Financial Accounting

1. | Question : | Li Retailing reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000; Li's operating profit margin is equal to | | | Student Answer: | | 25.67% | | | | 35.67% | | | | 36.67% | | | | 50.00% | | Instructor Explanation: | Operating Profit Margin = EBIT/Sales = $1,100,000/$3,000,000 = 36.67%
AACSB: Analytic skills | | | | Points Received: | 0 of 1 | | Comments: | | | |

2. | Question : | Corporation B reported earnings per share of $10. Corporation B has 100,000 shares of common stock
outstanding and reported an increase in owners equity of $400,000 for the period. Corporation B paid $50,000 in interest expense during the period. Corporation B paid dividends per share of | | | Student Answer: | | $6.00. | | | | $5.50. | | | | $6.50. | | | | $14.003. | | | | Points Received: | 0 of 1 | | Comments: | | | |

3. | Question : | Which of the following statements is most correct concerning flotation costs? | | | Student Answer: | | flotation costs are the same for common stock, preferred stock and bonds because they reflect mainly printing costs and legal fees. | | | | flotation costs are generally higher for bonds rather than stocks because the dollar amounts involved are much higher, allowing for economies of scale | | | | flotation costs as a percentage of gross proceeds increase as the size of the security issue increases | | | | flotation costs are higher for common stocks than for preferred stocks and bonds due to the higher level of risk associated with owning common stock | | | | Points Received: | 1 of 1 | | Comments: | | | |

4. | Question : | During the period 1984 to 2008, the average yield on 3-Month U.S. Treasury bills was 4.76%, the average inflation rate was 2.97%, the average yield on 30-year Treasury bonds was 6.89%, and the average return on 30-year Aaa-Rated Corporate Bonds was 7.73%. The real risk-free short-term interest rate is | | | Student Answer: | | 1.79%. | | | | 2.13%. | | | | 2.97%. | | | | 4.76%. | | | | Points Received: | 1 of 1 | | Comments: | | | |

5. | Question : | A firm paid dividends of $10,000, paid interest of $20,000, reduced debt principal outstanding (paid off debt) in the amount of $100,000, and sold new stock for $150,000. What was the firm's cash flow from financing activities? | | | Student Answer: | | +$20,000 ($20,000 flowed into the firm) | | | | -$20,000 ($20,000 flowed out of the firm) | | | | +$280,000 ($280,000 flowed into the firm) | | | | -$280,000 ($280,000 flowed out of the firm) | | | | Points Received: | 1 of 1 | | Comments: | | | |

6.
| Question : | PDQ Corp. has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000. What is PDQ's EBIT? | | | Student Answer: | | $850,000 | | | | $875,000 | | | | $900,000 | | | | $1,300,000 | | | | Points Received: | 1 of 1 | | Comments: | | | |

7. | Question : | Net working capital is equal to | | | Student Answer: | | total assets minus total liabilities. | | | | current assets minus total liabilities. | | | | total operating capital minus net income. | | | | current assets minus current liabilities. | | | | Points Received: | 1 of 1 | | Comments: | | | |

8. | Question : | What was the average annual rate of return on 3-month U.S. Treasury bills during the period 1984 to 2008? | | | Student Answer: | | 3.84%
| | | | 4.23% | | | | 4.76% | | | | 5.68% | | | | Points Received: | 1 of 1 | | Comments: | | | |

9. | Question : | Maximization of shareholder wealth | | | Student Answer: | | represents a zero sum game in which one corporation gains at the expense of others. | | | | provides benefits to society as scarce resources are directed to their most productive use. | | | | is not a practical goal since it cannot be measured effectively. | | | | is achieved only if cash flows exceed accounting profits. | |