Deck 2: Financial Statements, Taxes, and Cash Flow

Question 1

Earnings per share represent:

A)the gross revenues of a firm divided by the number of outstanding shares
B)the net cash flow available per share
C)the amount of net income attributable to each share
D)the current book value of a firm on a per share basis
E)the daily increase in the value of one share in the firm

Answer 1

the amount of net income attributable to each share

Question 2

Liquidity is best defined as:

A)the ability to access the cash balances of a firm on a daily basis
B)the option of a firm to sell its inventory at a greatly reduced price
C)the ability of a firm to sell its fixed assets quickly by greatly reducing the price
D)the market value of an asset minus the book value of that same asset
E)the ease and speed with which an asset can be converted to cash

Answer 2

the ease and speed with which an asset can be converted to cash

Question 3

The Whitehorse Bookshop Company has non-current assets with a book value of $8000 dollars and an appraised market value of $15 000.Net working capital is $5000 on the books,but if liquidated about $7000 would be realised.The company has recently issued 100 long-term maturity debentures with a face value of $100 each.Current market price of one debenture is equal to $100.What is the book value of the equity?

A)$3000
B)$5000
C)$12 000
D)$13 000
E)$10 000

Answer 3

$3000

Question 4

Long-term debt can be computed by:

A)adding net working capital to total fixed assets and then subtracting owners' equity
B)subtracting owners' equity from total assets
C)subtracting net working capital from total assets
D)adding current liabilities to total assets and subtracting owners' equity
E)subtracting net working capital from total liabilities

Question 5

Cash flow to creditors (debtholders)is defined as:

A)dividends paid out less net new equity raised
B)net profit after tax less retained earnings
C)interest paid less net new borrowings
D)interest paid plus net new borrowings
E)dividends paid plus net new equity raised

Question 6

Westerman Inc.started the financial year 2009 with $1968 in current assets and $1348 in current liabilities.The corresponding ending figures were $1992 and $1350.What was the addition to net working capital during the year 2009?

A)$22
B)$24
C)$2
D)$28
E)$620

Question 7

Pollack Ltd had 10 million shares outstanding at the end of 2009.The company's earnings before interest and tax,at the end of 2009,were $50 million.The company had to pay interest of $15 million and corporate tax of $7 million (20% corporate tax rate).What was EPS (earnings per share)of the company at the end of the year 2009?

A)$5
B)$4.50
C)$1.18
D)$3.50
E)$2.80

Question 8

The Whitehorse Bookshop Company has non-current assets with a book value of $8000 dollars and an appraised market value of $15 000.Net working capital is $5000 on the books,but if liquidated about $7000 would be realised.The company has recently issued 100 long-term maturity debentures with a face value of $100 each.Current market price of one debenture is equal to $100.What is the market value of the equity?

A)$8000
B)$10 000
C)$12 000
D)$7000
E)$9500

Question 9

A tangible asset:

A)is defined as any asset which adds value to a firm
B)by definition includes both equipment and patents
C)is another term for a fixed asset
D)is defined as an asset with a market value that exceeds the book value
E)is a fixed asset with a physical existence

Question 10

An intangible asset is:

A)a valuable fixed asset that has no physical existence
B)a physical fixed asset that loses value over time,such as equipment
C)a fully-depreciated fixed asset which has no remaining market value
D)a current asset with a negligible book value but considerable market value
E)a current asset with minimal market value and no physical existence

Question 11

Shareholders' equity can be defined as:

A)total assets plus total liabilities
B)the market value of a firm's assets
C)fixed assets minus long-term debt minus net working capital
D)the residual value of a corporation after all debts have been paid
E)the cash flow from assets minus the cash flow to creditors

Question 12

The accounting statement which measures the revenues,expenses,and net income of a firm over a period of time is called the:

A)statement of cash flows
B)income statement
C)AAS statement
D)balance sheet
E)net working capital schedule

Question 13

Which one of the following will increase the cash flow from assets,all else constant?

A)a decrease in net capital spending
B)a decrease in the cash flow to creditors
C)a decrease in the annual depreciation
D)an increase in the change in net working capital
E)an increase in the net new equity raised

Question 14

The market value of land is equal to:

A)the anticipated selling price if the land were sold today
B)the cost of the land at the time the current owner acquired it
C)the initial cost plus the value of all improvements added
D)the book value as recorded on the latest financial statement
E)the historical cost adjusted for annual depreciation

Question 15

The book value of an asset is equal to:

A)the initial cost less depreciation plus interest earned.
B)the initial cost plus depreciation minus the interest charges
C)the initial cost minus the depreciation to date
D)the higher of the original cost or the current market value
E)the lower of the original cost or the current market value

Question 16

The cash generated from a firm's day-to-day activities is referred to as:

A)the cash flow from assets
B)the net working capital
C)the marginal cash flow
D)the operating cash flow
E)the net capital cash flow

Question 17

A fixed asset by definition:

A)has a relatively long life
B)has a life of one year or more and is a tangible asset
C)includes both highly liquid assets and intangible assets
D)is equal to total assets minus net working capital
E)converts to cash within one year

Question 18

A current asset is defined as an asset that:

A)was purchased after the last financial statement date
B)was purchased within the past twelve months
C)normally converts to cash within one year
D)was manufactured within the past year and has yet to be sold
E)is highly illiquid

Question 19

The cash flow from assets can be defined as:

A)the cash available to distribute to the creditors and to the stockholders
B)the cash flow to creditors minus the cash flow to stockholders
C)the net income plus depreciation plus the interest expense
D)the net income minus the change in net working capital
E)the net income minus the net capital spending minus the change in net working capital

Question 20

Which one of the following is a current asset?

A)inventory
B)equipment
C)land
D)patent
E)building

Question 21

Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?

A)average tax rate
B)variable tax rate
C)marginal tax rate
D)absolute tax rate
E)contingent tax rate

Question 22

Which one of the following has nearly the same meaning as free cash flow?

A)net income
B)cash flow from assets
C)operating cash flow
D)cash flow to shareholders
E)addition to retained earnings

Question 23

Which one of the following statements related to the income statement is correct?

A)Depreciation has no effect on taxes.
B)Interest paid is a noncash item.
C)Taxable income must be a positive value.
D)Net income is distributed either to dividends or retained earnings.
E)Taxable income plus interest and depreciation equals earnings before interest and taxes.

Question 24

Which one of the following will increase the cash flow from assets for a tax-paying firm,all else constant?

A)an increase in net capital spending
B)a decrease in the cash flow to creditors
C)an increase in depreciation
D)an increase in the change in net working capital
E)a decrease in dividends paid

Question 25

Use the following tax table to answer this question:
Bait and Tackle has taxable income of $411 562.How much does it owe in taxes?

A)$128 603.33
B)$134 611.27
C)$138 542.79
D)$139 931.08
E)$141 354.82

Question 26

Operating cash flow is defined as:

A)a firm's net profit over a specified period of time
B)the cash that a firm generates from its day-to-day activities
C)a firm's operating margin
D)the change in net working capital over a stated period of time
E)the cash that is generated and added to retained earnings

Question 27

An increase in which one of the following will increase operating cash flow for a profitable,tax-paying firm?

A)fixed expenses
B)interest paid
C)net capital spending
D)inventory
E)depreciation

Question 28

Keyser Materials paid $7500 in dividends and $28 311 in interest over the past year while net working capital increased from $13 506 to $18 219.The company purchased $42 000 in net new fixed assets and had depreciation expenses of
$16 805.During the year,the firm issued $25 000 in net new equity and paid off
$11 000 in long-term debt.What is the amount of the cash flow from assets?

A)$21 811
B)$30 811
C)$36 189
D)$49 811
E)$71 811

Question 29

Depreciation does which one of the following for a profitable firm?

A)increases net income
B)increases net fixed assets
C)decreases net working capital
D)lowers taxes
E)has no effect on net income

Question 30

Cash flow from assets is defined as:

A)the cash flow to shareholders minus the cash flow to creditors
B)operating cash flow plus the cash flow to creditors plus the cash flow to shareholders
C)operating cash flow minus the change in net working capital minus net capital spending
D)operating cash flow plus net capital spending plus the change in net working capital
E)cash flow to shareholders minus net capital spending plus the change in net working capital

Question 31

William Blue Pty Ltd has sales of $1600 for the financial year ended 30 June 2010.The associated cost of goods sold is $800.The depreciation charge for the year is $50 and interest paid was $80.If the average tax rate is 30% what is the net income for the year?

A)$201
B)$670
C)$469
D)$750
E)$504

Question 32

Cash flow to shareholders is defined as:

A)cash flow from assets plus cash flow to creditors
B)operating cash flow minus cash flow to creditors
C)dividends paid plus the change in retained earnings
D)dividends paid minus net new equity raised
E)net income minus the addition to retained earnings

Question 33

The concept of marginal taxation is best exemplified by which one of the following?

A)Kirby's paid $120 000 in taxes while its primary competitor only paid $80 000 in taxes.
B)Johnson's Retreat only paid $45 000 on total revenue of $570 000 last year.
C)Mitchell's Grocer increased its profit before tax by $52 000 last year and had to pay an additional $16 000 in taxes.
D)Burlington Centre paid no taxes last year due to carry-forward losses.
E)The Blue Moon paid $2.20 in taxes for every $10 of revenue last year.

Question 34

Caldweiler & Co.owes a total of $21 684 in taxes for this year.The taxable income is $71 509.If the firm earns $100 more in income,it will owe an additional $36 in taxes.What is the average tax rate on income of $71 609?

A)28.00 per cent
B)30.33 per cent
C)33.33 per cent
D)34.00 per cent
E)36.00 per cent

Question 35

The Embroidery Shop Pty Ltd had beginning retained earnings of $18 670.During the year,the company reported sales of $83 490,costs of $68 407,depreciation of $8200,dividends of $950,and interest paid of $478.The tax rate is 35 per cent.What is the retained earnings balance at the end of the year?

A)$21 883.25
B)$22 193.95
C)$22 833.24
D)$23 783.24
E)$30 393.95

Question 36

An increase in which of the following will increase net income?

A)fixed costs
B)depreciation
C)marginal tax rate
D)revenue
E)dividends

Question 37

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

A)average tax rate
B)variable tax rate
C)marginal tax rate
D)absolute tax rate
E)contingent tax rate

Question 38

The Good Life Store has sales of $79 600.The cost of goods sold is $48 200 and the other costs are $18 700.Depreciation is $8300 and the tax rate is 34 per cent.What is the net income?

A)$2904
B)$8382
C)$11 204
D)$14 660
E)$16 682

Question 39

Jones Brothers Farm Equipment owes $48 329 in tax on a taxable income of
$549 600.The company has determined that it will owe $56 211 in tax if its taxable income rises to $575 000.What is the marginal tax rate at this level of income?

A)29.08 per cent
B)30.00 per cent
C)30.67 per cent
D)31.03 per cent
E)32.00 per cent

Question 40

Paddle Fans & More has a marginal tax rate of 34 per cent and an average tax rate of 23.7 per cent.If the firm earns $138 500 in taxable income,how much will it owe in taxes?

A)$31 366.67
B)$31 500.00
C)$32 824.50
D)$39 957.25
E)$47 090.00

Question 41

Delivery trucks are classified as:

A)noncash expenses
B)current liabilities
C)current assets
D)tangible fixed assets
E)intangible fixed assets

Question 42

William Blue Pty Ltd has sales of $1600 for the financial year ended 30 June 2010.The associated cost of goods sold is $800.The depreciation charge for the year is $50 and interest paid was $80.If the average tax rate is 30% what is EBIT for the year?

A)$201
B)$670
C)$469
D)$750
E)$504

Question 43

The Plaza Cafe has an operating cash flow of $78 460,a depreciation expense of $8960,and taxes paid of $21 590.A partial listing of its balance sheet accounts is as follows:
What is the amount of the cash flow from assets?

A)$58 913
B)$61 246
C)$61 487
D)$63 909
E)$64 128

Question 44

The Manly Manufacturing Company Pty Ltd has net sales of $821 300 and costs of $698 500.The depreciation expense is $28 400 and the interest paid is $8400.What is the amount of the firm's operating cash flow if the tax rate is 30 per cent?

A)$99 520
B)$94 400
C)$94 480
D)$97 000
E)$95 240

Question 45

Bondi Beachwear Pty Ltd has 50 000 shares outstanding.The company's net profit for the year was $253 000.The company paid $75 000 in total dividends during the year.What was the dividend per share?

A)$5.06
B)$3.56
C)$1.50
D)$1.05
E)$3.65

Question 46

Which of the following is an intangible fixed asset?

A)inventory
B)delivery truck
C)patents
D)accounts receivable
E)buildings

Question 47

The dividend imputation system in Australia and New Zealand ensures that:______

A)both company profits and dividends received by shareholders are always taxed at the average rate
B)company profits and dividends received by shareholders are taxed at the same rate
C)if a company pays a dividend out of after-tax profits domestic shareholders who receive this dividend receive a tax credit.
D)Australian resident shareholders do not pay tax on dividends received
E)Australian and New Zealand companies do not pay corporate tax

Question 48

Bondi Beachwear Pty Ltd has 50 000 shares outstanding.The company's EBIT for 2010 is $350 000 after charging depreciation of $25 000.Interest expense for the year is $75 000 and the company tax rate is 30%.What is the EPS for 2010?

A)$7.00
B)$3.85
C)$3.50
D)$5.50
E)$3.58

Question 49

The balance sheet of a firm shows beginning net fixed assets of $348 200 and ending net fixed assets of $371 920.The depreciation expense for the year is $46 080 and the interest expense is $11 460.What is the amount of net capital spending?

A)-$22 360
B)-$4780
C)$23 720
D)$58 340
E)$69 800