FIN 310 Exam 1 Review (Ch. 2)

Arredondo, Inc., has current assets of 1,566, net fixed assets of 9500, current liabilities of 1360, and LT of debt of 4000. What is the value of the shareholders' equity account for this firm? 

5,706

Rondo, Inc., has current assets of 2,033, net fixed assets of 9500, current liabilities of 1360, and LT of debt of 4000. What is its Net Working Capital balance? 

673

Which one of the following statements concerning the balance sheet is correct?

1. Assets are listed in descending order of liquidity.

2. Net working capital is equal total assets minus total liabilities.

3. Total assets equal total liabilities minus total equity.

4. Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt.

5. Current assets are equal to total assets minus net working capital.

Assets are listed in descending order of liquidity.

Roscoe's purchased new machinery three years ago for $1.8 million. The machinery can be sold to Stewart's today for $1.2 million. Roscoe's current balance sheet shows net fixed assets of $960,000, current liabilities of $348,000, and net working capital of $121,000. If all the current assets were liquidated today, the company would receive $518,000 cash. The book value of the firm's assets today is _____ and the market value is _____.

Book value = $960,000 + $348,000 + $121,000 = $1,429,000
Market value = $1,200,000 + $518,000 = $1,718,000
EOC #: 2.5

Which one of the following statements is correct?

1. Net working capital must be a positive value.

2. Depreciation increases total assets.

3. Shareholders' equity is the residual value of a firm.

4. An increase in cash reduces the liquidity of a firm.

5. Equipment is generally considered a highly liquid asset.

Shareholders' equity is the residual value of a firm.

Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out $16,500 in dividends. What is the addition to retained earnings?

Addition to retained earnings = [($318,400 - $199,400 - $28,600 - $1,100)(1 - 0.34)] - $16,500 = $42,438
EOC #: 2.3

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

Average tax rate

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

Marginal tax rate

Firms that compile financial statements according to GAAP:

can still manipulate their earnings to some degree.

Daniel's Market has sales of $36,600, costs of $28,400, depreciation expense of $3,100, and interest expense of $1,500. If the tax rate is 34 percent, what is the operating cash flow, OCF?

EBIT = $36,600 - $28,400 - $3,100 = $5,100
Tax = ($5,100 - $1,500) × 0.34 = $1,224
OCF = $5,100 + $3,100 - $1,224 = $6,976
EOC #: 2.8

The Play House's December 31, 2009 balance sheet showed net fixed assets of $1,238,000 and the December 31, 2010 balance sheet showed net fixed assets of $1,416,000. The company's 2010 income statement showed a depreciation expense of $214,600. What was the firm's net capital spending for 2010?

Net capital spending = $1,416,000 - $1,238,000 + $214,600 = $392,600
EOC #: 2.9

Andre's Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?

Change in net working capital = ($82,600 - $85,100) − ($67,200 − $71,100) = $1,400

Which one of the following relates to a negative change in net working capital?

Increase in current liabilities with no change in current assets for the period

Precision Manufacturing had the following operating results for 2010: sales = $38,900; cost of goods sold = $24,600; depreciation expense = $1,700; interest expense = $1,400; dividends paid = $1,000. At the beginning of the year, net fixed assets were $14,300, current assets were $8,700, and current liabilities were $6,600. At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400. The tax rate for 2010 was 34 percent. What is the cash flow from assets for 2010?

OCF = [($38,900 - $24,600 - $1,700 - $1,400) (1 - 0.34)] + $1,700 + $1,400 = $10,492
CFA = $10,492 - ($13,900 - $14,300 + $1,700) - [(($9,200 - $7,400) - $8,700 - $6,600)] = $9,492
EOC #: 2.21

If a firm has a negative cash flow from assets every year for several years, the firm:

may be continually increasing in size.

Which one of the following will increase cash flow from assets but not affect the operating cash flow?

Sale of a fixed asset

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?

Positive cash flow from assets