FIN 534 Quiz 2

Question 1

Which of the following statements is CORRECT?

Question 2

Which of the following statements is CORRECT?

Question 3

Below are the 2008 and 2009 year-end balance sheets for Wolken Enterprises:

Assets: 2009 2008

Cash $ 200,000 $ 170,000

Accounts receivable 864,000 700,000

Inventories 2,000,000 1,400,000

Total current assets $ 3,064,000 $2,270,000

Net fixed assets 6,000,000 5,600,000

Total assets $ 9,064,000 $7,870,000

Liabilities and equity:

Accounts payable $ 1,400,000 $1,090,000

Notes payable 1,600,000 1,800,000

Total current liabilities $ 3,000,000 $2,890,000

Long-term debt 2,400,000 2,400,000

Common stock 3,000,000 2,000,000

Retained earnings 664,000 580,000

Total common equity $ 3,664,000 $2,580,000

Total liabilities and equity $ 9,064,000 $7,870,000

Wolken has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year non-callable, long-term debt in 2008. As of the end of 2009, none of the principal on this debt had been repaid. Assume that the companys sales in 2008 and 2009 were the same. Which of the following statements must be CORRECT?

Question 4

Other things held constant, which of the following actions would increase the amount of cash on a companys balance sheet?

Question 5

Which of the following statements is CORRECT?

Question 6

Which of the following items is NOT included in current assets?

Question 7

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?

Question 8

Assume that Pappas Company commenced operations on January 1, 2010, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 15 years, but in December 2010 management realized that the assets would last for only 10 years. The firm's accountants plan to report the 2010 financial statements based on this new information. How would the new depreciation assumption affect the companys financial statements?

Question 9

Which of the following statements is CORRECT?

Question 10

The Nantell Corporation just purchased an expensive piece of equipment. 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.

Question 11

Analysts who follow Howe Industries recently noted that, relative to the previous year, the companys operating net cash flow increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?

Question 12

On its 2010 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year. Assuming that no earnings restatements were issued, which of the following statements is CORRECT?

Question 13

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. Answer

Question 14

A security analyst obtained the following information from Prestopino Products financial statements:

? Retained earnings at the end of 2009 were $700,000, but retained earnings at the end of 2010 had declined to $320,000.

? The company does not pay dividends.

The companys depreciation expense is its only non-cash expense; it has no amortization charges.

The company has no non-cash revenues.

The companys net cash flow (NCF) for 2010 was $150,000.

On the basis of this information, which of the following statements is CORRECT?

Question 15

Which of the following statements is CORRECT?

Question 16

A firms new president wants to strengthen the companys financial position. Which of the following actions would make it financiallystronger?

Question 17

Companies E and P each reported the same earnings per share (EPS), but Company Es stock trades at a higher price. Which of the following statements is CORRECT?

Question 18

If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., grading the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.

Question 19

You observe that a firms ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT?

Question 20

Which of the following statements is CORRECT?

Question 21

Which of the following statements is CORRECT?

Question 22

Companies HD and LD are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company HD has the higher debt ratio. Which of the following statements is CORRECT?

Question 23

Which of the following would, generally, indicate an improvement in a companys financial position, holding other things constant?

Question 24

Which of the following statements is CORRECT?

Question 25

A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio?

Question 26

A firm wants to strengthen its financial position. Which of the following actions would increase its quick ratio?

Question 27

Companies HD and LD have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both companies have positive net incomes. Company HD has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT?

Question 28

Which of the following statements is CORRECT?

Question 29

Which of the following statements is CORRECT?

Question 30

Considered alone, which of the following would increase a companys current ratio?