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Exam 2: Reviewing Financial Statements

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Question 41

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Corporate Taxes Scuba,Inc.is concerned about the taxes paid by the company in 2013.In addition to $5 million of taxable income,the firm received $80,000 of interest on state-issued bonds and $500,000 of dividends on common stock it owns in Boating Adventures,Inc.What are Scuba's tax liability,average tax rate,and marginal tax rate,respectively?

A) $1,637,100, 31.79%, 34%
B) $1,751,000, 34.00%, 34%
C) $1,870,000, 34.00%, 34%
D) $1,983,900, 36.07%, 34%

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Question 42

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Free Cash Flow The 2013 income statement for Paige's Purses shows that depreciation expense is $10 million,EBIT is $25 million,EBT is $15 million,and the tax rate is 30 percent.At the beginning of the year,the balance of gross fixed assets was $80 million and net operating working capital was $30 million.At the end of the year gross fixed assets was $100 million.Paige's free cash flow for the year was $20 million.What is their end of year balance for net operating working capital?

A) $10.5 million
B) $14 million
C) $20.5 million
D) $30.5 million

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Question 43

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The CEO of Tom and Sue's wants the company to earn a net income of $3.25 million in 2014.Cost of goods sold is expected to be 60 percent of net sales,depreciation expense is $2.9 million,interest expense is expected to increase to $1.050 million,and the firm's tax rate will be 30 percent.Calculate the net sales needed to produce net income of $3.25 million.

Statement of Cash Flows In 2013,Upper Crust had cash flows from investing activities of ($250,000) and cash flows from financing activities of ($150,000) .The balance in the firm's cash account was $90,000 at the beginning of 2013 and $105,000 at the end of the year.What was Upper Crust's cash flow from operations for 2013?

Income Statement You have been given the following information for Ross's Rocket Corp.: Net sales = $1,000,000; Gross profit = $400,000; Addition to retained earnings = $60,000; Dividends paid to preferred and common stockholders = $90,000; Depreciation expense = $50,000. The firm's tax rate is 40 percent.What are the cost of goods sold and the interest expense for Ross's Rocket Corp.?

Balance Sheet Jack and Jill Corporation's year-end 2013 balance sheet lists current assets of $250,000,fixed assets of $800,000,current liabilities of $195,000,and long-term debt of $300,000.What is Jack and Jill's total stockholders' equity?

What are free cash flows for a firm? What does it mean when a firm's free cash flow is negative?

Which of the following is NOT a source of cash?

Deferred taxes occur when a company postpones taxes on profits pertaining to:

Market Value versus Book Value Glo's Glasses balance sheet lists net fixed assets as $20 million.The fixed assets could currently be sold for $25 million.Glo's current balance sheet shows current liabilities of $7 million and net working capital of $3 million.If all the current accounts were liquidated today,the company would receive $9 million cash after paying $7 million in liabilities.What is the book value of Glo's assets today? What is the market value of these assets?

In 2014,Usher Sports Shop had cash flows from investing activities of ($2,150,000) and cash flows from financing activities of ($3,219,000) .The balance in the firm's cash account was $980,000 at the beginning of 2014 and $1,025,000 at the end of the year.Calculate Usher Sports Shop's cash flow from operations for 2014.

Free cash flow is defined as:

Lemmon Inc.lists fixed assets of $100 on its balance sheet.The firm's fixed assets have recently been appraised at $140.The firm's balance sheet also lists current assets at $15.Current assets were appraised at $16.50.Current liabilities book and market values stand at $12 and the firm's long-term debt is $40.Calculate the market value of the firm's stockholders' equity.

Corporate Taxes Eccentricity,Inc.had $300,000 in 2013 taxable income.Using the tax schedule from Table 2-3,what are the company's 2013 income taxes,average tax rate,and marginal tax rate,respectively?

Ed's Tobacco Shop has total assets of $100 million.Fifty percent of these assets are financed with debt of which $37 million is current liabilities.The firm has no preferred stock but the balance in common stock and paid-in surplus is $32 million.Using this information what is the balance for long-term debt and retained earnings on Ed's Tobacco Shop's balance sheet?

Income Statement You have been given the following information for Nicole's Neckties Corp.: Net sales = $2,500,000; Cost of goods sold = $1,300,000; Addition to retained earnings = $30,000; Dividends paid to preferred and common stockholders = $300,000; Interest expense = $50,000. The firm's tax rate is 40 percent.What is the depreciation expense for Nicole's Neckties Corp.?

Free Cash Flow Catering Corp.reported free cash flows for 2013 of $8 million and investment in operating capital of $2 million.Catering listed $1 million in depreciation expense and $2 million in taxes on its 2008 income statement.What was Catering's 2013 EBIT?

Tater and Pepper Corp.reported free cash flows for 2013 of $20 million and investment in operating capital of $15 million.Tater and Pepper listed $8 million in depreciation expense and $12 million in taxes on its 2010 income statement.Calculate Tater and Pepper's 2013 EBIT.

Statement of Retained Earnings Night Scapes,Corp.began the year 2013 with $10 million in retained earnings.The firm suffered a net loss of $2 million in 2013 and yet paid $2 million to its preferred stockholders and $1 million to its common stockholders.What is the year-end 2013 balance in retained earnings for Night Scapes?

On which of the four major financial statements would you find the increase in inventory?