DBM5028BusinessFinance/Chapter2

TUTORIAL 2
FINANCIAL STATEMENTS, TAXES, AND CASH FLOW

1. The financial statement summarizing the value of a firm's equity on a particular date
is the:
A. income statement.
B. balance sheet.
C. statement of cash flows.
D. cash flow statement.
2. Net working capital is defined as:
A. total liabilities minus shareholders' equity.
B. current liabilities minus shareholders' equity.
C. fixed assets minus long-term liabilities.
D. current assets minus current liabilities.
3. A(n) ____ asset is one which can be quickly converted into cash without significant
loss in value.
A. tangible
B. fixed
C. intangible
D. liquid
4. The common set of standards and procedures by which audited financial statements
are prepared is known as the:
A. Matching principle.
B. Cash flow identity.
C. Generally Accepted Accounting Principles (GAAP).
D. Financial Leverage Reporting Principles (FLRP).
5. Your _____ tax rate is the amount of tax payable on the next taxable dollar you earn.
A. marginal
B. residual
C. total
D. average
6. Which term relates to the cash flow which results from a firm's ongoing, normal
business activities?
A. operating cash flow
B. capital spending
C. net working capital
D. cash flow from assets
7. The net total cash flow of a firm which is available for distribution to the firm's
creditors and stockholders is called the:
A. operating cash flow.
B. net capital spending.
C. net working capital.
D. cash flow from assets.
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8. Cash flow from assets is also known as the firm's:

A. capital structure.
B. equity structure.
C. hidden cash flow.
D. free cash flow.
9. A machine used to wrap a product for shipment to a customer is classified as:
A. a current asset.
B. an intangible asset.
C. net working capital.
D. a tangible asset.
10. Which of the following are included in current assets?
I. retained earnings
II. inventory
III. accounts payable
IV. cash
A. II and IV only
B. I and III only
C. I, II, and IV only
D. III and IV only
11. Which of the following are included in current liabilities?
I. note payable to a supplier in eight months
II. amount due from a customer next month
III. account payable to a supplier that is due next week
IV. loan payable to the bank in fourteen months
A. I and III only
B. II and III only
C. III and IV only
D. II, III, and IV only
12. Shareholders' equity:
A. increases anytime total assets increases.
B. is equal to total assets plus total liabilities.
C. includes long-term debt, preferred stock, and common stock.
D. represents the residual value of a firm.

13.Liquiditycanbedefinedas_______________________.
A.thespeedandeaseofconversiontocashwithoutsignificantlossofvalue
B.thespeedandeaseofconversiontoassetwithoutsignificantlossofvalue
C.thespeedandeaseofconversiontocashwithsignificantlossofvalue
D.thespeedandeaseofconversiontoassetwithsignificantlossofvalue
14. The book value of a firm is:
A. equivalent to the firm's market value provided that the firm has some fixed assets.
B. based on historical cost.
C. generally greater than the market value when fixed assets are included.
D. adjusted to the market value whenever the market value exceeds the stated book
value.
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15. As seen on an income statement:

A. interest is deducted from income and increases the total taxes incurred.
B. the tax rate is applied to the earnings before interest and taxes when the firm has
both depreciation and interest expenses.
C. depreciation is shown as an expense but does not affect the taxes payable.
D. depreciation reduces both the taxable income and the net income.
16. A firm has RM680 in inventory, RM2,320 in fixed assets, RM280 in accounts
receivables, RM490 in accounts payable, and RM130 in cash. What is the amount of
the current assets?
A. RM410
B. RM960
C. RM1,090
D. RM3,410
17. A firm has net working capital of RM820. Long-term debt is RM3,260, total assets are
RM5,920 and fixed assets are RM3,410. What is the amount of the total liabilities?
A. RM2,440
B. RM4,080
C. RM4,130
D. RM4,950
18. Your firm has total assets of RM1,400, fixed assets of RM600, long-term debt of
RM700, and short-term debt of RM100. What is the amount of net working capital?
A. RM0
B. RM100
C. RM600
D. RM700
19. Six years ago, Capsis Berhad purchased a mailing machine at a cost of RM368,000.
This equipment is currently valued at RM172,200 on today's balance sheet but could
actually be sold for RM211,400. This is the only fixed asset the firm owns. Net
working capital is RM121,000 and long-term debt is RM82,500. What is the book
value of Capsiss shareholders' equity?
A. RM89,700
B. RM210,700
C. RM211,400
D. RM249,900
20. Henry owns The Muddy Store which he is trying to sell so that he can retire and
travel. The Muddy Store owns the building in which it is located. This building was
built at a cost of RM427,000 and is currently appraised at RM575,000. The display
counters and fixtures originally cost RM87,000 and are currently valued at
RM49,000. The inventory is valued on the balance sheet at RM289,000 and has a
retail market value equal to 1.4 times its cost. Henry expects the store to collect 97
percent of the RM48,041 in accounts receivable. The firm has RM11,200 in cash and
has total debt of RM167,400. What is the market value of this firm?
A. RM957,000
B. RM907,800
C. RM919,000
D. RM945,800
21. The Corner Store paid RM1,100 in dividends and RM850 in interest this past year.
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Common stock increased by RM500 and retained earnings decreased by RM260.

What is the net income for the year?
22. The More & Less paid RM420 in dividends and RM611 in interest expense. The
addition to retained earnings is RM397.74 and net new equity is RM750. The tax rate
is 34 percent. Sales are RM6,250 and depreciation is RM710. What are the earnings
before interest and taxes?
23. Kamal Berhad has total sales of RM987,611 and costs of RM724,268. Depreciation is
RM39,740 and the tax rate is 34 percent. The firm does not have any interest expense.
What is the operating cash flow?
24. At the beginning of the year, a firm has current assets of RM91,807 and current
liabilities of RM102,343. At the end of the year, the current assets are RM89,476 and
the current liabilities are RM92,638. What is the change in net working capital?
25. Trian Poli Berhad has these information for both year 2013 and 2014.
Net Income
Retained earnings
Common stock

2013 (RM)
65,000
25,500
170,000
Table 1

2014 (RM)
95,000
30,200
210,000

What is the amount of the cash flow to stockholders for the year of 2014?
26. Archie Bakery has beginning long-term debt of RM23,509 and ending long-term debt
of RM19,847. The beginning and ending total debt balances are RM26,847 and
RM24,613, respectively. The interest paid is RM1,988. What is the amount of the
cash flow to creditors?
27. Table 2 below is data obtained from Aslim Berhad for the year of 2011. Based on the
given information, compute the following :
a) Taxable Income
b) Operating cash flow
c) Sales

Cost of goods sold

Interests
Dividends
Depreciation
Change in retained earnings
Tax rate
Table 2

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2011 (RM)
3,419
187
370
892
228
35%

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2012 (RM) 2013 (RM)

Sales
1,294
1,418
COGS
648
736
Interest
42
38
Depreciation
211
228
Cash
56
63
Accounts receivables
157
172
Current liabilities
175
209
Inventory
326
408
Long-term debt
456
417
Net fixed asset
609
641
Common stock
300
350
Tax rate
34%
34%
Table 3
28. According to the above data of Table 3, compute the following :
a)
b)
c)
d)
e)
f)

Changes in Net working capital

Net Capital Spending
Operating Cash Flow
Cash Flow From Assets for 2013
Cash Flow To Creditors for 2013
Cash Flow To Stockholders for 2013

Taxable Income (RM)

Tax Rates (%)

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

18,333,334+

35
Tax Rate Table

According to the Tax Rate above, answer the questions below (Q 29 & 30).
29. Compute the average tax rate for a firm with taxable income of RM 335,000.
30. Plushy Kimi Berhad has taxable income of RM250,000 for the year of 2013.
Compute Plushy Kimi Berhads tax liability, average tax rate, and determine its
Marginal tax rate.

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