True/False (1) The balance sheet measures the flow of funds into and out of vari

Question

True/False

(1) The balance sheet measures the flow of funds into and out of various accounts over time, while the income statement measures the firm's financial position at a point in time.

(2) The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows.

(3) The annual report contains four basic financial statements: the income statement, the balance sheet, the cash flow statement, and statement of stockholders' equity.

Multiple Choice

(4) Which of the following statements is CORRECT?

a. One drawback of forming a corporation is that it generally subjects the firm to additional regulations.

b. One drawback of forming a corporation is that it subjects the firm's investors to increased personal liabilities.

c. One drawback of forming a corporation is that it makes it more difficult for the firm to raise capital.

d. One advantage of forming a corporation is that it subjects the firm's investors to fewer taxes.

e. One disadvantage of forming a corporation is that it is more difficult for the firm's investors to transfer their ownership interests.

(5) Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

a. The company repurchases common stock.

b. The company pays a dividend.

c. The company issues new common stock.

d. The company gives customers more time to pay their bills.

e. The company purchases a new piece of equipment.

Problem Solving

(6) Kiwi Corporation has $3,550 in sales, $1,200 in CGS, $250 in Depreciation. The firm marketing effort totaled $500 and Kiwis interest expense is $70. Assume a 30% tax liability, what is Kiwis net income? Must show entire financial statement with step by step solution.

Explanation / Answer

1) false

2) True

3) True

4) a. One drawback of forming a corporation is that it generally subjects the firm to additional regulations.

5) c. The company issues new common stock.

6)

Sales                              = $3550

(-) cost of goods sold = $1200

(-) Depreciation         = $250

(-) marketing cost      = $500

(-) interest expense   = $70

Gross income             = $1530

(-) taxes (0.30)           = $459

Net income               = $1071

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