Financial Management Exam Study Guide: Chapter 3 Multiple Choice

Which of the basic financial statements is best used to answer the question, "How profitable is the business?" A. Statement of shareholder's equity B. Balance sheet C. Income statement D. Accounts receivable aging schedule - correct answer C. Income statement Who owns the retained earnings of a public firm? A. The IRS B. Preferred stockholders C. Bondholders D. Common stockholders - correct answer D. Common stockholders Stock that is repurchased by the issuing company is called A. retained capital. B. par value stock. C. treasury stock. D. paid in capital. - correct answer C. treasury stock. Which of the basic financial statements is best used to answer the questions "What does the company own and how is it financed?" A. Income statement B. Statement of shareholder's equity C. Cash flow statement D. Balance sheet - correct answer D. Balance sheet Which of the basic financial statements is best used to answer the questions "Where did the company's money come from and how was it spent over the preceding year?" A. Statement of shareholder's equity B. Cash flow statement C. Balance sheet D. Income statement - correct answer B. Cash flow statement Which of the following is NOT included in computing EBT (earnings before taxes)? .A. Dividends B. Marketing expenses C. Cost of goods sold D. Depreciation expense - correct answer A. Dividends Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's EBIT? A. $4,630,000 B. $58,000,000 C. $15,552,000 D. $5,110,000 - correct answer D. $5,110,000 Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's gross profit? A. $5,000,110 B. $18,000,000 C. $15,225,000 D. $6,632,000 - correct answer C. $15,225,000 Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's income before tax? A. $10,865,000 B. $25,115,000 C. $4,360,000 D. $750,000 - correct answer C. $4,360,000 Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $8,750,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's net income? A. $2,616,000 B. $7,775,000 C. $4,731,000 D. $255,223 - correct answer C. $4,731,000 A & K Co. expects to have earnings before taxes of $250,000 to $300,000. The company's marginal tax rate is 39% and its average tax rate about 33%. For every additional dollar of interest expense, A & K's taxes will A. be unaffected. B. increase by 39 cents. C.