Depreciation affects cash flow by reducing the amount of cash a business must pay in income taxes. 3. Calculate the current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013? AS the current and quick ratios both went down over the past year, I am concerned that the company liabilities may be rising faster than assets and we may not be able to liquidate assets quickly enough to cover debt, if necessary.
For the year 2007 the ratio was less than 1 meaning it needed to liquidated it marketing securities in that year, to pay bills. In year 2008, the ratio increased over one and hence there was not a need to liquidate its securities. * Acc receivable turnover ratio = Net credit Sales/ Average accounts receivable Acc receivable turnover 2008 = $875,250/ (($84,120+$128,420)/2) =8.24 times Average collection period = 360days/ 8.24 = 44 days We would need to know the credit policy of the company to determine if this collection period is reasonable. * Inventory turnover = Cost of goods sold/ Average inventory Inventory turnover 2008 = $542,750/ (($96,780+$135,850) = 4.67
A corporation has income of $62,000 from operations and a net long-term capital loss of $5,000. What is the corporation's taxable income for the year? The corporation’s taxable income is $62,000. Capital losses are only deductible towards capital gains. They can choose to carry back the losses or
Question : (TCO C) Negative goodwill arises when the _____ of the net assets acquired is higher than the purchase price of the assets. Student Answer: useful life carrying value fair value excess earnings Instructor Explanation: Chapter 12 Points Received: 5 of 5 Comments: Question 4. Question : (TCO C) Danks Corporation purchased a patent for $450,000 on September 1, 2008. It had a useful life of 10 years. On January 1, 2010, Danks spent $110,000 to successfully defend the patent in a lawsuit.
Quizzes 1. | Question : | (TCO 1) All of the following would require use of the equity method for investments except | | | Student Answer: | | Material inter-company transactions | | | | Investor participation in the policy-making process of the investee | | | | Valuation at fair value | | | | Technological dependency | | | | Significant control | | | | Points Received: | 2 of 2 | | Comments: | | | | 2. | Question : | (TCO 1) All of the following statements regarding the investment account using the equity method are true except | | | Student Answer: | | The investment is recorded at cost | | | | Dividends received are reported as revenue | | | | Net income of investee increases the investment account | | | | Dividends received reduce the investment account | | | | Amortization of fair value over cost reduces the investment account | | | | Points Received: | 2 of 2 | | Comments: | | | | 3. | Question : | (TCO 1) Luffman Inc. owns 30% of Bruce Inc. and appropriately applies the equity method. During the current year, Bruce bought inventory costing $52,000 and then sold it to Luffman for $80,000.
5. Question: (TCO 9) It costs Lannon Fields $14 of variable costs and $6 of allocated fixed costs to produce an industrial trash can that sells for $30. A buyer in Mexico offers to purchase 2,000 units at $18 each. Lannon has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?
A.P. Smith Mfg. Co. v. Barlow Facts: The plaintiff corporation was attempting to donate $1,500 to Princeton University. However, the stockholders were against this decision, and P instituted a declaratory judgment action. The stockholder’s argued: (1) the plaintiff’s certificate of incorporation does not expressly authorize the contribution, and under common-law principles the company does not possess any implied or incidental power to make it, and (2) the New Jersey statutes which expressly authorize the contribution may not constitutionally be applied to the plaintiff, a corporation created long before their enactment.
In an investigative article written by Welch Suggs, he discovers through Internal Revenue Service records that the South Eastern Conference (SEC) took in more than 150 million dollars in revenue in the fiscal year of 2002 (Suggs 46). This does not include what individual universities made from ticket sales and footwear contracts. The flow of this money stops well short of reaching the athletes that are performing to generate it. How is it fair that these athletes be used as slaves for big TV executives and athletic department presidents? When will Congress step in and decide the NCAA does not have an autocratic rule over the funds being generated?
Comparing the company’s net income to its actual cash generated, an investor can determine whether the company is more aggressive or conservative in accounting for its performance. 2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings? Year 1 - Free Cash Flow: 7,512,000; Accounting Profits Earned: 7,154,500 Year 2 - Free Cash Flow: 14,972,000; Accounting Profits Earned: 12,340,000 Year 3 - Free Cash Flow: 15,288,000; Accounting Profits Earned: 14,110,000 Year 4 - Free Cash Flow: 8,736,000; Accounting Profits Earned: 8,190,000 Year 5 - Free Cash Flow:
Student Answer: $2,000 $3,050 $0 $1,900 Instructor Explanation: Chapter 8; Section 8101; The state gas tax is not deductible for federal income tax purposes. Points Received: 5 of 5 Comments: 6. Question : (TCO F) Hoover, Inc. had gross receipts from operations of $230,000, operating and other expenses of $210,000, and dividends received from a 55 percent-owned domestic corporation of $120,000. Hoover's tax position for the year is: Student Answer: $20,000 taxable income. $44,000 net income.