Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Which of the following statements regarding the income statement is incorrect?
1)
A)
The last or “bottom” line of the income statement shows the firm‘s net income.
B)
The first line of an income statement lists the revenues from the sales of products or services.
C)
The income statement shows the flow of earnings and expenses generated by the firm
between two dates.
D)
The income statement shows the earnings and expenses at a given point in time.
Use the table for the question(s) below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
2006 2005
Total sales 610.1 578.3
Cost of sales (500.2) (481.9)
Gross profit 109.9 96.4
Selling, general, and
administrative expenses (40.5) (39.0)
Research and development (24.6) (22.8)
Depreciation and amortization (3.6) (3.3)
Operating income 41.2 31.3
Other income – – – – – –
Earnings before interest and taxes (EBIT) 41.2 31.3
Interest income (expense) (25.1) (15.8)
Pretax income 16.1 15.5
Taxes (5.5) (5.3)
Net income 10.6 10.2
Price per share $16 $15
Shares outstanding (millions) 10.2 8.0
Stock options outstanding (millions) 0.3 0.2
Stockholders’ Equity 126.6 63.6
Total Liabilities and Stockholders’ Equity 533.1 386.7
2)
Luther’s Net Profit Margin for the year ending December 31, 2005 is closest to:
2)
A)
1.8%
B)
2.7%
C)
5.4%
D)
16.7%
3)
Which of the following statements regarding the balance sheet is incorrect?
3)
A)
The balance sheet lists the firm’s assets and liabilities.
B)
The balance sheet reports stockholders’ equity on the right hand side.
C)
The balance sheet reports liabilities on the left hand side.
D)
The balance sheet provides a snapshots of the firm’s financial position at a given point in time.
Use the table for the question(s) below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
2006 2005
Total sales 610.1 578.3
Cost of sales (500.2) (481.9)
Gross profit 109.9 96.4
Selling, general, and
administrative expenses (40.5) (39.0)
Research and development (24.6) (22.8)
Depreciation and amortization (3.6) (3.3)
Operating income 41.2 31.3
Other income – – – – – –
Earnings before interest and taxes (EBIT) 41.2 31.3
Interest income (expense) (25.1) (15.8)
Pretax income 16.1 15.5
Taxes (5.5) (5.3)
Net income 10.6 10.2
Price per share $16 $15
Shares outstanding (millions) 10.2 8.0
Stock options outstanding (millions) 0.3 0.2
Stockholders’ Equity 126.6 63.6
Total Liabilities and Stockholders’ Equity 533.1 386.7
4)
Luther’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year
ending December 31, 2006 is closest to:
4)
A)
19.7 million
B)
37.6 million
C)
41.2 million
D)
44.8 million
5)
Luther’s Operating Margin for the year ending December 31, 2005 is closest to:
5)
A)
1.8%
B)
2.7%
C)
5.4%
D)
16.7%
Use the table for the question(s) below.
Consider the following balance sheet:
Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 63.6 58.5 Accounts payable 87.6 73.5
Accounts receivable 55.5 39.6
Notes payable /
short–term debt 10.5 9.6
Inventories 45.9 42.9
Current maturities of
long–term debt 39.9 36.9
Other current assets 6.0 3.0 Other current liabilities 6.0 12.0
Total current assets 171.0 144.0 Total current liabilities 144.0 132.0
Long–Term Assets Long–Term Liabilities
Land 66.6 62.1 Long–term debt 239.7 168.9
Buildings 109.5 91.5 Capital lease obligations– – – – – –
Equipment 119.1 99.6 Total Debt 239.7 168.9
Less accumulated
depreciation (56.1) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 239.1 200.7 Other long–term liabilities – – – – – –
Goodwill 60.0 – – Total long–term liabilities 262.5 191.1
Other long–term assets 63.0 42.0 Total liabilities 406.5 323.1
Total long–term assets 362.1 242.7 Stockholders’ Equity 126.6 63.6
Total Assets 533.1 386.7
Total liabilities and
Stockholders’ Equity 533.1 386.7
6)
What is Luther‘s net working capital in 2005?
6)
A)
$12 million
B)
$27 million
C)
$39 million
D)
$63.6 million
7)
The third party who checks annual financial statements to ensure that they are prepared according
to GAAP and verifies that the information reported is reliable is the
7)
A)
Securities and Exchange Commission (SEC).
B)
NYSE Enforcement Board.
C)
auditor.
D)
Accounting Standards Board.
Use the table for the question(s) below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
2006 2005
Total sales 610.1 578.3
Cost of sales (500.2) (481.9)
Gross profit 109.9 96.4
Selling, general, and
administrative expenses (40.5) (39.0)
Research and development (24.6) (22.8)
Depreciation and amortization (3.6) (3.3)
Operating income 41.2 31.3
Other income – – – – – –
Earnings before interest and taxes (EBIT) 41.2 31.3
Interest income (expense) (25.1) (15.8)
Pretax income 16.1 15.5
Taxes (5.5) (5.3)
Net income 10.6 10.2
Price per share $16 $15
Shares outstanding (millions) 10.2 8.0
Stock options outstanding (millions) 0.3 0.2
Stockholders’ Equity 126.6 63.6
Total Liabilities and Stockholders’ Equity 533.1 386.7
8)
Assuming that Luther has no convertible bonds outstanding, then for the year ending December 31,
2006 Luther’s diluted earnings per share are closest to:
8)
A)
$1.01
B)
$1.04
C)
$1.53
D)
$3.92
Use the table for the question(s) below.
Consider the following balance sheet:
Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 63.6 58.5 Accounts payable 87.6 73.5
Accounts receivable 55.5 39.6
Notes payable /
short–term debt 10.5 9.6
Inventories 45.9 42.9
Current maturities of
long–term debt 39.9 36.9
Other current assets 6.0 3.0 Other current liabilities 6.0 12.0
Total current assets 171.0 144.0 Total current liabilities 144.0 132.0
Long–Term Assets Long–Term Liabilities
Land 66.6 62.1 Long–term debt 239.7 168.9
Buildings 109.5 91.5 Capital lease obligations– – – – – –
Equipment 119.1 99.6 Total Debt 239.7 168.9
Less accumulated
depreciation (56.1) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 239.1 200.7 Other long–term liabilities – – – – – –
Goodwill 60.0 – – Total long–term liabilities 262.5 191.1
Other long–term assets 63.0 42.0 Total liabilities 406.5 323.1
Total long–term assets 362.1 242.7 Stockholders’ Equity 126.6 63.6
Total Assets 533.1 386.7
Total liabilities and
Stockholders’ Equity 533.1 386.7
9)
Luther’s quick ratio for 2005 is closest to:
9)
A)
0.77
B)
1.31
C)
0.92
D)
1.09
10)
Off–balance sheet transactions are required to be disclosed
10)
A)
in the Securities and Exchange Commission’s commentary.
B)
in the statement of stockholders’ equity.
C)
in the management discussion and analysis.
D)
in the auditor’s report.
C
Use the table for the question(s) below.
Consider the following balance sheet:
Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 63.6 58.5 Accounts payable 87.6 73.5
Accounts receivable 55.5 39.6
Notes payable /
short–term debt 10.5 9.6
Inventories 45.9 42.9
Current maturities of
long–term debt 39.9 36.9
Other current assets 6.0 3.0 Other current liabilities 6.0 12.0
Total current assets 171.0 144.0 Total current liabilities 144.0 132.0
Long–Term Assets Long–Term Liabilities
Land 66.6 62.1 Long–term debt 239.7 168.9
Buildings 109.5 91.5 Capital lease obligations– – – – – –
Equipment 119.1 99.6 Total Debt 239.7 168.9
Less accumulated
depreciation (56.1) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 239.1 200.7 Other long–term liabilities – – – – – –
Goodwill 60.0 – – Total long–term liabilities 262.5 191.1
Other long–term assets 63.0 42.0 Total liabilities 406.5 323.1
Total long–term assets 362.1 242.7 Stockholders’ Equity 126.6 63.6
Total Assets 533.1 386.7
Total liabilities and
Stockholders’ Equity 533.1 386.7
11)
When using the book value of equity, the debt to equity ratio for Luther in 2006 is closest to:
11)
A)
2.21
B)
2.29
C)
2.98
D)
3.03
12)
Which of the following adjustments is not correct if you are trying to calculate cash flow from
financing activities?
12)
A)
Add any increase in long term borrowing
B)
Add proceeds from the sale of stock
C)
Add dividends paid
D)
Add any increase in short–term borrowing
Use the table for the question(s) below.
Consider the following balance sheet:
Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 63.6 58.5 Accounts payable 87.6 73.5
Accounts receivable 55.5 39.6
Notes payable /
short–term debt 10.5 9.6
Inventories 45.9 42.9
Current maturities of
long–term debt 39.9 36.9
Other current assets 6.0 3.0 Other current liabilities 6.0 12.0
Total current assets 171.0 144.0 Total current liabilities 144.0 132.0
Long–Term Assets Long–Term Liabilities
Land 66.6 62.1 Long–term debt 239.7 168.9
Buildings 109.5 91.5 Capital lease obligations– – – – – –
Equipment 119.1 99.6 Total Debt 239.7 168.9
Less accumulated
depreciation (56.1) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 239.1 200.7 Other long–term liabilities – – – – – –
Goodwill 60.0 – – Total long–term liabilities 262.5 191.1
Other long–term assets 63.0 42.0 Total liabilities 406.5 323.1
Total long–term assets 362.1 242.7 Stockholders’ Equity 126.6 63.6
Total Assets 533.1 386.7
Total liabilities and
Stockholders’ Equity 533.1 386.7
13)
The change in Luther’s quick ratio from 2005 to 2006 is closest to:
13)
A)
a decrease of .10
B)
an increase of .10
C)
a decrease of .15
D)
an increase of .15
14)
Details of acquisitions, spin–offs, leases, taxes, and risk management activities are given
14)
A)
in the notes to the financial statements.
B)
in the auditor’s report.
C)
in the Securities and Exchange Commission’s commentary.
D)
in the management discussion and analysis.
15)
Which of the following is not a section on the cash flow statement?
15)
A)
Financing activities
B)
Investing activities
C)
Income generating activities
D)
Operating activities
C
16)
Accounts payable is a
16)
A)
Current Liability.
B)
Current Asset.
C)
Long–term asset.
D)
Long–term liability.
A
17)
Which of the following is not a reason why cash flow may not equal net income?
17)
A)
Capital expenditures are not recorded on the income statement.
B)
Amortization is added in when calculating net income.
C)
Changes in inventory will change cash flows but not income.
D)
Depreciation is deducted when calculating net income.
B
18)
A 30 year mortgage loan is a
18)
A)
Current Asset.
B)
Long–term liability.
C)
Long–term asset.
D)
Current Liability.
B
A
19)
In addition to the balance sheet, income statement, and the statement of cash flows, a firm’s
complete financial statements will include all of the following except:
19)
A)
Statement of stockholders’ equity
B)
Securities and Exchange Commission‘s (SEC) commentary
C)
Management discussion and Analysis
D)
Notes to the financial statements
Use the table for the question(s) below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
2006 2005
Total sales 610.1 578.3
Cost of sales (500.2) (481.9)
Gross profit 109.9 96.4
Selling, general, and
administrative expenses (40.5) (39.0)
Research and development (24.6) (22.8)
Depreciation and amortization (3.6) (3.3)
Operating income 41.2 31.3
Other income – – – – – –
Earnings before interest and taxes (EBIT) 41.2 31.3
Interest income (expense) (25.1) (15.8)
Pretax income 16.1 15.5
Taxes (5.5) (5.3)
Net income 10.6 10.2
Price per share $16 $15
Shares outstanding (millions) 10.2 8.0
Stock options outstanding (millions) 0.3 0.2
Stockholders’ Equity 126.6 63.6
Total Liabilities and Stockholders’ Equity 533.1 386.7
20)
Luther’s return on equity (ROE) for the year ending December 31, 2006 is closest to:
20)
A)
2.0%
B)
6.5%
C)
8.4%
D)
12.7%
Use the table for the question(s) below.
Consider the following balance sheet:
Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 63.6 58.5 Accounts payable 87.6 73.5
Accounts receivable 55.5 39.6
Notes payable /
short–term debt 10.5 9.6
Inventories 45.9 42.9
Current maturities of
long–term debt 39.9 36.9
Other current assets 6.0 3.0 Other current liabilities 6.0 12.0
Total current assets 171.0 144.0 Total current liabilities 144.0 132.0
Long–Term Assets Long–Term Liabilities
Land 66.6 62.1 Long–term debt 239.7 168.9
Buildings 109.5 91.5 Capital lease obligations– – – – – –
Equipment 119.1 99.6 Total Debt 239.7 168.9
Less accumulated
depreciation (56.1) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 239.1 200.7 Other long–term liabilities – – – – – –
Goodwill 60.0 – – Total long–term liabilities 262.5 191.1
Other long–term assets 63.0 42.0 Total liabilities 406.5 323.1
Total long–term assets 362.1 242.7 Stockholders’ Equity 126.6 63.6
Total Assets 533.1 386.7
Total liabilities and
Stockholders’ Equity 533.1 386.7
21)
Luther’s current ratio for 2006 is closest to:
21)
A)
0.84
B)
0.87
C)
1.15
D)
1.19
22)
If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,
then what is Luther’s Enterprise Value?
22)
A)
–$63.3 million
B)
$353.1 million
C)
$389.7 million
D)
$516.9 million
23)
U.S. public companies are required to file their annual financial statements with the U.S. Securities
and Exchange Commission on which form?
23)
A)
10–A
B)
10–Q
C)
10–SEC
D)
10–K
Use the table for the question(s) below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
2006 2005
Total sales 610.1 578.3
Cost of sales (500.2) (481.9)
Gross profit 109.9 96.4
Selling, general, and
administrative expenses (40.5) (39.0)
Research and development (24.6) (22.8)
Depreciation and amortization (3.6) (3.3)
Operating income 41.2 31.3
Other income – – – – – –
Earnings before interest and taxes (EBIT) 41.2 31.3
Interest income (expense) (25.1) (15.8)
Pretax income 16.1 15.5
Taxes (5.5) (5.3)
Net income 10.6 10.2
Price per share $16 $15
Shares outstanding (millions) 10.2 8.0
Stock options outstanding (millions) 0.3 0.2
Stockholders’ Equity 126.6 63.6
Total Liabilities and Stockholders’ Equity 533.1 386.7
24)
Luther’s price – earnings ration (P/E) for the year ending December 31, 2006 is closest to:
24)
A)
7.9
B)
10.1
C)
15.4
D)
16.0