In: Accounting
_____ 1. Using financial leverage:
a. |
results in a fixed charge that can materially affect earnings available to common shareholders. |
b. |
increases risk to the firm as interest rates rise and returns to shareholders decreases. |
c. |
may be favorable when earnings generated by use of borrowed funds exceeds borrowing costs. |
d. |
requires reviewing planned business transactions for the potential impact they may have on operating income and the ability to cover fixed interest charges. |
e. |
All of the above answers are correct. |
_____2. The following information is available for Schanna Company:
20XX
Market price per share of common stock $38.75
Diluted Earnings per share of common stock $ 1.33
Dividends per share of common stock $ 0.55
Calculate:
Price-earnings ratio_____________________
Dividend payout ratio_________________________
Dividend yield ________________
T or F The price/earnings ratio is a measure to assess future earning ability of a firm. (If false, identify and correct the error)
_____3. The following data were gathered from the annual report of EML, Inc.
Market price per share |
$ 36.00 |
Number of common shares |
9,500 |
Preferred stock, 5% $100 par |
$ 15,000 |
Total Stockholders’ Equity |
$225,000 |
I. The book value per share is:
a. |
$36.00 |
b. |
$23.68 |
c. |
$25.26 |
d. |
$14.36 |
e. |
$22.10 |
Accy 306 Quiz #9, page 2 of 3
II._____T or F Market value per share differs from book value per share. Market value fluctuates based on investors' perception of a firm's future potential. Book value is based on the balance sheet. (if false, identify and correct the error)
_____4. Evie Corp, has the following Stockholders’ Equity account balances and activity for Year 2.
Net income |
$8,500,000 |
|||
Retained earnings |
$5,955,000 |
|||
Preferred stock shares outstanding |
1,000 |
|||
Common stock shares outstanding at January 1, Yr 2 |
3,750,000 |
|||
Additional Common shares issued at July 1, Yr 2 |
10,000 |
|||
2-for-1 stock split at December 31, Yr 2 |
||||
Preferred Dividends |
$15,000 |
|||
Common Dividends |
$75,000 |
|||
Year 1 EPS |
$2.20 |
|||
Earnings per share = __________________ / ___________________* = ________
* Compute Denominator: Weighted average common shares outstanding
Date |
Shares |
Portion of year |
Weighted Average Shares |
January 1, Y2 |
3,750,000 |
||
July 1, Y2 |
|||
Weighted Average December 31 before split |
|||
Stock split 2-for-1 |
|||
*Total Weighted Average, 12/31/Y2 |
|||
Note: Year 1 restated |
$2.20 / 2 =_____ |
______5. a. _____ T or F Stock options are recorded as paid-in-capital over the period during which the employee provides associated service to vest in the options. (if false, identify and correct the errors)
b. _____ T or F Stock appreciation rights give the employee compensation at a future date, based on the market price at the date of exercise in excess of a pre-established price. (if false, identify and correct the errors)
Accy 306 Quiz #9, page 3 of 3
Module 10—Statement of Cash Flows
______6. a._____ T or F Certificates of deposit, commercial paper and U.S. Treasury Bills with original maturity of 6 months or less are examples of highly liquid investments and are classified as cash equivalents. (if false, identify and correct error)
b. _____ T or F Depreciation expense reduces operating income but does not require the use of cash. In the Statement of Cash Flows it is separately stated as an addition to net income. (if false, identify and correct error)
_____7. Bons Fish Company had cash sales of $55,000, increase in accounts payable of $18,000, decrease in accounts receivable of $5,000, increase in inventories of $8,000, and depreciation expense of $2,000. What was the cash collected from customers?
a. |
$55,000 |
b. |
$50,000 |
c. |
$60,000 |
d. |
$42,000 |
e. |
$58,000 |
8. Place an X in the appropriate columns for each of the following situations.
Non- |
|||||||
Cash Flows Classification |
Effect on |
cash |
|||||
Operating |
Investing |
Financing |
Cash |
Trans- |
|||
Transaction |
Activity |
Activity |
Activity |
+ |
- |
action |
|
a. |
Sale of land for cash |
__ |
__ |
__ |
__ |
__ |
__ |
b. |
Issuance of bonds for cash |
__ |
__ |
__ |
__ |
__ |
__ |
c. |
Paying off accounts payable |
__ |
__ |
__ |
__ |
__ |
__ |
d. |
Acquired land using common stock |
__ |
__ |
__ |
__ |
__ |
__ |
e |
Paid $10,000 cash dividend |
__ |
__ |
__ |
__ |
__ |
__ |
f. |
Collected $1,000 accounts receivable |
__ |
__ |
__ |
__ |
__ |
__ |
g. |
Purchased building using cash |
__ |
__ |
__ |
__ |
__ |
__ |
h. |
Net Income |
__ |
__ |
__ |
__ |
__ |
__ |
i. |
Sales of inventory on account |
__ |
__ |
__ |
__ |
__ |
__ |
j. |
Issue common stock to retire bonds |
__ |
__ |
__ |
__ |
__ |
__ |