Review Questions on Financial Planning Essay

A company reports beginning of year retained earnings of $800,000, net income for the year of dividends paid in the current year to S of year retained earnings number? * 000. What will be the end 52. A company has ending retained earnings of $1,285,000 and sold $50,000 of stock during the year. What would its beginning retained earnings balance have been? * 1,285,000 since proceeds from the sale of shares doesn’t effect R/E. 53. A company has beginning shareholder’s equity of $900,000. Common stock at the beginning of the year is $210,000, and beginning retained earnings is $200,000 ND the company sold $110,000 of stock during the year.

In addition, net income for the year is $190,000 and dividends of $45,000 are paid. What is the ending shareholder’s equity value? * 1 55,000 54. A firm reports beginning retained earnings of $295,000. If the firm reports net income of $185,000 for the year and end of year retained earnings of $416,000, how much did it pay out in dividends to shareholders? * 416,OOH; 64,000 55. Beginning owners equity is $415,000, beginning retained earnings are $295,000, net income for the year is $185,000 and dividends paid total $64,000. What will the ending owner’s equity number be? 41 Questions 5,6,7 15.

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Which of the following would cause a decrease in cash: a. I Lengthening the time it takes to collect receivables from 15 to 30 days. I b. I Selling fixed assets for more than book value I c. I An increase in accrued salaries expense I d. I Paying suppliers in 60 days versus 45 days I 43. Cash dividends paid would be shown in the operating activities section of the statement of cash flows True or false? 44. An increase in accounts receivable would be a source of cash on the statement of cash flows 45. Depreciation for the year appears in the operating activities section of the 46.

An increase in accounts payable will appear in the operating activities section of the statement of cash flows 47. A decrease in accruals will be shown as a source to cash cash flows the statement to 48. Selling shares of stock is a source of cash that appears in the financing True of false? 56. Repurchasing shares of stock is a source of cash whereas issuing new shares is a use of cash. 57. Dividend payments reduce a firm’s retained earnings. Question 8- block notes You will be provided a number of transactions (sold stock, reduced inventory, etc. ) and asked what net cash flow is.

You will take the information ND put it in Statement of Cash Flows form to determine the answer Question 9 12. The net book value of an asset is a. I Original cost less the current year’s depreciation expense. I b. I Original cost less accumulated depreciation. C. I Current market value of the asset less associated selling expense. I d. I Current market value of the asset. I Use the following information for questions 58, 59 and 60. A company paid $340,000 for equipment, and $160,000 in depreciation deductions have been taken to date. The equipment is currently being sold for $120,000.

The company’s tax rate is 35%. 58. Is there a gain or loss on the sale of equipment? * Cost – accumulated depreciation = book = 340,000- 180,000. Selling price less than book, thus loss on sale 59. How much is the gain or loss on sale and how much in tax is paid or saved? * = sale price – book = 120,000 – 180,000 = taxes saved = * . 35 = 21,000 60. What is the total after-tax cash on sale of the equipment? * Sale price plus taxes saved or minus taxes paid = $120,000 + $21,000 = $141 ,OHO. Question 10 The following balance sheet components are to be used in answering questions 21 through 26.

L Long-term debt 10,000 | A Inventory | 12,000 | E Retained earnings | 37,000 | Gross fixed assets | 28,000 | L Accounts payable | 8,000 | E Additional paid in capital | 14,000 | E Common Stock | 11,000 | L Accruals | 1,500 | *A Goodwill | 31,500 | Accumulated depreciation | 6,000 A Accounts receivable | 14,000 | a. | $14,500 b. | $2,500 | c. | $18,500 d. | $12,500 21. What is the firm’s net working capital? * current Assets – current Liabilities: $2,000 + $14,000 + $12,000 – $8,000 – $1,500 – $18,500 b. D. 22. What is the firm’s working capital? 28,000 $26,000 $14,000 * sum current assets: $2,000 + $12,000 + $14,000 = $28,000 Use the following information for questions 36 through 42 Balance Sheet for 2008 | I Accounts Payable | 35 | Accounts Receivable | 65 | Accruals 130 1 Accumulated Depreciation | -175 Additional Paid-Len Capital (EPIC) | 20 cash 135 1 Common Stock | 100 | Fixed Assets (gross) | 390 | Inventory | 135 | Long Term Debt | 200 | Retained Earnings | 65 | 36. What is this firm’s Total current assets? 37. What is this firm’s net working capital? NAS?. $170 39. What is this firm’s working capital?

NAS? $235 Question 1 1 18. Weasel Corp.. Plans to sell 1,000 units in 2008 at an average sale price of $45 each. Cost of goods sold will be 40% of the sale price. Depreciation expense will be $3,000, interest expense $2,500, and other expenses will be $4,000. Weasel’s tax rate is 20%. What will Weasel Corps’s net income be for 2008? A. I $3,500 | b. | $6,800 | c. | $14,000 | d. | $16,400 | e. I $4,000) (1 – | 20. A firm reports EBITDA of $900,000, and pays out $200,000 in cash dividends to shareholders. In addition, interest expense is $70,000, and depreciation is $90,000.

If the firm pays taxes at 38%, what is net income? EBITDA – DAD = $810,000 – I = BIT of $740,000 – tax of $281,200 = IN of $458,800. Dividend payments are not a tax deductible expense. Use the following information for questions 30 through 35 Cost of Goods Sold | 330 | Depreciation Expense | 35 | Interest Expense | 20 | Operating Expense (excluding depreciation) | 115 | Sales or Revenuer 600 | Tax Expense @ rate I 31. What this firms EBITDA? NAS? $155 32. What this firms BIT? NAS? $120 33. What this firms EST? NAS? $100 34. What is this firm’s tax liability? NAS? 40 35. What is this firm’s net income (N’) or earnings after taxes (EAT)? Question 12 23. What is the firm’s owner’s equity? $11,000 $37,000 $62,000 sum the equity accounts: $37,000 + $14,000 + $11,000 = $62,000 27. The following scrambled items are components off traditional balance sheet. How much is the total equity of the firm? Long-term debt | $12,000 | Common stock | 15,000 | Accounts payable | 8,000 | Additional paid in capital | 6,000 Accrued interest payable | 1,500 Plant and equipment | 60,000 | Retained earnings | 28,000 | Accounts receivable | 22,000 | a. $62,500 | b. | $49,000 | c. | $93,000 | d. I $97,added the three equity accounts: $15,000 + $6,000 + $28,000 = $49,000 Add the the I 38. What is this firm’s owner’s equity? NAS? $185 65+ 100+ EPIC 185 Question 13 3. Assume a firm has inventory of $25,000, sales of $250,000, gross profit of $100,000, and net income of $25,000. The preferred formulation for an inventory turnover results in an inventory turn of: a. | 1 time I b. | 10 times sales-GAP= COGS; COGS/Lenore Invent. CIO I c. | 4 times I d. | 6 times 250-100=150 co?¬s; | 12.

If accounts receivable are $26,000, its average collection period is (use a 365 day year) * = 94. 9 days 13. If inventory is $11,000, inventory turnover is * = 7. XX 14. What are days sales in inventory, referring to question 13 = 50. 2 days, or, using no. 13: 365/7. 3 = 50 days * 365/ Use the following information to answer questions 16 through 25 Use the information the table below tort Canton Inc. O answer questions 4 and 5. Financial 2005 | 2006 12007 1 Average collection period (days) | 35 | 37 Debt/equity ratio . 60 | . 70 | . 75 | Current ratio | 1. 6 | 1. 8 | 1. 9 | Times interest earned | 3. | 6. 5 | 8. 2 | Inventory turnover | 5. 2 | 6. 1 | 6. 3 | Total asset turnover | 1. 5 | 1. 7 | 1. 8 | Cash coverage | 4. 0 | 7. 2 | 7. 8 | Return on Equity | | | Debt to total assets | . 3 | . 4 | . 6 | Return on sales | 4% | 3% | 2% | 1391 16. Assuming sales are the same every year, the company’s level of accounts receivable is lower now than two years ago * Level would be higher, since taking longer to collect 8. The company is collecting its receivables faster over the past two years * is collecting receivables more slowly, as shown the increase in average collection period 23.

The firm’s days sales in inventory has increased over the three years shown * False?inventory turns have increased, which meaner days sales in inventory has declined (from 70 days to 58 days) 24. If the industry norm for receivables is collection in 40 days, this firm is doing well, but less well over time Use the following information for questions 26 through 40

Retained Earnings | 115 | Total Equity | 345 | Total Liabilities and Equity | 660 | 27. What is the Average Collection Period for Urge ? * 46. 11 (AIR)/BAG daily credit sale 32. What is Urge Inc. ‘s Inventory Turnover (at cost) Ratio? * 2. 33 COGS/elementary 35. How many days sales does Urge have in inventory at cost? * 156. 65 365/ Inventory turns 44. If accounts receivable increase, all other things equal, the current ratio will decrease * assets will increase the current ratio False?more current 45. If a firm increases its inventory, all other things equal, its days’ sales in inventory will increase *

True?more inventory meaner a lower number of turns, which meaner a greater number of days’ sales in inventory 50. Inventory turnover should be higher for companies selling high technology products than if they sold hammers * True?high tech inventory runs a greater risk of declining in value and should be turned faster Question 14 1. The quick ratio is the same as current ratio except it does not consider a. I cash I b. I accounts receivable I c. I prepaid items I d. I inventories I 2. The ratio group most likely to be used to indicate a firm’s ability to meet short-term financial obligations would be a.

I liquidity ratios I b. I financial leverage ratios I c. I activity ratios I d. I profitability ratios I 26. What is Arguer’s current ratio? * 6. 82 current assets/current liabilities 28 What is the quick ratio tort Urge’ * 3. 00 (current assets-inventory)/current liabilities 33. What is the cash coverage ratio for Urge? * 6. 29 EBITDA/lintiest expense Questions 41 – 50 are true false to test your understanding of the concepts in this chapter 41. Cash coverage is a liquidity ratio False?it’s an interest coverage ratio 43. A business is more liquid if its current ratio is higher rather than lower.