1. Lost Inc. had sales of $14 million, operating expenses of $4.75 million, COGS of $7.7 million, depreciation expense of $3.75 million, and interest expense of $0.87 million. Calculate the firm’s EBIT.

1.

Lost Inc. had sales of $14 million, operating expenses of $4.75 million, COGS of $7.7 million, depreciation expense of $3.75 million, and interest expense of $0.87 million. Calculate the firm’s EBIT.

$1,550,000

($2,200,000)

($1,550,000)

$3,750,000

2.

Which of the following is true with respect to accrual accounting?

Cash-based accounting is much better when analyzing the operations of the firm.

Amounts reported on the financial statements can be managed or manipulated without violating GAAP.

Net income is the amount of cash a company receives from customers less cash payments to vendors and employees.

Accrual accounting yields easily interpreted financial statements.

3.

Current assets are normally listed on the balance sheet in the order of

There is no specific order for current assets.

the most liquid to the least liquid.

the most commonly used to the least commonly used.

the largest dollar amount to the smallest dollar amount.

4.

In the basic framework, a firm can allocate net income to one of two items. These two items are

dividends and common stock.

dividends and retained earnings.

inventory and retained earnings.

additional paid in capital and retained earnings.

5.

The MBJ Company has fixed assets of $509 million, total equity of $218 million, current liabilities of $ 128 million, and long-term debt of $390 million. Given this information, MBJ has current assets that equal

$262 million.

$119 million.

$128 million.

$227 million.

none of these

6.

What is sales revenue minus cost of goods sold?

dividends

EBIT

gross income

net income

7.

Which of the following is not one of the ways that firms can manipulate their earnings?

relaxing of credit standards

switching between LIFO and FIFO

decreasing R&D on the books

using a sale-leaseback arrangement

hiring more sales force

8.

Holding all else equal, higher levels of depreciation on an income statement will lead to

higher tax expense.

higher EBIT.

higher net income.

lower costs of the good sold.

lower tax expenses.

9.

Accounts payable represent money that a firm

owes to suppliers for purchases made on credit.

owes to a lender under a borrowing arrangement with an explicit interest rate.

owes to a landlord or leasing agent for rental costs.

owes to its employees.

10.

The balance sheet equation states that assets = liabilities + owners’ equity. Which of the following best describes the logic behind this equation?

A firm must use assets to pay back debt and equity.

Assets have to be financed by either other people’s money or the owner’s money.

Assets must generate revenues equal to the firm’s liabilities and owners’ equity.

Assets are financial resources used to obtain debt and equity.