1. You are evaluating the balance sheet for Goodman's Bees Corporation. From the balance sheet you find the follow
cash and marketable securities = $560,000, accounts receivable = $1,600,000, inventory = $1,300,000, accrued wa
$630,000, accounts payable = $930,000, and notes payable = $730,000.
Calculate Goodman Bees' net working capital.
Net working capital
$ 1,170,000
Explanation:
Net working capital = Current assets – Current liabilities.
Goodman's Bees' current assets =
Cash and marketable securities
Accounts receivable
Inventory
Total current assets
Current liabilities
Accrued wages and taxes
Accounts payable
Notes payable
Total current liabilities
$
560,000
1,600,000
1,300,000
$
3,460,000
$
630,000
930,000
730,000
$
2,290,000
So the firm's net working capital was $1,170,000 ($3,460,000 – $2,290,000).
2. Casello Mowing & Landscaping's year-end 2015 balance sheet lists current assets of $436,400, fixed assets of $55
liabilities of $417,800, and long-term debt of $316,900.
Calculate Casello’s total stockholders’ equity.
Total stockholders’ equity
$ 253,300
Explanation:
Recall the balance sheet identity: Assets = Liabilities + Equity. Rearranging this equation: Equity = Assets – Liabilities. Thus
sheets would appear as follows:
Book value
Assets
Current assets
Fixed assets
$ 436,400
551,600
Total
$ 988,000
Book value
Liabilities and Equity
Current liabilities
Long-term debt
Stockholders’ equity
$ 417,800
316,900
253,300
$ 988,000
3. The Fitness Studio, Inc.’s, 2015 income statement lists the following income and expenses: EBIT = $536,000, inter
$72,000, and net income = $442,000.
Calculate the 2015 taxes reported on the income statement.
Taxes
$ 22,000
Explanation:
EBIT
Interest
expense
$
EBT
Taxes
$
464,000
– 22,000
$
442,000
Net
income
536,000
– 72,000
4. The Fitness Studio, Inc.'s, 2015 income statement lists the following income and expenses: EBIT = $781,000, inter
$250,000, and taxes = $185,850. The firm has no preferred stock outstanding and 100,000 shares of common stoc
Calculate the 2015 earnings per share. (Round your answer to 2 decimal places.)
Earnings per share
$ 3.45
Explanation:
EBIT
Interest
expense
$
781,000
EBT
Taxes
$
531,000
– 185,850
Net income
$
345,150
– 250,000
Thus,
$345,150
Earnings per share (EPS)
=
= $3.45 per share
100,000 shares
5. Oakdale Fashions, Inc., had $370,000 in 2015 taxable income.
Use the tax schedule in Table 2.3 to calculate the company’s 2015 income taxes.
Income taxes
$ 125,800
What is the average tax rate? (Round your answer to 2 decimal places.)
Average tax rate
34.00
%
34
%
What is the marginal tax rate?
Marginal tax rate
Explanation:
From Table 2.3, the $370,000 of taxable income puts Oakdale Fashion, Inc. in the 34 percent tax bracket. Thus,
Tax liability = Tax on base amount + Tax rate (amount over base):
= $113,900 + 0.34 ($370,000 – $335,000) = $125,800
Note that the base amount is the maximum dollar value listed in the previous tax bracket. The average tax rate for Oak
comes to:
$125,800
Average tax rate
=
= 34.00%
$370,000
If Oakdale Fashions, Inc. earned $1 more of taxable income, it would pay 34 cents (its tax rate of 34 percent) more in taxe
marginal tax rate is 34 percent.
6. Hunt Taxidermy, Inc., is concerned about the taxes paid by the company in 2015. In addition to $42.4 million of ta
firm received $3,000,000 of interest on state-issued bonds and $1,500,000 of dividends on common stock it
Fashions, Inc. (Use Table 2.3)
Calculate Hunt Taxidermy’s tax liability. (Enter your answer in dollars not in millions. Round your answer to the nearest
Tax liability
$ 14,997,500
Calculate Hunt Taxidermy’s average tax rate.
Average tax rate
35
%
35
%
Calculate Hunt Taxidermy’s marginal tax rate.
Marginal tax rate
Explanation:
In this case, interest on the state-issued bonds is not taxable and should not be included in taxable income. Further, the f
the dividends received from Hunt Taxidermy is not taxable. Thus, only 30 percent of the dividends received are taxed, so:
Taxable income = $42,400,000 + (0.3)$1,500,000 = $42,850,000
Now Hunt Taxidermy’s tax liability will be:
Tax liability = $6,416,667 + 0.35 ($42,850,000 – $18,333,333) = $14,997,500
The $1,500,000 of dividend income increased Hunt Taxidermy’s tax liability by $157,500 (0.3 × $1,500,000 × 35.00). H
resulting average tax rate is:
Average tax rate = $14,997,500/$42,850,000 = 35.00%
Finally, if Hunt Taxidermy earned $1 more of taxable income, it would pay 35 cents (based upon its tax rate of 35 perce
Thus, the firm’s marginal tax rate is 35 percent.
7. Mr. Husker’s Tuxedos Corp. began the year 2015 with $260 million in retained earnings. The firm earned net inco
in 2015 and paid dividends of $9 million to its preferred stockholders and $16 million to its common stockholders
What is the year-end 2015 balance in retained earnings for Mr. Husker’s Tuxedos? (Enter your answer in millions of dolla
Retained earnings
$ 270
m
Explanation:
The statement of retained earnings for 2015 is as follows:
2015
Balance of
retained
earnings,
December 31,
2014
Plus: Net
income for
2015
Less: Cash
dividends paid
Preferr
ed stock
Commo
n stock
$
35 m
$
9m
16 m
Total cash
dividends paid
Balance of
retained
earnings,
December 31,
2015
260 m
25 m
$
270 m
8. Muffin’s Masonry, Inc.’s, balance sheet lists net fixed assets as $21.00 million. The fixed assets could currently b
million. Muffin’s current balance sheet shows current liabilities of $9.00 million and net working capital of $8.00
current accounts were liquidated today, the company would receive $7.60 million cash after paying the $9.00
liabilities.
What is the book value of Muffin’s Masonry’s assets today and the market value of these assets? (Enter your answers in m
rounded to 2 decimal places.)
Current assets
Fixed assets
Total
BOOK VALUE
$ 17.00
21.00
$ 38.00
m
m
MARKET VALUE
$ 16.60
33.00
m
m
m
$ 49.60
m
Explanation:
Net working capital (book value) = Current assets (book value) – Current liabilities (book value) = $8.0m = Current asse
$9.0m => Current assets (book value) = $8.00m + $9.00m = $17.00m
Total assets (book value) = $17.00m + $21.00m = $38.00m
Net working capital (market value) = Current assets (market value) – Current liabilities (market value) = $7.60m = Curre
value) – $9.00m => Current assets (market value) = $7.60m + $9.00m = $16.60m
Total assets (market value) = $16.60m + $33.00m = $49.60m
9. Which financial statement reports a firm's assets, liabilities, and equity at a particular point in
time?
Balance sheet
Income statement
Statement of retained earnings
Statement of cash flows
10. Which financial statement shows the total revenues that a firm earns and the total expenses the
firm incurs to generate those revenues over a specific period of time—generally one year?
Balance sheet
Income statement
Statement of retained earnings
Statement of cash flows.