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Date Posted: 11:24:35 08/23/00 Wed
Author: Charles Hodges
Subject: Sample Quiz 1 questions

Here are some sample questions from past quizzes. Also, I will be making questions in the style of the IRC case.


1. Identify the following as a Current Asset (CA), a Long Term Asset (LTA), a Current Liability (CL), a Long Term Liability (LTL), or Equity (E):

a. Net Accounts Receivable e. Notes Payable
b. Retained Earnings f. Inventories
c. Accounts Payable g. Accrued Expenses
d. Net Fixed Assets h. Additional paid in capital

2. At the end of 1995 Pern Inc. reported retained earnings of $64,200. At the end of 1996, the retained earnings were $78,600. If Pern Inc. had net income of $25,400 in 1996, what was the amount of dividends paid by Pern in 1996?

3. The following are two lines from the Income Statement of Darkover Inc.

1995 1996
Gross Profit $100,000 $100,000
Net Income $ 25,000 $ 50,000

List two things that could explain why gross profit did not change, but net income increased.




Gemini Beverage has the following historical balance sheet:

Cash $ 20 Accounts payable $ 200
Accounts receivable 240 Notes payable 130
Inventory 320 Accruals 30
Total current assets $ 580 Current liabilities $ 360

Net plant & equipment $ 420 Long-term bonds $260
Common stock 270
Retained earnings 110
Total assets $1,000 Total liab. & equity $1,000

a. (1.5 points) What is the firm's current debt ratio?



b. (1.5 points) What is the firm's current quick ratio?



Over the next year Gemini's current assets, accounts payable, and accruals will grow in proportion to sales (i.e. are spontaneous). Last year's sales were $800 and this year's sales are expected to increase by 40 percent. The firm will retain $58 in earnings to fund current asset growth, and the rest of the increase will be funded entirely with notes payable. The net plant and equipment account will increase to $500 and will be funded directly by a new equity issue.

c. (4 points) What will Gemini's new current ratio be after the changes in the firm's financial picture are complete?


d. (2 points) What will be the firm's new inventory turnover ratio?
24. Fill in the missing numbers for the Aboutt, Inc. 1997 annual financial statements. Assume all balance sheet accounts are 1997 ending balances unless other wise noted. Missing numbers are worth 1 point unless otherwise noted.

Profit before taxes $ 162 Accrued Wages $________
Depreciation $90 Income tax $ ________
Net income $ ________(3 points) Total current liabilities$ __________
Long term debt $ 205 Net sales $ 907
Total liabilities and owner's equity $_____ Beginning Retained Earnings $132
Additional Paid-in Capital $100 Common stock ($.03 par) $ 30
Ending retained earnings $ 131 Cost of goods sold ________
Beginning Net Fixed Assets $351 Cash $ ____________
Accounts payable $ 193 Accounts receivable $230
Inventories $ 95
Gross profit $ 467 Rent $70
Total Assets $ ___________ Research and Development Expense $7
Advertising $110 Operating Profit $ _________
Interest expense $8 Total Current assets $ 421
Ending Net fixed assets $ 397 Dividends $74
Dividends per Share ________(3 points) Net Profit Margin on Sales _____________
Fixed Asset Turnover Ratio ___________ Return on Assets Ratio ________________

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