Chapter 3 - BUS 361 Sample Test
1. The balance sheet:
a. summarizes the firmís
revenues and expenses over an accounting period.
b. reports how much of the firmís earnings were retained in the business rather than paid out in dividends.
c. reports the impact of a firmís operating, investing, and financing activities on cash flows over an accounting period.
d. states the firmís financial position at a specific point in time.
2. Net cash flow (CFAT) is generally defined as net income plus:
a. retained earnings
b. taxes paid
c. interest paid
d. depreciation and amortization
3. Financial statements are primarily designed for use by managers.
a. represents allocations of
the costs of assets over their useful lives
b. is referred to as a noncash charge
c. applies to tangible assets
d. all of the above are true
5. In its recent income statement, Smith Software Inc. reported paying $10 million in dividends to common shareholders, and in its year-end balance sheet, Smith reported $419 million of retained earnings. The previous year, its balance sheet showed $404 million of retained earnings. What was the firmís net income during the most recent year?
6. Lower capital gains tax rates tend to encourage investment in productive assets.
7. XYZ Company recently reported net income of $5.2 million and depreciation expense of $600,000. What is the company's net cash flow (CFAT)?
Use the following information for the next four questions (8 - 11). Mitel Metals recently reported $9,000 of sales, $6,000 of operating costs other than depreciation, and $1,500 of depreciation. It had $4,000 of bonds at 7% interest rate, and its federal-plus-state income tax rate was 40%.
8. What was the firm's operating income, or EBIT?
9. What was the firm's taxable income (EBT)?
10. What was the firm's NIAT (net income after tax)?
11. What is the firm's net cash flow (CFAT)?
12. Fine Breads Inc. paid out $26,000 common dividends during 2005, and it ended the year with $150,000 of retained earnings. The prior year's retained earnings were $145,000. What was the firm's 2005 net income?
13. Which of the following would actions would increase the amount of cash on a firm's balance sheet, other things held constant?
a. The company repurchases stock.
b. The company pays a dividend.
c. The company purchases a new piece of equipment.
d. The company issues new common stock.
e. The company gives customers more time to pay their bills.
14. At the end of 2004, ABC Medical Supply had $275 million of retained earnings. During 2005, ABC had earnings of $0.75 (on 20 million shares), and paid a dividend of $0.25 per share. What was the level of retained earnings that ABC had at the end of 2005?
a. $255 million
b. $275 million
c. $285 million
d. $265 million
e. $295 million