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Exercise - Lecture 2 - Financial Statement - SV

The document discusses financial statements and contains conceptual questions and problems related to income statements, balance sheets, cash flows, and tax rates. It provides information about revenues, costs, assets, liabilities, equity, and other financial metrics for multiple companies and asks questions to calculate values like net income and cash flows based on the data given.

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an27504
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40 views

Exercise - Lecture 2 - Financial Statement - SV

The document discusses financial statements and contains conceptual questions and problems related to income statements, balance sheets, cash flows, and tax rates. It provides information about revenues, costs, assets, liabilities, equity, and other financial metrics for multiple companies and asks questions to calculate values like net income and cash flows based on the data given.

Uploaded by

an27504
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 2: FINANCIAL STATEMENTS

I. CONCEPT QUESTIONS
1. Why might the revenue and cost figures shown on a standard income statement not
represent the actual cash inflows and outflows that occurred during a period?
2. Under standard accounting rules, it is possible for a company’s liabilities to exceed its
assets. When this occurs, the owners’ equity is negative. Can this happen with market
values? Why or why not?
3. Could a company’s change in net working capital be negative in a given year? Explain how
this might come about.
4. True or false: All assets are liquid at some price. Explain.

II. QUESTIONS AND PROBLEMS


1. Papa Roach Exterminators, Inc., has sales of $586,000, costs of $247,000, depreciation
expense of $43,000, interest expense of $32,000, and a tax rate of 35 percent. What is the
net income for this firm?
2. Sankey, Inc., has current assets of $4,900, net fixed assets of $25,000, current liabilities of
$4,100, and long-term debt of $10,300. What is the value of the shareholders’ equity
account for this firm? How much is net working capital?
3. Shelton, Inc., has sales of $435,000, costs of $216,000, depreciation expense of $40,000,
interest expense of $21,000, and a tax rate of 35 percent. What is the net income for the
firm? Suppose the company paid out $30,000 in cash dividends. What is the addition to
retained earnings?
4. Barrett, Inc., has sales of $19,800, costs of $10,900, depreciation expense of $2,100, and
interest expense of $1,250. If the tax rate is 40 percent, what is the operating cash flow, or
OCF?
5. The 2020 balance sheet of Jordan’s Golf Shop, Inc., showed long-term debt of $1.625 million,
and the 2021 balance sheet showed long-term debt of $1.73 million. The 2021 income
statement showed an interest expense of $185,000. What was the firm’s cash flow to
creditors during 2021?
6. During the year, the Senbet Discount Tire Company had gross sales of $925,000. The firm’s
cost of goods sold and selling expenses were $490,000 and $220,000, respectively. Senbet
also had notes payable of $740,000. These notes carried an interest rate of 4 percent.
Depreciation was $120,000. Senbet’s tax rate was 35 percent.
a. What was Senbet’s net income?
b. What was Senbet’s operating cash flow?
7. Given the following information for O’Hara Marine Co., calculate the depreciation expense:
sales = $44,000; costs = $27,500; addition to retained earnings = $5,200; dividends paid =
$1,670; interest expense = $1,850; tax rate = 40 percent.
8. Prepare a 2009 balance sheet for Bertinelli Corp. based on the following information: cash =
$195,000; patents and copy- rights = $780,000; accounts payable = $405,000; accounts
receivable = $137,000; tangible net fixed assets = $2,800,000; inventory = $264,000; notes
payable = $160,000; accumulated retained earnings = $1,934,000; long-term debt =
$1,195,300.
9. Jetson Spacecraft Corp. shows the following information on its 2009 income statement:
sales = $196,000; costs = $104,000; other expenses = $6,800; depreciation expense =
$9,100; interest expense = $14,800; taxes = $21,455; dividends = $10,400. In addition,
you’re told that the firm issued $5,700 in new equity during 2009 and redeemed $7,300 in
outstanding long-term debt.
a. What is the 2009 operating cash flow?
b. What is the 2009 cash flow to creditors?
c. What is the 2009 cash flow to stockholders?
d. If net fixed assets increased by $27,000 during the year, what was the addition to NWC?

10. The Stefani Co. had $198,000 in taxable income. Using the rates from Table below, calculate
the company’s income taxes. What is the average tax rate? z

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