A & K Co. expects to have earnings before taxes of $250,000 to $300,000. The company's marginal tax rate is 39%

A & K Co. expects to have earnings before taxes of $250,000 to $300,000.  The company's marginal tax rate is 39% and its average tax rate about 33%.  For every additional dollar A & K pays out in common dividends, its income tax liability will

A) increase by 39 cents.

B) fall by 39 cents.

C) be unaffected.

D) fall by about 33 cents.

Tax tables are based on ________ tax rates.

A) marginal

B) average

C) implied

D) investment

The marginal tax rate would equal the average tax rate for firms with earnings less than $50,000 or more than $18,333,333.

Answer:  TRUE

The interest payments on corporate bonds are tax-deductible.

Answer:  TRUE

A corporation's average tax rate will always be lower than or equal to its marginal tax rate.

Answer:  TRUE

The highest marginal corporate tax rate is 35%.

Answer:  FALSE

When analyzing the cash flows from a new project proposal, a company should always use its marginal tax rate.

Answer:  TRUE

RJH Inc. has earnings before taxes of $100,000 in 2013. The company's tax expense will be

 2013 U.S. Corporate tax rates are shown below:

Taxable Income	Marginal Tax Rate
$0-$50,000	15%
$50,001-$75,000	25%
$75,001-$100,000	34%
$100,001-$335,000	39%
$335,001-$10,000,000	34%
$10,000,001-$15,000,000	35%
$15,000,001-$18,333,333	38%
Over $18,333,333	35%

RJH Inc. has earnings before taxes of $100,000 in 2013.  The company's tax expense will be

A) $22,250

B) $24,670

C) $25,000

D) $34,000

2013 U.S. Corporate tax rates are shown below:

Taxable Income	Marginal Tax Rate
$0-$50,000	15%
$50,001-$75,000	25%
$75,001-$100,000	34%
$100,001-$335,000	39%
$335,001-$10,000,000	34%
$10,000,001-$15,000,000	35%
$15,000,001-$18,333,333	38%
Over $18,333,333	35%

Bouffard Co. has earnings before taxes of $100,000,000 in 2013.  The company's tax expense will be

A) $3,500,000

B) $36,500,000

C) $31,875,000

D) $35,000,000

A & K Co. expects to have earnings before taxes of $250,000 to $300,000.  The company's marginal tax rate is 39% and its average tax rate about 33%.  For every additional dollar of interest expense, A & K's taxes will

A) increase by 39 cents.

B) fall by 39 cents.

C) be unaffected.

D) fall by about 33 cents.

From the scrambled list of items presented in Table 4, prepare an income statement Dooley Sportswear Company

 The company's gross profit margin is EBIT divided by net sales.

Answer:  FALSE

                                                                  Table 4

                 Financial Data for Dooley Sportswear, December 31, 2013

                                Inventory                                            $206,250

                                Interest expense                                       5,000

                                Accumulated depreciation             442,500

                                Cash                                                       180,000

                                Net sales (all credit)                       1,500,000

                                Accounts receivable                          225,000

                                Operating expenses                           525,000

                                Cost of goods sold                              937,500

                                Accounts payable                              168,750

                                Prepaid insurance                                80,000

                                Accrued wages                                      65,000

                                Federal income taxes                             5,750

From the scrambled list of items presented in Table 4, prepare an income statement Dooley Sportswear Company.  Not all items from Table 4 will be used.

Answer:                 Dooley Sportswear Company Income Statement

                                          for the Year Ending December 31, 2013

                                Net sales (all credit)                             $1,500,000

                                Cost of goods sold                                      937,500

                                Gross profits                                                562,500

                                EBIT                                                                525,000

                                Net operating income                                 37,500

                                Interest expense                                               5,000

                                Net income before taxes                             32,500

                                Federal income taxes                                     5,750

                                Net income                                                   $26,750

Using the information provided, calculate net income for 2013. Assume a tax rate of 35 percent.

Using the information provided, calculate net income for 2013. Assume a tax rate of 35 percent.

                Year                                                      2013

                Inventory                                         $5,000

                Revenues                                      200,000

                Depreciation expense                    5,000

                Cost of goods sold                      100,000

                Interest expense                            10,000

                Operating expenses                     30,000

A) $35,750

B) $44,000

C) $50,000

D) $19,250

The practice of shifting income from good years to poor years in order to show a record of steady growth is

A) known as earnings management and is considered unethical.

B) highly recommended but not required by GAAP.

C) a basic requirement of accrual accounting.

D) impossible if Generally Accepted Accounting Principles are followed.

Firms should compare their gross, operating and net profit margins to past years and other companies in order to

A) evaluate the firm's performance.

B) identify expenses that seem to be out-of-line

C) better manage the reporting of the firm's earnings.

D) Both A and B.

The income statement represents a snapshot of account balances at one point in time.

Answer:  FALSE

Generally Accepted Accounting Principles (GAAP) require companies to smooth earnings by shifting some profits from good years to bad years.

Answer:  FALSE

The income statement describes the financial performance of a firm over a fixed period such as a quarter or a year.

Answer:  TRUE

On an accrual basis income statement, revenues and expenses always match the firm's cash flow.

Answer:  FALSE

Corporate income statements are usually compiled on an accrual, rather than cash, basis.

Answer:  TRUE

Based on the information contained in Table 3, what was the total amount of Snark Enterprise's common stock dividend for 2012

                                                       Table 3

                                      Snark Enterprises, Inc.

                                              Balance Sheets

                                                                    2011                           2012

Cash                                                         $1,000                            $?

Accounts receivable                               8,000                      9,000

Inventories                                                4,000                      7,000

Land                                                         10,000                   10,000

Other fixed assets                                   5,000                      5,500

Accumulated depreciation                 (1,600)                   (2,000)

Total assets                                          $26,400                            $?

Accounts payable                                 $4,200                  $ 7,000

Bonds                                                         4,000                      4,000

Common stock                                      15,000                   16,000

Retained earnings                                  3,200                      3,800

Total debt and equity                        $26,400                            $?

                                                          Snark Enterprises, Inc.

                                                              Income Statement

                                                Sales                                       $44,900

                                                Cost of goods sold               (22,000)

                                                Gross profit                          $12,900

                                                Operating expenses            (10,000)

                                                Depreciation                               (400)

                                                EBIT                                          $2,500

                                                Interest expense                         (500)

                                                EBT                                           $2,000

                                                Taxes                                         (1,000)

                                                Net Income                             $1,000

Based on the information contained in Table 3, what was the total amount of Snark Enterprise's common stock dividend for 2012?

A) $0

B) $400

C) $600

D) Cannot be determined with available information

Based on the information contained in Table 3, what is Snark Enterprise's gross profit margin in 2012.

A) 5.6%

B) 4.5%

C) 29.7%

D) 2.2%

Which of the following best represents operating income?

A) Income after financing activities

B) Earnings before interest and taxes

C) Income from capital gains

D) Income from discontinued operations

Which of the following best represents the stream of income that is available to stockholders?

A) Net profit after tax

B) Earnings before interest, taxes and dividends

C) Gross profit

D) Operating profit

Which of the following is NOT included in operating income?

A) Cost of goods sold

B) Sales

C) Taxes

D) Operating expenses

Based on the information contained in Table 2, what was the total amount of Bird Industries' common stock dividend for 2012

                                                      Table 2

                                         Bird Industries, Inc.

                                              Balance Sheets

                                                                    2011                          2012

Cash                                                         $1,000                            $?

Accounts receivable                               5,000                      6,000

Inventories                                                6,500                      6,000

Land                                                         10,000                   12,000

Other fixed assets                                   8,000                      9,000

Accumulated depreciation                 (1,000)                   (1,600)

Total assets                                          $29,500                            $?

Accounts payable                                 $3,200                  $ 6,800

Bonds                                                         4,000                      4,000

Common stock                                      17,000                   16,000

Retained earnings                                  5,300                      5,000

Total debt and equity                        $29,500                            $?

                                                             Bird Industries, Inc.

                                                               Income Statement

                                                Sales                                       $84,000

                                                Cost of goods sold                66,400

                                                Gross profit                          $17,600

                                                Operating expenses           (13,000)

                                                Depreciation                              (600)

                                                EBIT                                          $4,000

                                                Interest expense                        (500)

                                                EBT                                           $3,500

                                                Taxes                                         (1,500)

                                                Net Income                             $2,000

Based on the information contained in Table 2, what was the total amount of Bird Industries' common stock dividend for 2012?

A) $800

B) $2,300

C) $2,000

D) Cannot be determined with available information

Based on the information contained in Table 2, what was Bird Industries' operating profit margin for 22012?

A) 21%

B) 4.8%

C) 4.2%

D) 2.4%

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000;

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's income before tax?

A) $4,360,000

B) $750,000

C) $10,865,000

D) $25,115,000

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $8,750,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's net income?

A) $255,223

B) $4,731,000

C) $2,616,000

D) $7,775,000

Your firm has the following income statement items: sales of $52,000,000; income tax of $1,880,000; operating expenses of $9,000,000; cost of goods sold of $36,000,000; and interest expense of $800,000.  Compute the firm's gross profit margin.

A) 13.5%

B) 8.3%

C) 30.8%

D) 69.2%

            Table 1

                                            Jones Company

                                      Financial Information

                                                                March 1995         March 1996

Net income                                             $1,500                    $3,000

Accounts receivable                                  750                         750

Accumulated depreciation                  1,125                      1,500

Common stock                                        4,500                      5,250

Capital surplus                                       7,500                      8,250

Retained earnings                                  1,500                      2,250

Accounts payable                                      750                         750

9) Based on the information given in Table 1, calculate the dividends paid in 1996.

A) $3,750

B) $3,000

C) $750

D) $2,250