Student name:________

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
1) Ivan's, Incorporated, paid $490 in dividends and $590 in interest this past year. Common
stock increased by $200 and retained earnings decreased by $126. What is the net income for
the year?
A) $954
B) $790
C) $490
D) $590
E) $364

2) Your firm has net income of $434 on total sales of $1,480. Costs are $810 and depreciation is
$120. The tax rate is 21 percent. The firm does not have interest expenses. What is the
operating cash flow?
A) $550
B) $984
C) $670
D) $434
E) $554

3) Disturbed, Incorporated, had the following operating results for the past year: sales =
$22,561; depreciation = $1,390; interest expense = $1,120; costs = $16,530. The tax rate for
the year was 21 percent. What was the company's operating cash flow?
A) $5,292
B) $7,263
C) $3,521
D) $3,014
E) $2,782

4) For the past year, Momsen Limited had sales of $47,747, interest expense of $4,400, cost of
goods sold of $17,884, selling and administrative expense of $12,431, and depreciation of
$7,430. If the tax rate was 21 percent, what was the company's net income?
A) $11,180
B) $3,921
C) $1,801
D) $4,426
E) $5,602

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5) HUD Company had a beginning retained earnings of $30,800. For the ;year, the company
had net income of $7,415 and paid dividends of $3,025. The company also issued $5,175 in
new stock during the year. What is the ending retained earnings balance?
A) $40,365
B) $35,190
C) $33,825
D) $30,015
E) $35,975

6) Maynard Enterprises paid $1,440 in dividends and $1,165 in interest over the past year. The
common stock account increased by $1,320 and retained earnings decreased by $425. What
was the company's net income?
A) $1,015
B) $1,745
C) $2,335
D) $895
E) $1,865

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Answer Key
Test name: chapter 2 accng income vs cash flow basic

1) E
Net income = Dividends paid + Change in retained earnings
Net income = $490 + (– $126) = $364

In this case, the change in retained earnings was a negative value.

2) E
EBIT = Sales – Costs – Depreciation
EBIT = $1,480 – 810 – 120
EBIT = $550

Taxes = Tax rate × EBIT

Taxes = .21 × $550
Taxes = $116

OCF = EBIT + Depreciation – Taxes

OCF = $550 + 120 – 116
OCF = $554

3) A
EBIT = $22,561 − 16,530 − 1,390 = $4,641

EBT = $4,641 − 1,120 = $3,521

Taxes = $3,521(.21) = $739

OCF = $4,641 + 1,390 − 739 = $5,292

4) D
EBT = $47,747 − 17,884 − 12,431 − 7,430 − 4,400 = $5,602

Taxes = $5,602(.21) = $1,176

Net income = $5,602 − 1,176 = $4,426

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5) B
Retained earnings = $30,800 + ($7,415 − 3,025) = $35,190

6) A
Net income = $1,440 − 425 = $1,015

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