Question 1

The Good Life Store has sales of $79,600.The cost of goods sold is $48,200 and the other costs are $18,700.Depreciation is $8,300 and the tax rate is 34 percent.What is the net income?

Accepted Answer

Net income = ($79,600 - $48,200 - $18,700 - $8,300)(1 - 0.34) = $2,904

Question 2

Paddle Fans & More has a marginal tax rate of 34 percent and an average tax rate of 23.7 percent.If the firm earns $138,500 in taxable income,how much will it owe in taxes?

Accepted Answer

Tax = ($138,500)(0.237) = $32,824.50

Question 3

The financial statements of Jame's Auto Repair reflect cash of $14,600,accounts receivable of $11,500,accounts payable of $22,900,inventory of $17,800,long-term debt of $42,000,and net fixed assets of $63,800.The firm estimates that if it wanted to cease operations today it could sell the inventory for $35,000 and the fixed assets for $49,000.The firm could also collect 100 percent of its receivables.What is the market value of the assets?

Accepted Answer

Market value = $14,600 + $11,500 + $35,000 + $49,000 = $110,100

Question 4

The Pier Import Store has cash of $34,600 and accounts receivable of $54,200.The inventory cost $92,300 and can be sold today for $146,900.The fixed assets were purchased at a cost of $234,500 of which $107,900 has been depreciated.The fixed assets can be sold today for $199,000.What is the total book value of the firm's assets?

Accepted Answer

Total book value = $34,600 + $54,200 + $92,300 + $234,500 - $107,900 = $307,700

Question 5

Chevelle,Inc.has sales of $487,000 and costs of $394,500.The depreciation expense is $43,800.Interest paid equals $18,200 and dividends paid equal $6,500.The tax rate is 35 percent.What is the addition to retained earnings?

Accepted Answer

Addition to retained earnings = [($487,000 - $394,500 - $43,800 - $18,200)(1 - 0.35)] - $6,500 = $13,325

Question 6

ACE,Inc.incurred depreciation expenses of $21,900 last year.The sales were $811,400 and the addition to retained earnings was $14,680.The firm paid interest of $9,700 and dividends of $10,100.The tax rate was 40 percent.What was the amount of the costs incurred by the firm?

Accepted Answer

Earnings before interest and taxes = [($14,680 + $10,100)/(1 - 0.40)] + $9,700 = $51,000; Costs = $811,400 - $21,900 - $51,000 = $738,500

Question 7

The Toy Store has beginning retained earnings of $28,975.For the year,the company earned net income of $4,680 and paid dividends of $1,600.The company also issued $3,000 worth of new stock.What is the value of the retained earnings account at the end of the year?

Accepted Answer

Retained earnings = $28,975 + $4,680 - $1,600 = $32,055

Question 8

For the year,Movers United has net income of $31,800,net new equity of $7,500,and an addition to retained earnings of $24,200.What is the amount of the dividends paid?

Accepted Answer

Dividends paid = $31,800 - $24,200 = $7,600

Question 9

Holly Farms has sales of $581,600,costs of $479,700,depreciation expense of $32,100,and interest paid of $8,400.The tax rate is 42 percent.How much net income did the firm earn for the period?

Accepted Answer

Net income = ($581,600 - $479,700 - $32,100 - $8,400)(1 - 0.42) = $35,612

Question 10

Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600.The company has determined that it will owe $56,211 in tax if its taxable income rises to $565,000.What is the marginal tax rate at this level of income?

Accepted Answer

Marginal tax = ($56,211 - $48,329)/($565,000 - $549,600) = 51.18 percent

Question 11

Lester's Fried Chick'n purchased its building 11 years ago at a cost of $139,000.The building is currently valued at $179,000.The firm has other fixed assets that cost $66,000 and are currently valued at $58,000.To date,the firm has recorded a total of $79,000 in depreciation on the various assets.The company has current liabilities of $36,600 and net working capital of $18,400.What is the total book value of the firm's assets?

Accepted Answer

Book value = $139,000 + $66,000 - $79,000 + $18,400 + $36,600 = $181,000

Question 12

Gino's Winery has net working capital of $29,800,net fixed assets of $64,800,current liabilities of $34,700,and long-term debt of $23,000.What is the value of the owners' equity?

Accepted Answer

Owners' equity = $29,800 + $64,800 - $23,000 = $71,600

Question 13

Leslie Printing has net income of $26,310 for the year.At the beginning of the year,the firm had common stock of $55,000,paid-in surplus of $11,200,and retained earnings of $48,420.At the end of the year,the firm had total equity of $142,430.The firm does not pay dividends.What is the amount of the net new equity raised during the year?

Accepted Answer

Net new equity = $142,430 - $26,310 - $55,000 - $11,200 - $48,420 = $1,500

Question 14

Last year,The Pizza Joint added $4,100 to retained earnings from sales of $93,600.The company had costs of $74,400,dividends of $2,500,and interest paid of $1,400.The tax rate was 34 percent.What was the amount of the depreciation expense?

Accepted Answer

Earnings before interest and taxes = [($4,100 + $2,500)/(1 - 0.34)] + $1,400 = $11,400; Depreciation = $93,600 - $74,400 - $11,400 = $7,800

Question 15

The owners' equity for The Deer Store was $58,900 at the beginning of the year.During the year,the company had aftertax income of $4,200,of which $3,200 was paid in dividends.Also during the year,the company repurchased $6,500 of stock from one of the shareholders.What is the value of the owners' equity at year end?

Accepted Answer

Ending owners' equity = $58,900 + $4,200 - $3,200 - $6,500 = $53,400

Question 16

Use the following tax table to answer this question:  Bait and Tackle has taxable income of $411,562.How much does it owe in taxes?

Accepted Answer

Total tax = ($50,000)(0.15) + ($25,000)(0.25) + ($25,000)(0.34) + ($235,000)(0.39) + ($411,562 - $335,000)(0.34) = $139,931.08

Question 17

Bama & Co.owes a total of $21,684 in taxes for this year.The taxable income is $61,509.If the firm earns $100 more in income,it will owe an additional $56 in taxes.What is the average tax rate on income of $71,609?

Accepted Answer

Average tax rate = ($21,684 + $56)/$61,609 = 35.29 percent

Question 18

The Embroidery Shoppe had beginning retained earnings of $18,670.During the year,the company reported sales of $83,490,costs of $68,407,depreciation of $8,200,dividends of $950,and interest paid of $478.The tax rate is 35 percent.What is the retained earnings balance at the end of the year?

Accepted Answer

Net income = ($83,490 - $68,407 - $8,200 - $478) × (1 - 0.35) = $4,163.25; Ending retained earnings = $18,670 + $4,163.25 - $950 = $21,883.25

Question 19

Use the following tax table to answer this question:  The Holiday Inn earned $177,284 in taxable income for the year.How much tax does the company owe on this income?

Accepted Answer

Total tax = ($50,000)(0.15) + ($25,000)(0.25) + ($25,000)(0.34) + ($177,284 - $100,000)(0.39) = $52,390.76

Question 20

Bridgewater Furniture has sales of $811,000,costs of $658,000,and interest paid of $21,800.The depreciation expense is $56,100 and the tax rate is 34 percent.At the beginning of the year,the firm had retained earnings of $318,300 and common stock of $250,000.At the end of the year,the firm has retained earnings of $322,500 and common stock of $280,000.What is the amount of the dividends paid for the year?

Accepted Answer

Dividends paid = [($811,000 - $658,000 - $56,100 - $21,800)(1 - 0.34)] - ($322,500 - $318,300) = $45,366

Quiz 2: Financial Statements, Taxes, and Cash Flow