Question Details

Hite Industries reported retained earnings 


1.	A start-up firm is making an initial investment in new plant and equipment.  Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years.  If the legislation becomes law, which of the following would occur in the year following the change?

a.	The firm- operating income (EBIT) would increase.
b.	The firm- taxable income would increase.
c.	The firm- cash flow would increase.
d.	The firm- tax payments would increase.
e.	The firm- reported net income would increase.

2.	Which of the following statements is CORRECT?

a.	Dividends paid reduce the net income that is reported on a company- income statement.
b.	If a company uses some of its bank deposits to buy short-term, highly liquid marketable securities, this will cause a decline in its current assets as shown on the balance sheet.
c.	If a company issues new long-term bonds to purchase fixed assets during the current year, this will increase both its reported current assets and current liabilities at the end of the year.
d.	Accounts receivable are reported as a current liability on the balance sheet.
e.	If a company pays more in dividends than it generates in net income, its retained earnings as reported on the balance sheet will decline from the previous year's balance.

3.	Which of the following statements is CORRECT?

a.	Since depreciation increases the firm's net cash provided by operating activities, the more depreciation a company has, the larger its retained earnings will be, other things held constant.
b.	A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments.
c.	Common equity includes common stock and retained earnings, less accumulated depreciation.
d.	The retained earnings account as reported on the balance sheet shows the amount of cash that is available for paying dividends. 
e.	If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative.

4.	Emery Mining Inc. recently reported $150,000 of sales, $75,500 of operating costs other than depreciation, and $10,200 of depreciation.  The company had $16,500 of outstanding bonds that carry a 7.25% interest rate, and its federal-plus-state income tax rate was 35%.  How much was the firm's net income?  The firm uses the same depreciation expense for tax and stockholder reporting purposes.

a.	$35,167.33
b.	$37,018.24
c.	$38,966.57
d.	$41,017.44
e.	$43,068.31
	
5.	On 12/31/08, Hite Industries reported retained earnings of $525,000 on its balance sheet, and it reported that it had $135,000 of net income during the year.  On its previous balance sheet, at 12/31/07, the company had reported $445,000 of retained earnings.  No shares were repurchased during 2008.  How much in dividends did the firm pay during 2008?

a.	$49,638
b.	$52,250
c.	$55,000
d.	$57,750
e.	$60,638



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