Question 1

Assume tax rates on single individuals are 10% on taxable income up to $9,275,15% on income of $9,276 to $37,650 and 25% on income of $37,651 to $91,150.What is the tax liability for a single individual with $52,000 of taxable income,which includes $2,000 of dividends?

Accepted Answer

(0.10 × $9,275) + (0.15 × $28,375) + (0.25 × $14,350) = $8,771.25

Question 2

Which one of these will increase a firm's cash balance?

Accepted Answer

Issuing common stock brings in cash from investors, increasing the firm's cash balance.

Question 3

What is the overall change in cash resulting from: $300 increase in inventories,$150 increase in accounts payable,$120 decrease in accounts receivable,$60 decrease in other current assets,$150 decrease in other current liabilities?

Accepted Answer

Net change in cash = −$300 + 150 + 120 + 60 − 150 = −$120

Question 4

Which type of income is subject to "double taxation"?

Accepted Answer

Dividends are subject to double taxation as they are taxed at the corporate level when the company makes a profit and then taxed again at the individual level when shareholders receive the dividend payments. Wages and capital gains are not subject to double taxation.

Question 5

You have gathered this information on a firm: $500,000 sales,$10,000 cash dividends,$300,000 cost of goods sold,$20,000 administrative expense,$20,000 depreciation expense,$40,000 interest expense,$10,000 purchase of productive equipment,no changes in working capital,and a tax rate of 35%.What is the free cash flow?

Accepted Answer

Net income = ($500,000 − 300,000 − 20,000 − 20,000 − 40,000) × (1 − 0.35) = $78,000Cash flow from operations = $78,000 + 40,000 + 20,000 = $138,000Free cash flow = $138,000 − 10,000 = $128,000

Question 6

Which of the following forms of income can individuals defer from taxation?

Accepted Answer

Individuals can defer taxation on unrealized capital gains until the asset is sold.

Question 7

What are the average and marginal tax rates for a corporation that has $97,648 of taxable income? The tax rates are as follows:

Accepted Answer

Average tax rate = $21,450.32/$97,648 = 0.2197, or 21.97%Marginal tax rate = 34%

Question 8

Who pays taxes on earnings distributed as dividends?

Accepted Answer

The answer of Who pays taxes on earnings distributed as...

Question 9

Professor Diehard found an effective antibiotic for the DEPRESS bacteria,and patented the drug.He believes that he could sell the patent for $20 million.He then formed a corporation and invested $400,000 in setting up a production plant.There are 2 million shares of stock outstanding.If the professor's belief is correct,what would be the price per share and the book value per share?

Accepted Answer

Book value equals the $400,000 Professor Diehard has contributed in tangible assets. Market value equals the value of his patent plus the value of the production plant, or $20.4 million. Price per share = $20.4 million/2 million shares = $10.20. Book value per share = $400,000/2 million shares = $0.20.

Question 10

What is the change in cash for a firm with the following: $10,000 cash flow from operations,$1,600 cash used for new investment,a reduction in the level of debt of $2,000,$1,000 in cash dividends,and $200 in depreciation expense?

Accepted Answer

Change in cash = $10,000 − 1,600 − 2,000 − 1,000 = $5,400

Quiz 3: Accounting and Finance