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MKT 505 Exam Midterm and Final Exam – Strayer New
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Chapter 1-17
Global Marketing, 7e (Keegan/Green)
Chapter 1 Introduction to Global Marketing
1) With rapid global market expansion, McDonald's identity as the quintessential American fast-food restaurant is becoming blurred.
Answer:
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1
Question Type: Application
2) An organization that engages in global marketing focuses its resources and competencies on global market opportunities and threats.
Answer:
Diff: 1 Page Ref: 4
AACSB: Reflective Thinking
Objective: 2
Question Type: Application
3) Starbucks is building on its loyalty card and rewards program in the United States with a smartphone app that enables customers to pay for purchases electronically. This is an example of Market Penetration.
Answer:
Diff: 2 Page Ref: 4
AACSB: Reflective Thinking
Objective: 2
Question Type: Application
4) Starbucks is entering India via an alliance with the Tata Group. The next phase will likely involve opening Starbucks outlets in Tata's upscale Taj Hotels in India. These are examples of Market Penetration.
Answer:
Diff: 2 Page Ref: 4
AACSB: Analytic Skills
Objective: 2
Question Type: Critical thinking
5) The perceived value equation can be represented as Value = Price/Benefits.
Answer:
Diff: 1 Page Ref: 5
AACSB: Reflective Thinking
Objective: 2
Question Type: Definitional
6) The transformation of formerly local or national industries into global ones is a part of a broader economic process of globalization.
Answer:
Diff: 1 Page Ref: 6
AACSB: Reflective Thinking
Objective: 8
Question Type: Application
7) If Nestlé decides not to market biscuits (cookies) in the United States due to competitive reasons, it is considered as a lack of strategic focus and missed opportunity.
Answer:
Diff: 2 Page Ref: 7
AACSB: Reflective Thinking
Objective: 2
Question Type: Definitional
8) Value, competitive advantage, and the focus required to achieve them are universal in their relevance and should guide global marketing efforts in any part of the world.
Answer:
Diff: 2 Page Ref: 8
AACSB: Reflective Thinking
Objective: 2
Question Type: Definitional
9) The discipline of marketing is universal, and such marketing practices do not vary from country to country.
Answer:
Diff: 1 Page Ref: 8
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
10) The way a company addresses recognition of the extent to which programs can be expanded worldwide and adaptations required to do so is a reflection of its global marketing strategy.
Answer:
Diff: 2 Page Ref: 8
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
11) Nike dropped their well known tag line "Just do it" in advertising women's clothing in Europe and replaced it by the slogan "Here I am" since college-age women in Europe are not as competitive about sports as men are.
Answer:
Diff: 2 Page Ref: 10
AACSB: Analytic Skills
Objective: 3
Question Type: Critical thinking
12) Nations referred to as MINTs, which hold great potential marketing opportunities, are Mexico, India, Nigeria, and Turkey.
Answer:
Diff: 2 Page Ref: 12
AACSB: Reflective Thinking
Objective: 3
Question Type: Application
13) Global localization means that a successful global marketer must have the ability to think locally and act globally.
Answer:
Diff: 2 Page Ref: 12
AACSB: Reflective Thinking
Objective: 3
Question Type: Application
14) The Coca-Cola Company supports its Coke, Fanta, and PowerAde brands with marketing mix elements that are both global and local.
Answer:
Diff: 2 Page Ref: 12
AACSB: Analytic Skills
Objective: 3
Question Type: Application
15) McDonald's global marketing strategy is based primarily on local marketing mix elements.
Answer:
Diff: 2 Page Ref: 13
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
16) McDonald's home delivery of burgers in India is an example of unusual standardized global marketing practice.
Answer:
Diff: 2 Page Ref: 14
AACSB: Reflective Thinking
Objective: 3
Question Type: Application
17) Harley-Davidson's motorcycles competitive advantage is based in part on its "Made in the USA" positioning.
Answer:
Diff: 2 Page Ref: 14
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
18) Gap is a global brand, but recently the company has struggled to connect with customers in the United States.
Answer:
Diff: 2 Page Ref: 15
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
19) Wal-Mart is the largest corporation, based on revenues, according to the Fortune 500 Global ranking for 2011.
Answer:
Diff: 1 Page Ref: 16
AACSB: Reflective Thinking
Objective: 4
Question Type: Definitional
20) Examining the size of individual product markets, measured in terms of annual sales, provides another perspective on global marketing's importance.
Answer:
Diff: 2 Page Ref: 16
AACSB: Reflective Thinking
Objective: 4
Question Type: Application
21) The form and substance of a company's response to global market opportunities depend greatly on management's assumptions or beliefs about the nature of the world.
Answer:
Diff: 3 Page Ref: 16
AACSB: Reflective Thinking
Objective: 3
Question Type: Critical thinking
22) Ethnocentric companies that conduct business outside the home country adhere to the notion that the products that succeed in the home country are superior.
Answer:
Diff: 3 Page Ref: 17
AACSB: Analytic Skills
Objective: 3
Question Type: Definitional
23) Today, ethnocentrism is one of the major internal weaknesses that must be overcome if a company is to transform itself into an effective global competitor.
Answer:
Diff: 2 Page Ref: 17
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
24) The term "polycentric" describes management's belief or assumption that each country in which a company does business is unique.
Answer:
Diff: 2 Page Ref: 18
AACSB: Analytic Skills
Objective: 3
Question Type: Definitional
25) Unilever's Rexona deodorant brand had 30 different package designs and 48 different formulations. This is an example of ethnocentrism.
Answer:
Diff: 1 Page Ref: 18
AACSB: Reflective Thinking
Objective: 3
Question Type: Application
26) A U.S. company that focuses on the countries included in the North American Free Trade Agreement (NAFTA) has a regiocentric orientation.
Answer:
Diff: 3 Page Ref: 18
AACSB: Analytic Skills
Objective: 3
Question Type: Application
27) A European company that focuses its attention on Europe can be considered to have regiocentric orientation.
Answer:
Diff: 2 Page Ref: 18
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
28) A company with a geocentric orientation views the world as a potential market and strives to develop integrated global strategies.
Answer:
Diff: 1 Page Ref: 18
AACSB: Dynamics of Global Economy
Objective: 3
Question Type: Synthesis
29) Geocentric orientation represents true global marketing since it views the entire world as a potential market and develops global strategy.
Answer:
Diff: 3 Page Ref: 18
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
30) An ethnocentric management orientation is preferable to a geocentric orientation.
Answer:
Diff: 2 Page Ref: 20
AACSB: Reflective Thinking
Objective: 3
Question Type: Definitional
31) When a company establishes a site on the Internet, it automatically becomes global.
Answer:
Diff: 2 Page Ref: 19
AACSB: Use of IT
Objective: 3
Question Type: Definitional
32) The pressure for globalization is intense when new products require major investments and long periods of development time.
Answer:
Diff: 2 Page Ref: 21
AACSB: Reflective Thinking
Objective: 5
Question Type: Definitional
33) The economic growth has reduced resistance that might otherwise have developed in response to the entry of foreign firms into domestic economies.
Answer:
Diff: 3 Page Ref: 23
AACSB: Dynamics of Global Economy
Objective: 5
Question Type: Definitional
34) In the context of global marketing, leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in its home country.
Answer:
Diff: 3 Page Ref: 24
AACSB: Analytic Skills
Objective: 5
Question Type: Definitional
35) Companies that cannot formulate or successfully implement a coherent global strategy may lose their independence.
Answer:
Diff: 3 Page Ref: 25
AACSB: Analytic Skills
Objective: 6
Question Type: Definitional
36) A company that is nearsighted and ethnocentric will not expand geographically.
Answer:
Diff: 2 Page Ref: 25
AACSB: Reflective Thinking
Objective: 6
Question Type: Definitional
37) The term globaphobia is sometimes used to describe an attitude of hostility toward trade agreements, global brands or company policies that appear to result in hardship for some individuals or countries while benefiting others.
Answer:
Diff: 3 Page Ref: 26
AACSB: Reflective Thinking
Objective: 5
Question Type: Definitional
38) Nontariff barriers (NTBs) are monetary restrictions on cross-border trade.
Answer:
Diff: 2 Page Ref: 26
AACSB: Reflective Thinking
Objective: 4
Question Type: Definitional
39) When management moves to integrate and coordinate activities on a regional basis, the decision reflects an ethnocentric orientation.
Answer:
Diff: 2 Page Ref: 28
AACSB: Analytic Skills
Objective: 5
Question Type: Definitional
40) The dynamic interplay of several driving and restraining forces shapes the importance of gl
ACC 557 Midterm Exam – Strayer New
ACC 557 Midterm Exam – Strayer New
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Chapter 1 Through 8
CHAPTER 1
ACCOUNTING IN ACTION
CHAPTER LEARNING OBJECTIVES
1. Explain what accounting is.
2. Identify the users and uses of accounting.
3. Understand why ethics is a fundamental business concept.
4. Explain generally accepted accounting principles.
5. Explain the monetary unit assumption and the economic entity assumption.
6. State the accounting equation, and define its components
7. Analyze the effects of business transactions on the accounting equation.
8. Understand the four financial statements and how they are prepared.
a9. Explain the career opportunities in accounting.
TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.
2. Transactions that can be measured in dollars and cents are recorded in the financial information system.
3. The hiring of a new company president is an economic event recorded by the financial information system.
4. Management of a business enterprise is the major external user of information.
5. Accounting communicates financial information about a business enterprise to both internal and external users.
6. Accounting information is used only by external users with a financial interest in a business enterprise.
7. Financial statements are the major means of communicating accounting information to interested parties.
8. Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.
9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
10. The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm.
11. Private accountants are accountants who are not employees of business enterprises.
12. The study of accounting is not useful for a business career unless your career objective is to become an accountant.
13. A working knowledge of accounting is not relevant to a lawyer or an architect.
14. Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs.
15. Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information.
16. The primary accounting standard-setting body in the United States is the International Accounting Standards Board.
17. The Financial Accounting Standards Board is a part of the Securities and Exchange Commission.
18. The Securities and Exchange Commission oversees U.S. financial markets and accounting standard-setting bodies.
19. The cost and fair value of an asset are the same at the time of acquisition and in all subsequent periods.
20. Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners.
21. A partnership must have more than one owner.
22. The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.
23. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.
24. In order to possess future service potential, an asset must have physical substance.
25. Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.
26. The basic accounting equation states that Assets = Liabilities.
27. Accountants record both internal and external transactions.
28. Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.
29. The purchase of store equipment for cash reduces stockholders’ equity by an equal amount.
30. The purchase of office equipment on credit increases total assets and total liabilities.
31. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.
32. Net income for the period is determined by subtracting total expenses and drawings from total revenues.
33. The income statement is sometimes referred to as the statement of operations.
34. A balance sheet reports the assets and liabilities of a company for a specific period of time.
35. The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.
36. Identifying is the process of keeping a chronological diary of events measured in dollars and cents.
37. Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.
38. Accountants do not have to worry about issues of ethics.
39. At the time an asset is acquired, cost and fair value should be the same.
40. The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar.
41. The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.
42. External transactions involve economic events between the company and some other enterprise or party.
43. In the retained earnings statement, revenues are listed first, followed by expenses, and net income (or net loss).
MULTIPLE CHOICE QUESTIONS
44. Accountants refer to an economic event as a
a. purchase.
b. sale.
c. transaction.
d. change in ownership.
45. The process of recording transactions has become more efficient because
a. fewer events can be quantified in financial terms.
b. computers are used in processing business events.
c. more people have been hired to record business transactions.
d. business events are recorded only at the end of the year.
46. Communication of economic events is the part of the accounting process that involves
a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.
47. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?
a. The appointment of a new CPA firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.
48. The use of computers in recording business events
a. has made the recording process more efficient.
b. does not use the same principles as manual accounting systems.
c. has greatly impacted the identification stage of the accounting process.
d. is economical only for large businesses.
49. The accounting process involves all of the following except
a. identifying economic transactions that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording nonquantifiable economic events.
d. analyzing and interpreting financial reports.
50. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
51. Which of the following techniques are not used by accountants to interpret and report financial information?
a. Graphs.
b. Special memos for each class of external users.
c. Charts.
d. Ratios.
52. Accounting consists of three basic activities which are related to economic events of an organization. These include
a. identifying, recording, and communicating
b. identifying, calculating, and responding
c. classifying, numbering, and reporting
d. issuing, reporting, and classifying
53. All of the following statements are correct except
a. Good decision-making depends on good information.
b. A vital element in communicating economic events is the accountant's ability to analyze and interpret reported information.
c. The origins of accounting are generally attributed to Socrates, a classical Greek philosopher, who promoted accounting as a social contract.
d. The information that a user of financial information needs depends upon the kinds of decisions the user makes.
54. Which of the following would not be considered an internal user of accounting data for the GHI Company?
a. President of the company.
b. Production manager.
c. Merchandise inventory clerk.
d. President of the employees' labor union.
55. Which of the following would not be considered an external user of accounting data for the GHI Company?
a. Internal Revenue Service Agent.
b. Management.
c. Creditors.
d. Customers.
56. Which of the following would not be considered internal users of accounting data for a company?
a. The president of a company.
b. The controller of a company.
c. Creditors of a company.
d. Salesmen of the company.
57. Which of the following is an external user of accounting information?
a. Labor unions.
b. Finance directors.
c. Company officers.
d. Managers.
58. Which one of the following is not an external user of accounting information?
a. Regulatory agencies.
b. Customers.
c. Investors.
d. All of these are external users.
59. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process?
a. Identification.
b. Communication.
c. Recording.
d. Analysis.
60. The origins of accounting are generally attributed to the work of
a. Christopher Columbus.
b. Abner Doubleday.
c. Luca Pacioli.
d. Leonardo da Vinci.
61. Financial accounting provides economic and financial information for all of the following except
a. creditors.
b. investors.
c. managers.
d. other external users.
62. The final step in solving an ethical dilemma is to
a. identify and analyze the principal elements in the situati
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Chapter 1 Through 8
CHAPTER 1
ACCOUNTING IN ACTION
CHAPTER LEARNING OBJECTIVES
1. Explain what accounting is.
2. Identify the users and uses of accounting.
3. Understand why ethics is a fundamental business concept.
4. Explain generally accepted accounting principles.
5. Explain the monetary unit assumption and the economic entity assumption.
6. State the accounting equation, and define its components
7. Analyze the effects of business transactions on the accounting equation.
8. Understand the four financial statements and how they are prepared.
a9. Explain the career opportunities in accounting.
TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.
2. Transactions that can be measured in dollars and cents are recorded in the financial information system.
3. The hiring of a new company president is an economic event recorded by the financial information system.
4. Management of a business enterprise is the major external user of information.
5. Accounting communicates financial information about a business enterprise to both internal and external users.
6. Accounting information is used only by external users with a financial interest in a business enterprise.
7. Financial statements are the major means of communicating accounting information to interested parties.
8. Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.
9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
10. The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm.
11. Private accountants are accountants who are not employees of business enterprises.
12. The study of accounting is not useful for a business career unless your career objective is to become an accountant.
13. A working knowledge of accounting is not relevant to a lawyer or an architect.
14. Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs.
15. Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information.
16. The primary accounting standard-setting body in the United States is the International Accounting Standards Board.
17. The Financial Accounting Standards Board is a part of the Securities and Exchange Commission.
18. The Securities and Exchange Commission oversees U.S. financial markets and accounting standard-setting bodies.
19. The cost and fair value of an asset are the same at the time of acquisition and in all subsequent periods.
20. Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners.
21. A partnership must have more than one owner.
22. The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.
23. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.
24. In order to possess future service potential, an asset must have physical substance.
25. Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.
26. The basic accounting equation states that Assets = Liabilities.
27. Accountants record both internal and external transactions.
28. Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.
29. The purchase of store equipment for cash reduces stockholders’ equity by an equal amount.
30. The purchase of office equipment on credit increases total assets and total liabilities.
31. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.
32. Net income for the period is determined by subtracting total expenses and drawings from total revenues.
33. The income statement is sometimes referred to as the statement of operations.
34. A balance sheet reports the assets and liabilities of a company for a specific period of time.
35. The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.
36. Identifying is the process of keeping a chronological diary of events measured in dollars and cents.
37. Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.
38. Accountants do not have to worry about issues of ethics.
39. At the time an asset is acquired, cost and fair value should be the same.
40. The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar.
41. The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.
42. External transactions involve economic events between the company and some other enterprise or party.
43. In the retained earnings statement, revenues are listed first, followed by expenses, and net income (or net loss).
MULTIPLE CHOICE QUESTIONS
44. Accountants refer to an economic event as a
a. purchase.
b. sale.
c. transaction.
d. change in ownership.
45. The process of recording transactions has become more efficient because
a. fewer events can be quantified in financial terms.
b. computers are used in processing business events.
c. more people have been hired to record business transactions.
d. business events are recorded only at the end of the year.
46. Communication of economic events is the part of the accounting process that involves
a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.
47. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?
a. The appointment of a new CPA firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.
48. The use of computers in recording business events
a. has made the recording process more efficient.
b. does not use the same principles as manual accounting systems.
c. has greatly impacted the identification stage of the accounting process.
d. is economical only for large businesses.
49. The accounting process involves all of the following except
a. identifying economic transactions that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording nonquantifiable economic events.
d. analyzing and interpreting financial reports.
50. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
51. Which of the following techniques are not used by accountants to interpret and report financial information?
a. Graphs.
b. Special memos for each class of external users.
c. Charts.
d. Ratios.
52. Accounting consists of three basic activities which are related to economic events of an organization. These include
a. identifying, recording, and communicating
b. identifying, calculating, and responding
c. classifying, numbering, and reporting
d. issuing, reporting, and classifying
53. All of the following statements are correct except
a. Good decision-making depends on good information.
b. A vital element in communicating economic events is the accountant's ability to analyze and interpret reported information.
c. The origins of accounting are generally attributed to Socrates, a classical Greek philosopher, who promoted accounting as a social contract.
d. The information that a user of financial information needs depends upon the kinds of decisions the user makes.
54. Which of the following would not be considered an internal user of accounting data for the GHI Company?
a. President of the company.
b. Production manager.
c. Merchandise inventory clerk.
d. President of the employees' labor union.
55. Which of the following would not be considered an external user of accounting data for the GHI Company?
a. Internal Revenue Service Agent.
b. Management.
c. Creditors.
d. Customers.
56. Which of the following would not be considered internal users of accounting data for a company?
a. The president of a company.
b. The controller of a company.
c. Creditors of a company.
d. Salesmen of the company.
57. Which of the following is an external user of accounting information?
a. Labor unions.
b. Finance directors.
c. Company officers.
d. Managers.
58. Which one of the following is not an external user of accounting information?
a. Regulatory agencies.
b. Customers.
c. Investors.
d. All of these are external users.
59. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process?
a. Identification.
b. Communication.
c. Recording.
d. Analysis.
60. The origins of accounting are generally attributed to the work of
a. Christopher Columbus.
b. Abner Doubleday.
c. Luca Pacioli.
d. Leonardo da Vinci.
61. Financial accounting provides economic and financial information for all of the following except
a. creditors.
b. investors.
c. managers.
d. other external users.
62. The final step in solving an ethical dilemma is to
a. identify and analyze the principal elements in the situati
ACC 556 Week 5 Midterm Exam – Strayer NEW
ACC 556 Week 5 Midterm Exam – Strayer NEW
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Chapters 1 Through 8
CHAPTER 1
INTRODUCTION TO FINANCIAL STATEMENTS
TRUE-FALSE STATEMENTS
1. A business organized as a separate legal entity owned by stockholders is a partnership.
2. Corporate stockholders generally pay higher taxes but have no personal liability.
3. The liability of corporate stockholders is limited to the amount of their investment.
4. The majority of U.S. business is transacted by proprietorships.
5. Proprietorships in the United States generate more revenue than the other two forms of business enterprise.
6. Owners of business firms are the only people who need accounting information.
7. Management of a business enterprise is the major external user of information.
8. External users of accounting information are managers who plan, organize, and run a business.
9. The information needs and questions of external users vary considerably.
10. Accounting communicates financial information about a business to both internal and external users.
11. Two primary external users of accounting information are investors and creditors.
12. Financing activities for corporations include borrowing money and selling shares of their own stock.
13. Investing activities involve collecting the necessary funds to support the business.
14. The purchase of equipment is an example of a financing activity.
15. Assets are resources owned by a business and provide future services or benefits to the business.
16. Payments to owners are operating activities.
17. The economic resources that are owned by a business are called stockholders’ equity.
18. Operating activities involve putting the resources of the business into action to generate a profit.
19. A business is usually involved in two types of activity—financing and investing.
20. Net income for the period is determined by subtracting total expenses and dividends from revenues.
21. A different set of financial statements usually is prepared for each user.
22. The heading for the income statement might include the line “As of December 31, 20xx.”
23. Net income is another term for revenue.
24. Cash is another term for stockholders’ equity.
25. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.
26. The balance sheet reports assets and claims to those assets at a specific point in time.
27. The basic accounting equation states that Assets = Liabilities.
28. One way of stating the accounting equation is: Assets + Liabilities = Stockholders’ Equity.
29. The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities.
30. The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity.
31. If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders’ equity totals $45,000.
32. If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders’ equity totals $25,000.
33. Claims of creditors and owners on the assets of a business are called liabilities.
34. Creditors’ rights to assets supersede owners’ rights to the assets.
35. All publicly traded U.S. companies must provide their stockholders with an annual report each year.
36. Information in the notes to the financial statements has to be quantifiable (numeric).
37. An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.
38. The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company.
39. Explanatory notes and supporting schedules are an optional part of an annual report.
40. Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics.
MULTIPLE CHOICE QUESTIONS
41. The proprietorship form of business organization
a. must have at least two owners in most states.
b. generally receives favorable tax treatment relative to a corporation.
c. combines the records of the business with the personal records of the owner.
d. is classified as a separate legal entity.
42. A business organized as a corporation
a. is not a separate legal entity in most states.
b. requires that stockholders be personally liable for the debts of the business.
c. is owned by its stockholders.
d. has tax advantages over a proprietorship or partnership.
43. The partnership form of business organization
a. is a separate legal entity.
b. is a common form of organization for service-type businesses.
c. enjoys an unlimited life.
d. has limited liability.
44. Which of the following is not one of the three forms of business organization?
a. Corporations
b. Partnerships
c. Proprietorships
d. Investors
45. Most business enterprises in the United States are
a. proprietorships and partnerships.
b. partnerships.
c. corporations.
d. government units.
46. A business organized as a separate legal entity is a
a. corporation.
b. proprietor.
c. government unit.
d. partnership.
47. Which of the following is not an advantage of the corporate form of business organization?
a. No personal liability
b. Easy to transfer ownership
c. Favorable tax treatment
d. Easy to raise funds
48. An advantage of the corporate form of business is that
a. it has limited life.
b. its owner’s personal resources are at stake.
c. its ownership is easily transferable via the sale of shares of stock.
d. it is simple to establish.
49. Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?
a. Reduced legal liability for investors
b. Harder to transfer ownership
c. Lower taxes
d. Most common form of organization
50. A corporation has which of the following set of characteristics?
a. Shared control, tax advantages, increased skills and resources
b. Simple to set up and maintains control with founder
c. Easier to transfer ownership and raise funds, no personal liability
d. Harder to raise funds and gives owner control
51. A small neighborhood barber shop that is operated by its owner would likely be organized as a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.
52. A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?
a. Ability to raise capital for expansion
b. Desire to limit the owner’s personal liability
c. The prestige of operating as a corporation
d. The ease in transferring shares of the corporation’s stock
53. All of the following are advantages for choosing a proprietorship for a business except
a. a proprietorship is a simple form of business to set up.
b. a proprietorship gives the owner control of the business.
c. proprietorship receive more favorable tax treatment.
d. transfer of ownership is easily achieved through stock sales.
54. Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is trueregarding this debt?
a. Only Jack is personally liable for the debt, since he has been the managing partner during that time.
b. Only Jill is personally liable for the debt of the business, since Jack has been working and she has not.
c. Both Jack and Jill are personally liable for the business debt.
d. Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.
55. Which one of the following questions is most likely asked by an internal human resources director for the company?
a. Which product line is most profitable?
b. What price for our product will maximize the company income?
c. What average pay raise is affordable for employees this year?
d. Should any product lines be eliminated?
56. Which of the following are internal reports that accounting provides to internal users?
a. Forecasts of cash needs for next year.
b. Financial comparisons of operating activity alternatives.
c. Both forecasts of cash needs and financial comparisons are internal reports.
d. Neither forecasts of cash needs or financial comparisons is an internal report.
57. Which of the following is the best definition of an internal user of accounting information?
a. Investors who use accounting information to decide whether to buy or sell stock.
b. Creditors like banks that use accounting information to evaluate the risk of lending money.
c. Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits.
d. Managers who use accounting information to plan, organize, and run a business.
58. External users of accounting information, like the Internal Revenue Service, are most commonly known as
a. taxing authorities.
b. labor unions.
c. customers.
d. regulatory agencies.
59. Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)?
a. The Act calls for increased oversight responsibilities for boards of directors.
b. The Act has resulted in increased penalties for financial fraud by top management.
c. The Act calls for decreased independence of outside auditors reviewing corporate financial statements.
d. The Act is meant to decrease the likelihood of unethical corporate behavior.
60. Which of the following is not a step for solving an ethical dilemma?
a. Identifying the alternatives and weighing the impact of each alternat
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Chapters 1 Through 8
CHAPTER 1
INTRODUCTION TO FINANCIAL STATEMENTS
TRUE-FALSE STATEMENTS
1. A business organized as a separate legal entity owned by stockholders is a partnership.
2. Corporate stockholders generally pay higher taxes but have no personal liability.
3. The liability of corporate stockholders is limited to the amount of their investment.
4. The majority of U.S. business is transacted by proprietorships.
5. Proprietorships in the United States generate more revenue than the other two forms of business enterprise.
6. Owners of business firms are the only people who need accounting information.
7. Management of a business enterprise is the major external user of information.
8. External users of accounting information are managers who plan, organize, and run a business.
9. The information needs and questions of external users vary considerably.
10. Accounting communicates financial information about a business to both internal and external users.
11. Two primary external users of accounting information are investors and creditors.
12. Financing activities for corporations include borrowing money and selling shares of their own stock.
13. Investing activities involve collecting the necessary funds to support the business.
14. The purchase of equipment is an example of a financing activity.
15. Assets are resources owned by a business and provide future services or benefits to the business.
16. Payments to owners are operating activities.
17. The economic resources that are owned by a business are called stockholders’ equity.
18. Operating activities involve putting the resources of the business into action to generate a profit.
19. A business is usually involved in two types of activity—financing and investing.
20. Net income for the period is determined by subtracting total expenses and dividends from revenues.
21. A different set of financial statements usually is prepared for each user.
22. The heading for the income statement might include the line “As of December 31, 20xx.”
23. Net income is another term for revenue.
24. Cash is another term for stockholders’ equity.
25. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.
26. The balance sheet reports assets and claims to those assets at a specific point in time.
27. The basic accounting equation states that Assets = Liabilities.
28. One way of stating the accounting equation is: Assets + Liabilities = Stockholders’ Equity.
29. The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities.
30. The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity.
31. If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders’ equity totals $45,000.
32. If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders’ equity totals $25,000.
33. Claims of creditors and owners on the assets of a business are called liabilities.
34. Creditors’ rights to assets supersede owners’ rights to the assets.
35. All publicly traded U.S. companies must provide their stockholders with an annual report each year.
36. Information in the notes to the financial statements has to be quantifiable (numeric).
37. An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.
38. The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company.
39. Explanatory notes and supporting schedules are an optional part of an annual report.
40. Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics.
MULTIPLE CHOICE QUESTIONS
41. The proprietorship form of business organization
a. must have at least two owners in most states.
b. generally receives favorable tax treatment relative to a corporation.
c. combines the records of the business with the personal records of the owner.
d. is classified as a separate legal entity.
42. A business organized as a corporation
a. is not a separate legal entity in most states.
b. requires that stockholders be personally liable for the debts of the business.
c. is owned by its stockholders.
d. has tax advantages over a proprietorship or partnership.
43. The partnership form of business organization
a. is a separate legal entity.
b. is a common form of organization for service-type businesses.
c. enjoys an unlimited life.
d. has limited liability.
44. Which of the following is not one of the three forms of business organization?
a. Corporations
b. Partnerships
c. Proprietorships
d. Investors
45. Most business enterprises in the United States are
a. proprietorships and partnerships.
b. partnerships.
c. corporations.
d. government units.
46. A business organized as a separate legal entity is a
a. corporation.
b. proprietor.
c. government unit.
d. partnership.
47. Which of the following is not an advantage of the corporate form of business organization?
a. No personal liability
b. Easy to transfer ownership
c. Favorable tax treatment
d. Easy to raise funds
48. An advantage of the corporate form of business is that
a. it has limited life.
b. its owner’s personal resources are at stake.
c. its ownership is easily transferable via the sale of shares of stock.
d. it is simple to establish.
49. Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?
a. Reduced legal liability for investors
b. Harder to transfer ownership
c. Lower taxes
d. Most common form of organization
50. A corporation has which of the following set of characteristics?
a. Shared control, tax advantages, increased skills and resources
b. Simple to set up and maintains control with founder
c. Easier to transfer ownership and raise funds, no personal liability
d. Harder to raise funds and gives owner control
51. A small neighborhood barber shop that is operated by its owner would likely be organized as a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.
52. A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?
a. Ability to raise capital for expansion
b. Desire to limit the owner’s personal liability
c. The prestige of operating as a corporation
d. The ease in transferring shares of the corporation’s stock
53. All of the following are advantages for choosing a proprietorship for a business except
a. a proprietorship is a simple form of business to set up.
b. a proprietorship gives the owner control of the business.
c. proprietorship receive more favorable tax treatment.
d. transfer of ownership is easily achieved through stock sales.
54. Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is trueregarding this debt?
a. Only Jack is personally liable for the debt, since he has been the managing partner during that time.
b. Only Jill is personally liable for the debt of the business, since Jack has been working and she has not.
c. Both Jack and Jill are personally liable for the business debt.
d. Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.
55. Which one of the following questions is most likely asked by an internal human resources director for the company?
a. Which product line is most profitable?
b. What price for our product will maximize the company income?
c. What average pay raise is affordable for employees this year?
d. Should any product lines be eliminated?
56. Which of the following are internal reports that accounting provides to internal users?
a. Forecasts of cash needs for next year.
b. Financial comparisons of operating activity alternatives.
c. Both forecasts of cash needs and financial comparisons are internal reports.
d. Neither forecasts of cash needs or financial comparisons is an internal report.
57. Which of the following is the best definition of an internal user of accounting information?
a. Investors who use accounting information to decide whether to buy or sell stock.
b. Creditors like banks that use accounting information to evaluate the risk of lending money.
c. Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits.
d. Managers who use accounting information to plan, organize, and run a business.
58. External users of accounting information, like the Internal Revenue Service, are most commonly known as
a. taxing authorities.
b. labor unions.
c. customers.
d. regulatory agencies.
59. Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)?
a. The Act calls for increased oversight responsibilities for boards of directors.
b. The Act has resulted in increased penalties for financial fraud by top management.
c. The Act calls for decreased independence of outside auditors reviewing corporate financial statements.
d. The Act is meant to decrease the likelihood of unethical corporate behavior.
60. Which of the following is not a step for solving an ethical dilemma?
a. Identifying the alternatives and weighing the impact of each alternat
ACC 206 Week 5 Mid-Term Exam – Strayer
ACC 206 Week 5 Mid-Term Exam – Strayer
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Chapters 10 Through 13
CHAPTER10
PLANTASSETS,NATURALRESOURCES,ANDINTANGIBLEASSETS
CHAPTERSTUDYOBJECTIVES
1.Describehowthecostprincipleappliestoplantassets.
2.Explaintheconceptofdepreciation..
3.Computeperiodicdepreciationusingdifferentmethods.
4.Describetheprocedureforrevisingperiodicdepreciation.
5.Distinguishbetweenrevenueandcapitalexpenditures,andexplaintheentriesforeach.
6.Explainhowtoaccountforthedisposalofaplantasset.
7.Computeperiodicdepletionofnaturalresources.
8.Explainthebasicissuesrelatedtoaccountingforintangibleassets.
9.Indicatehowplantassets,naturalresources,andintangibleassetsarereported.
10.Explainhowtoaccountfortheexchangeofplantassets.
TRUE-FALSESTATEMENTS
1. Allplantassets(fixedassets)mustbedepreciatedfor accountingpurposes.
2. Whenpurchasingland,thecostsforclearing,draining,filling,andgradingshouldbe chargedto aLandImprovementsaccount.
3. Whenpurchasingdeliveryequipment,salestaxesandmotorvehiclelicensesshouldbe chargedto DeliveryEquipment.
4. Landimprovementsaregenerallychargedto theLandaccount.
5. Oncecostisestablishedforaplantasset,itbecomes thebasis ofaccounting fortheasset unlesstheassetappreciatesinvalue,inwhichcase,marketvaluebecomesthebasisfor accountability.
6. Thebookvalueof aplantassetisalwaysequaltoitsfairmarketvalue.
7. Recordingdepreciationonplantassetsaffectsthebalancesheetandtheincome statement.
8. Thedepreciablecostof aplant asset is itsoriginalcostminusobsolescence.
9. Recordingdepreciationeachperiodisanapplicationof thematchingprinciple.
10. TheAccumulatedDepreciationaccountrepresentsacashfundavailabletoreplaceplant assets.
11. Incalculatingdepreciation,bothplantassetcost andusefullifearebasedonestimates.
12. Usingtheunits-of-activitymethodofdepreciatingfactoryequipmentwillgenerallyresultin moredepreciationexpensebeingrecordedoverthelifeoftheassetthanifthestraight-line method hadbeenused.
13. Salvagevalueisnotsubtractedfromplantassetcostindeterminingdepreciationexpense underthedeclining-balancemethodofdepreciation.
14. Thedeclining-balancemethodofdepreciationiscalledanaccelerateddepreciation methodbecauseitdepreciatesanassetinashorterperiodoftimethantheasset'suseful life.
15. Underthedouble-declining-balancemethod,thedepreciationrateusedeachyear remainsconstant.
16. TheIRSdoesnotrequirethetaxpayertousethesamedepreciationmethodonthetax returnthatisusedinpreparingfinancialstatements.
17. Achangeintheestimatedusefullifeofaplantassetmaycauseachangeintheamount ofdepreciationrecognizedinthecurrentandfutureperiods,but nottopriorperiods.
18. Achangeintheestimatedsalvagevalueofaplantassetrequiresarestatementofprior years'depreciation.
19. Todetermineanewdepreciationamountafterachangeinestimateofaplantasset's useful life, the asset'sremaining depreciablecost isdividedbyits remainingusefullife.
20. Additionsand improvementstoaplantassetthatincreasethe asset'soperatingefficiency, productive capacity,or expectedusefullife aregenerallyexpensed intheperiodincurred.
21. Capitalexpendituresareexpendituresthatincreasethecompany'sinvestmentin productive facilities.
22. Ordinaryrepairs shouldberecognizedwhenincurredas revenueexpenditures.
23. A characteristicofcapitalexpendituresis that theexpendituresoccurfrequently duringthe period ofownership.
24. Onceanassetisfullydepreciated,noadditionaldepreciationcanbetakeneventhough theasset is still beingusedbythebusiness.
25. Thefairmarketvalueof a plantasset isalwaysthesameasits bookvalue.
26. Iftheproceedsfromthesaleofaplantassetexceeditsbookvalue,againondisposal occurs.
27. Alossondisposalofaplantassetcanonlyoccurifthecashproceeds received fromthe assetsaleis lessthanthe asset'sbook value.
28. Thebookvalueofaplantassetistheamount originallypaid fortheassetlessanticipated salvagevalue.
29. Alossondisposal ofaplantasset asaresult ofasaleoraretirementiscalculated inthe sameway.
30. A plantassetmustbefullydepreciatedbeforeit canberemovedfromthe books.
31. Ifaplantasset issoldata gain,thegain ondisposal shouldreducethecost ofgoodssold section of the incomestatement.
32. Depletioncostperunitiscomputedbydividingthetotalcostofanaturalresourcebythe estimatednumberof unitsintheresource.
33. TheAccumulatedDepletionaccountisdeductedfromthecostofthenaturalresourcein thebalancesheet.
34. Depletionexpenseforaperiodisonlyrecognizedonnaturalresourcesthathavebeen extractedandsoldduringtheperiod.
35. Naturalresourcesarelong-livedproductiveassetsthatareextractedinoperationsand arereplaceableonlybyanactof nature.
36. Thecostofnaturalresourcesisnotallocatedtoexpensebecausethenaturalresources arereplaceableonlybyanactof nature.
37. Conceptually,thecostallocationproceduresfornaturalresourcesparallelsthatofplant assets.
38. Naturalresourcesincludestandingtimberandundergrounddepositsofoil,gas,and minerals.
39. Ifanacquiredfranchiseorlicensehasanindefinitelife,thecostoftheassetisnot amortized.
40. Whenanentirebusinessispurchased,goodwillistheexcessofcostoverthebookvalue of thenet assetsacquired.
41. Researchand development costswhich result in asuccessful product which ispatentable arechargedtothePatentaccount.
42. Thecostof apatentmustbeamortizedovera 20-yearperiod.
43. Thecostofapatentshouldbeamortizedoveritslegallifeorusefullife,whicheveris shorter.
44. The balancesofthe majorclassesofplantassetsand accumulated depreciationby major classes shouldbedisclosedinthebalance sheetornotes.
45. Theassetturnover ratioiscalculated astotalsales dividedbyendingtotalassets.
46. Researchanddevelopmentcostscanbeclassifiedasaproperty,plant,andequipment itemoras an intangibleasset.
a47. An exchangeofplantassetshas commercial substanceifthe futurecashflows change as a resultofthe exchange.
a48. Companiesrecordagainorlossontheexchangeofplantassetsbecausemost exchangeshavecommercialsubstance.
a49. Whenplantassetsareexchanged,thecostofthenewassetisthebookvalueoftheold assetplus anycashpaid.
Additional True-FalseQuestions
50. Whenconstructingabuilding,acompanyispermittedtoincludetheacquisitioncostand certaininterest costs incurredinfinancingtheproject.
51. Recognitionofdepreciationpermitstheaccumulationofcashforthereplacementofthe asset.
52. Whenanassetispurchasedduringtheyear,itisnotnecessarytorecorddepreciation expense inthefirst yearunderthedeclining-balancedepreciationmethod.
53. Depletionexpenseisreported intheincomestatementas anoperatingexpense.
54. Goodwillisnotrecognizedinaccountingunlessitisacquiredfromanotherbusiness enterprise.
55. Researchanddevelopmentcostsshouldbechargedtoexpensewhenincurred.
56. Alossontheexchangeofplantassetsoccurswhenthefairmarketvalueoftheoldasset islessthanitsbookvalue.
MULTIPLECHOICEQUESTIONS
57. Thecostof apurchasedbuildingincludes allofthefollowingexcept a.closingcosts.
b.realestatebroker's commission. c.remodeling costs.
d.Allof theseareincluded.
58. Acompanypurchasedlandfor$90,000cash.Realestatebrokers'commissionwas $5,000and$7,000wasspentfordemolishinganoldbuildingonthelandbefore constructionofanewbuildingcouldstart.Underthecostprinciple,thecostoflandwould be recordedat
a.$97,000. b.$90,000. c.$95,000. d.$102,000.
59. Whichoneofthefollowingitemsisnotconsideredapartofthecostofatruckpurchased for businessuse?
a.Salestax
b.Trucklicensec.Freightcharges
d.Costofletteringonsideoftruck
60. Whichofthefollowingassetsdoesnotdeclineinservicepotentialoverthecourseofits useful life?
a.Equipment b.Furnishings c.Land
d.Fixtures
61. Thefoursubdivisions forplantassetsare
a.land,landimprovements,buildings,andequipment. b.intangibles,land,buildings,andequipment.
c.furnishingsandfixtures,land,buildings, andequipment. d.property,plant,equipment,andland.
62. Thecostof landdoesnotinclude
a.realestatebrokers' commission. b.annualpropertytaxes.
c.accruedpropertytaxesassumedbythepurchaser. d.title fees.
63. FeeneyClinicpurchaseslandfor$130,000cash.Theclinicassumes$1,500inproperty taxesdueontheland.Thetitleandattorneyfeestotaled$1,000.Theclinichastheland gradedfor $2,200.WhatamountdoesFeeneyClinicrecordasthecostforthe land?
a.$132,200 b.$130,000 c.$134,700 d.$132,500
64. BelleCompanybuyslandfor$50,000on12/31/07.Asof3/31/08,thelandhas appreciatedinvalueto$50,700.On12/31/08,thelandhasanappraisedvalueof $51,800.Bywhatamountshouldthe Landaccount beincreasedin 2008?
a.$0b.$700
c.$1,100 d.$1,800
65. PineCompanyacquireslandfor$86,000cash.Additional costsareasfollows:
Removalof shed $300 Fillingandgrading 1,500 Salvagevalue oflumberofshed 120 Brokercommission 1,130 Pavingofparkinglot 10,000 Closingcosts 560
Pinewillrecordtheacquisitioncostof thelandas a.$86,000.
b.$87,690. c.$89,610. d.$89,370.
66. ShawneeHospitalinstallsanewparkinglot.Thepavingcost$30,000andthelightsto illuminatethenewparkingareacost$15,000.Whichofthefollowingstatementsistrue with respecttotheseadditions?
a.$30,000shouldbedebitedtothe Landaccount.
b.$15,000shouldbedebitedtoLandImprovements. c.$45,000shouldbedebitedtotheLandaccount.d.$45,000shouldbedebitedtoLandImprovements.
10-10
67. Landimprovementsshouldbedepreciatedovertheusefullife of the a.land.
b.buildingsontheland.
c.land or landimprovements,whicheverislonger. d.landimprovements.
68. GeneralMoldingisbuildinganewplantthatwilltakethreeyearstoconstruct.The constructionwillbefinancedinpartbyfundsborrowedduringtheconstructionperiod. Therearesignificantarchitectfees,excavationfees,andbuildingpermitfees.Whichof the followingstatementsis true?
a.Excavationfeesarecapitalizedbut building permitfeesarenot. b.Architectfeesarecapitalizedbut buildingpermitfeesarenot.
c.Interestiscapitalizedduring theconstructionas partof thecostofthebuilding.
d.The capitalizedcost is equaltothecontractprice tobuildthe plant less any in
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Chapters 10 Through 13
CHAPTER10
PLANTASSETS,NATURALRESOURCES,ANDINTANGIBLEASSETS
CHAPTERSTUDYOBJECTIVES
1.Describehowthecostprincipleappliestoplantassets.
2.Explaintheconceptofdepreciation..
3.Computeperiodicdepreciationusingdifferentmethods.
4.Describetheprocedureforrevisingperiodicdepreciation.
5.Distinguishbetweenrevenueandcapitalexpenditures,andexplaintheentriesforeach.
6.Explainhowtoaccountforthedisposalofaplantasset.
7.Computeperiodicdepletionofnaturalresources.
8.Explainthebasicissuesrelatedtoaccountingforintangibleassets.
9.Indicatehowplantassets,naturalresources,andintangibleassetsarereported.
10.Explainhowtoaccountfortheexchangeofplantassets.
TRUE-FALSESTATEMENTS
1. Allplantassets(fixedassets)mustbedepreciatedfor accountingpurposes.
2. Whenpurchasingland,thecostsforclearing,draining,filling,andgradingshouldbe chargedto aLandImprovementsaccount.
3. Whenpurchasingdeliveryequipment,salestaxesandmotorvehiclelicensesshouldbe chargedto DeliveryEquipment.
4. Landimprovementsaregenerallychargedto theLandaccount.
5. Oncecostisestablishedforaplantasset,itbecomes thebasis ofaccounting fortheasset unlesstheassetappreciatesinvalue,inwhichcase,marketvaluebecomesthebasisfor accountability.
6. Thebookvalueof aplantassetisalwaysequaltoitsfairmarketvalue.
7. Recordingdepreciationonplantassetsaffectsthebalancesheetandtheincome statement.
8. Thedepreciablecostof aplant asset is itsoriginalcostminusobsolescence.
9. Recordingdepreciationeachperiodisanapplicationof thematchingprinciple.
10. TheAccumulatedDepreciationaccountrepresentsacashfundavailabletoreplaceplant assets.
11. Incalculatingdepreciation,bothplantassetcost andusefullifearebasedonestimates.
12. Usingtheunits-of-activitymethodofdepreciatingfactoryequipmentwillgenerallyresultin moredepreciationexpensebeingrecordedoverthelifeoftheassetthanifthestraight-line method hadbeenused.
13. Salvagevalueisnotsubtractedfromplantassetcostindeterminingdepreciationexpense underthedeclining-balancemethodofdepreciation.
14. Thedeclining-balancemethodofdepreciationiscalledanaccelerateddepreciation methodbecauseitdepreciatesanassetinashorterperiodoftimethantheasset'suseful life.
15. Underthedouble-declining-balancemethod,thedepreciationrateusedeachyear remainsconstant.
16. TheIRSdoesnotrequirethetaxpayertousethesamedepreciationmethodonthetax returnthatisusedinpreparingfinancialstatements.
17. Achangeintheestimatedusefullifeofaplantassetmaycauseachangeintheamount ofdepreciationrecognizedinthecurrentandfutureperiods,but nottopriorperiods.
18. Achangeintheestimatedsalvagevalueofaplantassetrequiresarestatementofprior years'depreciation.
19. Todetermineanewdepreciationamountafterachangeinestimateofaplantasset's useful life, the asset'sremaining depreciablecost isdividedbyits remainingusefullife.
20. Additionsand improvementstoaplantassetthatincreasethe asset'soperatingefficiency, productive capacity,or expectedusefullife aregenerallyexpensed intheperiodincurred.
21. Capitalexpendituresareexpendituresthatincreasethecompany'sinvestmentin productive facilities.
22. Ordinaryrepairs shouldberecognizedwhenincurredas revenueexpenditures.
23. A characteristicofcapitalexpendituresis that theexpendituresoccurfrequently duringthe period ofownership.
24. Onceanassetisfullydepreciated,noadditionaldepreciationcanbetakeneventhough theasset is still beingusedbythebusiness.
25. Thefairmarketvalueof a plantasset isalwaysthesameasits bookvalue.
26. Iftheproceedsfromthesaleofaplantassetexceeditsbookvalue,againondisposal occurs.
27. Alossondisposalofaplantassetcanonlyoccurifthecashproceeds received fromthe assetsaleis lessthanthe asset'sbook value.
28. Thebookvalueofaplantassetistheamount originallypaid fortheassetlessanticipated salvagevalue.
29. Alossondisposal ofaplantasset asaresult ofasaleoraretirementiscalculated inthe sameway.
30. A plantassetmustbefullydepreciatedbeforeit canberemovedfromthe books.
31. Ifaplantasset issoldata gain,thegain ondisposal shouldreducethecost ofgoodssold section of the incomestatement.
32. Depletioncostperunitiscomputedbydividingthetotalcostofanaturalresourcebythe estimatednumberof unitsintheresource.
33. TheAccumulatedDepletionaccountisdeductedfromthecostofthenaturalresourcein thebalancesheet.
34. Depletionexpenseforaperiodisonlyrecognizedonnaturalresourcesthathavebeen extractedandsoldduringtheperiod.
35. Naturalresourcesarelong-livedproductiveassetsthatareextractedinoperationsand arereplaceableonlybyanactof nature.
36. Thecostofnaturalresourcesisnotallocatedtoexpensebecausethenaturalresources arereplaceableonlybyanactof nature.
37. Conceptually,thecostallocationproceduresfornaturalresourcesparallelsthatofplant assets.
38. Naturalresourcesincludestandingtimberandundergrounddepositsofoil,gas,and minerals.
39. Ifanacquiredfranchiseorlicensehasanindefinitelife,thecostoftheassetisnot amortized.
40. Whenanentirebusinessispurchased,goodwillistheexcessofcostoverthebookvalue of thenet assetsacquired.
41. Researchand development costswhich result in asuccessful product which ispatentable arechargedtothePatentaccount.
42. Thecostof apatentmustbeamortizedovera 20-yearperiod.
43. Thecostofapatentshouldbeamortizedoveritslegallifeorusefullife,whicheveris shorter.
44. The balancesofthe majorclassesofplantassetsand accumulated depreciationby major classes shouldbedisclosedinthebalance sheetornotes.
45. Theassetturnover ratioiscalculated astotalsales dividedbyendingtotalassets.
46. Researchanddevelopmentcostscanbeclassifiedasaproperty,plant,andequipment itemoras an intangibleasset.
a47. An exchangeofplantassetshas commercial substanceifthe futurecashflows change as a resultofthe exchange.
a48. Companiesrecordagainorlossontheexchangeofplantassetsbecausemost exchangeshavecommercialsubstance.
a49. Whenplantassetsareexchanged,thecostofthenewassetisthebookvalueoftheold assetplus anycashpaid.
Additional True-FalseQuestions
50. Whenconstructingabuilding,acompanyispermittedtoincludetheacquisitioncostand certaininterest costs incurredinfinancingtheproject.
51. Recognitionofdepreciationpermitstheaccumulationofcashforthereplacementofthe asset.
52. Whenanassetispurchasedduringtheyear,itisnotnecessarytorecorddepreciation expense inthefirst yearunderthedeclining-balancedepreciationmethod.
53. Depletionexpenseisreported intheincomestatementas anoperatingexpense.
54. Goodwillisnotrecognizedinaccountingunlessitisacquiredfromanotherbusiness enterprise.
55. Researchanddevelopmentcostsshouldbechargedtoexpensewhenincurred.
56. Alossontheexchangeofplantassetsoccurswhenthefairmarketvalueoftheoldasset islessthanitsbookvalue.
MULTIPLECHOICEQUESTIONS
57. Thecostof apurchasedbuildingincludes allofthefollowingexcept a.closingcosts.
b.realestatebroker's commission. c.remodeling costs.
d.Allof theseareincluded.
58. Acompanypurchasedlandfor$90,000cash.Realestatebrokers'commissionwas $5,000and$7,000wasspentfordemolishinganoldbuildingonthelandbefore constructionofanewbuildingcouldstart.Underthecostprinciple,thecostoflandwould be recordedat
a.$97,000. b.$90,000. c.$95,000. d.$102,000.
59. Whichoneofthefollowingitemsisnotconsideredapartofthecostofatruckpurchased for businessuse?
a.Salestax
b.Trucklicensec.Freightcharges
d.Costofletteringonsideoftruck
60. Whichofthefollowingassetsdoesnotdeclineinservicepotentialoverthecourseofits useful life?
a.Equipment b.Furnishings c.Land
d.Fixtures
61. Thefoursubdivisions forplantassetsare
a.land,landimprovements,buildings,andequipment. b.intangibles,land,buildings,andequipment.
c.furnishingsandfixtures,land,buildings, andequipment. d.property,plant,equipment,andland.
62. Thecostof landdoesnotinclude
a.realestatebrokers' commission. b.annualpropertytaxes.
c.accruedpropertytaxesassumedbythepurchaser. d.title fees.
63. FeeneyClinicpurchaseslandfor$130,000cash.Theclinicassumes$1,500inproperty taxesdueontheland.Thetitleandattorneyfeestotaled$1,000.Theclinichastheland gradedfor $2,200.WhatamountdoesFeeneyClinicrecordasthecostforthe land?
a.$132,200 b.$130,000 c.$134,700 d.$132,500
64. BelleCompanybuyslandfor$50,000on12/31/07.Asof3/31/08,thelandhas appreciatedinvalueto$50,700.On12/31/08,thelandhasanappraisedvalueof $51,800.Bywhatamountshouldthe Landaccount beincreasedin 2008?
a.$0b.$700
c.$1,100 d.$1,800
65. PineCompanyacquireslandfor$86,000cash.Additional costsareasfollows:
Removalof shed $300 Fillingandgrading 1,500 Salvagevalue oflumberofshed 120 Brokercommission 1,130 Pavingofparkinglot 10,000 Closingcosts 560
Pinewillrecordtheacquisitioncostof thelandas a.$86,000.
b.$87,690. c.$89,610. d.$89,370.
66. ShawneeHospitalinstallsanewparkinglot.Thepavingcost$30,000andthelightsto illuminatethenewparkingareacost$15,000.Whichofthefollowingstatementsistrue with respecttotheseadditions?
a.$30,000shouldbedebitedtothe Landaccount.
b.$15,000shouldbedebitedtoLandImprovements. c.$45,000shouldbedebitedtotheLandaccount.d.$45,000shouldbedebitedtoLandImprovements.
10-10
67. Landimprovementsshouldbedepreciatedovertheusefullife of the a.land.
b.buildingsontheland.
c.land or landimprovements,whicheverislonger. d.landimprovements.
68. GeneralMoldingisbuildinganewplantthatwilltakethreeyearstoconstruct.The constructionwillbefinancedinpartbyfundsborrowedduringtheconstructionperiod. Therearesignificantarchitectfees,excavationfees,andbuildingpermitfees.Whichof the followingstatementsis true?
a.Excavationfeesarecapitalizedbut building permitfeesarenot. b.Architectfeesarecapitalizedbut buildingpermitfeesarenot.
c.Interestiscapitalizedduring theconstructionas partof thecostofthebuilding.
d.The capitalizedcost is equaltothecontractprice tobuildthe plant less any in
FIN 320 Week 5 Mid-Term Exam – Strayer
FIN 320 Week 5 Mid-Term Exam – Strayer
Click on the Link Below to Purchase A+ Graded Course Material
http://budapp.net/FIN-320-Week-5-Mid-Term-Exam-Strayer-394.htm
Chapters 1 Through 8
Chapter 1: ___________________________________________________________________________
1. Financial assets represent _____ of total assets of U.S. households.
A. over 60%
B. over 90%
C. under 10%
D. about 30%
2. Real assets in the economy include all but which one of the following?
A. Land
B. Buildings
C. Consumer durables
D. Common stock
3. Net worth represents _____ of the liabilities and net worth of commercial banks.
A. about 51%
B. about 91%
C. about 11%
D. about 31%
4. According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ___.
A. mutual fund shares
B. real estate
C. pension reserves
D. corporate equity
5. According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.
A. mortgages
B. consumer credit
C. bank loans
D. gambling debts
6. ____ is not a derivative security.
A. A share of common stock
B. A call option
C. A futures contract
D. None of these options (All of the answers are derivative securities.)
7. According to the Flow of Funds Accounts of the United States, the largest financial asset of U.S. households is ____.
A. mutual fund shares
B. corporate equity
C. pension reserves
D. personal trusts
8. Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency
II. Riskier securities are priced to offer higher potential returns
III. Investors are unlikely to be able to consistently find under- or overvalued securities
A. I only
B. I and II only
C. II and III only
D. I, II, and III
9. The material wealth of society is determined by the economy's _________, which is a function of the economy's _________.
A. investment bankers; financial assets
B. investment bankers; real assets
C. productive capacity; financial assets
D. productive capacity; real assets
10. Which of the following is not a money market security?
A. U.S. Treasury bill
B. 6-month maturity certificate of deposit
C. Common stock
D. Bankers' acceptance
11. __________ assets generate net income to the economy, and __________ assets define allocation of income among investors.
A. Financial, financial
B. Financial, real
C. Real, financial
D. Real, real
12. Which of the following are financial assets?
I. Debt securities
II. Equity securities
III. Derivative securities
A. I only
B. I and II only
C. II and III only
D. I, II, and III
13. __________ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
C. Investment companies
D. All of these options
14. Asset allocation refers to _________.
A. the allocation of the investment portfolio across broad asset classes
B. the analysis of the value of securities
C. the choice of specific assets within each asset class
D. none of these options
15. Which one of the following best describes the purpose of derivatives markets?
A. Transferring risk from one party to another
B. Investing for a short time period to earn a small rate of return
C. Investing for retirement
D. Earning interest income
16. More than _____________ of currency is traded each day in the market for foreign exchange.
A. $300 million
B. $1 billion
C. $30 billion
D. $1 trillion
17. Security selection refers to the ________.
A. allocation of the investment portfolio across broad asset classes
B. analysis of the value of securities
C. choice of specific securities within each asset class
D. top-down method of investing
18. Which of the following is an example of an agency problem?
A. Managers engage in empire building.
B. Managers protect their jobs by avoiding risky projects.
C. Managers over consume luxuries such as corporate jets.
D. All of these options are examples of agency problems.
19. _____ is a mechanism for mitigating potential agency problems.
A. Tying income of managers to success of the firm
B. Directors defending top management
C. Antitakeover strategies
D. The straight voting method of electing the board of directors
20. __________ is (are) real assets.
A. Bonds
B. Production equipment
C. Stocks
D. Commercial paper
21. __________ portfolio construction starts with selecting attractively priced securities.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
22. In a market economy, capital resources are primarily allocated by ____________.
A. governments
B. the SEC
C. financial markets
D. investment bankers
23. __________ represents an ownership share in a corporation.
A. A call option
B. Common stock
C. A fixed-income security
D. Preferred stock
24. The value of a derivative security _________.
A. depends on the value of another related security
B. affects the value of a related security
C. is unrelated to the value of a related security
D. can be integrated only by calculus professors
25. Commodity and derivative markets allow firms to adjust their _________.
A. management styles
B. focus from their main line of business to their investment portfolios
C. ways of doing business so that they'll always have positive returns
D. exposure to various business risks
26. __________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.
A. Active
B. Momentum
C. Passive
D. Market-timing
27. Financial markets allow for all but which one of the following?
A. Shift consumption through time from higher-income periods to lower
B. Price securities according to their riskiness
C. Channel funds from lenders of funds to borrowers of funds
D. Allow most participants to routinely earn high returns with low risk
28. Financial intermediaries exist because small investors cannot efficiently _________.
A. diversify their portfolios
B. gather information
C. monitor their portfolios
D. all of these options
29. Methods of encouraging managers to act in shareholders' best interest include:
I. Threat of takeover
II. Proxy fights for control of the board of directors
III. Tying managers' compensation to stock price performance
A. I only
B. I and II only
C. II and III only
D. I, II, and III
30. Firms that specialize in helping companies raise capital by selling securities to the public are called _________.
A. pension funds
B. investment banks
C. savings banks
D. REITs
31. In securities markets, there should be a risk-return trade-off with higher-risk assets having _________ expected returns than lower-risk assets.
A. higher
B. lower
C. the same
D. The answer cannot be determined from the information given.
32. When the market is more optimistic about a firm, its share price will ______; as a result, it will need to issue _______ shares to raise funds that are needed.
A. rise; fewer
B. fall; fewer
C. rise; more
D. fall; more
33. Security selection refers to _________.
A. choosing specific securities within each asset class
B. deciding how much to invest in each asset class
C. deciding how much to invest in the market portfolio versus the riskless asset
D. deciding how much to hedge
34. An example of a derivative security is _________.
A. a common share of General Motors
B. a call option on Intel stock
C. a Ford bond
D. a U.S. Treasury bond
35. __________ portfolio construction starts with asset allocation.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
36. Which one of the following firms falsely claimed to have a $4.8 billion bank account at Bank of America and vastly understated its debts, eventually resulting in the firm's bankruptcy?
A. WorldCom
B. Enron
C. Parmalat
D. Global Crossing
37. Debt securities promise:
I. A fixed stream of income
II. A stream of income that is determined according to a specific formula
III. A share in the profits of the issuing entity
A. I only
B. I or II only
C. I and III only
D. II or III only
38. The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?
A. Required that corporations have more independent directors
B. Required that the CFO personally vouch for the corporation's financial statements
C. Required that firms could no longer employ investment bankers to sell securities to the public
D. Required the creation of a new board to oversee the auditing of public companies
39. The success of common stock investments depends on the success of _________.
A. derivative securities
B. fixed-income securities
C. the firm and its real assets
D. government methods of allocating capital
40. The historical average rate of return on large company stocks since 1926 has been _____.
A. 5%
B. 8%
C. 12%
D. 20%
41. The average rate of return on U.S. Treasury bills since 1926 was _________.
A. less than 1%
B. less than 3%
C. less than 4%
D. less than 7%
42. An example of a real asset is:
I. A college education
II. Customer goodwill
III. A patent
A. I only
B. II only
C. I and III only
D. I, II, and III
43. The 2002 law designed to improve corporate governance is titled the _____.
A. Pension Reform Act
B. ERISA
C. Financial Services Modernization Act
D. Sarbanes-Oxley Act
44. Which of the following is not a financial intermediary?
A. a mutual fund
B. an insurance company
C. a real estate brokerage firm
D. a savings and loan company
45. The combined liabilitie
Click on the Link Below to Purchase A+ Graded Course Material
http://budapp.net/FIN-320-Week-5-Mid-Term-Exam-Strayer-394.htm
Chapters 1 Through 8
Chapter 1: ___________________________________________________________________________
1. Financial assets represent _____ of total assets of U.S. households.
A. over 60%
B. over 90%
C. under 10%
D. about 30%
2. Real assets in the economy include all but which one of the following?
A. Land
B. Buildings
C. Consumer durables
D. Common stock
3. Net worth represents _____ of the liabilities and net worth of commercial banks.
A. about 51%
B. about 91%
C. about 11%
D. about 31%
4. According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ___.
A. mutual fund shares
B. real estate
C. pension reserves
D. corporate equity
5. According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.
A. mortgages
B. consumer credit
C. bank loans
D. gambling debts
6. ____ is not a derivative security.
A. A share of common stock
B. A call option
C. A futures contract
D. None of these options (All of the answers are derivative securities.)
7. According to the Flow of Funds Accounts of the United States, the largest financial asset of U.S. households is ____.
A. mutual fund shares
B. corporate equity
C. pension reserves
D. personal trusts
8. Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency
II. Riskier securities are priced to offer higher potential returns
III. Investors are unlikely to be able to consistently find under- or overvalued securities
A. I only
B. I and II only
C. II and III only
D. I, II, and III
9. The material wealth of society is determined by the economy's _________, which is a function of the economy's _________.
A. investment bankers; financial assets
B. investment bankers; real assets
C. productive capacity; financial assets
D. productive capacity; real assets
10. Which of the following is not a money market security?
A. U.S. Treasury bill
B. 6-month maturity certificate of deposit
C. Common stock
D. Bankers' acceptance
11. __________ assets generate net income to the economy, and __________ assets define allocation of income among investors.
A. Financial, financial
B. Financial, real
C. Real, financial
D. Real, real
12. Which of the following are financial assets?
I. Debt securities
II. Equity securities
III. Derivative securities
A. I only
B. I and II only
C. II and III only
D. I, II, and III
13. __________ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
C. Investment companies
D. All of these options
14. Asset allocation refers to _________.
A. the allocation of the investment portfolio across broad asset classes
B. the analysis of the value of securities
C. the choice of specific assets within each asset class
D. none of these options
15. Which one of the following best describes the purpose of derivatives markets?
A. Transferring risk from one party to another
B. Investing for a short time period to earn a small rate of return
C. Investing for retirement
D. Earning interest income
16. More than _____________ of currency is traded each day in the market for foreign exchange.
A. $300 million
B. $1 billion
C. $30 billion
D. $1 trillion
17. Security selection refers to the ________.
A. allocation of the investment portfolio across broad asset classes
B. analysis of the value of securities
C. choice of specific securities within each asset class
D. top-down method of investing
18. Which of the following is an example of an agency problem?
A. Managers engage in empire building.
B. Managers protect their jobs by avoiding risky projects.
C. Managers over consume luxuries such as corporate jets.
D. All of these options are examples of agency problems.
19. _____ is a mechanism for mitigating potential agency problems.
A. Tying income of managers to success of the firm
B. Directors defending top management
C. Antitakeover strategies
D. The straight voting method of electing the board of directors
20. __________ is (are) real assets.
A. Bonds
B. Production equipment
C. Stocks
D. Commercial paper
21. __________ portfolio construction starts with selecting attractively priced securities.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
22. In a market economy, capital resources are primarily allocated by ____________.
A. governments
B. the SEC
C. financial markets
D. investment bankers
23. __________ represents an ownership share in a corporation.
A. A call option
B. Common stock
C. A fixed-income security
D. Preferred stock
24. The value of a derivative security _________.
A. depends on the value of another related security
B. affects the value of a related security
C. is unrelated to the value of a related security
D. can be integrated only by calculus professors
25. Commodity and derivative markets allow firms to adjust their _________.
A. management styles
B. focus from their main line of business to their investment portfolios
C. ways of doing business so that they'll always have positive returns
D. exposure to various business risks
26. __________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.
A. Active
B. Momentum
C. Passive
D. Market-timing
27. Financial markets allow for all but which one of the following?
A. Shift consumption through time from higher-income periods to lower
B. Price securities according to their riskiness
C. Channel funds from lenders of funds to borrowers of funds
D. Allow most participants to routinely earn high returns with low risk
28. Financial intermediaries exist because small investors cannot efficiently _________.
A. diversify their portfolios
B. gather information
C. monitor their portfolios
D. all of these options
29. Methods of encouraging managers to act in shareholders' best interest include:
I. Threat of takeover
II. Proxy fights for control of the board of directors
III. Tying managers' compensation to stock price performance
A. I only
B. I and II only
C. II and III only
D. I, II, and III
30. Firms that specialize in helping companies raise capital by selling securities to the public are called _________.
A. pension funds
B. investment banks
C. savings banks
D. REITs
31. In securities markets, there should be a risk-return trade-off with higher-risk assets having _________ expected returns than lower-risk assets.
A. higher
B. lower
C. the same
D. The answer cannot be determined from the information given.
32. When the market is more optimistic about a firm, its share price will ______; as a result, it will need to issue _______ shares to raise funds that are needed.
A. rise; fewer
B. fall; fewer
C. rise; more
D. fall; more
33. Security selection refers to _________.
A. choosing specific securities within each asset class
B. deciding how much to invest in each asset class
C. deciding how much to invest in the market portfolio versus the riskless asset
D. deciding how much to hedge
34. An example of a derivative security is _________.
A. a common share of General Motors
B. a call option on Intel stock
C. a Ford bond
D. a U.S. Treasury bond
35. __________ portfolio construction starts with asset allocation.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
36. Which one of the following firms falsely claimed to have a $4.8 billion bank account at Bank of America and vastly understated its debts, eventually resulting in the firm's bankruptcy?
A. WorldCom
B. Enron
C. Parmalat
D. Global Crossing
37. Debt securities promise:
I. A fixed stream of income
II. A stream of income that is determined according to a specific formula
III. A share in the profits of the issuing entity
A. I only
B. I or II only
C. I and III only
D. II or III only
38. The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?
A. Required that corporations have more independent directors
B. Required that the CFO personally vouch for the corporation's financial statements
C. Required that firms could no longer employ investment bankers to sell securities to the public
D. Required the creation of a new board to oversee the auditing of public companies
39. The success of common stock investments depends on the success of _________.
A. derivative securities
B. fixed-income securities
C. the firm and its real assets
D. government methods of allocating capital
40. The historical average rate of return on large company stocks since 1926 has been _____.
A. 5%
B. 8%
C. 12%
D. 20%
41. The average rate of return on U.S. Treasury bills since 1926 was _________.
A. less than 1%
B. less than 3%
C. less than 4%
D. less than 7%
42. An example of a real asset is:
I. A college education
II. Customer goodwill
III. A patent
A. I only
B. II only
C. I and III only
D. I, II, and III
43. The 2002 law designed to improve corporate governance is titled the _____.
A. Pension Reform Act
B. ERISA
C. Financial Services Modernization Act
D. Sarbanes-Oxley Act
44. Which of the following is not a financial intermediary?
A. a mutual fund
B. an insurance company
C. a real estate brokerage firm
D. a savings and loan company
45. The combined liabilitie
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