CHAPTER 3 FINANCIAL STATEMENTS, CASH FLOW, AND TAXES

CHAPTER 3 FINANCIAL STATEMENTS, CASH FLOW, AND TAXES -...

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FINANCIAL STATEMENTS, CASH FLOW, AND TAXES 1. Below are the 2007 and 2008 year-end balance sheets for Tran Enterprises: Assets: 2008 2007 Cash $ 200,000 $ 170,000 Accounts receivable 864,000 700,000 Inventories 2,000,000 1,400,000 Total current assets $3,064,000 $2,270,000 Net fixed assets 6,000,000 5,600,000 Total assets $9,064,000 $7,870,000 Liabilities and equity: Accounts payable $1,400,000 $1,090,000 Notes payable 1,600,000 1,800,000 Total current liabilities $3,000,000 $2,890,000 Long-term debt 2,400,000 2,400,000 Common stock 3,000,000 2,000,000 Retained earnings 664,000 580,000 Total common equity $3,664,000 $2,580,000 Total liabilities and equity $9,064,000 $7,870,000 The firm has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year, non-callable, long-term debt in 2007. As of the end of 2008, none of the principal on this debt had been repaid. Assume that the company’s sales in 2007 and 2008 were the same. Which of the following statements must be CORRECT? a. The firm increased its short-term bank debt in 2008. b. The firm issued long-term debt in 2008. c. The firm issued new common stock in 2008. d. The firm repurchased some common stock in 2008. e. The firm had negative net income in 2008. Answer: c 2. On its 12/31/08 balance sheet, Barnes Inc showed $510 million of retained earnings, and exactly that same amount was shown the following year. Assuming that no earnings restatements were issued, which of the following statements is CORRECT? 3. Below is the common equity section (in millions) of Timeless Technology’s last two year-end balance sheets: 2008 2007 Common stock $2,000 $1,000 Retained earnings 2,000 2,340 Total common equity $4,000 $3,340 CHAPTER 3
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The firm has never paid a dividend to its common stockholders. Which of the following statements is CORRECT? 4. Which of the following statements is CORRECT?
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