Chapter 4 Sample Test Questions

Chapter 4 Sample Test Questions - Chapter 4 Test Questions...

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Chapter 4 Test Questions The following balance sheet and income statement should be used for questions #1 through #3: KNF, Inc. 2005 Income Statement Net sales $10,300 Less: Cost of goods sold 7,400 Less: Depreciation 1,500 Earnings before interest and taxes 1,400 Less: Interest paid 340 Taxable Income $ 1,060 Less: Taxes 371 Net income $ 689 Dividends $310.05 Addition to retained earnings $378.95 KNF, Inc. 2005 Balance Sheet 2005 2005 Cash $ 840 Accounts payable $ 1,010 Accounts rec. 750 Long-term debt 4,800 Inventory 930 Common stock 5,300 Total $ 2,520 Retained earnings 3,770 Net fixed assets 12,360 Total assets $14,880 $14,880 Question 1 All costs and working capital accounts vary directly with sales. Sales are projected to increase by 7 percent. What is the projected increase in accounts payable? a.$7.50 b. $15.00 c.$70.70 d. $77.70 e.None of the above Answer Question 1 LY Accounts Payable = $1010 Sales increase by 7% (AP is a working capital account and so as stated in the question varies directly with sales)
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$1010 * 7% = $70.70 Answer : C Question 2 The net profit margin, the debt-equity ratio, and the dividend payout ratio are constant. Sales are expected to increase by $875.50 next year. What is the projected addition to retained earnings for next year? a.$321.55 b. $389.09 c.$411.16 d. $747.57 e. None of the above Answer Question 2 LY Net Margin: $689 / $10,300 = 6.68932% LY Dividend Payout Ratio: $310.05 / $689 = 45% Next Year Sales = $10,300 + $875.50 = $11,175.50 Next Year Net Income = $11,175.50 * 6.68932% = $747.57 Next Year Dividend = $747.57 * 45% = $336.41 Next Year Addition to RE = NI – Dividend = $747.57 - $336.41 = $411.16 Answer: C Question 3 Assume that KNF, Inc. is operating at 80 percent of capacity. All costs and net working capital vary directly with sales. What is the projected increase in total fixed assets required if sales (and units of production) are projected to increase by 15
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This note was uploaded on 03/24/2012 for the course BUS M 301 taught by Professor Jimbrau during the Winter '11 term at BYU.

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Chapter 4 Sample Test Questions - Chapter 4 Test Questions...

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