1. Which financial statement reports a firm’s assets, liabilities, and equity at a particular
point in time?
2. Which financial statement shows the total revenues that a firm earns and the total
expenses the firm incurs to generate those revenues over a specific period of time—generally
one year?
3. Which financial statement reports the amounts of cash that the firm generated and
distributed during a particular time period?
4. Which financial statement reconciles net income earned during a given period and any
cash dividends paid within that period using the change in retained earnings between the
beginning and end of the period?
5. On which of the four major financial statements would you find the common stock and
paid-in surplus?
6. On which of the four major financial statements would you find the increase in
inventory?
7. On which of the four major financial statements would you find net plant and
equipment?
8. Financial statements of publicly traded firms can be found in a number of places. Which
of the following is NOT an option for finding publicly traded firms’ financial statements?
9. For which of the following would one expect the book value of the asset to differ widely
from its market value?
10. Common stockholders’ equity divided by number of shares of common stock outstanding
is the formula for calculating
11. When a firm alters its capital structure to include more or less debt (and, in turn, less or
more equity), it impacts which of the following?
12. This is the amount of additional taxes a firm must pay out for every additional dollar of
taxable income it earns.
13. An equity-financed firm will:
14. Deferred taxes occur when a company postpones taxes on profits pertaining to:
15. Net operating profit after taxes (NOPAT) is defined as which of the following?
16. This is cash flow available for payments to stockholders and debt holders of a firm after
the firm has made investments in assets necessary to sustain the ongoing operations of the firm.
17. Which of the following activities result in an increase in a firm’s cash?
18. These are cash inflows and outflows associated with buying and selling of fixed or other
long-term assets.
19. If a company reports a large amount of net income on its income statement during a year,
the firm will have:
20. Free cash flow is defined as:
21. The Sarbanes-Oxley Act requires public companies to ensure which of the following
individuals have considerable experience applying generally accepted accounting principles
(GAAP) for financial statements.
22. Balance Sheet You are evaluating the balance sheet for Campus Corporation. From the
balance sheet you find the following balances: cash and marketable securities = $400,000,
accounts receivable = $200,000, inventory = $100,000, accrued wages and taxes = $10,000,
accounts payable = $300,000, and notes payable = $600,000. What is Campus’s net working
capital?
23. Balance Sheet Jack and Jill Corporation’s year-end 2013 balance sheet lists current
assets of $250,000, fixed assets of $800,000, current liabilities of $195,000, and long-term debt of
$300,000. What is Jack and Jill’s total stockholders’ equity?
2-15
24. Income Statement Bullseye, Inc.’s 2013 income statement lists the following income and
expenses: EBIT = $900,000, interest expense = $85,000, and net income = $570,000. What are
the 2013 taxes reported on the income statement?
25. Income Statement Consider a firm with an EBIT of $500,000. The firm finances its
assets with $2,000,000 debt (costing 6 percent) and 50,000 shares of stock selling at $20.00 per
share. To reduce the firm’s risk associated with this financial leverage, the firm is considering
reducing its debt by $1,000,000 by selling an additional 50,000 shares of stock. The firm is in the
40 percent tax bracket. The change in capital structure will have no effect on the operations of
the firm. Thus, EBIT will remain $500,000. What is the change in the firm’s EPS from this change
in capital structure?
26. Income Statement Consider a firm with an EBIT of $5,000,000. The firm finances its
assets with $20,000,000 debt (costing 5 percent) and 70,000 shares of stock selling at $50.00 per
share. To reduce the firm’s risk associated with this financial leverage, the firm is considering
reducing its debt by $5,000,000 by selling an additional 100,000 shares of stock. The firm is in the
40 percent tax bracket. The change in capital structure will have no effect on the operations of
the firm. Thus, EBIT will remain $5,000,000. What is the change in the firm’s EPS from this
change in capital structure?
27. Income Statement Barnyard, Inc.’s 2013 income statement lists the following income
and expenses: EBIT = $500,000, interest expense = $45,000, and taxes = $152,000. Barnyard’s
has no preferred stock outstanding and 200,000 shares of common stock outstanding. What are
its 2013 earnings per share?
28. Corporate Taxes Eccentricity, Inc. had $300,000 in 2013 taxable income. Using the tax
schedule from Table 2-3, what are the company’s 2013 income taxes, average tax rate, and
marginal tax rate, respectively?
