A firm's tax rate is 40%. If its pretax income is overstated by 100 due to errors in recording cash transactions, then the operating cash flow due to these errors is:
Answer(s): C
operating cash flow = net income + noncash expenses - non-cash revenues - cash reductions in operating accounts Since the pretax income is overstated by 100, net income is overstated by 100*(1-0.4) = 60. Since the errors are in the cash transaction accounts, not non-cash accounts, this implies that operating cash flow is overstated by 60 due to these errors.
Beginning inventory of 50 units, purchased at $550 units purchased at $1035 units purchased at $925 units sold at $1570 units sold at $12Tax rate = 40%.Beginning LIFO reserve = $300The net income using FIFO is ________.
The total revenue equals 25*15 + 70*12 = 1,215, coming from a sale of 95 units. Under FIFO, the goods purchased earliest are assumed to have been sold first. Therefore, 50 of the sold units have a cost of $5 each and 45 units have a cost of $10 each. Therefore, FIFO COGS = 50*5 + 45*10 = $700. Therefore, assuming no other costs, the pre-tax income equals 1,215 - 700 = $515 and the post tax income equals 515*(1-40%) = $309.
Examples of Common Stock Equivalents (CSE's) include all of the following except:
Answer(s): B
Treasury stock is stock held by the company and therefore is not included as a CSE. The earnings of the shares held by investors would not be affected by the treasury stock.
A firm decides to capitalize the interest expenditure on a large, building construction project, instead of expensing it. This ________ its debt-to-equity ratio.
Interest capitalization results in higher earnings compared to the case where it is expensed. This results in higher retained earnings and higher equity, thus reducing the debt-to-equity ratio.
A firm's gross profit margin equals 35.2% and the operating profit margin equals 26.7%. If its net sales equal 6,128, the firm's SGA expenses equal ________.
Gross Profit Margin = Gross Profit/Net sales and Operating Profit Margin = Operating Profit/Net sales.Therefore, Gross Profit = 6,128*0.352 = 2,157 and Operating Profit = 6,128*0.267 = 1,636. Now, Operating profit = income before interest, depreciation and taxes (EBDIT)= Gross Profit - Sales & General Expenses, so 2,157 - 1,636 = 521.
Post your Comments and Discuss CFA CFA I exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CFA I content, but please register or login to continue.