lower value and also lowers net income. 
C)  both inventory and net income a higher value. 
D)  inventory a lower value and net income a higher value.

Question 5

Which one of the following is NOT true for a corporation?

Accepted Answer

A)  Interest paid on bonds issued last year is tax deductible. 
B)  Common-stock dividends to be paid this year are not tax deductible. 
C)  Common-stock dividends to be paid this year will be tax deductible if the firm has a net loss for the year. 
D)  Preferred stock dividends to be paid this year are not tax deductible. 
A)  Interest paid on bonds issued last year is tax deductible. 
B)  Common-stock dividends to be paid this year are not tax deductible. 
C)  Common-stock dividends to be paid this year will be tax deductible if the firm has a net loss for the year. 
D)  Preferred stock dividends to be paid this year are not tax deductible.

Question 6

Typical financing activities include cash payments on the principal of long-term debt, cash payments of dividends to shareholders, and cash purchases of treasury stock.

Accepted Answer

A) True 
 B)False

Question 7

Spartan, Inc., is a manufacturer of automobile parts located in Greenville, South Carolina. At the end of the current fiscal year, the company had net working capital of $157,903. The company showed accounts payables of $94,233, accounts receivables of $83,112, inventory of $171,284, and cash and marketable securities of $12,311. What amount of notes payables does the firm have?

Accepted Answer

A)  $14,571 
B)  $26,882 
C)  $15,471 
D)  none of the above 
A)  $14,571 
B)  $26,882 
C)  $15,471 
D)  none of the above

Question 8

Dell Computer Corporation has receivables of $2.5 million and inventory worth $1.8 million. The firm plans to borrow $2 million for working capital purposes from Austin First National Bank. In evaluating the loan request, the bank should place the most emphasis on

Accepted Answer

A)  the matching principle. 
B)  the realization principle. 
C)  the going-concern assumption. 
D)  the assumption of arm's-length transactions. 
A)  the matching principle. 
B)  the realization principle. 
C)  the going-concern assumption. 
D)  the assumption of arm's-length transactions.

Question 9

Which of the following best represents cash flows to investors?

Accepted Answer

A)  Cash flow from operating activity, plus cash flow generated from net working capital. 
B)  Earnings before interest and taxes times 1 minus the firm's tax rate. 
C)  Net income, minus dividends paid to preferred stockholders. 
D)  Cash flow from operating activity, minus cash flow invested in net working capital, minus cash flow invested in long-term assets. 
A)  Cash flow from operating activity, plus cash flow generated from net working capital. 
B)  Earnings before interest and taxes times 1 minus the firm's tax rate. 
C)  Net income, minus dividends paid to preferred stockholders. 
D)  Cash flow from operating activity, minus cash flow invested in net working capital, minus cash flow invested in long-term assets.

Question 10

Trident Manufacturing Company's treasurer identified the following cash flows during this year as significant. It had repaid existing debt to the tune of $425,110, while raising additional debt capital of $750,000. It also repurchased stock in the open markets for a total of $63,250. It paid $233,144 in dividends to its shareholders. What is the net cash provided (used) by financing activities?

Accepted Answer

A)  $28,496 
B)  $91,746 
C)  -$28,496 
D)  -$91,746 
A)  $28,496 
B)  $91,746 
C)  -$28,496 
D)  -$91,746

Question 11

Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

Accepted Answer

A)  $1,844,022 
B)  $2,303,010 
C)  $2,123,612 
D)  $803,010 
A)  $1,844,022 
B)  $2,303,010 
C)  $2,123,612 
D)  $803,010

Question 12

Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the company had accounts receivables of $47,199, inventory of $63,781, and cash of $21,461. It also had accounts payables of $51,369, short-term notes payables of $11,417, and accrued taxes of $6,145. The net working capital of the firm is

Accepted Answer

A)  $68,931 
B)  $63,510 
C)  $69,655 
D)  none of the above 
A)  $68,931 
B)  $63,510 
C)  $69,655 
D)  none of the above

Question 13

Cash flows from operations are the net cash flows that support a firm's principal business activities.

Accepted Answer

A) True 
 B)False

Question 14

The cost principle states that an asset should be recognized on the balance sheet at

Accepted Answer

A)  the market value of the asset. 
B)  at the market value less the accumulated depreciation on the asset. 
C)  at its historical cost. 
D)  at its historical cost less the accumulated depreciation on the asset. 
A)  the market value of the asset. 
B)  at the market value less the accumulated depreciation on the asset. 
C)  at its historical cost. 
D)  at its historical cost less the accumulated depreciation on the asset.

Question 15

Chandler Sporting Goods produces baseball and football equipment and lines of clothing. This year the company had cash and marketable securities worth $335,485, accounts payables worth $1,159,357, inventory of $1,651,599, accounts receivables of $1,488,121, short-term notes payable worth $313,663, and other current assets of $121,427. What is the company's net working capital?

Accepted Answer

A)  $3,596,632 
B)  $1,801,784 
C)  $2,123,612 
D)  $1,673,421 
A)  $3,596,632 
B)  $1,801,784 
C)  $2,123,612 
D)  $1,673,421

Question 16

Simplex Healthcare had net income of $5,411,623 after paying taxes at 34 percent. The firm had revenues of $20,433,770. Their interest expense for the year was $1,122,376, while depreciation expense was $2,079,112. What was the firm's operating expenses excluding depreciation?

Accepted Answer

A)  $8,199,429 
B)  $9,032,853 
C)  $9,321,805 
D)  none of the above 
A)  $8,199,429 
B)  $9,032,853 
C)  $9,321,805 
D)  none of the above

Question 17

Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of $ 412,331, and other assets of $7,822. The firm also has current liabilities worth $65,314, long-term debt of $178,334, and common stock of $162,000. How much retained earnings does the firm have?

Accepted Answer

A)  $ 405,648 
B)  $243,648 
C)  $167,918 
D)  $573,566 
A)  $ 405,648 
B)  $243,648 
C)  $167,918 
D)  $573,566

Question 18

Triumph Trading Company provided the following information to its auditors. For the year ended March 31, 2008, the company had revenues of $1,122,878, operating expenses (excluding depreciation and leasing expenses) of $612,663, depreciation expenses of $231,415, leasing expenses of $126,193, and interest expenses equal to $87,125. If the company's tax rate was average 34 percent, what is its net income after taxes?

Accepted Answer

A)  $43,218 
B)  $65,482 
C)  $152,607 
D)  none of the above 
A)  $43,218 
B)  $65,482 
C)  $152,607 
D)  none of the above

Question 19

Clarity Music Company has a marginal tax rate of 34 percent and an average tax rate of 32 percent this year. It is planning to construct a new recording studio next year. The appropriate tax rate to be applied on the income generated from the new studio is

Accepted Answer

A)  the average tax rate. 
B)  the marginal tax rate. 
C)  either one. 
D)  none of the above. 
A)  the average tax rate. 
B)  the marginal tax rate. 
C)  either one. 
D)  none of the above.

Question 20

Accounting standards prescribed by GAAP are important because

Accepted Answer

A)  they make the financial statements of all firms standardized. 
B)  they allow one to examine a firm's performance over time. 
C)  they make it possible for management or analysts to compare the firm's performance to that of other competitors. 
D)  all of the above. 
A)  they make the financial statements of all firms standardized. 
B)  they allow one to examine a firm's performance over time. 
C)  they make it possible for management or analysts to compare the firm's performance to that of other competitors. 
D)  all of the above.

The assumption of arm's-length transaction states that

The balance sheet identity can be stated as Total assets = Total liabilities + Total stockholders' equity.

Which of the following statements is true?

When prices are falling, valuing inventory using the LIFO method rather than FIFO gives

Which one of the following is NOT true for a corporation?

Typical financing activities include cash payments on the principal of long-term debt, cash payments of dividends to shareholders, and cash purchases of treasury stock.

Dell Computer Corporation has receivables of $2.5 million and inventory worth $1.8 million. The firm plans to borrow $2 million for working capital purposes from Austin First National Bank. In evaluating the loan request, the bank should place the most emphasis on

Which of the following best represents cash flows to investors?

Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

Cash flows from operations are the net cash flows that support a firm's principal business activities.

The cost principle states that an asset should be recognized on the balance sheet at

Simplex Healthcare had net income of $5,411,623 after paying taxes at 34 percent. The firm had revenues of $20,433,770. Their interest expense for the year was $1,122,376, while depreciation expense was $2,079,112. What was the firm's operating expenses excluding depreciation?

Clarity Music Company has a marginal tax rate of 34 percent and an average tax rate of 32 percent this year. It is planning to construct a new recording studio next year. The appropriate tax rate to be applied on the income generated from the new studio is

Accounting standards prescribed by GAAP are important because

The Financial Manager and the Company

The Financial System and the Level of Interest Rates

Analysing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Share Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics and Capital Rationing

The Cost of Capital

Working Capital Management

How Companies Raise Capital

Capital Structure Policy

Dividends and Dividend Policy

Business Formation, Growth and Valuation

Strategic Financial Planning and Forecasting

Options and Corporate Finance

International Financial Management

Filters

Exam 3: Financial Statements, Cash Flows and Tax

The assumption of arm's-length transaction states that

The balance sheet identity can be stated as Total assets = Total liabilities + Total stockholders' equity.

Which of the following statements is true?

When prices are falling, valuing inventory using the LIFO method rather than FIFO gives

Which one of the following is NOT true for a corporation?

Typical financing activities include cash payments on the principal of long-term debt, cash payments of dividends to shareholders, and cash purchases of treasury stock.

Dell Computer Corporation has receivables of $2.5 million and inventory worth $1.8 million. The firm plans to borrow $2 million for working capital purposes from Austin First National Bank. In evaluating the loan request, the bank should place the most emphasis on

Which of the following best represents cash flows to investors?

Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

Cash flows from operations are the net cash flows that support a firm's principal business activities.

The cost principle states that an asset should be recognized on the balance sheet at

Simplex Healthcare had net income of $5,411,623 after paying taxes at 34 percent. The firm had revenues of $20,433,770. Their interest expense for the year was $1,122,376, while depreciation expense was $2,079,112. What was the firm's operating expenses excluding depreciation?

Clarity Music Company has a marginal tax rate of 34 percent and an average tax rate of 32 percent this year. It is planning to construct a new recording studio next year. The appropriate tax rate to be applied on the income generated from the new studio is

Accounting standards prescribed by GAAP are important because

The Financial Manager and the Company

The Financial System and the Level of Interest Rates

Analysing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Share Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics and Capital Rationing

The Cost of Capital

Working Capital Management

How Companies Raise Capital

Capital Structure Policy

Dividends and Dividend Policy

Business Formation, Growth and Valuation

Strategic Financial Planning and Forecasting

Options and Corporate Finance

International Financial Management

Filters