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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 Total liabilities & equity \$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
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Chapter 4 Sample Test Questions - Chapter 4 Test Questions...

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