Chapter 02 – Review of Accounting
116. Hoover Inc. has current assets of $350,000 and fixed assets of $650,000. Current
liabilities are $100,000 and long-term liabilities are $250,000. There is $120,000 in preferred
stock outstanding and the firm has issued 10,000 shares of common stock. Compute book
value (net worth) per share
117. The best indication of the operational efficiency of management is
Chapter 02 – Review of Accounting
118. A corporation can increase their earnings per share by
119. Which factor(s) can cause an increase in the firm’s P/E ratio?
120. Which of the following would indicate an accurate Statement of Cash Flows?
Chapter 02 – Review of Accounting
121. An increase of $100,000 in inventory would result in an
122. Compute the net increase or decrease in cash flows if Star Corporation had $250,000 in
net income, $30,000 in depreciation expense, a decrease of $20,000 in A/R and an increase in
bonds payable of $50,000
123. One of the primary factors evaluated when a company is pursuing a leveraged buyout is
Chapter 02 – Review of Accounting
124. Backdating of options is
Chapter 02 – Review of Accounting
125. Match the following with the questions below:
All the assets of the firm minus the liabilities and
2. cash flows from
A financial statement that indicates what the firm
owns, and how these assets are financed in the form of
Changes accrual-based information from income
4. marketable
The relative convertibility of short-term assets into
5. cash flow from
The levy expressed as a percentage that applies to
6. statement of cash
The multiplier applied to earnings per share to
7. net worth or book
The income available to common stockholders
8. historical cost
A financial statement that measures the profitability
10. earnings per
Represents the net cash flow that results from
The total ownership position of preferred and
Traditional method of accounting using original
13. cash flows from
Short-term signed obligations to banks or other
15. stockholders’
Cash flow that is generated (or reduced) from the
sale or repurchase of securities or the payment of cash
16. marginal
The allocation of the initial cost of an asset over its
Cash flows from operations minus working capital
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126. The following is the December 31, 2010 balance sheet for the Epics Corporation.
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127. Given the financial information for the A.E. Neuman Corporation,
a) Prepare a Statement of Cash Flows for the year ended December 31, 2010.
b) What is the dividend payout ratio for 2010?
c) If we increased the dividend payout ratio to 100%, what would happen to retained earnings
at year end 2010?
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Chapter 02 – Review of Accounting
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128. Assume the company has issued 15,000 bonds with a coupon rate of 10% and a face
value of $1,000 per bond, and the company has a marginal tax rate of 40%. Calculate the
annual after-tax cost of the interest expense.
Chapter 02 – Review of Accounting
129. ElectroWizard Company produces a popular video game called Destructo which sells for
$65. Last year ElectroWizard sold 100,000 Destructo games, each of which costs $10 to
produce. ElectroWizard incurred selling and administrative expenses of $200,000 and
depreciation expense of $100,000. In addition, ElectroWizard has a $1,000,000 loan
outstanding at 8%. Their tax rate is 40%. There are 400,000 common shares outstanding.
Prepare an income statement for ElectroWizard in good form (include EPS).
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130. Identify each of the following as increasing (+) or decreasing ( ) cash flows from
operating activities (0), investment activities (I), or financing activities (F). (EXAMPLE: the
sale of plant and equipment would increase cash flows from investing activities, and the
correct answer would be +I).
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