Patriot Corporation purchased manufacturing equipment with an expected useful life of five years

Patriot Corporation purchased manufacturing equipment with an expected useful life of five years.  The purchase of the machinery would be shown as

A) an expense on the balance sheet.

B) an expense on the income statement.

C) an asset on the balance sheet.

D) both an expense and an asset.

Which of the following best describes a balance sheet?

A) Reports cash receipts and cash disbursements for a specific accounting period

B) Reports investment activities for a specified accounting period

C) Reports revenues and expenses for a specific accounting period

D) Reports the amount and composition of assets and liabilities at a specified point in time

Which of the following would NOT be included as an asset on a corporate balance sheet?

A) Accounts receivable

B) Common stock

C) Inventory

D) Buildings

Which of the following would NOT be included as a liability in a corporate balance sheet?

A) Notes payable

B) Accounts payable

C) Bonds

D) Accumulated Depreciation

Which of the following would NOT be included as equity in a corporate balance sheet?

A) Cash

B) Paid in capital

C) Retained earnings

D) Common stock

When a company pays a dividend on common stock, it appears as

A) an expense on the income statement.

B) a reduction in the amount of retained earnings.

C) a current liability on the balance sheet.

D) dividend payments have no effect on the financial statements.

Your firm has the following balance sheet statement items: total current liabilities of $805,000; total assets of $2,655,000

Your firm has the following balance sheet statement items: total current liabilities of $805,000; total assets of $2,655,000; fixed and other assets of $1,770,000; and long-term debt of $200,000. What is the amount of the firm's total current assets?

A) $885,000

B) $1,550,000

C) $600,000

D) $325,000

 

Which of the following is not a current asset?

A) Accounts payable

B) Marketable securities

C) Accounts receivable

D) Inventory

2) Net plant and equipment is

A) plant and equipment purchases less amount borrowed to finance purchases.

B) current year plant and equipment purchases less current year's depreciation expense.

C) gross plant and equipment less accumulated depreciation.

D) plant and equipment at current market valuations.

Your firm has the following balance sheet statement items: total current liabilities of $805,000; total assets of $2,655,000; fixed and other assets of $1,770,000; and long-term debt of $200,000. What is the amount of the firm's net working capital?

A) $25,000

B) $325,000

C) $770,000

D) $80,000

Goodwin Enterprises had a gross profit of $2,500,000 for the year. Operating expenses and interest expense incurred

Goodwin Enterprises had a gross profit of $2,500,000 for the year. Operating expenses and interest expense incurred in that same year were $595,000 and $362,000, respectively. Goodwin had 200,000 shares of common stock and 180,000 shares of preferred stock outstanding. Management declared a $2.50 dividend per share on the common and a $1.50 dividend per share on the preferred. Securities purchased at a cost of $37,500 in a previous year were resold at a price of $50,500. Compute the taxable income and the resulting tax liability for Goodwin Enterprises for the year.

Use the following tax rates:

                 Income                   Tax rate

              $0-$50,000                     15%

        $50,001-$75,000                25%

       $75,001-$100,000               34%

      $100,001-$335,000              39%

           over $335,001                  34%

Answer: 

Gross profit                    $2,500,000

Operating expenses        (595,000)

Interest expense               (362,000)

Income before tax         $1,543,000

Add: Gain on sales              13,000

Taxable Income             $1,556,000

        Income          Marginal Tax Rate             Tax Liability

       $50,000       ×                 15%                                   $7,500

       $25,000       ×                 25%                                   $6,250

       $25,000       ×                 34%                                   $8,500

     $235,000       ×                 39%                                $91,650

  $1,221,000       ×                 34%                              $415,140

  $1,556,000                                                                $529,040

By design, the marginal and the average tax rates are the same, 34%, for corporate incomes between $335,000 and $10,000,000.

Pearls, Inc. had sales in 2013 of $2.1 million. The common stockholders received $600,000 in cash dividends

Pearls, Inc. had sales in 2013 of $2.1 million. The common stockholders received $600,000 in cash dividends.  Interest totaling $150,000 was paid on outstanding debts. Operating expenses totaled $300,000, and cost of goods sold was $500,000.  What is the tax liability of Pearls, Inc.? 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%

Answer:  Pearls Taxable Income

Sales                                                          $2,100,000

Less:

Cost of goods sold                                    $500,000

Operating expenses                                  300,000

Earnings before interest & taxes       $1,300,000

Interest expense                                          150,000

Taxable income                                       1,150,000

Total taxes owed                                      $391,000

Taxes on operating earnings = (.15)(50,000) + (.25)(25,000) + (.34) 25,000) + (.39)(235,000) +.(34)(735,000)= 7,500 + 6,250 + 8500 + 91,650+277,100 = $391,000 or

                                Because taxable income is over $335,000

                                taxes can be computed 1,150,000 × .34 =

                                $391,000

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