Question 1

Elgin Battery Manufacturers had sales of $1,000,000 in 2009 and their cost of goods sold represented 70 percent of sales. Selling and administrative expenses were 10 percent of sales. Depreciation expense was $100,000 and interest expense for the year was $10,000. The firm's tax rate is 30 percent. What is the dollar amount of taxes paid?

Accepted Answer

A) $30,000 
B) $117,800 
C) $27,000 
D) None of the options

Question 2

Balance sheet items are required to be adjusted for inflation.

Accepted Answer

A) True 
 B)False

Question 3

The investments account includes marketable securities.

Accepted Answer

A) True 
 B)False

Question 4

Asset accounts are listed in order of their liquidity.

Accepted Answer

A) True 
 B)False

Question 5

A firm has $4,000,000 in its common stock account and $10,000,000 in its paid-in capital account. The firm issued 1,000,000 shares of common stock. What is the par value of the common stock?

Accepted Answer

A) $40 per share 
B) $10 per share 
C) $4 per share 
D) $14 per share

Question 6

Reinvested funds from retained earnings theoretically belong to

Accepted Answer

A) bond holders. 
B) common stockholders. 
C) employees. 
D) All of the options

Question 7

Assuming a tax rate of 40%, the after-tax cost of interest expense of $1,000,000 is

Accepted Answer

A) $1,000,000 
B) $140,000 
C) $600,000 
D) $400,000

Question 8

Although depreciation does not provide cash to the firm directly, the fact that it is tax-deductible can provide cash inflow to the company.

Accepted Answer

A) True 
 B)False

Question 9

Net working capital is the difference between current assets and current liabilities.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is an inflow of cash?

Accepted Answer

A) Funds spent in normal business operations 
B) The purchase of a new factory 
C) The sale of the firm's bonds 
D) The retirement of the firm's bonds

Question 11

Which of the following would not be included in the balance sheet investment account?

Accepted Answer

A) Stocks of other corporations 
B) Long-term government bonds 
C) Marketable securities 
D) Investments in other corporations

Question 12

Preferred stock dividends __________ earnings available to common stockholders.

Accepted Answer

A) increase 
B) decrease 
C) do not effect 
D) There is not enough information to determine.

Question 13

Backdating of options is

Accepted Answer

A) A fair method to award top-performing employees. 
B) Illegal. 
C) Not to be reported unless a gain is provided to an employee. 
D) Considered a gift by tax law.

Question 14

Asset accounts on the balance sheet are listed in order of

Accepted Answer

A) liquidity. 
B) profitability. 
C) size. 
D) importance.

Question 15

Which of the following would represent a source of funds and, indirectly, an increase in cash balances?

Accepted Answer

A) A reduction in accounts receivable 
B) The repurchase of shares of the firm's stock 
C) A decrease in net income 
D) A reduction in notes payable

Question 16

The firm's price-earnings (P/E) ratio is influenced by its

Accepted Answer

A) capital structure. 
B) earnings volatility. 
C) sales, profit margins, and earnings. 
D) All of the options

Question 17

Free cash flow is equal to cash flow from operating activities

Accepted Answer

A) plus capital expenditures, minus dividends. 
B) minus capital expenditures, plus dividends. 
C) plus capital expenditures, plus dividends. 
D) minus capital expenditures, minus dividends.

Question 18

Density Farms Inc. had sales of $750,000, cost of goods sold of $200,000, selling and administrative expense of $70,000, and operating profit of $150,000. What was the value of depreciation expense?

Accepted Answer

A) $150,000 
B) $230,000 
C) $330,000 
D) None of the options

Question 19

Book value is equal to net worth.

Accepted Answer

A) True 
 B)False

Question 20

ElectroWizard Company produces a popular video game called Destructo, which sells for $65. Last year ElectroWizard sold 100,000 Destructo games, each of which costs $10 to produce. ElectroWizard incurred selling and administrative expenses of $200,000 and a depreciation expense of $100,000. In addition, ElectroWizard has a $1,000,000 loan outstanding at 8%. Their tax rate is 40%. There are 400,000 common shares outstanding.
Prepare an income statement for ElectroWizard in good form (include EPS).

Accepted Answer

The answer of ElectroWizard Company produces a popular video game...

Exam 2: Review of Accounting

Balance sheet items are required to be adjusted for inflation.

The investments account includes marketable securities.

Asset accounts are listed in order of their liquidity.

A firm has $4,000,000 in its common stock account and $10,000,000 in its paid-in capital account. The firm issued 1,000,000 shares of common stock. What is the par value of the common stock?

Reinvested funds from retained earnings theoretically belong to

Assuming a tax rate of 40%, the after-tax cost of interest expense of $1,000,000 is

Although depreciation does not provide cash to the firm directly, the fact that it is tax-deductible can provide cash inflow to the company.

Net working capital is the difference between current assets and current liabilities.

Which of the following is an inflow of cash?

Which of the following would not be included in the balance sheet investment account?

Preferred stock dividends __________ earnings available to common stockholders.

Backdating of options is

Asset accounts on the balance sheet are listed in order of

Which of the following would represent a source of funds and, indirectly, an increase in cash balances?

The firm's price-earnings (P/E) ratio is influenced by its

Free cash flow is equal to cash flow from operating activities

Density Farms Inc. had sales of $750,000, cost of goods sold of $200,000, selling and administrative expense of $70,000, and operating profit of $150,000. What was the value of depreciation expense?

Book value is equal to net worth.