Deck 4: Preparing and Using Financial Statements

Question 1

GAAP stands for "Generally Accepted Accounting Principles."

Answer 1

True

Question 2

How quickly an asset can be converted into cash is called liability.

Answer 2

False

Question 3

The balance sheet equation is: Total Assets = Total Liabilities + Net Income.

Answer 3

False

Question 4

Amounts owed to another for purchase made on credit which come due in less than one year are known as receivables.

Question 5

GAAP stands for "General American Accounting Principles."

Question 6

Net cash build occurs when the sum of cash flows from operations and investing is negative.

Question 7

On the balance sheet,Total Liabilities = Total Assets - Owners Equity.

Question 8

Net income,or profit,is the bottom line measure of what's left from the firm's net sales after operating expenses,financing costs,and taxes have been deducted.

Question 9

Net cash burn occurs when the sum of cash flows from operations and investing is positive.

Question 10

Long-term,non-cancelable leases whereby the owner receives payments that cover the cost of the equipment plus a return on investment in the equipment is known as a capital lease.

Question 11

Production assets (e.g.,inventories and equipment to produce products and give credit to customers)usually occurs during the development stage in a new venture's life cycle.

Question 12

During the development stage in a new venture's life cycle,the income statement typically shows no sales but expenses such as rent,utilities,and a subsistence salary for the entrepreneur.

Question 13

Cash or other assets that are expected to be converted into cash in less than one year are known as current liabilities.

Question 14

During the development stage in a new venture's life cycle,the balance sheet reflects the acquisition of initial assets and the obtaining of seed financing.

Question 15

Operating income,or earnings before interest and taxes,reflects the firm's profits after all operating expenses,excluding financing costs,have been deducted from net sales.

Question 16

The reduction in value of a fixed asset over its expected life intended to reflect the usage or wearing out of the asset is called accumulated depreciation.

Question 17

Assets are financial and physical items controlled or owned by the business.

Question 18

Accrual accounting is the practice of recording economic activity when recognized rather than waiting until realized.

Question 19

During the startup stage in a new venture's life cycle,the income statement typically shows no sales but expenses including the production and market of products or services.

Question 20

The practice of recording economic activity when realized is known as accrual accounting.

Question 21

Which of the following is not a characteristic of marketable securities?

A)short-term
B)illiquid
C)high-quality
D)interest-bearing

Question 22

"Variable expenses" are costs that are expected to remain constant over a range of revenues for a specific time period.

Question 23

"Contribution profit margin" is the portion of the sale of a product that contributes to covering the cash fixed costs.

Question 24

"Cost of goods sold" is the cost of materials,labor,and advertising incurred to produce the products that were sold.

Question 25

Seed financing (e.g.,financing from the entrepreneur's assets,family,and friends)usually occurs during the development stage in a new venture's life cycle.

Question 26

"Variable expenses" are costs or expenses that vary directly with revenues.

Question 27

EBDAT stands for "Earnings Before Depreciation And Taxes".

Question 28

Cash includes all of the following except:

A)coins
B)currency
C)checking accounts
D)certificates of deposit

Question 29

Which of the following is not a characteristic of inventories?

A)raw materials
B)finished products
C)goods sold but not yet shipped
D)work-in-process

Question 30

Which of the following is a source of cash?

A)an increase in accounts receivable
B)a decrease in wages payable
C)the acquisition of land
D)an increasein the amount owed on a note payable
E)the repurchase of outstanding shares of stock

Question 31

"Retained earnings" is:

A)a corporate asset
B)part of owners' equity
C)neither a or b
D)both a and b

Question 32

Financial statement that provides a snapshot of a business' financial position as of a specific date is called the:

A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows

Question 33

Financial statement that reports the revenues generated and expenses incurred over an accounting period is called the

A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows

Question 34

Which of the following is a use of cash?

A)a decrease in inventory
B)an increase in accrued liabilities
C)the sale of an asset for a gain
D)a drop in the amount owed on a bond
E)an increase in stock issued

Question 35

Which one of the following is not considered to be a current asset?

A)cash
B)receivables
C)inventories
D)fixed assets

Question 36

Financial statement that shows how cash,as reflected in accrual accounting,flows into and out of a company during a specific period of operation is called the:

A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows

Question 37

EBDAT is earnings before interest,taxes,depreciation,and amortization.

Question 38

Startup financing (e.g.,financing from business angels and venture capitalists)usually occurs during the development stage in a new venture's life cycle.

Question 39

Which of the following is not depreciated?

A)inventory
B)machinery
C)land
D)both a and b
E)both a and c

Question 40

The balance sheet equation states that total assets =

A)total liabilities + depreciation
B)total liabilities + owners' equity
C)owners' equity + net income
D)owners' equity + current liabilities
E)total liabilities + net income

Question 41

Acme Pest Control has sales of $13,500, cost of goods sold of $4,000, selling expenses of $3,500, depreciation of $2,000, interest expense of $2,000, and a tax rate of 34%.
What is Acme's operating income?

A)$4,000
B)$2,000
C)$9,500
D)$6,000
E)$1,320

Question 42

What is the survival revenues breakeven based on: cash fixed costs = $400,000 and a variable cost revenue ratio = .65?

A)$460,500
B)$615,385
C)$1,142,857
D)$2,000,334
E)$4,000,667

Question 43

EBDAT is equal to:

A)revenues - variable costs - cash fixed costs
B)revenues + variable costs + cash fixed costs
C)revenues - variables costs - total fixed costs
D)revenues + variable costs - cash fixed costs

Question 44

Expenses or costs that vary directly with revenues are said to be:

A)fixed expenses
B)semi-fixed expenses
C)semi-variable expenses
D)variable expenses

Question 45

Find the "contribution profit margin" based on the following information:cash fixed costs = $60,000; variable costs = $70,000; and sales = $100,000.

A)70%
B)60%
C)30%
D)40%
E)100%

Question 46

"Net cash burn" occurs when the sum of which of the following items is negative?

A)cash flows from operations and financing
B)cash flows from investing and financing
C)cash flows from operations and investing
D)cash flows from net income and depreciation
E)cash flows from operations and net income

Question 47

Which one of the following is not considered to be an internal operating schedule?

A)income statement
B)cost of production schedule
C)cost of goods sold schedule
D)inventories schedule

Question 48

According to Appendix A of Chapter 4,NOPAT is defined as:

A)revenues times (1 + tax rate)
B)revenues times (1 - tax rate)
C)EBITDA times (1 - tax rate)
D)EBIT times (1 - tax rate)
E)net income times (1 + tax rate)

Question 49

Acme Pest Control has sales of $13,500, cost of goods sold of $4,000, selling expenses of $3,500, depreciation of $2,000, interest expense of $2,000, and a tax rate of 34%.
What is Acme's taxable income and tax expense?

A)$6,000;$2,040
B)$2,000;$1,320
C)$4,000;$1,360
D)$2,000;$680
E)$9,500;$3,230

Question 50

Your venture has total assets of $690,net fixed assets of $500,long term debt of $80,and stockholders' equity of $400.What is the amount of your venture's current liabilities?

A)-$100
B)$100
C)$210
D)$290
E)$1,090

Question 51

Find the "survival revenues" (SR),also known as the EBDAT breakeven)based on the following information:cash fixed costs = $60,000; variable costs = $70,000; and sales = $100,000.

A)$85,714
B)$100,000
C)$116,667
D)$200,000
E)$300,000

Question 52

Last year a firm had sales of $200,000.Its cost of goods sold was $75,000,and administrative and marketing expenses were $25,000 each.Depreciation expense was $10,000,while interest expense was $15,000.If the tax rate is 30%,what was the firm's NOPAT last year?

A)$19,500
B)$35,000
C)$45,500
D)$52,500
E)$80,500

Question 53

A firm with constant variable costs has a survival revenue breakeven of $375,000.This year it had $250,000 in sales,$100,000 of which was a fixed cost.What are the firm's cash fixed costs?

A)$150,000
B)$225,000
C)$625,000
D)$937,500

Question 54

Acme Pest Control has sales of $13,500, cost of goods sold of $4,000, selling expenses of $3,500, depreciation of $2,000, interest expense of $2,000, and a tax rate of 34%.
What is Acme's net income?

A)$2,720
B)$897.60
C)$6,460
D)$2,040
E)$1,320

Question 55

"Gross earnings" is equal to:

A)Revenue - After-Tax cost of financial capital used
B)net income ÷ sales
C)(net sales - the cost of production)× tax rate
D)net sales - the cost of production

Question 56

Use the following information to determine the cash fixed costs: Administrative expenses = $200,000; Marketing expenses = $180,000; Depreciation expenses = $100,000; and Interest expenses = $20,000.

A)$380,000
B)$400,000
C)$480,000
D)$500,000
E)$620,000

Question 57

A lease that provides maintenance in addition to financing and is also usually cancelable is called:

A)capital lease
B)liability lease
C)operating lease
D)asset lease
E)equity lease

Question 58

Which of the following is not a category on the statement of cash flows?

A)cash flow from operating activities
B)cash flow from equity activities
C)cash flow from investing activities
D)cash flow from financing activities

Question 59

What is the survival revenues breakeven based on the following: Administrative expenses = $200,000; Marketing expenses = $180,000; Depreciation expenses = $100,000; and Interest expenses = $20,000; and a variable cost revenue ratio = .50?

A)$400,000
B)$600,000
C)$800,000
D)$1,000,000
E)$1,200,000

Question 60

In breakeven analysis,solving for when EBITDA is equal to zero gives breakeven in terms of:

A)economic revenues
B)variable costs
C)survival revenues
D)fixed costs

Question 61

Total operating fixed costs (TOFC)equal:

A)cash operating fixed costs (excluding interest expenses)
B)noncash fixed costs (e.g.,depreciation)
C)interest expenses
D)a plus b
E)a plus b plus c

Question 62

Last year,Beth's Baked Goods exactly broke even with cash fixed costs of $63,000.If its breakeven survival revenue level was $94,000,what was its variable cost revenue ratio (VCRR)?

A).27
B).30
C).33
D).67

Question 63

Determine the total operating fixed costs (TOFC)based on the following: Administrative expenses = $200,000; Marketing expenses = $180,000; Depreciation expenses = $100,000; and Interest expenses = $20,000.

A)$200,000
B)$380,000
C)$400,000
D)$480,000
E)$500,000

Question 64

Economic Value Added (EVA)is calculated as:

A)NOPAT plus after-tax dollar cost of financial capital used
B)ROE minus percentage cost of financial capital
C)NOPAT minus after-tax dollar cost of financial capital used
D)ROE plus the percentage cost of financial capital

Question 65

A firm's net operating profit after taxes (NOPAT)is calculated as:

A)net profit
B)EBIT times one minus the tax rate
C)EBT minus interest paid
D)EBIT times the tax rate

Question 66

Find the NOPAT given the following information:sales = $520,000,earnings before interest = $100,000; interest = $20,000; and the tax rate = 30%.

A)$70,000
B)$56,000
C)$30,000
D)$24,000
E)$10,000

Question 67

Find the NOPAT breakeven revenues (NR)given the following information:total operating fixed costs = $75,000; variable costs = $150,000; and sales = $200,000.

A)$100,000
B)$240,000
C)$300,000
D)$400,000
E)$460,000

Question 68

In its first year,Joe's Start-Up Company had revenues of $125,000 and cost of goods sold of $81,250,which was the only variable cost.Depreciation was $20,000,and cash costs were $5,000 in financing costs,admin expenses of $50,000,and $45,000 in marketing expenses - all of which were fixed.What is the survival breakeven revenue?

A)$342,857
B)$285,714
C)$271,429
D)$184,615
E)$153,846