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Jefferson Motors, other financial statement questions

1)Identify which financial statement would help answer the questions below -

Bal. Sheet Income Stmt. Stmt. Of cash flows Statement of stockholders' equity
Is the firm generating enough cash to repay is debt to invest in new products?
Does the firm generate enough internal funds to support investment, or does new stock need to be issued?
Is the firm financed with too much debt?
How profitable has the firm been?
Can the firm meet all its short -term obligations?
How much of the firm's earnings are put back into the company for reinvestment, and how much is paid out as dividends?

2)The balance sheet lists a variety of claims against a firm's assets. Claims against assets are either liability of equity claims (assuming nor preferred stock). Shareholder's equity represents an ownership on the firm's assets, while a liability claim does not imply ownership. It must be paid paid. However, some liabilities tend to arise naturally through the firm's business operations. Identify which of the following liability accounts are liabilities that naturally occur as the business operates. Check all that apply.

Long-term debt
Notes Payable
Accounts Payable - we picked this one.

3)At the end of last year, Jefferson Motors had 100,000 shares of common stock with a balance of $185,000, retained earnings of $710,000 and total stockholder's equity of $895,000. This year, Jefferson paid a dividen of $80,000 and its end-of-year retained earnings were $795,000. What was the net income of Jefferson Motors for this year?

$140,000, $165,000, $155,000 $150,000 or $145,000

4)Net sales 80,000
Opr. Cost except
Depreciation 60,000
EBITDA 20,000

Dep. Exp. 4,000

EBIT 16,000

Less Int. Exp. 3,000

EBT 13,000

Taxes 5,200

Net Income 7,800

*Net income for next yr. needs to be $9,900, assume the tax rate remains at 40%, opr. Costs except dep. Expense remain at 75% of sales, and there is no effect on the dep. Or int. expenses. What sales goal must be met in order to reach the net income of $9,900 next year?

94,000 106,000 $90,000 $86,000 $98,000

4)Taxable income of $320,000 and the company has the corp. tax rates below

0-50,000 15%
50,000-75,000 25%
75,000-100,000 34%
100,000-335,000 39%
335,000-10,000,000 34%
10,000,000-15,000,000 35%
15,000,000 - 18,333,333 38%
Over $18,333,333 35%

What is the tax liability?
108,050, 104,540, 103,370,
88,550 or 106,880? We picked 103,370

Marginal tax rate:
33%, 34%, 35%, 38% or 39%

Avg. tax rate?
34%, 33%, 35%, 38%, 39%

Which of the following two tax rates has the most economic significance for Jehle's financial dec. making process?

Avg. or Marginal?


Solution Preview

1. Please adjust according to these comments:
Generating enough cash? Yes, Cash flow statement
Enough internal funds? This should also be cash flow statement.
Too much debt? Need income statement and balance sheet to compute debt to equity and times interest earned.
Profitable -- that's fine (income statement)
Short term ...

Solution Summary

Comments and computations provided for you.