Fin 3

1. Accounting profits include noncash revenues (e.g., prepaid rent) and noncash expenses (e.g.
,
depreciation), whereas cash flows do not include these items. True
2. The income statement identifies the major sources of revenues generated by the firm and the
corresponding expenses that were needed to generate those revenues. False
3. The book value of an asset is the historical cost of the asset less the accumulated
depreciation. True
4. The current market value of an asset is the amount of cash that a firm would receive for the
asset if the asset was sold on the open market. False
5. Cash flows from operating activities relate to the buying and selling of long-term assets. False
6. The generally accepted accounting principles (GAAP) are

rules and procedures that define how companies are to maintain financial records and
prepare financial reports.
7. On June 23, 2008, Sunshine Cosmetics sold $250,000 worth of its products to Rynex
Corporation, with the payment to be made in 90 days on September 20. The firm's
accountants should recognize the sale on June 23, 2008
8. The cost principle states that an asset should be recognized on the balance sheet at its
historical cost
9. The conventional way of preparing a balance sheet is to list all assets in the order of their
liquidity
10. Which one of the following is NOT true for a corporation?

Common-stock dividends to be paid this year will be tax deductible if the firm has a net
loss for the year.
11. Total stockholders' equity = Total assets - Total liabilities
12. Preferred stock has features of both common stock and long-term debt.
13. The treasury stock account represents stock that the firm has repurchased back from
investors.
14. The income tax rate is the tax rate that is paid on the last dollar of income earned.
15. The average tax rate is equal to total taxes paid divided by taxable income.
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16. Laurel Electronics reported the following information at its annual meeting. The company had
cash and marketable securities worth $1,235,455, accounts payable worth $4,159,357,
inventory of $7,121,599, accounts receivable of $3,488,121, notes payable worth $1,151,663,
and other current assets of $121,455. What is the company’s net working capital?
Net Working Capital = Current Assets – Current Liabilities
(Assets)
Cash 1,234,455
Accounts Receivable 3,488,121
Inventory 7,121,599
Other Current Assets 121,455
--------------------------------------------------------------------
Total Current Assets
(Liabilities & Equity)

Accounts Payable 4,159,357
Notes Payable 1,151,663
---------------------------------------------------------------------
Total Current Liab. & Equity
17. Hillman Corporation reported current assets of $3,495,055 for the year ending December 31,
2011 and current assets of $3,103,839 for the year ending December 31, 2010. Current
liabilities for the firm were $2,867,225 and $2,760,124 at the end of 2011 and 2010
respectively. Compute the cash flow invested in net working capital at Hillman Corporation
during 2011.
2010 2011
Current Assets 3,103,839 3,495,055
Current Liabilities 2,760,124 2,876,225
----------------------------------------------------------------------------------------------------------------------------------
-
5,863,963 6,371,280
6,371,280 – 5,863,963 = 507,371
18. Tim Dye, the CFO of Blackwell Automotive, Inc., is putting together this year’s financial
statements. He has gathered the following information. The firm had a cash balance of
$23,015, accounts payable of $163,257, common stock of $313,299, retained earnings of
$512,159, inventory of $212,444, goodwill and other assets equal to $78,656, net plant and
equipment of $711,256, and short-term notes payable of $21,115. It also has accounts
receivables of $141,258 and other current assets of $11,223. How much long-term debt does
Blackwell Automotive have?
(Assets)
Cash 23,015
Accounts Receivable 141,258
Inventory 212,444
Good will and other assets 78,656
Net Plant and equipment 711,256
Other Current Assets 11,223
-----------------------------------------------------------------------------------------------------------------------------
----
Total Current Assets 1,177,852
(Liabilities and Equity)

Long Term Debt 168,022
Accounts Payable 163,257
Notes Payable 21,115
Common Stock 313,299
R/E 512,159
-----------------------------------------------------------------------------------------------------------------------------
-----
Total Current Liabilities & Equity 1,177,852
19. Nimitz Rental Company provided the following information to its auditors. For the year ended
March 31, 2011, the company had revenues of $878,412, general and administrative expenses
of $352,666, depreciation expenses of $131,455, leasing expenses of $108,195, and interest
expenses equal to $78,122. If the company’s tax rate was 34 percent, what is its net income
after taxes?
Income Statement
Revenue 878,412
Administrative Expenses 352,666
Depreciation Expenses 131,455
Leasing Expenses 108,195
Interest Expenses 78,122
-------------------------------------------------------------------------------------------------------------
EBIT 207,974
Tax Expenses (34%) 70,711.16
-------------------------------------------------------------------------------------------------------------
Net Income 137,262.84
20. Columbia Construction Company earned $451,888 during the year ended June 30, 2011. After
paying out $225,794 in dividends, the balance went into retained earnings. If the firm’s total
retained earnings were $846,972, what was the retained earnings on its balance sheet on July
1, 2010?
Balance Sheet
2010 2011
Revenue 451,888
Dividends 225,794
-----------------------------------------------------------------------------------------------------------------------------
---
R/E (846,972+225,794-451,888) 846,972
= 620,878
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1. Accounting profits include noncash revenues (e.g., prepaid rent) and noncash expenses (e.g.

6. The generally accepted accounting principles (GAAP) are

10. Which one of the following is NOT true for a corporation?

11. Total stockholders' equity = Total assets - Total liabilities

Net Working Capital = Current Assets – Current Liabilities

(Liabilities & Equity)

(Liabilities and Equity)

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