GBG 405
Review Questions, Week 1, Review of Finance and Accounting
(1) Suppose a company has $10,000 in cash on hand, $20,000 in inventory, $30,000 in accounts receivable, and net (of depreciation) plant and equipment valued at $100,000. The company has a short term bank loan of $60,000, and has issued bonds for $40,000. Owner’s equity is:
(a) $100,000
(b) $160,000
(c) $60,000
(d) $40,000
(2) In Question (1), what is the debt to total assets ratio?
(a) 1
(b) 0.25
(c) 0.375
(d) 0.625
(3) A share of Microsoft that your company owns is a:
(a) liability
(b) component of owner’s equity.
(c) fixed asset.
(d) None of the above.
(4) Which of the following is not an asset?
(a) Accounts payable
(b) Retained earnings.
(c) Paid up common stock.
(d) All of the above are not assets.
(5) Which of the following is an asset?
(a) Taxes payable.
(b) Prepaid expenses.
(c) Retained earnings.
(d) Depreciation.
(6) Which of the following is a liability?
(a) Accrued wages.
(b) Prepaid expenses.
(c) Paid up common stock.
(d) Inventory
(7) The Balance Sheet illustrates:
(a) net income earned during a time period.
(b) revenues and expenses incurred during a time period.
(c) the market value of the firm
(d) what the company owns and owes at a particular point in time.
(8) Items on a Balance Sheet are listed in order of:
(a) date of acquisition.
(b) liquidity.
(c) dollar value.
(d) importance to the firm.
(9) An example of a fixed asset is:
(a) inventories
(b) accounts receivable.
(c) cash.
(d) plant and equipment.
(10) Which of the following are examples of intangible assets?
(a) Inventories
(b) Patents
(c) Cash
(d) Securities
(11) Which of the following is an example of a long-term liability?
(a) Bank loans with a term less than one year.
(b) Deferred taxes.
(c) Deferred wages.
(d) Bonds with a maturity greater than one year.
(12) Accounts payable would be considered:
(a) a current liability.
(b) a current asset.
(c) a long term liability
(d) a fixed asset.
(13) Common equity includes:
(a) retained earnings.
(b) preferred stock.
(c) long term bonds.
(d) good will.
(14) The Income Statement:
(a) shows revenues and expenses over a particular time period.
(b) shows what the company owns and owes at a particular point in time.
(c) shows how earnings are distributed to common shareholders or are retained within the firm.
(d) shows revenues and expenses over a particular time period, but does not report taxes paid.
Consider the following information and prepare an income statement to answer Questions (15) to (17).
Operating Costs $100,000
Sales $250,000
Taxes $10,000
Sales and Administrative Expenses $75,000
Depreciation $5,000
Interest expense $30,000
Number of Shareholders 5,000
(15) What is Gross Profit?
(a) $250,000
(b) $30,000
(c) $70,000
(d) $150,000
(16) What are Earnings Before Interest and Taxes?
(a) $70,000
(b) $40,000
(c) $150,000
(d) None of the above.
(17) What are Earnings Per Share?
(a) $30,000
(b) $6
(c) $30
(d) $8
Consider the following cost and sales information to answer Questions (18) to (20). The firm produced 5,000 units during the year, and sold the units at $100 per unit. First, divide the costs between fixed and variable costs. Then calculate per unit costs for those items you consider variable costs.
Fire insurance $5,000
Workers’ Compensation payments $15,000
Production Labor, wages $200,000
Salaried Supervisory Staff $60,000
Equipment Lease $12,000
Materials Cost $100,000
Energy Costs for Production $10,000
(18) What are Fixed Costs?
(a) $77,000
(b) $17,000
(c) $87,000
(d) $102,000
(19) What are Variable Costs per unit?
(a) $77
(b) $65
(c) $85
(d) $22
(20) What is the Break Even point in units?
(a) 2567
(b) 3348
(c) 2200
(d) 1200