FIN 300 EXAM 1 QUESTIONS AND
ANSWERS ALL CORRECT
Which of the following financial statements represents a flow of funds in a period?
a. Statement of cash flow; balance sheet
b. Statement of cash flow; income statement
c. Income statement; balance sheet
d. Balance sheet; statement of cash flow - Answer- b. statement of cash flow; income
statement
Which of the following income statement accounts represents the operating income of a
business?
a. Gross profit
b. Net income
c. Earnings before taxes (EBT)
d. Earnings before interest and taxes (EBIT) - Answer- d. earnings before interest and
taxes (EBIT)
Which of the following is most important to the financial analyst who would like to know
the cash flow earned from the operations of a business?
a. EBIT
b. EAT
c. Sales
d. EBITDA - Answer- d. EBITDA
In calculating earnings per share, EPS, net income, and earnings available to common
stockholders will be the same unless the corporation:
a. has long-term debt outstanding.
b. has preferred stock outstanding paying a preferred stock dividend.
c. has sufficient retained earnings.
d. pays a common dividend. - Answer- b. has preferred stock outstanding paying a
preferred stock dividend
Net working capital is calculated from the balance sheet by:
a. subtracting current liabilities from current assets.
b. subtracting current assets from current liabilities.
c. subtracting cash from current liabilities.
d. adding current assets and current liabilities. - Answer- a. subtracting current liabilities
from current assets
, Which of the following statements about interest and dividends and the corporation is
correct?
a. Interest income to the corporation is deductible, while dividends paid by the
corporation are not.
b. Interest expenses of the corporation are not deductible, nor are dividends paid.
c. Interest expenses of the corporation are deductible, but dividends paid are not.
d. Interest income received by the corporation is fully taxable, as are all dividends
received. - Answer- c. interest expenses of the corporation are deductible, but dividends
paid are not
Imus Corporation recently calculated their taxes for the previous year. The company
paid $350,000 in federal income taxes on taxable income of $1,029,412. While the
marginal tax rate of Imus Corp. is 34%, what was their average tax rate last year?
a. It cannot be calculated from the available information.
b. $350,000
c. 34%
d. 35% - Answer- b. 34% (use the table)
A company that is running "lean and mean:"
a. has a total asset turnover ratio that is high
b. is utilizing fewer of its assets for generation of sales
c. has a high liquidity ratio
d. has low gross profit margin - Answer- a. has a total asset turnover ratio that is high
A debt/equity ratio of 8.1 means:
a. the firm is financing the company with 81% borrowed funds
b. the firm has 81 times more equity than debt
c. debt is turning over 8.1 times a year
d. the firm has 8.1 times more debt than equity - Answer- d. the firm has 8.1 times more
debt thank equity
A current ratio of 0.9 means:
a. the firm has $0.90 of current liabilities for every $1.00 of current assets
b. the firm has $0.90 of fixed assets for every $1.00 of current assets
c. the firm has $0.90 of current assets for every $1.00 of current liabilities
d. the firm has a debt ratio of 90% - Answer- c. the firm has $0.90 of current assets for
every $1.00 of current liabilities
A net profit margin of 3.76% means:
a. for every dollar of sales, income of $3.76 is generated
b. for every dollar of sales, income of $.0376 is generated
c. for every dollar of equity, income of $.0376 is generated
d. for every dollar of assets, income of $3.76 is generated - Answer- b. for every dollar
of sales, income of $.0376 is generated
Return on equity is most accurately described as a measure of:
ANSWERS ALL CORRECT
Which of the following financial statements represents a flow of funds in a period?
a. Statement of cash flow; balance sheet
b. Statement of cash flow; income statement
c. Income statement; balance sheet
d. Balance sheet; statement of cash flow - Answer- b. statement of cash flow; income
statement
Which of the following income statement accounts represents the operating income of a
business?
a. Gross profit
b. Net income
c. Earnings before taxes (EBT)
d. Earnings before interest and taxes (EBIT) - Answer- d. earnings before interest and
taxes (EBIT)
Which of the following is most important to the financial analyst who would like to know
the cash flow earned from the operations of a business?
a. EBIT
b. EAT
c. Sales
d. EBITDA - Answer- d. EBITDA
In calculating earnings per share, EPS, net income, and earnings available to common
stockholders will be the same unless the corporation:
a. has long-term debt outstanding.
b. has preferred stock outstanding paying a preferred stock dividend.
c. has sufficient retained earnings.
d. pays a common dividend. - Answer- b. has preferred stock outstanding paying a
preferred stock dividend
Net working capital is calculated from the balance sheet by:
a. subtracting current liabilities from current assets.
b. subtracting current assets from current liabilities.
c. subtracting cash from current liabilities.
d. adding current assets and current liabilities. - Answer- a. subtracting current liabilities
from current assets
, Which of the following statements about interest and dividends and the corporation is
correct?
a. Interest income to the corporation is deductible, while dividends paid by the
corporation are not.
b. Interest expenses of the corporation are not deductible, nor are dividends paid.
c. Interest expenses of the corporation are deductible, but dividends paid are not.
d. Interest income received by the corporation is fully taxable, as are all dividends
received. - Answer- c. interest expenses of the corporation are deductible, but dividends
paid are not
Imus Corporation recently calculated their taxes for the previous year. The company
paid $350,000 in federal income taxes on taxable income of $1,029,412. While the
marginal tax rate of Imus Corp. is 34%, what was their average tax rate last year?
a. It cannot be calculated from the available information.
b. $350,000
c. 34%
d. 35% - Answer- b. 34% (use the table)
A company that is running "lean and mean:"
a. has a total asset turnover ratio that is high
b. is utilizing fewer of its assets for generation of sales
c. has a high liquidity ratio
d. has low gross profit margin - Answer- a. has a total asset turnover ratio that is high
A debt/equity ratio of 8.1 means:
a. the firm is financing the company with 81% borrowed funds
b. the firm has 81 times more equity than debt
c. debt is turning over 8.1 times a year
d. the firm has 8.1 times more debt than equity - Answer- d. the firm has 8.1 times more
debt thank equity
A current ratio of 0.9 means:
a. the firm has $0.90 of current liabilities for every $1.00 of current assets
b. the firm has $0.90 of fixed assets for every $1.00 of current assets
c. the firm has $0.90 of current assets for every $1.00 of current liabilities
d. the firm has a debt ratio of 90% - Answer- c. the firm has $0.90 of current assets for
every $1.00 of current liabilities
A net profit margin of 3.76% means:
a. for every dollar of sales, income of $3.76 is generated
b. for every dollar of sales, income of $.0376 is generated
c. for every dollar of equity, income of $.0376 is generated
d. for every dollar of assets, income of $3.76 is generated - Answer- b. for every dollar
of sales, income of $.0376 is generated
Return on equity is most accurately described as a measure of:
