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Exam 2: Financial Statements, Cash Flow, and Taxes

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Question 41

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Which of the following statements best describes the statement of cash flows?

A) In the statement of cash flows, a DECREASE in accounts receivable is reported as a use of cash.
B) In the statement of cash flows, a DECREASE in accounts payable is reported as a use of cash.
C) In the statement of cash flows, depreciation charges are reported as a use of cash.
D) In the statement of cash flows, a DECREASE in inventories is reported as a use of cash.

E) B) and C)
F) B) and D)

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Question 42

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Total net operating capital is equal to net fixed assets.

A) True
B) False

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Question 43

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Mr. X lives in Saskatchewan. In 2009, he had employment of $80,000 and dividend income of 5,000. What is his total tax liability? The applicable tax tables are as follows: ) Federal Rate Tax Bracket Provincial Rate Tax Bracket 15% $0-$38,832 11% On the first $40,113 22% $38,832-$77,664 13% On the next $74,497 26% $77,664-$126,264 15% Over $114,610 29% Over $126,264

On the balance sheet, total assets must always equal total liabilities plus equity.

The CFO of Shalit Industries plans to have the company issue $300 million of new common stock and use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT) , and its tax rate all remain constant. Which of the following would occur?

Hunter Manufacturing Inc.'s December 31, 2008 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding. During 2009, Hunter had $250,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/09, assuming that Hunter neither issued nor retired any common stock during 2009?

Which of the following statements best describes EVA?

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

During 2009, Bascom Bakery Inc. paid out $21,750 of common dividends. It ended the year with $187,500 of retained earnings versus the prior year's retained earnings of $132,250. How much net income did the firm earn during the year?

Bartling Energy Systems recently reported $9,250 of sales, $5,750 of operating costs other than depreciation, and $700 of depreciation. The company had no amortization charges, it had $3,200 of outstanding bonds that carry a 5% interest rate, and its combined federal and provincial income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm's net income exceed its free cash flow?

Which of the following statements is correct?

Which of the following statements is correct?

Wells Water Systems recently reported $8,250 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and its combined federal and provincial income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $750 to buy new fixed assets and to invest $250 in net operating working capital. How much free cash flow did Wells generate?

Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance?

The value of goodwill on intangible assets is calculated according to the impairment rule instead of a fixed annual charge.

Which of the following statements is correct?

The time dimension is important in financial statement analysis. The balance sheet shows the firm's financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects changes in the firm's accounts over that period of time.

An individual living in Alberta with wage earnings of $65,000 has invested $25,000 for 1 year in corporate bonds yielding 6%. What is the after-tax return? The relevant federal and provincial tax rates are 22% and 10%.

In Canada, amortization is a similar concept as depreciation and can be applied to both tangible and intangible assets.

Formed in 2009, the ABC Ltd. had an operating loss of $95,000, with projected taxable income of $70,000 in 2010, $55,000 in 2011, and $80,000 in 2012. What will be the corporate tax liability in 2012? Assume that ABC is a CCPC in Quebec with a combined federal and provincial corporate income tax rate of 19%.