Response to the following multiple choice questions:
1. James Inc. is financed with 15 percent debt and 85 percent equity. This mixture of equity and debt is commonly called the company's:
A. capital structure.
B. capital budget.
C. asset allocation.
D. working capital.
E. risk structure.
2. Romy & Coletteare sisters who love cycling. They decided to create a business together Mountain, Road, Tandem and Children's bicycles. Romy & Colette will equally share in the decision making and in the profits or losses. Which type of business did they make if they both have full personal liability for the firm's debts?
A. Sole proprietorship
B. Limited partnership
C. Corporation
D. Joint stock company
E. General partnership
3. The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
A. Organizational
B. Structure
C. Formation
D. Agency
E. Territorial
4. Joyce is the sole proprietor of a businessthat she has operated from the same location for two decades. The business rents the space in which it is located but it owns all of the fixtures and inventory. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific loan covenants or assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient earnings to make the loan payments due to the bank. Which of the options below can the bank use to collect the money it is owed?
I. Sell the inventory and use the cash raised to apply to the debt
II. Sell the store fixtures and use the cash raised to apply to the debt
III. Take funds from Maria's personal account at the bank to pay the store's debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt
A. I only
B. III only
C. I and II only
D. I, II, and III only
E. I, II, III, and IV
5. Which of the following are advantages of the corporate form of organization?
I. Ability to raise large sums of equity capital
II. Ease of ownership transfer
III. Profits taxed at the corporate level
IV. Limited liability for all owners
A. I and II only
B. III and IV only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
6. The accounting statement which measures the revenues, expenses, and net income of a firm over a period of time is called the:
A. statement of cash flows.
B. income statement.
C. GAAP statement.
D. balance sheet.
E. net working capital schedule.
7. The financial statement that summarizes a firm's accounting value as of a particular date is called the:
A. cash flow statement.
B. income statement.
C. liquidity position.
D. balance sheet.
E. periodic operating statement.
8. Which one of the following is included in net working capital?
A. Equipment
B. Accounts receivable
C. Land
D. Depreciation
E. Dividend
9. The recognition principle states that:
A. costs should be recorded on the income statement whenever those costs can be reliably determined.
B. costs should be recorded when paid.
C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
D. sales should be recorded when the payment for that sale is received.
E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
10. The matching principle states that:
A. costs should be recorded on the income statement whenever those costs can be reliably determined.
B. costs should be recorded when paid.
C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
D. sales should be recorded when the payment for that sale is received.
E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
11. Grace's Gardens has total assets of $90,200, net working capital of $24,900, owner's equity of $40,100, and long-term debt of $27,900. What is the value of the current assets?
A. $44,700
B. $21,800
C. $45,700
D.$31,400
E.$47,100
12. David's Deli has total assets of $35,300, long-term debt of $9,000, net fixed assets of $20,300, and owners' equity of $22,000. What is the value of the net working capital?
A.$12,000
B.$13,600
C.$10,400
D.$10,700
E.$12,600
13. Jenna's Jewels has sales of $89,600. The cost of goods sold is $54,200 and the other costs are $19,700. Depreciation is $8,000 and the tax rate is 21 percent. What is the net income?
A. $7,489
B. $6,083
C. $5,112
D. $4,904
E. $8,352
14. Harper's Homes, Inc. incurred depreciation expenses of $21,900 last year. The sales were $811,400 and the addition to retained earnings was $15,680. The firm paid interest of $9,700 and dividends of $2,100. The tax rate was 34 percent. What was the amount of the costs incurred by the firm?
A.$764,020
B.$752,861
C.$779,800
D.$741,511
E.$755,891
Use the following Balance Sheet and Income Statement to answer questions 15-19.
Balance Sheet
2016 2017 2016 2017
Cash $1,300 $ 1,800 Accounts payable $13,500 $16,900
Accounts receivable 17,400 15,800 Long-term debt 38,500 47,000
Inventory 24,900 3,200 Common stock 18,000 21,000
Net fixed assets 87,500 89,700 Retained earnings 61,100 45,600
Total assets $131,100 $130,500 Total liabilities and equity $131,100 $130,500
2017 Income Statement
Net Sales $142,600
Costs 123,700
Depreciation 13,700
EBIT 5,200
Interest 2,900
Taxable income 2,300
Taxes 400
Net Income $ 1,900
15. What is the amount of the operating cash flow for 2017?
A.$16,000
B.$18,500
C.$20,700
D.$18,100
E.$15,600
16. What is the net new borrowing for 2017?
A.$13,700
B.$6,600
C.$9,200
D.$8,500
E.$10,400
17. What is the change in net working capital for 2017?
A.$-6,700
B.$-5,700
C.$-6,200
D.$5,000
E.$6,200
18. What is the cash flow to creditors for 2017?
A.$-5,600
B.$8,500
C.$2,900
D.$5,600
E.$-8,500
19. What is the net capital spending for 2017?
A.$-2,200
B.$15,600
C.$15,900
D.$11,500
E.$2,200
20. We discussed Tesla at length in class. Which of the following statements about the company is not true?
A. Despite having considerably smaller revenues, the market has valued Tesla above other automakers like GM & Ford.
B. Tesla has had trouble meeting the production goals the company has set for itself.
C. Analysts agree with Elon Musk that Tesla has plenty of cash to meet expected needs in the coming years.
D. Between 2012 and 2017 Tesla's stock price went up dramatically.
E. Tesla has never made an annual profit