exam1_F05_answers

exam1_F05_answers - 1) A firm's debt/equity ratio is equal...

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1) A firm’s debt/equity ratio is equal to 2.5. Which of the following statements is not true? a) The firm’s debt is two and one-half times the size of its shareholders’ equity. b) For each $ in shareholder equity the firm has $2.50 in debt. c) The firm’s annual interest payments are greater than its annual dividend payout. d) For each $ in shareholder equity the firm has $3.50 in assets. e) All of the above statements are true. 2) On the statement of cash flows, a company reports the purchase of new equipment as: a) Cash inflow under operations. b) Cash outflow under operations c) Cash outflow under investing d) It depends entirely on whether or not the company paid for the purchase entirely in cash. e) None of the above. 3) On the statement of cash flows, a company reports depreciation on purchased equipment as: a) Cash inflow under operations. b) Cash outflow under operations. c) Cash outflow under investing d) It depends entirely on whether or not the company paid for the purchase entirely in cash. e) None of the above. Interest payments are included in the income statement, the bottom line of which goes to cash flow under operations Start Questions Dealing with Talented TAs (partnership) Sanjay, Laurel, Nicole, Keith, and Jasim started a business selling a new product - a "read-only" MP3 player (an MP3 player with music burned into memory). The user could only listen to the music that was on the player. The initial product configuration contained forty Grateful Dead concerts - almost 160 hours of music. The business was started as an internet business requiring a very small initial investment. Indeed, the partners pooled all their cash and came up with $8,700. On the day the cash was raised, March 1, 2004 the company started business as a partnership with the name Talented TAs (TTA). In the first month TTA acquired a server and an initial stock of players. The server was purchased for $2,700 cash and had an expected useful life of two years. At the end of the two year the server could be sold for $300. The initial 100 players were purchased from a supplier for $5,000 of which $2,000 was paid on delivery and the balance due in 60 days. Rent and utilities were $1,000 per month, prepaid at the beginning of the month. The selling price of the product was established at $75. 4) Suppose that as of March 31, 2004 TTA had sold the 100 players from the initial purchase. Assume that the next order from TTA's supplier was not due to arrive until April 1st and the only non-current asset held by TTA was the server. If the player supplier is not paid early, what is the total book value of TTA's Liabilities plus Shareholders’ Equity on March 31, 2004? a) More than $16,000 b) Between $15,500 and $15,999 c) Between $15,000 and $15,499 d) Between $14,500 and $14,999 e) Less than $14,500
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Transaction Cash A/R Inventory PPE A/P Retained Earnings Paid-in- Capital Pooling Cash 8700 8700 Buying Server (2700 ) 2700 Buying Stock for Sale (2000 ) 5000 300 0 Paid Expenses
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exam1_F05_answers - 1) A firm's debt/equity ratio is equal...

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