25)
Which of the following adjustments to net income is not correct if you are trying to calculate cash
flow from operating activities?
25)
A)
Add increases in accounts payable
B)
Add increases in accounts receivable
C)
Deduct increases in inventory
D)
Add back depreciation
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
26)
If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,
then Luther’s Market–to–book ratio would be closest to:
26)
A)
0.39
B)
0.76
C)
1.29
D)
2.57
27)
If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,
then using the market value of equity, the debt to equity ratio for Luther in 2006 is closest to:
27)
A)
1.71
B)
1.78
C)
2.31
D)
2.35
28)
Which of the following is not a financial statement that every public company is required to
produce?
28)
A)
Income Statement
B)
Balance Sheet
C)
Statement of Sources and Uses of Cash
D)
Statement of Stockholders’ Equity
29)
In response to corporate scandals such as Enron and WorldCom, in 2002 congress passed a law that
requires, among other things, that CEOs and CFOs certify the accuracy and appropriateness of their
firm’s financial statements and increases he penalties against them if the financial statements later
prove to be fraudulent. The name of this act is?
29)
A)
The Accuracy in Accounting Act
B)
The Glass–Steagall Act
C)
The McCain–Feingold Act
D)
The Sarbanes–Oxley Act
30)
Which of the following is not an operating expense?
30)
A)
Research and development
B)
Depreciation and amortization
C)
Interest expense
D)
Selling, general and administrative expenses
31)
Which of the following balance sheet equations is incorrect?
31)
A)
Assets = Liabilities + Shareholders’ Equity
B)
Assets – Current Liabilities = Long Term Liabilities + Shareholders’ Equity
C)
Assets – Current Liabilities = Long Term Liabilities
D)
Assets – Liabilities = Shareholders’ Equity
32)
Which of the following statements regarding net income transferred to retained earnings is correct?
32)
A)
Net income = net income transferred to retain earnings + dividends
B)
Net income = net income transferred to retained earnings – dividends
C)
Net income transferred to retain earnings = net income + dividends
D)
Net income transferred to retain earnings – net income = dividends
A
C
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
33)
For the year ending December 31, 2006 Luther’s earnings per share are closest to:
33)
A)
$1.01
B)
$1.04
C)
$1.58
D)
$4.04
34)
Luther’s return on assets (ROA) for the year ending December 31, 2006 is closest to:
34)
A)
2.0%
B)
6.5%
C)
8.4%
D)
12.7%
35)
Cash is a
35)
A)
Long–term asset.
B)
Current Asset.
C)
Long–term liability.
D)
Current Liability.
36)
Gross profit is calculated as
36)
A)
Total sales – cost of sales – selling, general and administrative expenses – depreciation and
amortization
B)
Total sales – cost of sales
C)
Total sales – cost of sales – selling, general and administrative expenses
D)
None of the above
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
Use the tables for the question(s) below.
Consider the following financial information:
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
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
533.1 386.7
21
Total Assets 533.1 386.7
Total liabilities and
Stockholders’ Equity 533.1 386.7
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
Dividends Paid
5.
15.0
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
37)
For the year ending December 31, 2006 Luther‘s cash flow from operating activities is ?
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
38)
Calculate Luther’s return of equity (ROE), return of assets (ROA), and price–to–earnings ratio (P/E) for the year
ending December 31, 2005.
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
39)
If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share., then what is Luther’s
enterprise value?
40)
If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share., then what is Luther’s
market–to–book ratio?
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
41)
If Luther’s accounts receivable were $55.5 million in 2006, then calculate Luther’s accounts receivable days for
2006.
Use the tables for the question(s) below.
Consider the following financial information:
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
25
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
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
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
Dividends Paid
5.
15.0
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
26
42)
For the year ending December 31, 2006 Luther’s cash flow from financing activities is?
43)
What is the role of an auditor in financial statement analysis?
44)
What are the four financial statements that all public companies must produce?
Answer Key
Testname: C2
28
Answer Key
Testname: C2
29