Questions and Answers
Paid-in surplus is classified as?
The market value of an asset tends to provide a better guide to the actual worth of that asset than does the book value.
True
Net working capital increases when?
Inventory is sold at a profit
The book value of Roscoe's assets today is _____ and the market value is ____.
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What is the total book value of Pier Imports' assets?
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What is the book value of total assets for Klingon Widgets, Inc.?
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Given a profitable firm, depreciation _____ taxes.
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Net income increases when?
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How much net income did Holly Farms earn for the period?
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What was the amount of the depreciation expense for The Pizza Joint?
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What is the addition to retained earnings for AV Sales?
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What is the earnings per share for Pharrell, Inc.?
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Cash flow from assets is defined as?
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The corporate tax structure in the U.S. is based on a modified flat-rate tax.
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What is the average tax rate on income of $61,609 for Neiger Flours?
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What is the amount of cash flow to creditors for Yard Services?
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What is the change in net working capital for Maria's Tennis Shop, Inc.?
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Study Notes
Owners' Equity and Market Value
- Paid-in surplus is categorized under owners' equity.
- Market value of an asset typically reflects its true worth better than book value.
Working Capital and Inventory
- Net working capital grows when inventory is sold profitably.
- Keller's balance sheet detail includes net fixed assets and liabilities that influence overall financial health.
Asset Valuation and Liquidation
- Roscoe's assets have a book value of $1,429,000 and a market value of $1,718,000, considering liquidated assets of $518,000.
- Pier Imports has a total book value of assets calculated at $293,200 based on liquidations and depreciation.
Depreciation and Net Income
- Depreciation impacts taxes favorably for profitable firms by lowering tax liability.
- Net income can be increased through higher revenue generation.
Financial Performance Metrics
- Holly Farms reports a net income of $9,324 after accounting for sales, costs, depreciation, and interest while considering a 28% tax rate.
- The Pizza Joint's depreciation expense is calculated to be $2,503, based on retained earnings, sales, and tax rate.
Retained Earnings Analysis
- AV Sales has addition to retained earnings amounting to $29,804 after accounting for revenue, costs, and tax implications.
- Pharrell, Inc. shows earnings per share (EPS) of $3.30 and dividends per share (DPS) of $0.90 after relevant expenses and tax calculations.
Cash Flow Definitions
- Cash flow from assets is characterized as operating cash flow minus changes in net working capital and net capital spending.
Corporate Tax Structure
- U.S. corporate tax is structured as a modified flat-rate tax system, affecting overall tax liabilities.
Average Tax Rate Computation
- Neiger Flours’ average tax rate is calculated to be 27.56% based on income and tax payments.
Cash Flow to Creditors
- Yard Services’ cash flow to creditors totals $39,200, derived from interest payments and adjustments in debt obligations.
Changes in Net Working Capital
- Maria's Tennis Shop's change in net working capital amounts to $135, based on current assets and liabilities analysis over the year.
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Description
Test your understanding of key finance concepts in Unit 4. This quiz covers topics such as owners' equity, market values versus book values, and net working capital. Perfect for reinforcing your knowledge in finance!
