Question 1
PLEASE SEE DOCUMENT FOR FULL QUESTIONS Which of the following is true regarding the evaluation of projects? (Points: 4) sunk costs should be included erosion effects should not be considered financing costs need to be included opportunity costs are relevant 2. (TCO 4) There are several disadvantages to the payback method, among them: (Points: 4) payback ignores cash flows beyond the cutoff. payback can be used in conjunction with time adjusted methods of evaluation. payback is easy to use and to understand. none of the above is a disadvantage. 3. (TCO 3 and 4) The net present value is: (Points: 4) negative when a project's benefits exceed its costs. equal to the present value of an investment's benefits. equal to zero when the discount rate equals the IRR. negative when a project's IRR exceeds the required rate of return. the current measure of a project's cash inflows. 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 15 percent? (Points: 4) -$2,989.48 -$2,599.55 $1,153.37 $2,880.08 $3,312.09 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? (Points: 4) 5.81 years 6.05 years 6.96 years 7.90 years This project never pays back 6. (TCO 4) The postponement of a project until conditions are more favorable: (Points: 4) is a valuable option. is referred to as the option to extend. could not cause a negative net present value project to become a positive net present value project. will generally cause the internal rate of return for a project to decline. 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points: 4) contingency planning. hard rationing. soft rationing. capital constraint. scenario analysis. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points: 4) The net present value of the project is approximately $10,000 This project should be accepted because it has a positive net present value This project?s payback period is 10 years or more None of the above is true 9. (TCO 4) Assume Company X plans to invest $60,000 in new computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the first year depreciation amount under MACRS? (Points: 4) $12,000 $8,575 $19,800 None of the above 10. (TCO 1 and 4) Assume a project has earnings before depreciation, and taxes of $110,000, depreciation of $40,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project? (Points: 4) $47,000 $89,000 a loss of $21,000 none of these 11. (TCO 8) Which of the following statements is true regarding systematic risk? (Points: 4) is diversifiable is the total risk associated with surprise events it is measured by beta it is measured by standard deviation 12. (TCO 8) Which statement is not true regarding risk? (Points: 4) the expected return is always the same as the actual return a key to assess risk is determining how much risk an investment adds to a portfolio risks can not always be diversified the higher the risk, the higher the return investors require for the investment 13. (TCO 8) The stock of Hobby Town has an expected return of 8.8 percent. Given the information below, what is the expected return on this stock if the economy is normal? (Points: 4) 3.86 percent 4.42 percent 6.43 percent 7.28 percent 8.21 percent 14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock D? (Points: 4) 17.68 percent 17.91 percent 18.42 percent 19.07 percent 19.46 percent 15. (TCO 8) You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. The one stock has a beta of .80. What does the beta of the second stock have to be if you want the portfolio risk to equal that of the overall market? (Points: 4) 1.4 1.6 1.8 2.0 2.2 (TCO 8) Company insiders cannot earn excess profits based on the knowledge they have related to their employer if the financial markets are: (Points: 4) weak form efficient. strong form efficient. semistrong form efficient. efficient at any level. aware that the trader is an insider. 2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at a cost of 6 percent (after-tax) and common equity at a cost of 18 percent. Assume debt and common equity each represent 50 percent of the firm's capital structure. What is the weighted average cost of capital? (Points: 4) between 3 and 9% exactly 12% more than 14% exactly 11% none of the above 3. (TCO 5, 6 and 7) An issue of common stock is selling for $57.20. The year end dividend is expected to be $2.32, assuming a constant growth rate of six percent. What is the required rate of return? (Points: 4) 10.3% 10.1% 4.1% 5.8% 4. (TCO 5, 6 and 7) Which of the following is true regarding the cost of debt? (Points: 4) It is the same as cost of equity. It is the interest rate that the firm pays on current/existing borrowing. An appropriate method to compute the cost of debt is using the YTM of current bonds outstanding. All of the above are true. 5. (TCO 5) Which of the following is true regarding the cost of retained earnings? (Points: 4) it is irrelevant to the WACC requires new funds to be raised need to be adjusted for the flotation costs have a cost, which is the opportunity cost associated with stockholder funds 6. (TCO 4) A project has the following cash flows. What is the internal rate of return? (Points: 4) less than 10% approximately 14% more than 16% more than 18% but less than 20% 7. (TCO 5, 6 and 7) Which one of the following is a correct statement? (Points: 4) Current tax laws favor debt financing. A decrease in the dividend growth rate increases the cost of equity. An increase in the systematic risk of a firm will decrease the firm's cost of capital. A decrease in a firm's debt-equity ratio will usually decrease the firm's cost of capital. The cost of preferred stock decreases when the tax rate increases. 8. (TCO 5, 6 and 7) The preferred stock of Blue Sky Air pays an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is 35 percent. What is the firm's cost of preferred stock? (Points: 4) 8.56 percent 9.32 percent 11.85 percent 13.43 percent 14.47 percent 9. (TCO 2) The bankruptcy process has been utilized by firms as a means of: (Points: 4) renegotiating labor contracts. reducing labor costs. avoiding payment of a legal judgment. improving the firm's competitive position. all of the above 10. (TCO 5) Which of the following statements is true regarding the cost of capital? (Points: 4) The cost of capital should not consider any flotation costs. All other being equal, it is preferable to use book value weights than market value weights. The WACC is the most appropriate discount rate for all projects. Depends primarily on the use of the funds, not the source. 11. (TCO 2) Which of the following decreases the cash account? (Points: 4) A payment due is received from a client Dividends are paid to shareholders Raw materials are purchased and paid for with credit A new machine is purchased and paid for with the business line of credit 12. (TCO 2) Which of the following statements is true? (Points: 4) There is an opportunity cost associated with not offering credit. The costs of the credit application process and the costs expended in the collection process are not carrying costs of granting credit. Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows. The optimal credit policy, is the policy that produces the largest amount of sales for a firm. 13. (TCO 2) Which one of the following industries is most apt to have the shortest cash cycle? (Points: 4) electric utility company airplane manufacturer fast-food restaurant furniture store clothing manufacturer 14. (TCO 2) Highland, Inc. has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. How much does the firm expect to collect in the fourth quarter? Assume that each month has 30 days. (Points: 4) $3,250 $3,400 $3,600 $3,750 $3,900 15. (TCO 1) Which one of the following actions best matches the primary goal of financial management? (Points: 4) increasing the net, working capital while lowering the long-term asset requirements improving the operating efficiency, thereby increasing the market value of the stock increasing the firm?s market share reducing fixed costs and increasing variable costs increasing the liquidity of the firm by transferring short-term debt into long-term debt (TCO 1) Which one of the following activities best exemplify working capital management? (Points: 4) Sale long-term bonds to raise funds for a new machine. Determine the return of a potential project. Calculate the cash flows for a project. Manage payments to suppliers. 2. (TCO 1) Market values reflect which of the following: (Points: 4) The amount someone is willing to pay today for an asset. The value of the asset based on generally-accepted accounting principles. The asset?s historical cost. A and B only None of the above 3. (TCO 1) Use the following tax table to answer this question: McKenzie, Inc. earned $144,320 in taxable income for the year. What is the company?s approximate average tax rate? (Points: 4) 27% 29% 31% 33% 35% 4. (TCO 3) Regional Bank offers you an APR of nine percent compounded quarterly, and Local Bank offers you an EAR of 9.15 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points: 4) Regional Bank, APR Local Bank, EAR Regional Bank, EAR Local Bank, APR 5. (TCO 3) You deposited $5,000 in your bank account today. An increase in which of the following will increase the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply: (Points: 4) interest rate initial amount of your deposit frequency of the interest payments length of the investment period 6. (TCO 3) Thirteen years from now, you will be inheriting $30,000. What is this inheritance worth to you today, if you can earn four percent interest compounded annually? (Points: 4) $18,017.22 $20,741.87 $23,190.98 $26,359.88 $28,846.15 7. (TCO 3) High Risk Operations, Inc. owes your firm $52,800. This amount is delinquent, so you have offered to arrange a payment plan in the hopes that you might at least collect a portion, if not all, of this money. Your offer will consist of weekly payments for two years, at an interest rate of four percent. What is the amount of each payment? (Points: 4) $241.29 $528.47 $736.28 $884.10 $1,036.22 8. (TCO 3) Which type of loan is comparable to the present value of a future lump sum? (Points: 4) effective annual rate amortized interest-only annual percentage pure discount 9. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments. (Points: 4) $1315 $1300 $756 $1000 10. (TCO 6) The market where one shareholder sells shares to another shareholder is called the _____ market. (Points: 4) primary main secondary principal dealer 11. (TCO 7) Which one of the following statements concerning financial leverage is correct? (Points: 4) The benefits of leverage are unaffected by the amount of a firm's earnings. The use of leverage will always increase a firm's earnings per share. The shareholders of a firm are exposed to greater risk anytime a firm uses financial leverage. Earnings per share are unaffected by changes in a firm's debt-equity ratio. Financial leverage is beneficial to a firm only when the firm has minimal earnings. 12. (TCO 3) SmithKline Company's bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate and will mature in 10 years. What is the approximate yield to maturity? (Points: 4) 6.96% 7.69% 11.0% 12.1% 13. (TCO 8) Which of the following is true regarding bonds? (Points: 4) Most bonds do not carry default risk. Municipal bonds are free of default risk. Bonds are not sensitive to changes in the interest rates. Moody?s and Standard and Poor?s provide information regarding a bond?s interest rate risk. None of the above is true 14. (TCO 8) Which one of the following bonds is the most sensitive to interest rate movements? (Points: 4) zero-coupon, five year seven percent annual coupon, five year zero-coupon, 10 year five percent semi-annual coupon, 10 year five percent annual coupon, 10 year 15. (TCO 6) A call provision in a bond agreement grants the issuer the right to: (Points: 4) repurchase the bonds prior to maturity at a pre-specified price. replace the bonds with equity securities. repurchase the bonds after maturity at a pre-specified price. change the coupon rate, provided the bondholders are notified in advance. buy back the bonds on the open market prior to maturity. TCO 6) Which of the following is true regarding income bonds? (Points: 4) Are relatively uncommon Can be exchanged for a fixed number of shares at maturity only Can be exchanged for a fixed number of shares before maturity Allow the holder to require the issuer to buy the bond back 2. (TCO 6 and 7) The document that outlines the covenants and duties existing between bondholders and the issuing corporation is called (Points: 4) an indenture. a debenture. secured debt. protective covenants. 3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond?s yield to maturity? (Points: 4) 9% 14% 11% Cannot be determined None of the above 4. (TCO 2) Which of the following does not reduce collection float? (Points: 4) installing a lockbox system. deposit collections weekly, instead of daily. requiring all customers pay by cash, rather than with check. utilize the benefits of the Check Clearing Act for the 21stCentury. 5. (TCO 2) Storage and tracking costs, insurance and taxes, and losses due to theft are examples of: (Points: 4) Inventory depletion costs Sunk costs Inventory costs None of the above 6. (TCO 1) Provide three examples of situations in which business ethics play a role in the financial management process. Explain your rationale, and how these situations may affect the value of the firm. (Points: 10) 7. (TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a project. Should sunk costs be included as incremental cash flows? Why or why not? Explain your rationale. (Points: 10) 8. (TCO 8) Consider the following statement: ?Any risk is diversifiable?. Do you agree or disagree? Why? (Points: 10) 9. (TCO 2) What are the costs associated with extending (or not extending) a credit policy to customers? (Points: 10) 10. (TCO 6 and 7) Consider the following statement: ?In order to maximize value, all firms should maintain a 30/70 debt to equity ratio?. Do you believe this statement is correct? Explain your rationale. (Points: 10)
Question 4
"1. (Points: 1) The primary purpose of hiring a public accounting firm to examine the financial statements of the company is a. to assure no fraud has been committed by the company's management b. to provide credibility that the financial information conforms with generally accepted accounting principles in all material respects c. to detect all accounting errors made by the accounting system and employees d. None of the above is the primary purpose for hiring public accountants Save Answer 2. (Points: 1) Which of the following websites provides access to the Securities and Exchange Commission's (SEC) reports filed by companies. a. EDGAR b. Lexui-Nexis c. First Call d. Compustat e. None of the above is the SEC's website Save Answer 3. (Points: 1) The Securities and Exchange Commission (SEC) is empowered to do the following: a. Set reporting standards for firms with publicly traded debt or equity securities b. Bring enforcement actions against company executives and auditors for accounting related violations c. File anti-trust suits against companies involved in restraint of trade d. Both A and B are SEC powers e. All of the above are SEC powers Save Answer 4. (Points: 1) Which of the following is an example of a typical institutional investor. a. The officers of Callaway Golf who own shares of stock in the company b. Employees who participate in a stock option plan and own shares of Callaway Golf c. The mutual funds managed by Oppenheimer Management Corporation d. All of the above are institutional investors e. None of the above is an institutional investor Save Answer 5. (Points: 1) The Securities and Exchange Commission's (SEC) report that is required to be filed if any special event occurs that is material in amount is the a. Form 10K b. Form 8K c. Form 10Q d. Prospectus e. None of the above Save Answer 6. (Points: 1) Current liabilities are defined as a. obligations which are incurred during the past year. b. debts at the balance sheet date which must be paid within two years. c. accounts payable and bonds payable. d. debts at the balance sheet date which are expected to be paid with the current assets listed on the same balance sheet. e. obligations (debts) related only to normal operations. Save Answer 7. (Points: 1) The criteria for extraordinary items are a. unusual in nature and occur frequently. b. unusual in nature and occur infrequently. c. unusual in nature or occur infrequently. d. infrequent in occurrence only. e. unusual in nature only. Save Answer 8. (Points: 1) Which of the following would not be a subclassification reported on a corporate income statement? a. Income before income taxes. b. Accumulated depreciation. c. Earnings per share. d. Cumulative effects of a change in accounting principle. e. All of the above are commonly reported on the income statement. Save Answer 9. (Points: 1) Extraordinary items differ from the other items on the income statement in that extraordinary items are a. unusual in nature. b. extraordinarily large in comparison to the other items. c. infrequent in occurrence. d. All of the above. e. A and C only. Save Answer 10. (Points: 1) Milsap Corporation reported total assets of $2,500,000, total current liabilities of $900,000, and total long-term liabilities of $800,000. Therefore, the stockholders' equity was a. $ 100,000. b. $ 800,000. c. $1,600,000. d. $1,700,000. e. None of the above is correct. Save Answer 11. (Points: 1) Ramstetter, Inc., purchased a piece of land with a new building on January 1, 20A. The land was valued at $40,000 and the building was valued at $120,000 with a 40 year life and a zero salvage (residual) value. How would the land and building appear in the plant, property and equipment section of the December 31, 20A, balance sheet? a. Land at 40,000 less accumulated depreciation of 1,000; Building at 120,000 less accumulated deprecation of 3,000. b. Land at 40,000; Building at 120,000. c. Land at 30,000; Building at 120,000. d. Land at 40,000; Building at 120,000 less accumulated depreciation of 3,000. e. None of the above is correct. Save Answer 12. (Points: 1) Use the following items from Upaway Company's income statement to compute its net income: Cost of goods sold $400,000 Selling, general and admin. expenses 200,000 Miscellaneous income 20,000 Net sales 650,000 Income tax expense 15,000 Net loss from discontinued operations(net of tax) (10,000) Cumulative effect of a change in accounting for income taxes(net of tax) 30,000 What is Upaway Company's net income to be reported on the income statement? a. $75,000. b. $55,000. c. $85,000. d. $65,000. e. None of the above is correct. Save Answer 13. (Points: 1) Which of the following is an example of a long-term liability? a. Accounts payable b. Income taxes payable c. Bonds Payable d. All of the above are long-term liabilities e. None of the above is a long-term liability Save Answer 14. (Points: 1) The debt-to-equity ratio is computed by taking a. current liabilities divided by total stockholders' equity b. total liabilities divided by total stockholders' equity c. current assets divided by total stockholders' equity d. none of the above Save Answer 15. (Points: 1) Credit terms of 2/10, n/30 indicate that a a. two percent discount for early payment is available if the invoice is paid before the tenth day of the month following the month the sale. b. two percent discount for early payment is available within ten days of the invoice date. c. ten percent discount for early payment is available if the invoice is paid within two days of the date of the invoice. d. two percent discount for early payment is available if the invoice is paid after the tenth day, but before the thirtieth day of the invoice date. e. None of the above is correct. Save Answer 16. (Points: 1) When goods are sold to a customer with credit terms of 2/15, n/30, the customer will a. receive a 15% discount if they pay within 2 days. b. receive a 2% discount if they pay 15% of the amount due within 30 days. c. receive a 15% discount if they pay within 30 days. d. receive a 2% discount if they pay within 15 days. e. None of the above is correct. Save Answer 17. (Points: 1) Central Company sold goods for $5,000 to Western Company on March 12 on credit. Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the transaction by debiting Accounts Receivable for $5,000 and crediting Sales Revenue for $5,000. Western paid the balance due on April 9. To record the April 9 transaction, Central would debit a. Cash for $4,900. b. Accounts Receivable for $5,000. c. Cash for $5,000. d. Sales discounts for $100. e. None of the above is correct. Save Answer 18. (Points: 1) A company had the following partial list of account balances at year-end: Sales Returns and Allowances $500 Accounts Receivable 9,000 Sales Discounts (a contra account) 700 Sales Revenue 57,200 Allowance for Doubtful Accounts 300 The amount of Net Sales shown on the income statement would be a. $57,200. b. $64,200. c. $56,000. d. $55,700. e. None of the above is correct. Save Answer 19. (Points: 1) What is the annual interest rate of a sales discount of 2/10, n/30? a. 37.2% b. 24.3% c. 36.5% d. 24.8% e. None of the above Save Answer 20. (Points: 1) Coca-Cola's gross profit percentage was 70.4% in 1998 and 69.7% in 1999. Which of the following was the most likely cause of that change? a. Discounted prices b. Rising product cost as a percentage of sales c. Increased competition from Pepsi d. None of the above may have caused the change e. All of the above may have caused the change Save Answer 21. (Points: 1) In 1999, Coca-Cola reported net sales revenues of $19.8 billion and cost of goods sold for $6.0 billion. Their gross profit percentage for 1999 was a. 30.3% b. 69.7% c. 43.5% d. None of the above Save Answer 22. (Points: 1) In 1998, Coca-Cola reported net sales revenues of $18.8 billion and cost of goods sold of $5.6 billion while PepsiCo reported revenues of $22.3 billion and cost of goods sold of $9.3 billion. Which of the following statements is correct? a. While PepsiCo generated more revenue than Coca-Cola, they generated a lower gross profit percentage b. Coca-Cola generated a lower gross profit percentage because their sales revenue was lower c. PepsiCo did a better job of controlling product costs as a percentage of sales than did Coca-Cola as evidenced by their $13.0 billion gross profit amount d. None of the above Save Answer 23. (Points: 1) Albert Company uses the allowance method to account for bad debts. The entry to write-off a bad account (one that will never be collected) should be: Debit Credit a. Bad debt expense Accounts receivable b. Bad debt expense Allowance for doubtful accounts c. Sales revenue Accounts receivable d. Allowance for doubtful accounts Accounts receivable e. None of the above is correct Save Answer 24. (Points: 1) On January 31, 20A, Low Company wrote off an uncollectible account of $2,000. The allowance method is used. The write-off would cause bad debt expense to a. decrease $2,000. b. increase $2,000. c. be unchanged. d. None of the above is correct. Save Answer 25. (Points: 1) During 20A, Thomas Company recorded bad debt expense of $15,000 and wrote off an uncollectible account receivable amounting to $5,000. Assuming a January 1, 20A, balance in the allowance for doubtful accounts of $10,000, the December 31, 20A, balance in the allowance account would be a. $25,000. b. $20,000. c. $15,000. d. $ 5,000. e. None of the above is correct. Save Answer 26. (Points: 1) The books of Tweed Company provided the following information: Beginning balances: Accounts receivable $30,000 Allowances for doubtful accounts (a credit) 2,000 Transactions during the year: Sales revenue (of which 1/3 were on credit) 1,800,000 Collections on accounts receivable 590,000 Accounts written off as uncollectible 2,500 Past collection experience has indicated that 1% of credit sales normally is not collected. Therefore, an adjusting entry for bad debt expense should be made in the amount of a. $6,500. b. $2,500. c. $6,000. d. $ 500. e. None of the above is correct. Save Answer 27. (Points: 1) In recording the year-end adjusting entry for bad debt expense, a company would a. debit accounts receivable. b. credit accounts receivable. c. debit allowance for doubtful accounts. d. credit allowance for doubtful accounts. e. None of the above is correct. Save Answer 28. (Points: 1) If a customer pays her bill after her account has already been written off, the company receiving the payment should record the account reinstatement with a. a credit to bad debt expense. b. a credit to allowance for doubtful accounts. c. a credit to cash. d. a debit to bad debt expense. e. None of the above is correct. Save Answer 29. (Points: 1) Use the following to answer question 29: Liberty Company estimates that its annual bad debts approximate 4% of credit sales. Liberty had the following balances at year-end prior to recording adjusting entries: Credit Sales $160,000 Accounts Receivable 30,000 Allowance for Doubtful Accounts 100 (debit) Following the completion of an aging analysis, the accountant for Liberty estimated that $1,100 of the receivables would be uncollectible. The year-end adjusting entry to record bad debt expense would include a a. credit to allowance for doubtful accounts of $1,100. b. debit to bad debt expense of $1,000. c. debit to bad debt expense of $900. d. a credit to allowance for doubtful accounts of $1,200. e. None of the above is correct. Save Answer 30. (Points: 1) Apple Company's bank statement showed an ending balance of $5,000. Items appearing in the bank reconciliation included: outstanding checks, $500; deposits in transit, $1,000; bank service charges, $10; and Orange Company's check erroneously charged to Apple's bank account by the bank, $110. The correct cash balance at the end of the month should be reported as a. $4,610 b. $5,390 c. $5,610 d. $6,610 e. None of the above is correct Save Answer 31. (Points: 1) When preparing the monthly bank reconciliation, the accountant for Tiffany Toys noted that a check received from a customer last month for $89 was marked NSF and returned along with the bank statement. To correct the cash account balance, the accountant recorded an adjusting entry. This entry required a debit to a. Cash. b. Bad debt expense. c. Accounts receivable. d. Sales. e. None of the above is correct. Save Answer 32. (Points: 1) A customer purchased a $200 item at Best Bike Shop, paying with a credit card (VISA). The merchant is charged a 2% fee by the credit card company. When recording this sale, the merchant would: a. debit accounts receivable for $200. b. credit sales revenue for $200. c. credit sales revenue for $196. d. credit unearned sales revenue for $200. e. None of the above is correct. Save Answer 33. (Points: 1) The 20B records of Tom Company showed beginning inventory, $6,000; cost of goods sold, $14,000; and ending inventory, $8,000. The purchases amount for 20B, was a. $12,000 b. $10,000 c. $ 9,000 d. $16,000 e. None of the above is correct. Save Answer 34. (Points: 1) The following information was taken from the 20B income statement of Milburn Company: Pretax income, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases, $90,000. Compute the amount of the ending inventory . a. $88,000. b. $10,000. c. $ 8,000. d. $18,000. e. None of the above is correct. Save Answer 35. (Points: 1) Richmond Company had the following information taken from its 20A adjusted trial balance: Sales, $200,000; Sales Discounts, $4,000; Beginning Inventory, $10,000; and Purchases, $140,000. A physical count of the merchandise on hand at the end of the year showed $20,000. Compute the gross margin (gross profit) that would appear in the income statement. a. $70,000. b. $74,000. c. $66,000. d. $62,000. e. None of the above is correct. Save Answer 36. (Points: 1) Which of the following is correct? a. Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory. b. Sales + Cost of Goods Sold = Gross Margin. c. Beginning Inventory + Ending Inventory - Purchases = Cost of Goods Sold. d. Income Before Taxes - Operating Expenses = Cost of Goods Sold. e. None of the above is correct. Save Answer 37. (Points: 1) Will Company's independent CPA discovered that the ending inventory for 20B had been overstated by the company $2,000. Before the correction, what was the effect in the 20B income statement because of the overstatement of the ending inventory? a. Pretax income was understated by $2,000. b. Cost of goods sold was understated by $2,000. c. Pretax income was overstated by $2,000. d. A and B are correct. e. B and C are correct. Save Answer 38. (Points: 1) A $15,000 overstatement of the 20B ending inventory was discovered after the financial statements for 20B were prepared. The effect of the inventory error on the 20B financial statements was a. current assets were overstated and net income was understated. b. current assets were understated and net income was understated. c. current assets were overstated and net income was overstated. d. current assets were understated and net income was overstated. e. None of the above is correct. Save Answer 39. (Points: 1) Maxell Company uses the periodic FIFO method to value inventory and had the following transactions in the period. What are the cost of goods sold and ending inventory balances in dollars for the period? Date Transaction # of units Cost per unit 1/1 Beginning balance 100 $5 1/2 Purchase 75 $4 1/5 Sale 75 1/6 Sale 50 COGS Ending Inventory a. 625 175 b. 575 225 c. 550 250 d. 600 200 e. None of the above is correct. Save Answer 40. (Points: 1) When prices are rising: a. LIFO will result in lower net income and a higher inventory valuation than will FIFO. b. LIFO will result in higher net income and lower inventory valuation than will FIFO. c. FIFO will result in lower net income and a lower inventory valuation than will LIFO. d. FIFO will result in higher net income and a higher inventory valuation than will LIFO. e. None of the above is correct. Save Answer 41. (Points: 1) Toys "R" Us had cost of goods sold in 1999 of $8,191 million and $7,710 million in 1998. Their merchandise inventory in 1999 was $1,902 million and $2,464 million in 1998. What was their inventory turnover in 1999? a. 4.31 b. 3.75 c. 3.64 d. None of the above Save Answer 42. (Points: 1) Under the perpetual inventory system: a. one entry is required to record a sales return. b. cost of goods sold cannot be determined unless a physical inventory is taken. c. two entries are required to record a sale. d. a separate account for purchases is not required. e. Two of the above are correct. Save Answer 43. (Points: 1) Under the periodic inventory system: a. a transaction by transaction unit inventory record is maintained. b. the cost of goods sold for each sale is recorded at the time each sale is made. c. a separate account for purchases is used. d. a continuous inventory record provides the amount of ending inventory and the cost of goods sold throughout the period. e. None of the above is correct. Save Answer 44. (Points: 1) Which of the following may be used to calculate ending inventory (EI) under the periodic inventory system? a. BI + P + CGS = EI. b. BI + P - CGS = EI. c. BI - P + CGS = EI. d. BI + P + GM. e. None of the above is correct. Save Answer 45. (Points: 1) Joe Company sold merchandise with an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. Which of the following is the correct entry to record the purchase by Gibbs if the company uses the periodic inventory system and the gross method to record purchases? a. Purchases 1,000 Cash 1,000 b. Inventory 1,000 Accounts Payable 1,000 c. Purchases 980 Accounts Payable 980 d. Purchases 1,000 Accounts Payable 1,000 e. None of the above is correct. Save Answer 46. (Points: 1) Joe Company sold merchandise with an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. Which of the following is the correct entry to record the payment by Gibbs within the 10 days if the company uses the periodic inventory system and the gross method to record purchases? a. Cash 980 Sales Discount 20 Accounts receivable 1,000 b. Accounts Payable 1,000 Cash 980 Purchases Discounts 20 c. Accounts Payable 1,000 Cash 1,000 d. Purchases 980 Cash 980 e. None of the above is correct. Save Answer 47. (Points: 1) Tangible assets include a. Land, buildings and natural resources. b. Land, buildings and leaseholds. c. Natural resources, buildings, and franchises. d. Licenses, trademarks, and land. e. None of the above is correct. Save Answer 48. (Points: 1) Intangible assets include a. Natural resources, patents, and trademarks. b. Accounts receivable, franchises, and trademarks. c. Copyrights, licenses, and land. d. Leaseholds, patents and copyrights. e. None of the above is correct. Save Answer 49. (Points: 1) Depletion is recorded for a. Uncollectible accounts receivable. b. Land and buildings. c. Intangible assets. d. Natural resources. e. None of the above is correct. Save Answer 50. (Points: 1) On March 1, Chapine Company purchased a new stamping machine for $5,000. Chapine paid cash for the machine. Other costs associated with the machine were: transportation costs, $300; sales tax paid $200; and installation cost, $100. The cost recorded for the machine was a. $5,200. b. $5,600. c. $5,500. d. $5,000. e. None of the above is correct. Save Answer 51. (Points: 1) The amount of sales tax paid on the purchase of new machinery should be debited to a. the machinery account. b. a separate deferred charge account. c. a sales tax expense account. d. accumulated depreciation for machinery. e. None of the above is correct. Save Answer 52. (Points: 1) Martinelli Company recently purchased a truck. The price negotiated with the dealer was $85,000. Martinelli also paid sales tax of $6,000 on the purchase, shipping and preparation costs of $950, and insurance for the first year of operation of $2,000. For the truck, what amount should be debited to the asset account Vehicles? a. $85,000. b. $91,000. c. $91,000. d. $91,950. e. $93,950. Save Answer 53. (Points: 1) The book value of a tangible operating asset is the a. acquisition cost. b. current estimated market value. c. acquisition cost minus the balance in accumulated depreciation. d. total depreciation that has been recorded on the asset to date. e. acquisition cost plus the balance in accumulated depreciation. Save Answer 54. (Points: 1) Which of the following costs would be excluded from the acquisition cost of equipment purchased from a supplier? a. Cost to install the equipment. b. A purchases discount offered by the supplier. c. The cost to widen an entrance in the building to bring the equipment into the facilities. d. The cost of freight paid to get the equipment to our factory. Save Answer 55. (Points: 1) Johnson Company acquires land and building for $4,000,000 including all fees related to acquisition. The land is appraised at $2,700,000 and the building at $2,100,000. The building is then renovated at a cost of $750,000. What amount is capitalized to the building account? a. $2,500,000. b. $2,078,125. c. $2,375,000. d. None of the above Save Answer 56. (Points: 1) The main purpose of recording depreciation is to a. allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue. b. estimate the remaining useful life of the asset. c. report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date. d. estimate the current replacement cost of the asset. e. give the bookkeeper something to do. Save Answer 57. (Points: 1) Residual value is a. equal to the acquisition cost of a tangible operational asset. b. the same as book value of an asset. c. the amount expected to be recovered when an asset is disposed of at the end of its estimated useful life. d. the current value of an asset as of the balance sheet date. e. the total of depreciation accumulated to date. Save Answer 58. (Points: 1) On January 1, 20A, Straight, Inc., purchased a machine with a cash price of $9,500. Straight also paid $500 for transportation and installation. The expected useful life of the machine is 5 years and the residual value is $500. Assuming straight-line depreciation, the annual depreciation expense would be a. $2,100. b. $2,000. c. $1,900. d. $1,800. e. None of the above is correct. Save Answer 59. (Points: 1) Bethany Company plans to depreciate a new building using declining-balance depreciation with 200 percent acceleration rate. The building cost $400,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year? a. $15,360. b. $16,000. c. $29,440. d. $32,000. e. None of the above is correct. Save Answer 60. (Points: 1) Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next, not necessarily in a steadily upward or downward direction? a. Straight-line. b. Units-of-production. c. Amortization. d. Declining balance. e. None of the above are correct. Save Answer 61. (Points: 1) Bangor Industries purchased a car for $22,000 on January 1, 20A. The car had an estimated useful life of 80,000 miles and an estimated residual value of $4,000. In the second year of ownership (20B), the car was driven 25,000 miles. Using the units of production method, the amount of depreciation expense for 20B was a. $5,625. b. $6,875. c. $4,500. d. $5,000. e. $2,500. Save Answer 62. (Points: 1) The records of Pam Company showed the following about a machine on January 1, 20H: Purchased 1/1/20E for $35,000 Accumulated depreciation at January 1, 20H, $26,400 On July 1, 20H, the machine was sold for $7,000. Depreciation for the first six months of 20H was $1,467. The gain or loss on disposal would be a. $1,600 gain. b. $ 133 gain. c. $1,600 loss. d. $ 133 loss. e. None of the above is correct. Save Answer 63. (Points: 1) Kovacic Company purchased a computer that cost $10,000. It had an estimated useful life of five years and residual value of $0. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. Kovacic should record a. a gain of $1,000. b. a loss of $1,000. c. neither a gain nor a loss - the computer was sold at its book value. d. neither a gain nor a loss- the gain that occurred in this case would not be recognized. e. an extraordinary item. Save Answer 64. (Points: 1) In 1998, Delta Air Lines had a fixed asset turnover of 1.63 compared to Southwest Airlines of 1.10. What is the most likely cause of Delta's higher ratio? a. Delta is less efficient in generating net sales from its operational assets. b. Delta is more efficient at generating net income from employing its operational assets. c. Delta is able to generate greater sales from its operational assets. d. Delta is able to generate less net income from its operational assets. Save Answer 65. (Points: 1) When a company is making strategic decisions about how to finance their assets, they should consider a. whether they can borrow funds at a lower rate than the return they generate by use of their assets. b. The relative composition of debt to equity funding that currently exists. c. The proportion of current liabilities to long-term liabilities that exist. d. Both A and B are considerations of the decision. e. All are considerations of the decision. Save Answer 66. (Points: 1) The current (or working capital) ratio is computed as follows a. current assets divided by total assets. b. current assets divided by current liabilities. c. current liabilities divided by total assets. d. current liabilities divided by current assets. e. None of the above is correct. Save Answer 67. (Points: 1) A company has a current ratio of 2.4 before paying off a large current liability with cash. Following this payment, the current ratio will be a. greater than 2.4. b. less than 2.4. c. equal to 2.4. d. greater than 2.4 or less than 2.4 depending upon the dollar amount involved. e. None of the above is correct. Save Answer 68. (Points: 1) The following is a partial list of account balances from the books of Ellsworth Enterprise at the end of 20B: Accounts Payable $1,200 Accounts Receivable 1,000 Accrued Vacation Liability 900 Cash 3,000 Deferred Revenue 500 Income Taxes Payable 2,200 Notes Payable (due in 2 years) 600 Based solely upon these balances, the amount of current liabilities appearing on Ellsworth's 20B year-end balance sheet should be a. $5,400. b. $4,800. c. $4,300. d. $3,900. e. None of the above is correct. Save Answer 69. (Points: 1) In 1997, PepsiCo reported a current ratio of 0.55 and Coca-Cola reported a ratio of 0.74. Which of the following is true? a. Coca-Cola has a lower level of liquidity. b. PepsiCo has more in current assets than current liabilities for the year. c. The soft drink industry appears to have a lower than average current ratio as indicated by the two industry giants. d. All of the above are true. e. None of the above is true Save Answer 70. (Points: 1) In 1999, The Walt Disney Company reported current assets of $10,200 million, total assets of $43,679 million, current liabilities of $7,707 million, and total liabilities of $22,704 million. What was their current ratio for 1999? a. 1.32 b. 0.45 c. 5.67 d. 1.92 Save Answer 71. (Points: 1) Genentech, a biotechnology company, reported current assets of $1,326.5 million and current liabilities of $484.1 million in 1999, and in 1998, current assets of $1,242.0 million and $291.3 million of current liabilities. Calculate the current ratio for 1999. a. 3.31 b. 2.74 c. 2.65 d. 3.42 Save Answer 72. (Points: 1) Which of the following usually is not a current liability? a. Wages payable. b. Rent revenue collected in advance. c. Dividends payable. d. Pension obligations. e. All of the above are current liabilities. Save Answer 73. (Points: 1) Which of the following is a typical example of a current liability? a. Revenue collected in advance. b. Accrued interest payable. c. Employee taxes withheld. d. The current portion of a long-term debt. e. All of the above are correct. Save Answer 74. (Points: 1) Until payment is made to the designated governmental agency or other organization, the following payroll items should be reported as liabilities of the employer. a. Federal income tax withheld. b. Union dues withheld. c. Employer's share of FICA (social security tax). d. Employee's share of FICA (social security tax). e. All of the above are correct. Save Answer 75. (Points: 1) On September 1, 20A, Dawn Equipment signed a one-year, 7% interest-bearing note payable for $5,000. Assuming that Dawn maintains its books on a calendar year basis, the amount of interest expense that should be reported in the 20B income statement for this note (rounded to the nearest dollar) would be a. $267. b. $400. c. $233. d. $300. e. $ -0-. Save Answer 76. (Points: 1) Warner Company borrowed $25,000 cash on November 1, 20A, and signed a six-month, 12% interest-bearing note payable with interest payable at maturity. The amount of accrued interest payable that should be shown on the 20A balance sheet is a. $ 250. b. $ 300. c. $ 500. d. $ 750. e. $1,250. Save Answer 77. (Points: 1) Gross wages of $5,000 accrued but not paid to employees at the end of 20B should be recorded by the employer in a journal entry that includes a a. debit of $5,000 to Wages payable. b. credit of $5,000 to Cash. c. debit of $5,000 to Wages expense. d. debit of $5,000 to Cash. e. None of the above is correct. Save Answer 78. (Points: 1) To finance a new department, Dannella Yogurt Corporation borrowed $80,000 at an interest rate of 10% On April 1, 20A. Considering the income tax rate of 40%, what is the effective interest rate (net of tax) for 20A? a. 4%. b. 6%. c. 10%. d. 14%. e. None of the above is correct. Save Answer 79. (Points: 1) Failure to make a necessary adjusting entry for accrued interest on a note payable would cause a. an understatement of liabilities and stockholders' equity. b. net income to be overstated and assets to be understated. c. net income to be understated and liabilities to be understated. d. an overstatement of net income, an understatement of liabilities, and an overstatement of stockholders' equity. e. None of the above is correct. Save Answer 80. (Points: 1) Goodman Company borrowed $100,000 cash on September 1, 20B, and signed a one-year 12%, interest-bearing note payable. The required adjusting entry at the end of the accounting period, December 31, 20B, would be a. Interest expense 4,000 Interest payable 4,000 b. Interest expense 12,000 Interest payable 12,000 c. Notes payable 100,000 Interest expense 12,000 Cash 112,000 d. Interest payable 4,000 Interest expense 4,000 e. None of the above is correct. Save Answer 81. (Points: 1) The federal government requires a. only the employer to pay FICA taxes. b. only the employee to pay FICA taxes. c. both the employer and the employee to pay FICA taxes. d. neither the employer nor the employee to pay FICA taxes. e. only corporations to pay FICA taxes. Save Answer 82. (Points: 1) The amount of federal income tax that is withheld from employees' paychecks by the employer should a. be recorded on the employer's books as a current liability. b. be recorded on the employer's books as an asset. c. be recorded on the employer's books as revenue. d. not be recorded on the employer's books. e. None of the above is correct. Save Answer 83. (Points: 1) Deferred revenue is another term for a. Prepaid expenses. b. Sales revenue. c. Trade payables. d. Unearned revenue. e. Accrued expenses. Save Answer 84. (Points: 1) Use the following to answer questions 84-86: On July 1, 20A, Wilson, Inc., borrowed $12,000 from First Bank on a one year, 8% note payable. Interest is payable on December 31, 20A and on June 30, 20B, the due date of the note. The journal entry required on the company's books to record the note payable on July 1, 20A would include a a. credit to notes payable for $12,000. b. credit to notes payable for $12,960. c. debit to cash for $11,040. d. debit to interest expense for $960. e. None of the above is correct. Save Answer 85. (Points: 1) The journal entry required on the company's books to record the interest paid on December 31, 20A, would include a a. debit to Interest Expense for $960. b. credit to Interest Expense for $960. c. credit to Cash f
