Question 1

Net operating working capital is equal to operating current assets minus operating current liabilities.

Accepted Answer

A) True 
 B)False

Question 2

Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Accepted Answer

A)  The company issued new long-term debt.
B)  The company cut its dividend.
C)  The company made a large investment in a profitable new plant.
D)  The company sold a division and received cash in return.
E)  The company issued new common stock.F) B) and E)
G) None of the above

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)  If a company pays more in dividends than it generates in net income, its retained earnings as reported on the balance sheet will decline from the previous year's balance.
B)  Dividends paid reduce the net income that is reported on a company's income statement.
C)  If a company uses some of its bank deposits to buy short-term, highly liquid marketable securities, this will cause a decline in its current assets as shown on the balance sheet.
D)  If a company issues new long-term bonds during the current year, this will increase its reported current liabilities at the end of the year.
E)  Accounts receivable are reported as a current liability on the balance sheet.F) B) and E)
G) B) and C)

Question 4

Which of the following would be most likely to occur in the year after Congress,in an effort to increase tax revenue,passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales,other operating costs,and tax rates are not affected,and assume that the same depreciation method is used for tax and stockholder reporting purposes.

Accepted Answer

A)  Companies' reported net incomes would decline.
B)  Companies' net operating profits after taxes (NOPAT)  would decline.
C)  Companies' physical stocks of fixed assets would increase.
D)  Companies' net cash flows would increase.
E)  Companies' cash positions would decline.F) None of the above
G) B) and C)

Question 5

Assets other than cash are expected to produce cash over time,but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

Accepted Answer

A) True 
 B)False

Question 6

For managerial purposes,i.e.,making decisions regarding the firm's operations,the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations.Related to these modifications,which of the following statements is CORRECT?

Accepted Answer

A)  The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
B)  The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units.
C)  The standard statements provide useful information on the firm's individual operating units, but management needs more information on the firm's overall operations than the standard statements provide.
D)  The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.
E)  The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm. Thus, under GAAP, there is no room for accountants to "adjust" the results to make earnings look better.F) A) and E)
G) None of the above

Question 7

The interest and dividends paid by a corporation are considered to be deductible operating expenses,hence they decrease the firm's tax liability.

Accepted Answer

A) True 
 B)False

Question 8

The annual report contains four basic financial statements: the income statement,balance sheet,statement of cash flows,and statement of stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 9

Below is the common equity section (in millions) of Fethe Industries' last two year-end balance sheets:  20152014 Common stock $2,000$1,000 Retained earnings 2,0002,340 Total common equity $4,000‾$3,340‾\begin{array} { l r r } & 2015 & 2014 \	ext { Common stock } & \$ 2,000 & \$ 1,000 \	ext { Retained earnings } & 2,000 & 2,340 \	ext { Total common equity } &\underline{ \$ 4,000 }& \underline{\$ 3,340}\end{array} Common stock  Retained earnings  Total common equity ​2015$2,0002,000$4,000​​2014$1,0002,340$3,340​​  The company has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

Accepted Answer

A)  The company's net income in 2014 was higher than in 2015.
B)  The company issued common stock in 2015.
C)  The market price of the company's stock doubled in 2015.
D)  The company had positive net income in both 2014 and 2015, but the company's net income in 2014 was lower than it was in 2015.
E)  The company has more equity than debt on its balance sheet. F) A) and D)
G) A) and E)

Question 10

Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow last year,even though the cash on its balance sheet increased?

Accepted Answer

A)  The company repurchased 20% of its common stock.
B)  The company sold a new issue of bonds.
C)  The company made a large investment in new plant and equipment.
D)  The company paid a large dividend.
E)  The company had high amortization expenses.F) All of the above
G) A) and B)

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)  One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital.
B)  If a firm reports positive net income, its EVA must also be positive.
C)  One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.
D)  One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital.
E)  Actions that increase reported net income will always increase net cash flow.F) B) and C)
G) C) and E)

Question 12

The LeMond Corporation just purchased a new production line.Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis,but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years.Other things held constant,which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Accepted Answer

A)  LeMond's tax liability for the year will be lower.
B)  LeMond's taxable income will be lower.
C)  LeMond's net fixed assets as shown on the balance sheet will be higher at the end of the year.
D)  LeMond's cash position will improve (increase) .
E)  LeMond's reported net income after taxes for the year will be lower.F) A) and B)
G) A) and C)

Question 13

Rao Corporation has the following balance sheet.How much net operating working capital does the firm have?   Cash $10 Accounts payable $20 Short-term investments  Accruals 20 Accounts receivable 50 Notes payable 50 Inventory 40 Current liabilities 90 Current assets $130 Long-term debt 0 Net fixed assets 100 Common equity 30 Retained earnings 50 Total assets $230 Total liab. & equity $230\begin{array} { l l r } 	ext { Cash } & \$ 10 	ext { Accounts payable } & \$ 20 \	ext { Short-term investments } & 	ext { Accruals } & 20 \	ext { Accounts receivable } & 50 	ext { Notes payable } & 50 \	ext { Inventory } & { 	ext {40 Current liabilities } } & 90 \	ext { Current assets } & \$ 130 	ext { Long-term debt } & 0 \	ext { Net fixed assets } & 100 	ext { Common equity } & 30 \& 	ext { Retained earnings } & 50 \	ext { Total assets } & \$ 230 	ext { Total liab. \& equity } & \$ 230\end{array} Cash  Short-term investments  Accounts receivable  Inventory  Current assets  Net fixed assets  Total assets ​$10 Accounts payable  Accruals 50 Notes payable 40 Current liabilities $130 Long-term debt 100 Common equity  Retained earnings $230 Total liab. & equity ​$2020509003050$230​

Accepted Answer

A)  $54.00
B)  $60.00
C)  $66.00
D)  $72.60
E)  $79.86 F) D) and E)
G) C) and D)

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A)  The more depreciation a firm has in a given year, the higher its EPS, other things held constant.
B)  Typically, a firm's DPS should exceed its EPS.
C)  Typically, a firm's EBIT should exceed its EBITDA.
D)  If a firm is more profitable than average (e.g., Google) , we would normally expect to see its stock price exceed its book value per share.
E)  If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.F) D) and E)
G) A) and E)

Question 15

Which of the following statements is CORRECT?

Accepted Answer

A)  The statement of cash flows shows how much the firm's cash⎯the total of currency, bank deposits, and short-term liquid securities (or cash equivalents) ⎯increased or decreased during a given year.
B)  The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets.
C)  The statement of cash flows shows where the firm's cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit.
D)  The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital.
E)  The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock.F) B) and E)
G) A) and B)

Question 16

A security analyst obtained the following information from Prestopino Products' financial statements:
∙Retained earnings at the end of 2014 were $700,000,but retained earnings at the end of 2015 had declined to $320,000.
∙The company does not pay dividends.
∙The company's depreciation expense is its only non-cash expense; it has no amortization charges.
∙The company has no non-cash revenues.
∙The company's net cash flow (NCF) for 2015 was $150,000.
On the basis of this information,which of the following statements is CORRECT?

Accepted Answer

A)  Prestopino had negative net income in 2015.
B)  Prestopino's depreciation expense in 2015 was less than $150,000.
C)  Prestopino had positive net income in 2015, but its income was less than its 2014 income.
D)  Prestopino's NCF in 2015 must be higher than its NCF in 2014.
E)  Prestopino's cash on the balance sheet at the end of 2015 must be lower than the cash it had on the balance sheet at the end of 2014.F) B) and D)
G) A) and B)

Question 17

DeYoung Devices Inc.,a new high-tech instrumentation firm,is building and equipping a new manufacturing facility.Assume that currently its equipment must be depreciated on a straight-line basis over 10 years,but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years.If the legislation becomes law,which of the following would occur in the year following the change?

Accepted Answer

A)  The firm's reported net income would increase.
B)  The firm's operating income (EBIT)  would increase.
C)  The firm's taxable income would increase.
D)  The firm's net cash flow would increase.
E)  The firm's tax payments would increase.F) A) and E)
G) D) and E)

Question 18

NNR Inc.'s balance sheet showed total current assets of $1,875,000 plus $4,225,000 of net fixed assets.All of these assets were required in operations.The firm's current liabilities consisted of $475,000 of accounts payable,$375,000 of 6% short-term notes payable to the bank,and $150,000 of accrued wages and taxes.Its remaining capital consisted of long-term debt and common equity.What was NNR's total investor-provided operating capital?

Accepted Answer

A)  $4,694,128
B)  $4,941,188
C)  $5,201,250
D)  $5,475,000
E)  $5,748,750F) A) and D)
G) A) and C)

Question 19

Hunter Manufacturing Inc.'s December 31,2014 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding.During 2015,Hunter had $250,000 of net income,and it paid out $100,000 as dividends.What was the book value per share at 12/31/2015,assuming that Hunter neither issued nor retired any common stock during 2015?

Accepted Answer

A)  $20.90
B)  $22.00
C)  $23.10
D)  $24.26
E)  $25.47F) C) and D)
G) A) and B)

Question 20

If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense,this would probably encourage companies to use more debt financing than they presently do,other things held constant.

Accepted Answer

A) True 
 B)False

Exam 6: Accounting for Financial Management

The interest and dividends paid by a corporation are considered to be deductible operating expenses,hence they decrease the firm's tax liability.

Correct Answer
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Correct Answer
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Correct Answer
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Assets other than cash are expected to produce cash over time,but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

Correct Answer
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Correct Answer
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Net operating working capital is equal to operating current assets minus operating current liabilities.

Correct Answer
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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow last year,even though the cash on its balance sheet increased?

Correct Answer
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Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Correct Answer
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Correct Answer
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If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense,this would probably encourage companies to use more debt financing than they presently do,other things held constant.

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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The annual report contains four basic financial statements: the income statement,balance sheet,statement of cash flows,and statement of stockholders' equity.

Correct Answer
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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Exam 6: Accounting for Financial Management

The interest and dividends paid by a corporation are considered to be deductible operating expenses,hence they decrease the firm's tax liability.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assets other than cash are expected to produce cash over time,but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Net operating working capital is equal to operating current assets minus operating current liabilities.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow last year,even though the cash on its balance sheet increased?

Correct AnswerverifiedShow Answer

Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense,this would probably encourage companies to use more debt financing than they presently do,other things held constant.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The annual report contains four basic financial statements: the income statement,balance sheet,statement of cash flows,and statement of stockholders' equity.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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