Assume That a Firm Had Shareholders' Equity on the Balance

question 10

Multiple Choice

Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,200 at the end of 2005. During 2006 the firm earns net income of $900, pays dividends to shareholders of $400, and issues new stock to raise $250 of capital. The book value of shareholders equity at the end of 2006 is:

• A) $2,750
• B) $250
• C) $1,450
• D) $1,950

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Definitions:

Indirect Method

A method for preparing the cash flow statement where net income is adjusted for changes in balance sheet items to calculate cash flow from operating activities.

Depreciation Expense

This is the systematic allocation of the cost of a tangible asset over its useful life.

Investing Activities

Financial transactions and decisions related to acquiring or disposing of long-term assets and investments that can affect a company's capital structure.

Cash Inflow

Refers to the money received by a business from its various activities, including sales, investments, and financing.