Multiple choice, answers only

| October 22, 2018

Student ID: 21535917

Exam:
061684RR – THE IMPACT OF MANAGEMENT
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Questions
1 to 20:Select the best answer to each question. Note that a question
and its answers may be split across a pagebreak, so be sure that you
have seen the entire question and all the answers before choosing
an answer.

1.Ignore
income taxes in this problem.) Purvell Company has just acquired a new machine.
Data on themachine follow:

Purchase cost

$50,000

Annual
cost savings

$15,000

Life
of the machine

8
years

The
company uses straight-line depreciation and a $5,000 salvage value. (The
company considers salvage value in making depreciation deductions.) Assume cash
flows occur uniformly throughout a year.

The simple rate of return would be closest
to

A. 18.75%.

B. 12.5%.

C. 17.5%.

D.
30.0%.

Use the following information to answer this
question.

The most recent balance sheet and income statement
of Teramoto Corporation appear below:

Comparative Balance
Sheet

Ending

Beginning

Balance

Balance

Assets:

Cash
and cash equivalents

$43

$35

Accounts
receivable

53

59

Inventory

73

69

Plant
and equipment

582

490

Less
accumulated depreciation

301

286

Total
assets

$450

$367

Liabilities and
stockholders’ equity

Accounts payable

$57

$48

Wages payable

21

18

Taxes payable

15

13

Bonds
payable

21

20

Deferred
taxes

20

21

Common
stock

55

50

Retained
earnings

261

197

Total
liabilities and stockholders’ equity

$450

$367

Income
Statement

Sales

$893

Cost
of good sold

587

Gross
margin

306

Selling
and administrative expense

189

Net
operating income

117

Income
taxes

35

Net
income

$82

2.The net cash provided by
(used by) operations for the year was

A. $117.

B.
$112.

C. $30.

D.
$52.

3.Cridwell Company’s selling and administrative
expenses for last year totaled $210,000. During the year,the company’s
prepaid expense account balance increased by $18,000, and accrued liabilities
increased by $12,000. Depreciation charges for the year were $24,000. Based on
this information, selling and administrative expenses adjusted to a cash basis
under the direct method on the statement of cash flows would be

A. $192,000.

B.
$240,000.

C. $180,000.

D.
$228,000.

4.Products
A, B, and C are produced from a single raw material input. The raw material
costs $90,000,from which 5,000 units of A, 10,000 units of B, and
15,000 units of C can be produced each period. Product A can be sold at the
split-off point for $2 per unit, or it can be processed further at a cost of
$12,500 and then sold for $5 per unit. Product A should be

A. sold at the split-off
point, since further processing will result in a loss of $2,500 each period.

B.
processed further, since this will increase
profits by $12,500 each period.

C. processed
further, since this will increase profits by $2,500 each period.

D.
sold at the split-off point, since further
processing would result in a loss of $0.50 per unit.

Use the
following information to answer this question.

The most
recent balance sheet and income statement of Teramoto Corporation appear below:

Comparative Balance Sheet

Ending

Beginning

Balance

Balance

Assets:

Cash and cash
equivalents

$43

$35

Accounts
receivable

53

59

Inventory

73

69

Plant and equipment

582

490

Less
accumulated depreciation

301

286

Total assets

$450

$367

Liabilities
and stockholders’ equity

Accounts
payable

$57

$48

Wages
payable

21

18

Taxes
payable

15

13

Bonds
payable

21

20

Deferred
taxes

20

21

Common
stock

55

50

Retained
earnings

261

197

Total
liabilities and stockholders’ equity

$450

$367

Income Statement

Sales

$893

Cost
of good sold

587

Gross
margin

306

Selling and
administrative expense

189

Net operating income

117

Income taxes

35

Net income

$82

5.The net cash provided by
(used by) financing activities for the year was

A.($18).

B.$5.

C.$1.

D.($12).

6.Brittman Corporation makes three
products that use the current constraint-a particular type of machine.Data
concerning those products appear below:

IP

NI

YD

Selling price per unit

$183.57

$207.74

$348.15

Variable cost per unit

$144.42

$155.04

$269.50

Minutes
on the constraint

2.90

3.40

5.50

Assume that sufficient constraint time is available to satisfy
demand for all but the least profitable product. Up to how much should the
company be willing to pay to acquire more of the constrained resource?

A. $15.50 per
minute

B.
$39.15 per unit

C. $78.65 per
unit

D.
$13.50 per minute

Use the following
information to answer this question.

Financial statements for
Larkins Company appear below:

Larkins Company
Statement
of Financial Position
December
31, Year 2 and Year 1

(dollars
in thousands)

Year 2

Year 1

Current
assets:

Cash and marketable
securities

$180

$180

Accounts receivable, net

210

180

Inventory

130

120

Prepaid expenses

50

50

Total
current assets

570

530

Noncurrent
assets:

Plant & equipment,
net

1,540

1,480

Total
assets

$2,110

$2,010

Current
liabilities:

Accounts payable

$100

$130

Accrued liabilities

60

60

Notes payable, short term

90

120

Total current
liabilities

250

310

Noncurrent liabilities:

Bonds payable

480

500

Total liabilities

730

810

Stockholders’ equity:

Preferred stock, $20 par, 10%

120

120

Common stock, $10 par

180

180

Additional paid-in capital–common stock

240

240

Retained earnings

840

660

Total stockholders’
equity

1,380

1,200

Total liabilities &
stockholders’ equity

$2,110

$2,010

Larkins Company

Income Statement

For the Year Ended
December 31, Year 2

(dollars in thousands)

Sales (all on account)

$2,760

Cost
of goods sold

1,930

Gross
margin

830

Selling
and administrative expense

330

Net
operating income

500

Interest
expense

50

Net
income before taxes

450

Income
taxes (30%)

135

Net
income

$315

Dividends during Year 2 totaled $135 thousand, of which $12
thousand were preferred dividends. The market price of a share of common stock
on December 31, Year 2 was $150.

7.Larkins Company’s dividend
yield ratio on December 31, Year 2 wasclosestto:

A. 4.1%.

B.
2.1%.

C. 4.6%.

D.5.0%.

Use the following
information to answer this question.

Financial statements for
Larkins Company appear below:

Larkins Company

Statement
of Financial Position December 31, Year 2 and Year 1 (dollars in thousands)

Year 2

Year 1

Current
assets:

Cash and marketable
securities

$180

$180

Accounts receivable, net

210

180

Inventory

130

120

Prepaid expenses

50

50

Total current assets

570

530

Noncurrent assets:

Plant & equipment, net

1,540

1,480

Total assets

$2,110

$2,010

Current liabilities:

Accounts payable

$100

$130

Accrued liabilities

60

60

Notes payable, short term

90

120

Total current
liabilities

250

310

Noncurrent liabilities:

Bonds payable

480

500

Total liabilities

730

810

Stockholders’ equity:

Preferred stock, $20 par, 10%

120

120

Common stock, $10 par

180

180

Additional paid-in capital–common stock

240

240

Retained earnings

840

660

Total
stockholders’ equity

1,380

1,200

Total
liabilities & stockholders’ equity

$2,110

$2,010

Larkins
Company

Income
Statement

For
the Year Ended December 31, Year 2

(dollars
in thousands)

Sales
(all on account)

$2,760

Cost of goods sold

1,930

Gross margin

830

Selling and
administrative expense

330

Net operating income

500

Interest
expense

50

Net
income before taxes

450

Income taxes (30%)

135

Net
income

$315

Dividends during Year 2 totaled
$135 thousand, of which $12 thousand were preferred dividends. The market price
of a share of common stock on December 31, Year 2 was $150.

8.Larkins Company’s earnings
per share of common stock for Year 2 wasclosestto:

A. $16.83.

B.
$25.00.

C. $17.50.

D.
$7.21.

9.An increase in the market
price of a company’s common stock will immediately affect its

A. debt-to-equity
ratio.

B.
dividend payout ratio.

C. dividend
yield ratio.

D.
earnings per share of common stock.

Use the following
information to answer this question.

Financial statements for
Larkins Company appear below:

Larkins Company

Statement
of Financial Position December 31, Year 2 and Year 1 (dollars in thousands)

Year 2

Year
1

Current assets:

Cash and marketable securities

$180

$180

Accounts receivable, net

210

180

Inventory

130

120

Prepaid expenses

50

50

Total current assets

570

530

Noncurrent assets:

Plant & equipment,
net

1,540

1,480

Total
assets

$2,110

$2,010

Current
liabilities:

Accounts payable

$100

$130

Accrued liabilities

60

60

Notes payable, short
term

90

120

Total
current liabilities

250

310

Noncurrent
liabilities:

Bonds payable

480

500

Total liabilities

730

810

Stockholders’ equity:

Preferred stock, $20 par, 10%

120

120

Common stock, $10 par

180

180

Additional paid-in
capital–common stock

240

240

Retained earnings

840

660

Total
stockholders’ equity

1,380

1,200

Total liabilities & stockholders’ equity

$2,110

$2,010

Larkins
Company

Income
Statement

For
the Year Ended December 31, Year 2

(dollars
in thousands)

Sales
(all on account)

$2,760

Cost
of goods sold

1,930

Gross
margin

830

Selling
and administrative expense

330

Net
operating income

500

Interest
expense

50

Net
income before taxes

450

Income
taxes (30%)

135

Net
income

$315

Dividends
during Year 2 totaled $135 thousand, of which $12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2
was $150.

10.Larkins Company’s book
value per share at the end of Year 2 wasclosestto:

A. $10.00.

B.
$23.33.

C. $70.00.

D.
$76.67.

11.The net present value
method assumes that the project’s cash flows are reinvested at the

A. discount rate used in the
net present value calculation.

B.
internal rate of return.

C. simple rate of return.

D.
payback rate of return.

12.VIM
Company purchased $100,000 in inventory from its suppliers on credit terms. The
company’sacid-test ratio would most likely

A. decrease.

B.
be impossible to determine without more
information.

C. increase.

D.
be unchanged.

13.A company’s current ratio and
acid-test ratios are both greater than 1. If obsolete inventory is writtenoff,
this would

A. increase net working
capital.

B.
increase the acid-test ratio.

C. decrease
the acid-test ratio.

D.
decrease the current ratio.

Use the following information to answer this question.

Financial statements for
Larkins Company appear below:

Larkins Company

Statement
of Financial Position December 31, Year 2 and Year 1 (dollars in thousands)

Year 2

Year 1

Current
assets:

Cash and marketable securities

$180

$180

Accounts receivable, net

210

180

Inventory

130

120

Prepaid expenses

50

50

Total
current assets

570

530

Noncurrent assets:

Plant & equipment, net

1,540

1,480

Total assets

$2,110

$2,010

Current liabilities:

Accounts payable

$100

$130

Accrued liabilities

60

60

Notes payable, short term

90

120

Total current
liabilities

250

310

Noncurrent liabilities:

Bonds payable

480

500

Total liabilities

730

810

Stockholders’ equity:

Preferred stock, $20 par, 10%

120

120

Common stock, $10 par

180

180

Additional paid-in capital–common stock

240

240

Retained earnings

840

660

Total stockholders’
equity

1,380

1,200

Total liabilities &
stockholders’ equity

$2,110

$2,010

Larkins
Company

Income
Statement

For
the Year Ended December 31, Year 2

(dollars
in thousands)

Sales
(all on account)

$2,760

Cost
of goods sold

1,930

Gross margin

830

Selling and
administrative expense

330

Net operating income

500

Interest expense

50

Net income before taxes

450

Income
taxes (30%)

135

Net
income

$315

Dividends during Year 2 totaled $135 thousand, of which $12
thousand were preferred dividends. The market price of a share of common stock
on December 31, Year 2 was $150.

14.
Larkins
Company’s return on total assets for Year 2 wasclosestto:

A. 13.6%.

B.
17.0%.

C. 15.3%.

D.
16.0%.

15.Degner
Inc. has some material that originally cost $19,500. The material has a scrap
value of $13,300as is, but if reworked at a cost of $2,100, it could be
sold for $14,000. What would be the incremental effect on the company’s overall
profit of reworking and selling the material rather than selling it as is as
scrap?

A. -$1,400

B.
-$20,900

C. -$7,600

D.
$11,900

16.Which of the following would be
considered a “use” of cash for the purpose of constructing a
statementof cash flows?

A. Amortizing a patent

B.
Issuing long-term debt

C. Selling the company’s own
common stock to investors

D.
Purchasing equipment

17.Kava Inc.
manufactures industrial components. One of its products, which is used in the
constructionof industrial air conditioners, is known as K65. Data
concerning this product are given below:

Per
Unit

Selling price

$180

Direct materials

$29

Direct labor

$5

Variable manufacturing
overhead

$4

Fixed
manufacturing overhead

$21

Variable
selling expense

$2

Fixed
selling and administrative expense

$17

The above
per unit data are based on annual production of 4,000 units of the component.
Direct labor can be considered to be a variable cost. (Source: CMA, adapted)

The
company has received a special, one-time-only order for 500 units of component
K65. There would be no variable selling expense on this special order, and the
total fixed manufacturing overhead and fixed selling and administrative
expenses of the company wouldn’t be affected by the order. Assuming that Kava
has excess capacity and can fill the order without cutting back on the
production of any product, what is the minimum price per unit on the special
order below which the company shouldn’t go?

A. $78

B.
$180

C. $38

D.
$59

Use
the following information to answer this question.

The most recent balance
sheet and income statement of Teramoto Corporation appear below:

Comparative Balance
Sheet

Ending

Beginning

Balance

Balance

Assets:

Cash
and cash equivalents

$43

$35

Accounts
receivable

53

59

Inventory

73

69

Plant
and equipment

582

490

Less
accumulated depreciation

301

286

Total
assets

$450

$367

Liabilities
and stockholders’ equity

Accounts
payable

$57

$48

Wages
payable

21

18

Taxes payable

15

13

Bonds payable

21

20

Deferred taxes

20

21

Common stock

55

50

Retained earnings

261

197

Total liabilities and
stockholders’ equity

$450

$367

Income Statement

Sales

$893

Cost of good sold

587

Gross margin

306

Selling and
administrative expense

189

Net operating income

117

Income taxes

35

Net income

$82

18.The net cash provided by
(used by) investing activities for the year was

A. ($77).

B.
$77.

C. $92.

D.
($92).

19.The Clemson Company reported the
following results last year for the manufacture and sale of one ofits
products known as a Tam.

Sales (6,500 Tams at
$130 each)

$845,000

Variable cost of sales

390,000

Variable distribution
costs

65,000

Fixed
advertising expense

275,000

Salary
of product line manager

25,000

Fixed manufacturing
overhead

145,000

Net operating loss

$(55,000)

Clemson
Company is trying to determine whether to discontinue the manufacture and sale
of Tams. The operating results reported above for last year are expected to
continue in the foreseeable future if the product isn’t dropped. The fixed
manufacturing overhead represents the costs of production facilities and
equipment that the Tam product shares with other products produced by Clemson.
If the Tam product were dropped, there would be no change in the fixed
manufacturing costs of the company.

Assume
that discontinuing the manufacture and sale of Tams will have no effect on the
sale of other product lines. If the company discontinues the Tam product line,
the change in annual operating income (or loss) should be a

A. $65,000
decrease.

B. $90,000
decrease.

C. $70,000
increase.

D.
$55,000 decrease.

20.(Ignore income taxes in this problem.) The
following data pertain to an investment:

Cost of the investment

$18,955

Life of the project

5
years

Annual cost savings

$5,000

Estimated salvage value

$1,000

Discount rate

10%

The net present value of the proposed investment
is

A. $0.

B. $3,355.

C. $621.

D.
$(3,430).
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End of exam

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