The Impact of Management A+ Solutions
in Accounting by Professor1
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Description
-
A project profitability index greater than zero for a project indicates that
A. the company should reevaluate its discount rate.
B. the project is unattractive and shouldn't be pursued.
C. there has been a calculation error.
D. the discount rate is less than the internal rate of return.
- (Ignore income taxes in this problem.) The following data pertain to an investment:
Cost of the investment$18,955
Life of the project5 years
Annual cost savings$5,000
Estimated salvage value$1,000
Discount rate10%
The net present value of the proposed investment is
A. $621.
B. $0.
C. $(3,430).
D. $3,355.
- (Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment:
YearCash Inflows
1$120,000
260,000
340,000
440,000
540,000
Total$300,000
Assuming that the cash inflows occur evenly over the year, the payback period for the investment is ___ years.
A. 1.67
B. 2.50
C. 0.75
D. 4.91
-
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. $228,000.
D. $180,000.
-
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. processed further, since this will increase profits by $12,500 each period.
B. processed further, since this will increase profits by $2,500 each period.
C. sold at the split-off point, since further processing would result in a loss of $0.50 per unit.
D. sold at the split-off point, since further processing will result in a loss of $2,500 each period.
- Centerville Company's debt-to-equity ratio is 0.60 Total assets are $320,000, current assets are $170,000, and working capital is $80,000. Centerville's long-term liabilities must be
A. $30,000.
B. $120,000.
C. $90,000.
D. $80,000.
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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
Larkins Company's earnings per share of common stock for Year 2 was closest to:
A. $7.21.
B. $25.00.
C. $16.83.
D. $17.50.
-
A company's current ratio and acid-test ratios are both greater than 1. If obsolete inventory is written off, this would
A. increase net working capital.
B. decrease the current ratio.
C. increase the acid-test ratio.
D. decrease the acid-test 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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
Larkins Company's dividend payout ratio for Year 2 was closest to:
A. 24.6%
B. 40.6%
C. 14.8%
D. 42.9%
- Ignore income taxes in this problem.) Purvell Company has just acquired a new machine. Data on the machine follow:
Purchase cost$50,000
Annual cost savings$15,000
Life of the machine8 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. 12.5%.
B. 17.5%.
C. 18.75%.
D. 30.0%.
- The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam.
Sales (6,500 Tams at $130 each)$845,000
Variable cost of sales390,000
Variable distribution costs65,000
Fixed advertising expense275,000
Salary of product line manager25,000
Fixed manufacturing overhead145,000
Net operating loss$(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. $55,000 decrease.
B. $90,000 decrease.
C. $70,000 increase.
D. $65,000 decrease.
-
Brittman Corporation makes three products that use the current constraint-a particular type of machine. Data concerning those products appear below:
IPNIYD
Selling price per unit$183.57$207.74$348.15
Variable cost per unit$144.42$155.04$269.50
Minutes on the constraint2.903.405.50
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. $39.15 per unit
B. $13.50 per minute
C. $78.65 per unit
D. $15.50 per minute
-
Which of the following would be considered a "use" of cash for the purpose of constructing a statement of cash flows?
A. Issuing long-term debt
B. Amortizing a patent
C. Purchasing equipment
D. Selling the company's own common stock to investors
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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
Larkins Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 2.1%.
B. 5.0%.
C. 4.1%.
D. 4.6%.
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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
Larkins Company's return on common stockholders' equity for Year 2 was closest to:
A. 25.9%.
B. 24.4%.
C. 26.9%.
D. 23.5%.
-
The net present value method assumes that the project's cash flows are reinvested at the
A. simple rate of return.
B. discount rate used in the net present value calculation.
C. internal rate of return.
D. payback rate of return.
- VIM Company purchased $100,000 in inventory from its suppliers on credit terms. The company's acid-test ratio would most likely
A. be unchanged.
B. be impossible to determine without more information.
C. increase.
D. decrease.
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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
Larkins Company's price-earnings ratio on December 31, Year 2 was closest to:
A. 6.00
B. 8.91
C. 8.57
D. 20.79
Use the following information to answer this question.
The most recent balance sheet and income statement of Teramoto Corporation appear below:
Comparative Balance SheetEnding
Balance Beginning
Balance
Assets:
Cash and cash equivalents
Accounts receivable
Inventory
Plant and equipment
Less accumulated depreciation
Total assets
$43
53
73
582
301
$450
$35
59
69
490
286
$367
Liabilities and stockholders' equity
Accounts payable
Wages payable
Taxes payable
Bonds payable
Deferred taxes
Common stock
Retained earnings
Total liabilities and stockholders' equity
$57
21
15
21
20
55
261
$450
$48
18
13
20
21
50
197
$367
Income Statement
Sales
Cost of good sold
Gross margin
Selling and administrative expense
Net operating income
Income taxes
Net income
$893
587
306
189
117
35
$82
-
The net cash provided by (used by) operations for the year was
A. $30.
B. $117.
C. $112.
D. $52.
Use the following information to answer this question.
The most recent balance sheet and income statement of Teramoto Corporation appear below:
Comparative Balance SheetEnding
Balance Beginning
Balance
Assets:
Cash and cash equivalents
Accounts receivable
Inventory
Plant and equipment
Less accumulated depreciation
Total assets
$43
53
73
582
301
$450
$35
59
69
490
286
$367
Liabilities and stockholders' equity
Accounts payable
Wages payable
Taxes payable
Bonds payable
Deferred taxes
Common stock
Retained earnings
Total liabilities and stockholders' equity
$57
21
15
21
20
55
261
$450
$48
18
13
20
21
50
197
$367
Income Statement
Sales
Cost of good sold
Gross margin
Selling and administrative expense
Net operating income
Income taxes
Net income
$893
587
306
189
117
35
$82
-
The net cash provided by (used by) investing activities for the year was
A. ($77).
B. ($92).
C. $92.
D. $77.
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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
An increase in the market price of a company's common stock will immediately affect its
A. dividend payout ratio.
B. dividend yield ratio.
C. debt-to-equity ratio.
D. earnings per share of common stock.
- Part N19 is used by Malouf Corporation to make one of its products. A total of 7,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity:
Per Unit
Direct materials$2.20
Direct labor$8.50
Variable manufacturing overhead$1.30
Supervisors salary$5.80
Depreciation of special equipment$7.20
Allocated general overhead$4.60
An outside supplier has offered to make the part and sell it to the company for $24.50 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part N19 could be used to make more of one of the company's other products, generating an additional segment margin of $25,000 per year for that product. What would be the impact on the company's overall net operating income of buying part N19 from the outside supplier?
A. Net operating income would decline by $60,700 per year.
B. Net operating income would decline by $21,900 per year.
C. Net operating income would decline by $10,700 per year.
D. Net operating income would increase by $25,000 per year.
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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
Larkins Company's book value per share at the end of Year 2 was closest to:
A. $23.33.
B. $10.00.
C. $76.67.
D. $70.00.
-
Degner Inc. has some material that originally cost $19,500. The material has a scrap value of $13,300 as 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. $11,900
B. -$7,600
C. -$1,400
D. -$20,900
Use the following information to answer this question.
The most recent balance sheet and income statement of Teramoto Corporation appear below:
Comparative Balance SheetEnding
Balance Beginning
Balance
Assets:
Cash and cash equivalents
Accounts receivable
Inventory
Plant and equipment
Less accumulated depreciation
Total assets
$43
53
73
582
301
$450
$35
59
69
490
286
$367
Liabilities and stockholders' equity
Accounts payable
Wages payable
Taxes payable
Bonds payable
Deferred taxes
Common stock
Retained earnings
Total liabilities and stockholders' equity
$57
21
15
21
20
55
261
$450
$48
18
13
20
21
50
197
$367
Income Statement
Sales
Cost of good sold
Gross margin
Selling and administrative expense
Net operating income
Income taxes
Net income
$893
587
306
189
117
35
$82
-
The net cash provided by (used by) financing activities for the year was
A. $1.
B. ($18).
C. $5.
D. ($12).
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
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets$2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income$2,760
1,930
830
330
500
50
450
135
$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.
-
Larkins Company's return on total assets for Year 2 was closest to:
A. 13.6%.
B. 15.3%.
C. 17.0%.
D. 16.0%.
-
Fonics Corporation is considering the following three competing investment proposals:
AyeBeeCee
Initial investment required$62,000$74,000$95,000
Net present value$10,000$8,000$12,000
Internal rate of return15%17%18%
Using the project profitability index, how would the above investments be ranked (highest to lowest)?
A. Bee, Cee, Aye
B. Aye, Cee, Bee
C. Aye, Bee, Cee
D. Cee, Bee, Aye
- Kava Inc. manufactures industrial components. One of its products, which is used in the construction of 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. $59
B. $78
C. $180
D. $38
-
Which of the following would be classified as a financing activity on the statement of cash flows?
A. Dividends received on investments in another company's common stock
B. Interest received on investments in another company's bonds
C. Interest paid on bonds issued by the reporting company
D. Dividends paid to shareholders of the company on the company's common stock
