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Exam 2: Review of Accounting

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Question 1

Multiple Choice

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Preferred stock dividends ________ earnings available to common stockholders.

A) increase
B) decrease
C) do not effect
D) There is not enough information to determine.

E) A) and D)
F) A) and B)

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Question 2

Multiple Choice

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How many of the following items decrease cash flow in the statement of cash flows? • Increase in accounts receivable • Increase in notes payable • Depreciation expense • Increase in investments • Decrease in accounts payable • Decrease in prepaid expenses • Dividend payment • Increase in accrued expenses

A) Two of these items decrease cash flow
B) Three of these items decrease cash flow
C) Four of these items decrease cash flow
D) Five of these items decrease cash flow

E) A) and C)
F) C) and D)

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Question 3

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The sale of a firm's securities is a source of positive funds, whereas the purchase of securities is a use of funds.

The income statement is the major device for measuring the profitability of a firm over a period of time.

An increase of $100,000 in inventory would result in a(n)

Consider the following information for Ball Corp. $\begin{array}{lr}\text { Selling and administrative expense } & \$ 40,000 \\\text { Depreciation expense } & 70,000 \\\text { Sales } & 350,000 \\\text { Interest expense } & 30,000 \\\text { Cost of goods sold } & 110,000 \\\text { Taxes } & 17,500\end{array}$ What is the operating profit for Ball Corp.?

Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?

The real value of a firm is the same from an economic and accounting perspective.

Cash flow from operations is equal to earnings before taxes minus depreciation.

Elgin Battery Manufacturers had sales of $1,000,000 in 2015 and their cost of goods sold is $700,000. Selling and administrative expenses were $100,000. Depreciation expense was $80,000 and interest expense for the year was $10,000. The firm's tax rate is 30 percent. What is the dollar amount of taxes paid in 2015?

An increase in accrued expenses results in a cash outflow on the statement of cash flows.

Which of the following would not be classified as a current asset?

Which of the following is not a primary source of raising money or capital for the firm?

A statement of cash flows allows a financial analyst to determine

Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares outstanding on December 31, 2015. On January 1, 2016, the firm issued 50,000 new shares. The company took the proceeds from these new shares as well as other operating improvements and earned $937,500 earnings after taxes in 2016. Earnings per share for the year 2016 were

Accumulated depreciation shows up in the income statement, while depreciation expense shows up on the balance sheet.

The best indication of the operational efficiency of management is

Assuming a tax rate of 21%, depreciation expenses of $500,000 will

Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales) ?

An increase in assets represents a positive source of funds.