FIN571WEEK2 PROBLEMSOLUTIONS

FIN571WEEK2 CONNECTPROBLEMS
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1. Sankey, Inc., has current assets of $5,000, net fixed assets of
$23,000, current liabilities of $3,500, and long-term debt of $7,900.
(Do not round intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
Shareholders' equity $_________
How much is net working capital?
Net working capital $_________
2. Which one of these accounts is classiﬁed as a current asset on the
balance sheet?
•intangible asset
•accounts payable
•preferred stock
•inventory
•net plant and equipment
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3. It is easier to evaluate a firm using its financial statements when the
firm:
•is a conglomerate.
•is global in nature.
•uses the same accounting procedures as other firms in its industry.
•has a different fiscal year than other firms in its industry.
•tends to have one-time events such as asset sales and property
acquisitions.
4. The cash flow resulting from a firm's ongoing, normal business activities
is referred to as the:
•operating cash flow.
•net capital spending.
•additions to net working capital.
•cash flow to retained earnings.
•cash flow to investors.
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5. Which one of these is a non-cash item?
•depreciation
•interest expense
•current taxes
•dividends
•selling expenses
6. Sankey, Inc., has current assets of $5,000, net fixed assets of
$23,300, current liabilities of $4,450, and long-term debt of $11,000.
(Do not round intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
Shareholders' equity $_________
How much is net working capital?
Net working capital $_________
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7. Shelton, Inc., has sales of $401,000, costs of $189,000, depreciation expense of $54,000,
interest expense of $35,000, and a tax rate of 30 percent. (Do not round intermediate
calculations.)
What is the net income for the firm?
Net income $_________
Suppose the company paid out $44,000 in cash dividends. What is the addition to retained
earnings?
Addition to retained earnings $_________
8. During the year, the Senbet Discount Tire Company had gross sales of $1.17 million. The
firm’s cost of goods sold and selling expenses were $536,000 and $226,000, respectively. The
firm also had notes payable of $910,000. These notes carried an interest rate of 6 percent.
Depreciation was $141,000. The firm’s tax rate was 40 percent.
a. What was the firm’s net income? (Do not round intermediate calculations. Enter your
answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest
whole number, e.g., 32.)
Net income $_________
b. What was the firm’s operating cash flow? (Do not round intermediate calculations. Enter
your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the
nearest whole number, e.g., 32.)
Operating cash flow $_________
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9. Use the following information for Ingersoll, Inc., (assume the tax rate is 40
percent):
2014 2015
Sales $9,535 $ 10,109
Depreciation 1,295 1,296
Cost of goods sold 2,866 3,230
Other expenses 809 704
Interest 695 773
Cash 4,279 5,373
Accounts receivable 5,609 6,297
Short-term notes payable 964 916
Long-term debt 15,330 17,750
Net fixed assets 36,155 37,317
Accounts payable 4,656 4,355
Inventory 9,840 10,108
Dividends 1,126 1,221
Prepare an income statement for this company for 2014 and 2015. (Do not
round intermediate calculations. Round your answers to 2 decimal places, e.g.,
32.16.)

Ingersoll, Inc. Income Statement
2014 2015
Sales $____ $______
Cost of goods sold _____ _______
Other expenses _____ _______
Depreciation _____ _______
EBIT $_____% $______%
Interest ______ _______
EBT $_____% $______%
Taxes ______% _______%
Net income $_____% $______%
Dividends $_____ $______
Additions to RE ______% _______%
Prepare the balance sheet for this company for 2014 and 2015. (Do not round
intermediate calculations. Be sure to list the accounts in order of their liquidity.)

Ingersoll, Inc. Balance Sheet as of Dec. 31
2014 2015
Assets
Cash $______ $______
Accounts receivable _______ _______
Inventory _______ _______
Current assets $______% $______
Net fixed assets _______ _______
Total assets $______% $_______%
Liabilities
Accounts payable $______ $______
Notes payable _______ _______
Current liabilities $______% $_______%
Long-term debt _______ _______
Owners' equity _______% ________%
Total liabilities & owners' equity $______% $_______%
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10. The total asset turnover ratio measures the amount of:
•total assets needed for every $1 of sales.
•sales generated by every $1 in total assets.
•fixed assets required for every $1 of sales.
•net income generated by every $1 in total assets.
•net income than can be generated by every $1 of fixed assets.
11. The current ratio is measured as:
•current assets minus current liabilities.
•current assets divided by current liabilities.
•current liabilities minus inventory, divided by current assets.
•cash on hand divided by current liabilities.
•current liabilities divided by current assets.
12. Which statement expresses all accounts as a percentage of total assets?
•pro forma balance sheet
•common-size income statement
•statement of cash flows
•pro forma income statement
•common-size balance sheet
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13. Ratios that measure how efficiently a firm's management uses its assets and equity to
generate bottom line net income are known as _______ ratios.
•asset management
•long-term solvency
•short-term solvency
•profitability
•market value
14. Ratios that measure a firm's ability to pay its bills over the short run without undue stress
are known as:
•asset management ratios.
•long-term solvency measures.
•liquidity measures.
•profitability ratios.
•market value ratios.
15. Which one of the following sets of ratios would generally be of the most interest to
stockholders?
•return on assets and profit margin
•quick ratio and times interest earned
•price-earnings ratio and debt-equity ratio
•return on equity and price-earnings ratio
•cash coverage ratio and equity multiplier
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16. The receivables turnover ratio is measured as:
•sales plus accounts receivable.
•sales divided by accounts receivable.
•sales minus accounts receivable, divided by sales.
•accounts receivable times sales.
•accounts receivable divided by sales.
17. The Purple Martin has annual sales of $4,800, total debt of $1,210, total equity of $2,500,
and a proﬁt margin of 7 percent. What is the return on assets?
•7.00 percent
•9.06 percent
•13.44 percent
•11.74 percent
•27.77 percent
18. A ﬁrm has a debt-equity ratio of .38. What is the total debt ratio?
•.61
•.39
•.28
•1.63
•1.38
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19. A firm has total debt of $1,100 and a debt-equity ratio of .31. What is the value of the
total assets?
•$3,100
•$4,648
•$1,441
•$3,420
•$3,548
20. The inventory turnover ratio is measured as:
•total sales minus inventory.
•inventory times total sales.
•cost of goods sold divided by inventory.
•inventory divided by cost of goods sold.
•inventory divided by sales.
21. A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every:
•$1 in total equity.
•$.53 in total assets.
•$1 in current assets.
•$.53 in total equity.
•$1 in fixed assets.
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22. The higher the inventory turnover, the:
•less time inventory items remain on the shelf.
•higher the inventory as a percentage of total assets.
•longer it takes a firm to sell its inventory.
•greater the amount of inventory held by a firm.
•lesser the amount of inventory held by a firm.
23. Galaxy United, Inc. 2009 Income Statement ($ in millions)
Net sales $ 8,500
Less: Cost of goods sold 7,150
Less: Depreciation 420
Earnings before interest and taxes 930
Less: Interest paid 82
Taxable Income 848
Less: Taxes 297
Net income $ 551

Galaxy United, Inc. 2008 and 2009 Balance Sheets ($ in millions)
2008 2009 2008 2009
Cash $ 130 $ 160 Accounts payable $1,110 $1,140
Accounts rec. 950 780 Long-term debt 980 1,290
Inventory 1,480 1,520 Common stock $3,130 $2,930
Sub-total $2,560 $2,460 Retained earnings 500 750
Net ﬁxed assets 3,160 3,650
Total assets $5,720 $6,110 Total liab. & equity $5,720 $6,110
What is the return on equity for 2009?
•13 percent
•10 percent
•15 percent
•18 percent
•16 percent
24. If Wilkinson, Inc., has an equity multiplier of 1.47, total asset turnover of 1.6, and a
profit margin of 5.7 percent, what is its ROE? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
ROE _________%
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25. The financial ratio measured as net income divided by sales is known as the firm's:
•profit margin.
•return on assets.
•return on equity.
•asset turnover.
•earnings before interest and taxes.
26. The financial ratio that measures the accounting profit per dollar of book equity is
referred to as the:
•profit margin.
•price-earnings ratio.
•equity turnover.
•market profit-to-book ratio.
27. Puffy's Pastries generates five cents of net income for every $1 in equity. Thus, Puffy's
has _______ of 5 percent.
•a return on assets
•a profit margin
•a return on equity
•an EV multiple
•a price-earnings ratio
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28. If stockholders want to know how much profit the firm is making on their
entire investment in that firm, the stockholders should refer to the:
•profit margin.
•return on assets.
•equity multiplier.
•earnings per share.
29. The most effective method of directly evaluating the financial performance
of a firm is to compare the financial ratios of the firm to:
•the firm?s ratios from prior time periods and to the ratios of firms with
similar operations.
•the average ratios of all firms within the same country over a period of time.
•those of other firms located in the same geographic area that are similarly
sized.
•the average ratios of the firm?s international peer group.
•those of the largest conglomerate that has operations in the same industry
as the firm.
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30. Which one of these equations is an accurate expression of the balance
sheet?
•Assets ? Liabilities −Stockholders? equity
•Stockholders? equity ? Assets + Liabilities
•Liabilities ? Stockholders? equity −Assets
•Assets ? Stockholders? equity −Liabilities
•Stockholders? equity ? Assets –Liabilities
31. The financial statement summarizing a firm's accounting performance
over a period of time is the:
•income statement.
•balance sheet.
•statement of cash flows.
•tax reconciliation statement.
•statement of equity.

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FIN 571 Week 1 Quiz
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FIN 571 Week 5 Quiz
FIN 571 Week 6 Quiz
FIN 571 Final Exam (Newest)
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FIN571WEEK2 PROBLEMSOLUTIONS

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