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Multiple Choice

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  1. VISIT THE BELOW LINK TO GET THE ANSWERS
  2.  
  3. http://www.thegreattutorials.com/1_194_Multiple-Choice.html
  4.  
  5. Question 1
  6. In a periodic inventory system, the ending inventory and cost of goods sold must be determined by:
  7. A. external auditors.
  8. B. physical count.
  9. C. a certification of inventory.
  10. D. reference to a running inventory balance.
  11.  
  12. Question 2
  13. The use of perpetual inventory systems is preferred where a:
  14. A. large number of expensive inventory units exist.
  15. B. small number of expensive inventory units exist.
  16. C. large number of inexpensive inventory units exist.
  17. D. small number of inexpensive inventory units exist.
  18.  
  19. Question 3
  20. A perpetual inventory system:
  21. A. usually maintains inventory records only in terms of physical units on hand.
  22. B. uses a purchases account to record additions to inventory.
  23. C. eliminates the need to periodically take a physical inventory count.
  24. D. keeps a running record of the amount of inventory on hand.
  25.  
  26. Question 4
  27. Goods held on consignment are included in the inventory of:
  28. A. the consignor.
  29. B. the consignee.
  30. C. both the consignor and the consignee.
  31. D. neither the consignor nor the consignee.
  32.  
  33. Question 5
  34. Examples of variable costs include all of the following EXCEPT:
  35. A. raw materials costs.
  36. B. the plant manager's salary.
  37. C. direct labor costs.
  38. D. electricity used in running production machinery.
  39.  
  40. Question 6
  41. Financial analysts recognize that the deficiency of the FIFO cost flow assumption is the failure to:
  42. A. match current costs with current revenues.
  43. B. match current costs with oldest revenues.
  44. C. match oldest costs with current revenues.
  45. D. match oldest costs with oldest revenues.
  46.  
  47. Question 7
  48. LIFO reserve disclosure is required because LIFO inventory costs are:
  49. A. higher than FIFO inventory costs.
  50. B. lower than FIFO inventory costs.
  51. C. equal to FIFO inventory costs.
  52. D. usually of no consequence.
  53.  
  54. Question 8
  55. The conversion of a LIFO inventory to approximate the inventory at FIFO is accomplished through application of which one of the following formulas?
  56. A. FIFO inventory = LIFO inventory x LIFO reserve
  57. B. FIFO inventory = LIFO inventory ÷ LIFO reserve
  58. C. FIFO inventory = LIFO inventory - LIFO reserve
  59. D. FIFO inventory = LIFO inventory + LIFO reserve
  60.  
  61. Question 9
  62. As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO layers are matched against current sales dollars resulting in a profit margin that is:
  63. A. inflated.
  64. B. deflated.
  65. C. lower than normal.
  66. D. always the same as under FIFO.
  67.  
  68. Question 10
  69. Inventory turnover distortion under LIFO inventory costing may be adjusted by:
  70. A. adding the LIFO reserve amounts to cost of goods sold and adjusting beginning and ending inventory for LIFO liquidation profits whenever LIFO dipping occurs.
  71. B. subtracting the LIFO reserve amounts from cost of goods sold and adjusting beginning and ending inventory for LIFO liquidation profits whenever LIFO dipping occurs.
  72. C. adding the LIFO reserve amounts to beginning and ending inventory and adjusting cost of goods sold for LIFO liquidation profits whenever LIFO dipping occurs.
  73. D. subtracting the LIFO reserve amounts from beginning and ending inventory and adjusting cost of goods sold for LIFO liquidation profits whenever LIFO dipping occurs.
  74.  
  75. Question 11
  76. The LIFO conformity rule states that:
  77. A. if LIFO is used for tax purposes, the external financial statements must also use LIFO.
  78. B. if FIFO is used for tax purposes, the external financial statements must also use FIFO.
  79. C. if LIFO is used for tax purposes, the external financial statements must also use FIFO.
  80. D. if FIFO is used for tax purposes, the external financial statements must also use LIFO.
  81.  
  82. Question 12
  83. Analysts must be aware that with the use of absorption costing, as inventory absorbs more fixed costs, reported income tends to:
  84. A. become highly volatile.
  85. B. decrease.
  86. C. increase.
  87. D. remain the same.
  88.  
  89. Question 13
  90. Table 5-3
  91. Amanda Company had the following inventory transactions in August.
  92. Purchases Sales Balance
  93. Aug. 1 Balance 200 @ $3.20
  94. Aug. 2 150 @ $5.50
  95. Aug. 4 550 @ $3.10
  96. Aug. 5 400 @ 5.50
  97. Aug. 7 300 @ 3.30
  98. Aug. 8 250 @ 5.50
  99. Aug. 12 100 @ 6.00
  100. Aug. 13 450 @ 3.40
  101. Aug. 20 300 @ 6.00
  102. Aug. 21 125 @ 3.50
  103. Aug. 29 100 @ 6.00
  104. Refer to Table 5-3. If Amanda uses a periodic inventory system, the LIFO basis ending inventory is:
  105. A. $1,027.50.
  106. B. $1,040.00.
  107. C. $1,072.50.
  108. D. $1,117.50.
  109.  
  110. Question 14
  111. Refer to Table 5-3. If Amanda uses a perpetual inventory system, the LIFO basis ending inventory is:
  112. A. $1,027.50.
  113. B. $1,040.00.
  114. C. $1,067.50.
  115. D. $1,117.50.
  116.  
  117. Question 15
  118. Refer to Table 5-3. If Amanda uses a perpetual inventory system, the FIFO basis ending inventory is:
  119. A. $1,027.50.
  120. B. $1,040.00.
  121. C. $1,117.50.
  122. D. $1,137.50.
  123.  
  124. Question 16
  125. The ABC Company reported merchandise inventory at LIFO of $450,000 on the year-end financial statements. The company also reported a LIFO Reserve of $45,000. An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is:
  126. A. $360,000.
  127. B. $405,000.
  128. C. $455,000.
  129. D. $495,000.
  130.  
  131. Question 17
  132. The Sea King Corporation reported a LIFO Reserve of $50,000 at the end of the year. The beginning of the year LIFO Reserve was $40,000. The Cost of Goods Sold was $395,000 under LIFO. The Cost of Goods Sold under FIFO should be:
  133. A. $375,000.
  134. B. $385,000.
  135. C. $445,000.
  136. D. $485,000.
  137.  
  138. Question 18
  139. As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO layers are matched against current sales dollars resulting in a profit margin that is:
  140. A. always the same as under FIFO.
  141. B. deflated.
  142. C. inflated.
  143. D. lower than normal.
  144.  
  145.  
  146. Question 19
  147. WAM, Inc. uses the lower of cost or market method to determine inventory value. The following information relates to Product W at the end of the year: cost $26; replacement cost $20; selling price $30; cost of completion $2; and normal profit $7. Based upon this information, the lower of cost or market for Product W is:
  148. A. $20.
  149. B. $21.
  150. C. $23.
  151. D. $26.
  152.  
  153. Question 20
  154. Table 5-4
  155. Dollar Value LIFO Inventory Data:
  156. Year Year End Price Price Index
  157. 1 $200,000 100
  158. 2 250,000 105
  159. 3 296,000 108
  160. 4 286,000 110
  161. Refer to Table 5-4. The inventory under dollar value LIFO at the end of Year 3 is __________ and at the end of Year 4 is __________.
  162. A. $274,075; $238,096
  163. B. $276,800; $240,000
  164. C. $278,856; $263,657
  165. D. $300,000; $286,000
  166.  
  167. **********************************************************************
  168.  
  169. Expert Answers
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  171.  
  172.  
  173. Teller Co. sold 20,900 units of its only product and incurred a $71,860 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2012’s activities, the production manager notes that variable costs can be reduced 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $159,000. The maximum output capacity of the company is 40,000 units per year.
  174.  
  175. TELLER COMPANY
  176. Contribution Margin Income Statement
  177. For Year Ended December 31, 2011
  178. Sales 802560
  179. Variable Cost 601920
  180. Contribution Margin 200640
  181. Fixed Costs 272500
  182. Net Loss (71860)
  183.  
  184. Prepare a fore casted contribution margin income statement for 2012 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold (20,900 units) will not change, and no income taxes will be due
  185. Compute the sales level required in both dollars and units to earn $203,000 of after-tax income in 2012 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%.
  186. Sales level required in dollars $1311819
  187. Sales level required in units 34162 units
  188.  
  189. Prepare a fore casted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 30%. (Use the units in your answer from Part 4 in your calculation of Sales and Variable Cost. Your Net Income might be higher than required amount due to rounding. Input all amounts as positive values. Round your "Sales level required in units" to nearest whole number. Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number. Omit the "quot; sign in your response.)
  190.  
  191. **************************************************************
  192.  
  193. Suntron Company.
  194. CLICK HERE TO DOWNLOAD THIS TUTORIAL INSTANTLY $7.99  Only
  195.  
  196. (Components of internal control) The chapter identified five components of internal control.
  197. Listed below are specific control policies and procedures prescribed by Suntron Company.
  198.  
  199. 1. Management gives careful consideration to the requisite knowledge and skills personnel
  200. need at all levels of the organization.
  201.  
  202. 2. General controls and application controls are established in the electronic data processing
  203. department.
  204.  
  205. 3. Management acts to reduce or eliminate incentives and temptations that might lead
  206. individuals to engage in dishonest or illegal acts.
  207.  
  208. 4. Management is alert to complaints received from customers about billing errors.
  209.  
  210. 5. Management gives special consideration to the risks that can arise from the use of information
  211. technology in the accounting system.
  212.  
  213. 6. Employees’ responsibilities are assigned so as to avoid any individual’s being in a position
  214. to both commit an error or irregularity and then conceal it.
  215.  
  216. 7. IT management has designed controls to prevent unauthorized use of IT equipment,
  217. data files, and computer programs.
  218.  
  219. 8. The processing of payroll includes a check on the total number of hours submitted. If more than 65 hours are reported in a weekly pay period, the transaction is printed on
  220. an exception report and put in a suspense file for additional review or additional
  221. authorization.
  222.  
  223. 9. Suntron’s internal audit staff periodically assesses the effectiveness of various ICS
  224. components.
  225.  
  226. 10. Policy manuals, accounting and financial reporting manuals, and a chart of accounts
  227. have been developed and implemented.
  228. Required
  229. a. Identify the components of internal control to which each policy or procedure relates.
  230. b. For each item, identify one other policy or procedure for that internal control component
  231. that is not on the preceding list.
  232.  
  233. 11-21 (Assessing control risk) An auditor is required to obtain a sufficient understanding of each
  234. of the components of an entity’s system of internal control to plan the audit of the entity’s
  235. financial statements and to assess control risk for the assertions embodied in the account
  236. balance, transaction class, and disclosure components of the financial statements.
  237. Required
  238. a. Explain the reasons an auditor may assess control risk at the maximum level for one or
  239. more assertions embodied in an account balance.
  240. b. What must an auditor do to support assessing control risk at less than the maximum
  241. level when the auditor has determined that controls have been placed in operation?
  242. c. What should an auditor consider when seeking a further reduction in the planned
  243. assessed level of control risk?
  244. d. What are an auditor’s documentation requirements concerning an entity’s system of
  245.  
  246. internal control and the assessed level of control risk?
  247.  
  248. **************************************************************
  249.  
  250. Seven Situations
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  252.  
  253. The limitations of the CPA’s professional responsibilities when he or she is associated with unaudited financial statements are often misunderstood. These misunderstandings can be substantially reduced by carefully following professional pronouncements in the course of the work and taking other appropriate measures.
  254. Required
  255. The following list describes seven situations the CPA may encounter or contentions he or she may have to deal with in the association with and preparation of unaudited financial statements. Briefly discuss the extent of the CPA’s responsibilities and, if appropriate, the actions that should be taken to minimize any misunderstandings. Number your answers to correspond with the numbering in the following list.
  256.  
  257. 1. The CPA was engaged by telephone to perform write-up work including the preparation of financial statements. The client believes that the CPA has been engaged to audit the financial statements.
  258.  
  259. 2. A group of businessmen who own a farm that is managed by an independent agent engage a CPA to prepare quarterly unaudited financial statements for them. The CPA prepares the financial statements from information given by the independent agent. Subsequently, the businessmen find the statements were inaccurate because their independent agent was embezzling funds. The businessmen refuse to pay the CPA’s fee and blame the CPA for allowing the situation to go undetected, contending that the CPA should not have relied on representations from the independent agent
  260.  
  261. 3. In comparing the trial balance with the general ledger, the CPA finds an account labeled “audit fees” in which the client has accumulated the CPA’s quarterly billings for accounting services, including the preparation of quarterly unaudited financial statements.
  262.  
  263. 4. Unaudited financial statements were accompanied by the following letter of transmittal from the CPA: We are enclosing your company’s balance sheet as of June 30, 20X0, and the related statements of income and retained earnings and cash flows for the six months then ended that we have reviewed
  264.  
  265. 5. TO determine appropriate account classification, the CPA reviewed a number of the clients invoices. The CPA noted in the working papers that some invoices were missing but did nothing further because the CPA felt they did not affect the un audited financial statements he or she was preparing. When the client subsequently discovered that invoices were missing, the client contended that the CPA should not have ignored the missing invoices when preparing the financial statements and had a responsibility to at least inform the client that they were missing.
  266.  
  267. 6. The CPA has prepared a draft of unaudited financial statements prepared by the client’s records. While reviewing this draft the client, the CPA learns that the land and building were recorded at appraisal value.
  268.  
  269. 7. The CPA is engaged to review, but not audit, the financial statements prepared by the client’s controller. During this review, the CPA learns of several items that by Generally Accepted Accounting Principles would require adjustment of the statements and footnote disclosures. The controller agrees to make the recommended adjustments to the statements but says that he or she is not going to add the footnotes because the statements are unaudited
  270.  
  271. **************************************************************
  272.  
  273. VLSM Spreadsheet
  274. CLICK HERE TO DOWNLOAD THIS TUTORIAL INSTANTLY $10.50  Only
  275.  
  276. You have just been promoted to a new position as the Senior Network Engineer of your company and are anxious to make a good impression on your superiors. For this assignment, you are asked to design a plan to increase the network addressing in several departments due to a major expansion. There will be a requirement for additional employees in every department and you will need to increase the IP addressing in Department A by 65 additional addresses, Department B by 30 additional addresses, Department C by 15 additional addresses, and Department D by 5 additional addresses. You have a Class C address of 192.168.75.0 and are currently supporting 30 users in Department A, 27 users in Department B, 11 users in Department C, and 9 users in Department D. Each department is supported by one or more switches and connects to a router. This change will need to be in four routers: one supporting Department A, one supporting Department B, one supporting Department C, and one supporting Department D. Sub nets need to be created to connect Router A to Router B, Router B to Router C, and Router C to Router D.
  277. Current Departments
  278. Current sub net mask
  279. Additional users
  280. Department A 30 users
  281. 255.255.255.224 or /27
  282. 65
  283. Department B 27 users
  284. 255.255.255.224 or /27
  285. 30
  286. Department C 11 users
  287. 255.255.255.224 or /27
  288. 15
  289.  
  290. **************************************************************
  291.  
  292. Multiple Choice Answers
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  294.  
  295.  
  296. 1.The Silver Company uses a predetermined overhead rate in applying overhead to production orders on a labor cost basis in Department A and on a machine hours basis in Department B. At the beginning of the year, the company made the following estimates:
  297. Dept. A Dept B.
  298. direct labor cost $60,000 $40,000
  299. factory over head $90,000 $45,000
  300. direct labor hours 6,000 9,000
  301. machine hours 2,000 15,000
  302. What predetermined overhead rate would be used in Department A and Department B respectively?
  303. 150% and 300%.
  304. 150% and $3.00.
  305. $1.50 and 300%.
  306. $1.50 and $3.00
  307.  
  308.  
  309. 2.Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead? (Do not round your intermediate calculations.)
  310. $21,520 underapplied
  311. $13,600 underapplied
  312. $7,920 overapplied
  313. $0
  314.  
  315.  
  316. 3.The predetermined overhead rate for manufacturing overhead for 2008 is $4.00 per direct labor hour. Employees are expected to earn $5.00 per hour and the company is planning on paying its employees $100,000 during the year. However, only 75% of the employees are classified as "direct labor." What was the estimated manufacturing overhead for 2008?
  317.  
  318.  
  319. 4.Given the following information, compute the total number of units for the period.
  320. direct labor hours 12,000
  321. direct labor cost $2.70 per hour
  322. direct materials cost $75 per unit
  323. total manufacturing cost $132,600
  324. fixed overhead cost $36,000
  325. variable overhead cost 50% of total labor cost
  326. A. 360
  327. B. 432
  328. C. 640
  329. D. 840
  330.  
  331.  
  332. 5.The WISCO company uses a weighted-average process costing system. The following data are available"
  333. Beginning inventory 0
  334. units started in production 20,000
  335. units finished during the period 16,000
  336. units in process at the end of the period
  337. (complete as to materials, 1/4 complete as to labor and overhead) 4,000
  338. cost of materials used $35,200
  339. labor and overhead cost $37,400
  340. Equivalent units of production for material are
  341. 16,000.
  342. 17,000.
  343. 19,000.
  344. 20,000.
  345.  
  346.  
  347. 6.Equivalent units of production for labor and overhead are
  348. 16,000.
  349. 17,000.
  350. 19,000.
  351. 20,000
  352.  
  353.  
  354. 7.Unit cost of material is
  355. $2.20.
  356. $2.07.
  357. $1.85.
  358. $1.76.
  359.  
  360.  
  361. 8.Unit cost of labor and overhead is
  362. $2.34.
  363. $2.20.
  364. $1.97.
  365. $1.87.
  366.  
  367.  
  368. 9.Total cost of the 16,000 units finished is (Do not round any intermediate calculations.)
  369. $63,360.
  370. $67,320.
  371. $72,640.
  372. $65,120.
  373.  
  374.  
  375. 10.Total cost of the 4,000 units of the ending inventory (Do not round any intermediate calculations.)
  376. $15,840.
  377. $14,520.
  378. $9,240.
  379. $8,910.
  380.  
  381.  
  382. 11.The Finishing Department had 5,000 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 30% complete as to conversion costs. 15,000 units were received from the previous department. The ending Work-in-Process Inventory consisted of 2,000 units which were 50% complete as to materials and 30% complete as to conversion costs. The Finishing Department uses first-in, first-out (FIFO) process costing
  383. How many units were transferred-out during the period?
  384. 12,000
  385. 13,000
  386. 18,000
  387. 20,000
  388.  
  389.  
  390. 12.The How many units were started and completed during the period?
  391. 12,000
  392. 13,000
  393. 18,000
  394. 20,000
  395.  
  396.  
  397. 13.What are the equivalent units of production for materials during the period?
  398. 12,000
  399. 13,000
  400. 14,000
  401. 15,000
  402.  
  403.  
  404. 14.What are the equivalent units of production for the conversion costs during the period?
  405. 14,500
  406. 15,100
  407. 16,500
  408. 17,100
  409.  
  410. **************************************************************
  411.  
  412. Multiple Choice Answers
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  414.  
  415. 1. Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.  
  416. True
  417. False
  418.  
  419. 2. A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:
  420. $9,000.
  421. $5,033.
  422. $63,000.
  423. $57,330.
  424. $45,297.
  425.  
  426. 3. A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.  
  427. True
  428. False
  429.  
  430. 4. A company had net income of $2,660,000, net sales of $25,000,000, and average total assets of $8,000,000. Its return on total assets equals:  
  431. 3.01%.
  432. 10.64%.
  433. 32.00%.
  434. 33.25%.
  435. 300.75%.
  436.  
  437. 5. A bond traded at 102½ means that:  
  438. The bond pays 2.5% interest.
  439. The bond traded at $1,025 per $1,000 bond.
  440. The market rate of interest is 2.5%.
  441. The bonds were retired at $1,025 each.
  442. The market rate of interest is 2 ½ % above the contract rate.
  443.  
  444. 6. Consolidated financial statements:  
  445. Show the results of operations, cash flows, and the financial position of all entities under a parent's control.
  446. Show the results of operations, cash flows, and the financial position of the parent only.
  447. Show the results of operations, cash flows, and the financial position of the subsidiary only.
  448. Include the investments account on the balance sheet.
  449. Do not include a balance sheet.
  450.  
  451. 7. A basic present value concept is that cash paid or received in the future is worth less than the same amount of cash today.  
  452. True
  453. False
  454.  
  455. 8. The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties, is called a(n):  
  456. Debenture.
  457. Bond indenture.
  458. Mortgage.
  459. Installment note.
  460. Mortgage contract.
  461.  
  462. 9. The present value of an annuity can be best or easier computed as the sum of the individual future values for each payment.  
  463. True
  464. False
  465.  
  466. 10. The debt-to-equity ratio:  
  467. Is calculated by dividing book value of secured liabilities by book value of pledged assets.
  468. Is a means of assessing the risk of a company's financing structure.
  469. Is not relevant to secured creditors.
  470. Can always be calculated from information provided in a company's income statement.
  471. Must be calculated from the market values of assets and liabilities.
  472.  
  473. 11. An investor purchased $50,000 of bonds and holds them to maturity. The investor's journal entry to record the proceeds should include a debit to Cash for $50,000 and a credit to Long-Term Investments for $50,000.  
  474. True
  475. False
  476.  
  477. 12. Callable bonds have an option exercise able by the issuer to retire them at a stated dollar amount prior to maturity.  
  478. True
  479. False
  480.  
  481. 13. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is.  
  482. $60,000.
  483. $33,750.
  484. $67,500.
  485. $30,000.
  486. $375,000.
  487.  
  488. 14. A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137.13. The present value of the note is:  
  489. $75,137.13.
  490. $94,013.13.
  491. $300,000.00.
  492. $375,137.13.
  493. $197,810.00.
  494.  
  495. 15. If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that 3 Canadian dollars will buy ____ worth of U.S. dollars.  
  496. $0.2759
  497. $0.82777
  498. $1.82777
  499. $2.48
  500. None of these.
  501.  
  502. 16. Debt securities:  
  503. Can be short-term investments.
  504. Can be long-term investments.
  505. Can have a cost higher than the maturity value of the debt security.
  506. Can have a cost lower than the maturity value of the debt security.
  507. All of these.
  508.  
  509. 17. On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. Prepare the journal entry to record the first interest payment.
  510.      
  511. 18. A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds pay 6% interest semiannually on September 1 and March 1. The company intends to hold the bonds until they mature. Prepare the journal entries for the following dates and transactions related to this bond acquisition.
  512. (1)Bonds purchased on September 1.
  513. (2) Year-end adjusting entry, December 31.
  514. (3) Receipt of semiannual interest March 1.
  515. (4) Redemption of the bonds at maturity on August 31.
  516.  
  517. **************************************************************
  518.  
  519. Multiple Choice Answers
  520. CLICK HERE TO DOWNLOAD THIS TUTORIAL INSTANTLY $12.99 Only
  521.  
  522.  The value of geometric mean return calculation, compared to an arithmetic mean, is that it computes;
  523. Compound cumulative returns
  524. Returns over several years
  525. Inflation adjusted returns
  526. Better average single period returns
  527.  
  528.  
  529. To determine real returns on a portfolio, as compared to nominal returns, investors typically take _____________into consideration
  530. Purchasing power parity
  531. Household income
  532. The consumer prices index
  533. Currency valuations
  534.  
  535.  
  536. Which of the following is a value that can never be valid correlation coefficient


-0.8

0.0

1.0

1.4
  537. In a portfolio containing 2 stocks with perfect inverse correlations, the standard deviation of returns will always be
  538. Zero
  539. Small
  540. Large
  541. Uncertain
  542.  
  543.  
  544. In the case of a portfolio with two securities, the factors that determine total portfolio risk are the variance of each security, the covariance between the securities and the _______for each security
  545. Standard deviation
  546. Dispersion
  547. Geometric mean
  548. Portfolio weights
  549.  
  550.  
  551. Which of the following statements regarding the correlation coefficient is NOT true?
  552. It is a statistical measure
  553. It measures the relationship between two securities returns
  554. It determines the causes of relationships between 2 securities returns
  555. All the above are true
  556.  
  557.  
  558. Which of the following is TRUE regarding the expected return of a portfolio
  559. It is weighted average only for stocks portfolios
  560. It can only be positive
  561. It can never be above the highest individual return
  562. All the above are true
  563.  
  564.  
  565. While bond investor may focus primarily on coupon interest received, the total return on bond held to maturity may also depend on:
  566. Changes in interest rates
  567. Capital gain or loss
  568. Adjustments to par value
  569. Dividends payments
  570.  
  571.  
  572. While all securities are expose to market risk to a certain extent, it primarily affects;
  573. Common stocks
  574. Corporate bonds
  575. Treasury securities
  576. International investments
  577.  
  578.  
  579. Assume you just purchased a bond for $950. The bond has a face value of $1000 matures in one year and has a 5% coupon. Your total return on this investment at maturity, assuming no default on payments, will be.


5.0%

9.3%

10.5%

12.2%



  580. It is necessary to calculate a return relative for an investment when the investor desires to take the further step of determining a/an:
  581. Inflation adjusted return
  582. Arithmetic mean
  583. Cumulative wealth index
  584. Discounted cash flow
  585.  
  586.  
  587. A U.S. investor who chooses to buy stock of a foreign company denominated in the local currency is in effect.
  588. Reducing exchange rate risk
  589. Hedging a portfolio
  590. Buying dollars
  591. Selling dollars
  592.  
  593.  
  594. Calculate the arithmetic mean given the following total return values;

4.0%, 8.3%, 12.6%, -5.2%, and 2.9%
  595. 3.61%
  596. 4.35%
  597. 4.52%
  598. 5.23%
  599.  
  600.  
  601. A standard deviation is commonly employed to understand risk of investments. The arithmetic tool is particularly useful because it measures
  602. Dispersion
  603. Weighting
  604. Mean values
  605. Concentricity
  606.  
  607.  
  608. The equity premium is an important concept in finance, but is often misunderstood. And important source of controversy in this regard is the difference between ______ and _____________ risk premium
  609. Historical; expected
  610. Realized; guaranteed
  611. Calculated; estimated
  612. Variable; fixed
  613.  
  614.  
  615. When an investor looks at a cumulative wealth index, the value change over time is substantially influenced by the effects of:
  616. Indexing
  617. Inflating
  618. Discounting
  619. Compounding
  620.  
  621.  
  622. Mary is evaluating the risk (return deviation) of a model stock portfolio she has constructed. She knows that an ex ante set of returns is a more useful approach. However she first to decides to examine ex post returns because she knows that for a well-diversified portfolio, they are likely to be:
  623. Within one standard deviation
  624. Reasonably steady across time
  625. Cumulatively accurate
  626. More indicative of future results
  627.  
  628.  
  629. Regardless of the number of assets held in a portfolio or the proportion of total funds placed in each asset, the expected return on the portfolio is always a/an ______ of the expected returns for the individual assets in the portfolio.
  630. Arithmetic mean
  631. Geometric mean
  632. Weighted average
  633. Combine aggregate
  634.  
  635.  
  636. Modern portfolio theory is similar to principles used in the insurance business in that its risks reduction properties are founded on the:
  637. Rule of diminishing returns
  638. Theory in increasing utility
  639. Law of large numbers
  640. Principles of cause and effect
  641.  
  642.  
  643. A central tenet of portfolio theory is that diversification can greatly reduce a portfolio’s ______risk
  644. Systematic
  645. Company specific
  646. Interest rate
  647. Market









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