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Exam 2: Review of Accounting

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Question 51

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A decrease in bonds payable results in a cash outflow on the statement of cash flows.

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Question 52

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Farah Snack Co. has earnings after taxes of $150,000. Interest expense for the year was $20,000; preferred dividends paid were $20,000; and common dividends paid were $30,000. Taxes were $22,500. The firm has 100,000 shares of common stock outstanding. Earnings per share on the common stock was

A) $1.30.
B) $1.10.
C) $0.75.
D) $0.80.

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Question 53

Multiple Choice

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The net worth of a firm

The investments account includes marketable securities.

How many of the following items are found on the balance sheet, rather than the income statement? • Accounts receivable • Retained earnings • Income tax expense • Accrued payable • Cash • Selling and administrative expenses • Plant and equipment • Operating expense • Marketable securities • Interest expense

One of the primary factors evaluated when a company is pursuing a leveraged buyout is

Assuming a tax rate of 21%, the after-tax cost of a $100,000 dividend payment is

A firm with earnings per share of $3 and a price-earnings (P/E) ratio of 24 will have a stock market price of

Cash and cash equivalents are considered anything that can convert to cash within one year.

Preferred stock dividends are tax deductible.

Balance sheet items should be adjusted for inflation when valuing a company.

Stockholders equity is equal to assets minus liabilities.

Free cash flow is equal to cash flow from operating activities minus necessary capital expenditures and normal dividend payments.

Total stockholders' equity consists of

Book value per share is the most important measure of value of a firm for a stockholder.

When a firm has a sharp drop off in earnings, its P/E ratio may be artificially high.

Accumulated depreciation should always be equal to the depreciation expense charged in the income statement.

How many of the following balance sheet items are classified as a current asset or current liability? • Retained earnings • Accounts payable • Plant and equipment • Inventory • Common stock • Bonds payable • Accrued wages payable • Accounts receivable • Preferred stock

The purchase of a new factory building would reduce the cash flows from investing activities on the statement of cash flows.

Which of the following is an outflow of cash?