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ACC 304 Week 9 Quiz – Strayer NEW

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  Week 9 Quiz 5: Chapter 13,

Quiz 6: Chapter 14

  CURRENT LIABILITIES AND CONTINGENCIES

 IFRS questions are available at the end of this chapter.

  TRUE-FALSE—Conceptual

     1.  A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

     2.  Dividends in arrears on cumulative preferred stock should be recorded as a current liability.

     3.  Magazine subscriptions and airline ticket sales both result in unearned revenues.

     4.  Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

     5.  All long-term debt maturing within the next year must be classified as a current liability on the balance sheet.

     6.  A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis.

     7.  Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.

     8.  A company must accrue a liability for sick pay that accumulates but does not vest.

     9.  Companies report the amount of social security taxes withheld from employees as well as the companies’ matching portion as current liabilities until they are remitted.

   10.  Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.

   11.  Companies should recognize the expense and related liability for compensated absences in the year earned by employees.

   12.  Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is probable that a liability has been incurred.

   13.  A company discloses gain contingencies in the notes only when a high probability exists for realizing them.

   14.  The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

   15.  The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.

   16.  The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.

   17.  Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty.

   18.  Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio.

   19. Paying a current liability with cash will always reduce the current ratio.

   20.  Current liabilities are usually recorded and reported in financial statements at their full maturity value.

   True False Answers—Conceptual

     MULTIPLE CHOICE—Conceptual

   21.     Liabilities are

a.   any accounts having credit balances after closing entries are made.

b.   deferred credits that are recognized and measured in conformity with generally accepted accounting principles.

c.   obligations to transfer ownership shares to other entities in the future.

d.   obligations arising from past transactions and payable in assets or services in the future.

   22.     Which of the following is a current liability?

a.   A long-term debt maturing currently, which is to be paid with cash in a sinking fund

b.   A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue

c.   A long-term debt maturing currently, which is to be converted into common stock

d.   None of these

   23.     Which of the following is true about accounts payable?

1.   Accounts payable should not be reported at their present value.

2.   When accounts payable are recorded at the net amount, a Purchase Discounts account will be used.

3.   When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used.

a.   1

b.   2

c.   3

d.   Both 2 and 3 are true.

   24.     Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Madison National Bank.  These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Lance Company as

a.   current liabilities.

b.   deferred charges.

c.   long-term liabilities.

d.   intermediate debt.

   25.     Which of the following is not true about the discount on short-term notes payable?

a.   The Discount on Notes Payable account has a debit balance.

b.   The Discount on Notes Payable account should be reported as an asset on the balance sheet.

c.   When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate.

d.   All of these are true.

   26.     Which of the following may be a current liability?

a.   Withheld Income Taxes

b.   Deposits Received from Customers

c.   Deferred Revenue

d.   All of these

   27.     Which of the following items is a current liability?

a.   Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months.

b.   Bonds due in three years.

c.   Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.

d.   Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.

   28.     Which of the following should not be included in the current liabilities section of the balance sheet?

a.   Trade notes payable

b.   Short-term zero-interest-bearing notes payable

c.   The discount on short-term notes payable

d.   All of these are included

   29.     Which of the following is a current liability?

a.   Preferred dividends in arrears

b.   A dividend payable in the form of additional shares of stock

c.   A cash dividend payable to preferred stockholders

d.   All of these

   30.     Stock dividends distributable should be classified on the

a.   income statement as an expense.

b.   balance sheet as an asset.

c.   balance sheet as a liability.

d.   balance sheet as an item of stockholders' equity.

   31.     Of the following items, the only one which should not be classified as a current liability is

a.   current maturities of long-term debt.

b.   sales taxes payable.

c.   short-term obligations expected to be refinanced.

d.   unearned revenues.

   32.     An account which would be classified as a current liability is

a.   dividends payable in the company's stock.

b.   accounts payable—debit balances.

c.   losses expected to be incurred within the next twelve months in excess of the company's insurance coverage.

d.   none of these.

   33.     Which of the following is a characteristic of a current liability but not a long-term liability?

a.   Unavoidable obligation.

b.   Present obligation that entails settlement by probable future transfer or use of cash, goods, or services.

c.   Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

d.   Transaction or other event creating the liability has already occurred.

   34.     Which of the following is not considered a part of the definition of a liability?

a.   Unavoidable obligation.

b.   Transaction or other event creating the liability has already occurred.

c.   Present obligation that entails settlement by probable future transfer or use of cash, goods, or services.

d.   Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

   35.     Why is the liability section of the balance sheet of primary importance to bankers?

a.   To evaluate the entity's credit quality.

b.   To assist in understanding the entity's liquidity.

c.   To better understand sources of repayment.

d.   To evaluate operating efficiency.

   36.     What is the relationship between current liabilities and a company's operating cycle?

a.   Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less).

b.   Current liabilities are the result of operating transactions.

c.   Current liabilities can't exceed the amount incurred in one operating cycle.

d.   There is no relationship between the two.

   37.     What is the relationship between present value and the concept of a liability?

a.   Present values are used to measure certain liabilities.

b.   Present values are not used to measure liabilities.

c.   Present values are used to measure all liabilities.

d.   Present values are only used to measure long-term liabilities.

   38.     What is a discount as it relates to zero-interest-bearing notes payable?

a.   The discount represents the lender's costs to underwrite the note.

b.   The discount represents the credit quality of the borrower.

c.   The discount represents the cost of borrowing.

d.   The discount represents the allowance for uncollectible amounts.

   39.     Where is debt callable by the creditor reported on the debtor's financial statements?

a.   Long-term liability.

b.   Current liability if the creditor intends to call the debt within the year, otherwise a long-term liability.

c.   Current liability if it is probable that creditor will call the debt within the year, otherwise a long-term liability.

d.   Current liability.

   40.     Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

a.   Intend to refinance the obligation on a long-term basis.

b.   Obligation must be due with one year.

c.   Demonstrate the ability to complete the refinancing.

d.   Subsequently refinance the obligation on a long-term basis.

   41.     Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?

a.   Management indicated that they are going to refinance the obligation.

b.   Actually refinance the obligation.

c.   Have capacity under existing financing agreements that can be used to refinance the obligation.

d.   Enter into a financing agreement that clearly permits the entity to refinance the obligation.

   42.     A company has not declared a dividend on its cumulative preferred stock for the past three years. What is the required accounting treatment or disclosure in this situation?

a.   Record a liability for cumulative amount of preferred stock dividends not declared.

b.   Disclose the amount of the dividends in arrears.

c.   Record a liability for the current year's dividends only.

d.   No disclosure or recognition is required.

   43.     Which of the following situations may give rise to unearned revenue?

a.   Providing trade credit to customers.

b.   Selling inventory.

c.   Selling magazine subscriptions.

d.   Providing manufacturer warranties.

   44.     Which of the following statements is correct?

a.   A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis.

b.   A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to consummate a refinancing.

c.   A company may exclude a short-term obligation from current liabilities if it is paid off after the balance sheet date and subsequently replaced by long-term debt before the balance sheet is issued.

d.   None of these.

 45.     The ability to consummate the refinancing of a short-term obligation may be demon- strated by

a.   actually refinancing the obligation by issuing a long-term obligation after the date of the balance sheet but before it is issued.

b.   entering into a financing agreement that permits the enterprise to refinance the debt on a long-term basis.

c.   actually refinancing the obligation by issuing equity securities after the date of the balance sheet but before it is issued.

d.   all of these.

   46.     Which of the following statements is false?

a.   A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing.

b.   Cash dividends should be recorded as a liability when they are declared by the board of directors.

c.   Under the cash basis method, warranty costs are charged to expense as they are paid.

d.   FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

   47.     Which of the following is not a correct statement about sales taxes?

a.   Sales taxes are an expense of the seller.

b.   Many companies record sales taxes in the sales account.

c.   If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate.

d.   All of these are true.

  S48.     If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except

a.   a general description of the financing arrangement.

b.   the terms of the new obligation incurred or to be incurred.

c.   the terms of any equity security issued or to be issued.

d.   the number of financing institutions that refused to refinance the debt, if any.

  S49.     In accounting for compensated absences, the difference between vested rights and accumulated rights is

a.   vested rights are normally for a longer period of employment than are accumu­lated rights.

b.   vested rights are not contingent upon an employee's future service.

c.   vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose.

d.   vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.

  P50.     An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

a.   portion of FICA taxes and unemployment taxes.

b.   and employer's portion of FICA taxes, and unemployment taxes.

c.   portion of FICA taxes, unemployment taxes, and any voluntary deductions.

d.   portion of FICA taxes and any voluntary deductions.

 51.     Which of these is not included in an employer's payroll tax expense?

a.   F.I.C.A. (social security) taxes

b.   Federal unemployment taxes

c.   State unemployment taxes

d.   Federal income taxes

   52.     Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

a.   The obligation relates to the rights that vest or accumulate.

b.   Payment of the compensation is probable.

c.   The obligation is attributable to employee services already performed.

d.   All of these are conditions for the accrual.

   53.     A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should

a.   be accrued during the period when the compensated time is expected to be used by employees.

b.   be accrued during the period following vesting.

c.   be accrued during the period when earned.

d.   not be accrued unless a written contractual obligation exists.

   54.     The amount of the liability for compensated absences should be based on

1.   the current rates of pay in effect when employees earn the right to compensated absences.

2.   the future rates of pay expected to be paid when employees use compensated time.

3.   the present value of the amount expected to be paid in future periods.

a.   1.

b.   2.

c.   3.

d.   Either 1 or 2 is acceptable.

   55.     What are compensated absences?

a.   Unpaid time off.

b.   A form of healthcare.

c.   Payroll deductions.

d.   Paid time off.

   56.     Which gives rise to the requirement to accrue a liability for the cost of compensated absences?

a.   Payment is probable.

b.   Employee rights vest or accumulate.

c.   Amount can be reasonably estimated.

d.   All of the above.

   57.     Under what conditions is an employer required to accrue a liability for sick pay?

a.   Sick pay benefits can be reasonably estimated.

b.   Sick pay benefits vest.

c.   Sick pay benefits equal 100% of the pay.

d.   Sick pay benefits accumulate.

   58.     Which of the following taxes does not represent a common payroll deduction?

a.   Federal income taxes.

b.   FICA taxes.

c.   State unemployment taxes.

d.   State income taxes.

   59.     What is a contingency?

a.   An existing situation where certainty exists as to a gain or loss that will be resolved when one or more future events occur or fail to occur.

b.   An existing situation where uncertainty exists as to possible loss that will be resolved when one or more future events occur.

c.   An existing situation where uncertainty exists as to possible gain or loss that will not be resolved in the foreseeable future.

d.   An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

   60.     When is a contingent liability recorded?

a.   When the amount can be reasonably estimated.

b.   When the future events are probable to occur and the amount can be reasonably estimated.

c.   When the future events are probable to occur.

d.   When the future events will possibly occur and the amount can be reasonably estimated.

   61.     Which of the following is an example of a contingent liability?

a.   Obligations related to product warranties.

b.   Possible receipt from a litigation settlement.

c.   Pending court case with a probable favorable outcome.

d.   Tax loss carryforwards.

   62.     Which of the following terms is associated with recording a contingent liability?

a.   Possible.

b.   Likely.

c.   Remote.

d.   Probable.

   63.     Which of the following is the proper way to report a gain contingency?

a.   As an accrued amount.

b.   As deferred revenue.

c.   As an account receivable with additional disclosure explaining the nature of the contingency.

d.   As a disclosure only.

   64.     Which of the following contingencies need not be disclosed in the financial statements or the notes thereto?

a.   Probable losses not reasonably estimable

b.   Environmental liabilities that cannot be reasonably estimated

c.   Guarantees of indebtedness of others

d.   All of these must be disclosed.

   65.     Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

a.   Amount of loss is reasonably estimable and event occurs infrequently.

b.   Amount of loss is reasonably estimable and occurrence of event is probable.

c.   Event is unusual in nature and occurrence of event is probable.

d.   Event is unusual in nature and event occurs infrequently.

   66.     Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2012, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Beck had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Beck appears inclined to accept the Railroad's offer. The Railroad's 2012 financial statements should include the following related to the incident:

a.   recognition of a loss and creation of a liability for the value of the land.

b.   recognition of a loss only.

c.   creation of a liability only.

d.   disclosure in note form only.

   67.     A contingency can be accrued when

a.   it is certain that funds are available to settle the disputed amount.

b.   an asset may have been impaired.

c.   the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred.

d.   it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated.

   68.     A contingent liability

a.   definitely exists as a liability but its amount and due date are indeterminable.

b.   is accrued even though not reasonably estimated.

c.   is not disclosed in the financial statements.

d.   is the result of a loss contingency.

   69.     To record an asset retirement obligation (ARO), the cost associated with the ARO is

a.   expensed.

b.   included in the carrying amount of the related long-lived asset.

c.   included in a separate account.

d.   none of these.

   70.     A company is legally obligated for the costs associated with the retirement of a long-lived asset

a.   only when it hires another party to perform the retirement activities.

b.   only if it performs the activities with its own workforce and equipment.

c.   whether it hires another party to perform the retirement activities or performs the activities itself.

d.   when it is probable the asset will be retired.

   71.     Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs.  Any liability for the warranty

a.   should be reported as long-term.

b.   should be reported as current.

c.   should be reported as part current and part long-term.

d.   need not be disclosed.

   72.     Ortiz Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2012. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Ortiz recall all cans of this paint sold in the last six months. The management of Ortiz estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation?

a.   No recognition

b.   Note disclosure only

c.   Operating expense of $800,000 and liability of $800,000

d.   Appropriation of retained earnings of $800,000

   73.     Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated.  Based on the above facts, an estimated loss contingency should be

a.   accrued.

b.   disclosed but not accrued.

c.   neither accrued nor disclosed.

d.   classified as an appropriation of retained earnings.

  P74.     Espinosa Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be

a.   zero.

b.   the minimum of the range.

c.   the mean of the range.

d.   the maximum of the range.

  S75.     Dean Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and

a.   the Dean Company admits guilt.

b.   the court will decide the case within one year.

c.   the damages appear to be material.

d.   the cause for action occurred during the accounting period covered by the financial statements.

  S76.     Use of the accrual method in accounting for product warranty costs

a.   is required for federal income tax purposes.

b.   is frequently justified on the basis of expediency when warranty costs are immaterial.

c.   finds the expense account being charged when the seller performs in compliance with the warranty.

d.   represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

 77.     Which of the following best describes the accrual method of accounting for warranty costs?

a.   Expensed when paid.

b.   Expensed when warranty claims are certain.

c.   Expensed based on estimate in year of sale.

d.   Expensed when incurred.

   78.     Which of the following best describes the cash-basis method of accounting for warranty costs?

a.   Expensed based on estimate in year of sale.

b.   Expensed when liability is accrued.

c.   Expensed when warranty claims are certain.

d.   Expensed when incurred.

   79.     Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach?

a.   Estimated liability under warranties.

b.   Warranty expense.

c.   Unearned warranty revenue.

d.   Warranty revenue.

   80.     An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon?

a.   The reduction in sales price attributed to the coupon is recognized as premium expense.

b.   The difference between the cost of the video game and the cash received is recognized as premium expense.

c.   Premium expense is not recognized.

d.   The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense.

   81.     What condition is necessary to recognize an asset retirement obligation?

a.   Company has an existing legal obligation and can reasonably estimate the amount of the liability.

b.   Company can reasonably estimate the amount of the liability.

c.   Company has an existing legal obligation.

d.   Obligation event has occurred.

   82.     Which of the following are not factors that are considered when evaluating whether or not to record a liability for pending litigation?

a.   Time period in which the underlying cause of action occurred.

b.   The type of litigation involved.

c.   The probability of an unfavorable outcome.

d.   The ability to make a reasonable estimate of the amount of the loss.

   83.     How do you determine the acid-test ratio?

a.   The sum of cash and short-term investments divided by short-term debt.

b.   Current assets divided by current liabilities.

c.   Current assets divided by short-term debt.

d.   The sum of cash, short-term investments and net receivables divided by current liabilities.

   84.     What does the current ratio inform you about a company?

a.   The extent of slow-moving inventories.

b.   The efficient use of assets.

c.   The company's liquidity.

d.   The company's profitability.

  S85.     Which of the following is not acceptable treatment for the presentation of current liabilities?

a.   Listing current liabilities in order of maturity

b.   Listing current liabilities according to amount

c.   Offsetting current liabilities against assets that are to be applied to their liquidation

d.   Showing current liabilities immediately below current assets to obtain a presentation of working capital

  P86.     The ratio of current assets to current liabilities is called the

a.   current ratio.

b.   acid-test ratio.

c.   current asset turnover ratio.

d.   current liability turnover ratio.

   87.     Accrued liabilities are disclosed in financial statements by

a.   a footnote to the statements.

b.   showing the amount among the liabilities but not extending it to the liability total.

c.   an appropriation of retained earnings.

d.   appropriately classifying them as regular liabilities in the balance sheet.

   88.     The numerator of the acid-test ratio consists of

a.   total current assets.

b.   cash and marketable securities.

c.   cash and net receivables.

d.   cash, marketable securities, and net receivables.

   89.     Each of the following are included in both the current ratio and the acid-test ratio except

a.   cash.

b.   short-term investments.

c.   net receivables.

d.   inventory.

   Multiple Choice Answers—Conceptual

     Multiple Choice—Computational

   90.     Glaus Corp. signed a three-month, zero-interest-bearing note on November 1, 2012 for the purchase of $250,000 of inventory. The face value of the note was $253,675. Assuming Glaus used a “Discount on Note Payable” account to initially record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2012 will include a

a.   debit to Discount on Note Payable for $1,225.

b.   debit to Interest Expense for $2,450.

c.   credit to Discount on Note Payable for $1,255.

d.   credit to Interest Expense for $2,450.

   91.     The effective interest on a 12-month, zero-interest-bearing note payable of $300,000, discounted at the bank at 8% is

a.   8.51%.

b.   8%.

c.   11.49%.

d.   8.70%.

   92.     On September 1, Hydra purchased $13,300 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $280. Payment for the purchase was made on September 18. Assuming Hydra uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as inventory from this purchase?

a.   $13,167.

b.   $13,447.

c.   $13,580.

d.   $13,300.

   93.     Sodium Inc. borrowed $280,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31?

a.   $0.

b.   $33,600.

c.   $8,400.

d.   $25,200.

   94.     Collier borrowed $350,000 on October 1 and is required to pay $360,000 on March 1. What amount is the note payable recorded at on October 1 and how much interest is recognized from October 1 to December 31?

a.   $350,000 and $0.

b.   $350,000 and $6,000.

c.   $360,000 and $0.

d.   $350,000 and $10,000.

   95.     Purest owes $2 million that is due on February 28. The company borrows $1,600,000 on February 25 (5-year note) and uses the proceeds to pay down the $2 million note and uses other cash to pay the balance. How much of the $2 million note is classified as long-term in the December 31 financial statements.

a.   $2,000,000.

b.   $0.

c.   $1,600,000.

d.   $400,000.

   96.     Vista newspapers sold 6,000 of annual subscriptions at $125 each on September 1. How much unearned revenue will exist as of December 31?

a.   $0.

b.   $500,000.

c.   $250,000.

d.   $750,000.

   97.     Purchase Retailer made cash sales during the month of October of $221,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

a.   Debit Cash for $221,000.

b.   Credit Sales Taxes Payable for $12,510.

c.   Credit Sales Revenue for $208,490.

d.   Credit Sales Taxes Payable for $13,260.

   98.     On February 10, 2012, after issuance of its financial statements for 2011, House Company entered into a financing agreement with Lebo Bank, allowing House Company to borrow up to $6,000,000 at any time through 2014. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. House Company presently has $2,250,000 of notes payable with First National Bank maturing March 15, 2012. The company intends to borrow $3,750,000 under the agreement with Lebo and liquidate the notes payable to First National. The agreement with Lebo also requires House to maintain a working capital level of $9,000,000 and prohibits the payment of dividends on common stock without prior approval by Lebo Bank.  From the above information only, the total short-term debt of House Company as of the December 31, 2012 balance sheet date is

a.   $0.

b.   $2,250,000.

c.   $3,000,000.

d.   $6,000,000.

   99.     On December 31, 2012, Irey Co. has $4,000,000 of short-term notes payable due on February 14, 2013. On January 10, 2013, Irey arranged a line of credit with County Bank which allows Irey to borrow up to $3,000,000 at one percent above the prime rate for three years. On February 2, 2013, Irey borrowed $2,400,000 from County Bank and used $1,000,000 additional cash to liquidate $3,400,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2012 balance sheet which is issued on March 5, 2013 is

a.   $0.

b.   $600,000.

c.   $1,000,000.

d.   $1,600,000.

 Use the following information for questions 100 and 101.

Stine Co. is a retail store operating in a state with a 6% retail sales tax. The retailer may keep 2% of the sales tax collected. Stine Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $222,600.

  100.     The amount of sales taxes (to the nearest dollar) for May is

a.   $13,089.

b.   $12,600.

c.   $13,356.

d.   $14,157.

  101.     The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is

a.   $12,826.

b.   $12,348.

c.   $13,089.

d.   $13,873.

  102.     Vopat, Inc., is a retail store operating in a state with a 5% retail sales tax.  The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month.  If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected.  On April 10, 2012, Vopat remitted $135,800 tax to the state tax division for March 2012 retail sales. What was Vopat 's March 2012 retail sales subject to sales tax?

a.   $2,716,000.

b.   $2,660,000.

c.   $2,800,000.

d.   $2,741,667.

  103.     Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 90,000 shares of common stock.  If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?

a.   $1,800,000

b.   $2,500,000

c.   $700,000

d.   $0

  104.     Ermler Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock.  If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?

a.   $1,000,000

b.   $1,800,000

c.   $800,000

d.   $0

  105.     Preston Co., which has a taxable payroll of $700,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company’s state rate has been reduced to 2%.  What is the total amount of federal and state unemployment tax for Preston Co.?

a.   $81,900

b.   $57,400

c.   $28,000

d.   $19,600

  106.     Roark Co., which has a taxable payroll of $600,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company’s state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Roark Co.?

a.   $70,200

b.   $49,200

c.   $24,000

d.   $16,800

  107.     A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 12 days of vacation a year if they are employed at the end of the year.  The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2012, they made $21 per hour and in 2013 they made $24 per hour.  During 2013, they took an average of 9 days of vacation each.  The company’s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets, respectively?

a.   $100,800; $140,400

b.   $115,200; $144,000

c.   $100,800; $144,000

d.   $115,200; $140,400

  108.     A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 12 days of vacation a year if they are employed at the end of the year.  The vacation accumulates and may be taken starting January 1 of the next year.  The employees work 8 hours per day.  In 2012, they made $24.50 per hour and in 2013 they made $28 per hour.  During 2013, they took an average of 9 days of vacation each.  The company’s policy is to record the liability existing at the end of each year at the wage rate for that year.  What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets, respectively?

a.   $117,600; $163,800

b.   $134,400; $168,000

c.   $117,600; $168,000

d.   $134,400; $163,800

  109.     The total payroll of Teeter Company for the month of October, 2012 was $600,000, of which $150,000 represented amounts paid in excess of $106,800 to certain employees.  $500,000 represented amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes. $150,000 of federal income taxes and $15,000 of union dues were withheld. The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employee’s wages to $106,800 and 1.45% in excess of $106,800. What amount should Teeter record as payroll tax expense?

a.   $197,700.

b.   $188,400.

c.   $38,400.

d.   $47,400.

 Use the following information for questions 110 and 111.

Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2011, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2011 may first be taken on January 1, 2012. Information relative to these employees is as follows:

                  Hourly             Vacation Days Earned    Vacation Days Used

Year             Wages               by Each Employee         by Each Employee

2011           $21.50                             10                                       0

2012             22.50                             10                                       8

2013             23.75                             10                                     10

 Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.

110.     What is the amount of expense relative to compensated absences that should be reported on Vargas’s income statement for 2011?

a.   $0.

b.   $57,400.

c.   $63,000.

d.   $60,200.

  111.     What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2013?

a.   $79,100.

b.   $75,600.

c.   $66,500.

d.   $79,800.

  112.     CalCount pays a weekly payroll of $170,000 that includes federal taxes withheld of $25,400, FICA taxes withheld of $15,780, and 401(k) withholdings of $18,000. What is the effect of assets and liabilities from this transaction?

a.   Assets decrease $170,000 and liabilities do not change.

b.   Assets decrease $128,820 and liabilities increase $41,180.

c.   Assets decrease $128,820 and liabilities decrease $41,180.

d.   Assets decrease $110,820 and liabilities increase $59,180.

  113.     CalCount provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is $1,140, what is the required journal entry?

a.   Debit Salaries and Wages Expense for $148,200 and credit Salaries and Wages Payable for $148,200.

b.   No journal entry required.

c.   Debit Salaries and Wages Payable for $147,600 and credit Salaries and Wages Expense for $147,600.

d.   Debit Salaries and Wages Expense for $74,100 and credit Salaries and Wages Payable for $74,100.

  114.     Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year.  The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation?

a.   Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000.

b.   No journal entry is required.

c.   Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000.

d.   Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000.

  115.     Recycle Exploration is involved with innovative approaches to finding energy reserves. Recycle recently built a facility to extract natural gas at a cost of $15 million. However, Recycle is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $21 million (the present value of which is $8 million). What is the journal entry required to record the asset retirement obligation?

a.   No journal entry required.

b.   Debit Natural Gas Facility for $21,000,000 and credit Asset Retirement Obligation for $21,000,000

c.   Debit Natural Gas Facility for $6,000,000 and credit Asset Retirement Obligation for $6,000,000.

d.   Debit Natural Gas Facility for $8,000,000 and credit Asset Retirement Obligation for $8,000,000.

116.     Warranty4U provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for three years. During the current year, Warranty4U provided 42,000 such warranty contracts at an average price of $81 each. Related to these contracts, the company spent $400,000 servicing the contracts during the current year and expects to spend $2,100,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts?

a.   $902,000.

b.   $3,002,000.

c.   $300,667.

d.   $734,000.

 117.     Electronics4U manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $200 per unit sold and reported a liability for estimated warranty costs $7.8 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year?

a.   $3,000,000.

b.   $4,200,000.

c.   $10,800,000.

d.   $12,000,000.

  118.     A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2012.  Historically, 10% of customers mail in the rebate form. During 2012, 3,000,000 packages of light bulbs are sold, and 160,000 $1 rebates are mailed to customers.  What is the rebate expense and liability, respectively, shown on the 2012 financial statements dated December 31?

a.   $300,000; $300,000

b.   $300,000; $140,000

c.   $140,000; $140,000

d.   $160,000; $140,000

  119.     A company buys an oil rig for $2,000,000 on January 1, 2012.  The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10% is $154,220).  10% is an appropriate interest rate for this company. What expense should be recorded for 2012 as a result of these events?

a.   Depreciation expense of $240,000

b.   Depreciation expense of $200,000 and interest expense of $15,422

c.   Depreciation expense of $200,000 and interest expense of $40,000

d.   Depreciation expense of $215,420 and interest expense of $15,422

  120.     Ziegler Company self insures its property for fire and storm damage.  If the company were to obtain insurance on the property, it would cost them $1,500,000 per year.  The company estimates that on average it will incur losses of $1,200,000 per year. During 2012, $525,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Ziegler Company for 2012?

a.   $525,000 in losses and no insurance expense

b.   $525,000 in losses and $675,000 in insurance expense

c.   $0 in losses and $1,200,000 in insurance expense

d.   $0 in losses and $1,500,000 in insurance expense

  121.     A company offers a cash rebate of $2 on each $6 package of batteries sold during 2012.  Historically, 10% of customers mail in the rebate form.  During 2012, 6,000,000 packages of batteries are sold, and 210,000 $2 rebates are mailed to customers.  What is the rebate expense and liability, respectively, shown on the 2012 financial statements dated December 31?

a.   $1,200,000; $1,200,000

b.   $1,200,000; $780,000

c.   $780,000;   $780,000

d.   $420,000;   $780,000

  122.     A company buys an oil rig for $3,000,000 on January 1, 2012.  The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330).  10% is an appropriate interest rate for this company. What expense should be recorded for 2012 as a result of these events?

a.   Depreciation expense of $360,000

b.   Depreciation expense of $300,000 and interest expense of $23,133

c.   Depreciation expense of $300,000 and interest expense of $60,000

d.   Depreciation expense of $323,133 and interest expense of $23,133

  123.     During 2011, Vanpelt Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

                          Sales                   Actual Warranty Expenditures

2011             $   600,000                              $    9,000

2012               1,500,000                                  65,000

2013               2,100,000                                135,000

                    $4,200,000                              $209,000

           What amount should Vanpelt report as a liability at December 31, 2013?

a.   $0

b.   $12,000

c.   $54,000

d.   $169,000

  124.     Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2012?

a.   $270,000

b.   $50,000

c.   $75,000

d.   $138,000

  125.     During 2011, Stabler Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

                         Sales                  Actual Warranty Expenditures

2011             $   400,000                              $    6,000

2012               1,000,000                                  40,000

2013               1,400,000                                  90,000

                    $2,800,000                              $136,000

           What amount should Stabler report as a liability at December 31, 2013?

a.   $0

b.   $28,000

c.   $36,000

d.   $116,000

  126.     LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls cost LeMay Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2012?

a.   $150,000

b.   $40,000

c.   $60,000

d.   $84,000

 Use the following information for questions 127, 128, and 129.

Mott Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Mott $3 each. Mott estimates that 40 percent of the coupons will be redeemed.  Data for 2012 and 2013 are as follows:

                                                                                           2012                 2013  

Bags of dog food sold                             500,000           600,000

Leashes purchased                                     18,000             22,000

Coupons redeemed                                  120,000           150,000

  127.     The premium expense for 2012 is

a.   $37,500.

b.   $45,000.

c.   $52,500.

d.   $75,000.

  128.     The premium liability at December 31, 2012 is

a.   $11,250.

b.   $15,000.

c.   $26,250.

d.   $30,000.

  129.     The premium liability at December 31, 2013 is

a.   $16,875

b.   $31,875.

c.   $33,750.

d.   $63,750.

  130.     Winter Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Winter's lawyer states that it is probable that Winter will lose the suit and be found liable for a judgment costing Winter anywhere from $1,600,000 to $8,000,000. However, the lawyer states that the most probable cost is $4,800,000. As a result of the above facts, Winter should accrue

a.   a loss contingency of $1,600,000 and disclose an additional contingency of up to $6,400,000.

b.   a loss contingency of $4,800,000 and disclose an additional contingency of up to $3,200,000.

c.   a loss contingency of $4,800,000 but not disclose any additional contingency.

d.   no loss contingency but disclose a contingency of $1,600,000 to $8,000,000.

  131.     Nance Company estimates its annual warranty expense as 2% of annual net sales.  The following data relate to the calendar year 2012:

Net sales                                        $1,500,000

Warranty liability account

        Balance, Dec. 31, 2012             $10,000      debit before adjustment

        Balance, Dec. 31, 2012               50,000      credit after adjustment

           Which one of the following entries was made to record the 2012 estimated warranty expense?

           a.   Warranty Expense .................................................................        30,000

                            Retained Earnings (prior-period adjustment) .............                            5,000

                            Warranty Liability ......................................................                          25,000

           b.   Warranty Expense .................................................................        25,000

                 Retained Earnings (prior-period adjustment) .......................          5,000

                            Warranty Liability ......................................................                          30,000

           c.   Warranty Expense .................................................................        20,000

                            Warranty Liability ......................................................                          20,000

           d.   Warranty Expense .................................................................        30,000

                            Warranty Liability ......................................................                          30,000

  132.     In 2012, Payton Corporation began selling a new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:

First year of warranty                         2%

Second year of warranty                     5%

           Sales and actual warranty expenditures for 2012 and 2013 are presented below:

                                                                       2012               2013    

Sales                                                             $600,000         $800,000

Actual warranty expenditures                          20,000             40,000

           What is the estimated warranty liability at the end of 2013?

a.   $38,000.

b.   $58,000.

c.   $98,000.

d.   $16,000.

  133.     On January 3, 2012, Boyer Corp. owned a machine that had cost $300,000. The accumulated depreciation was $180,000, estimated salvage value was $18,000, and fair value was $480,000. On January 4, 2012, this machine was irreparably damaged by Pine Corp. and became worthless. In October 2012, a court awarded damages of $480,000 against Pine in favor of Boyer. At December 31, 2012, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Boyer’s attorney, Pine’s appeal will be denied. At December 31, 2012, what amount should Boyer accrue for this gain contingency?

a.   $480,000.

b.   $390,000.

c.   $300,000.

d.   $0.

  134.     Fuller Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Fuller.  The grocers are reimbursed when they send the coupons to Fuller. In Fuller's experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Fuller receives it.  During 2012 Fuller issued two separate series of coupons as follows:

                                                                Consumer             Amount Disbursed

Issued On        Total Value              Expiration Date             as of 12/31/12

   1/1/12             $500,000                       6/30/12                       $236,000

   7/1/12               720,000                     12/31/12                         300,000

           The only journal entries to date recorded debits to coupon expense and credits to cash of $715,000. The December 31, 2012 balance sheet should include a liability for unredeemed coupons of

a.   $0.

b.   $60,000.

c.   $124,000.

d.   $360,000.

  135.     Presented below is information available for Morton Company.

Current Assets

     Cash                                                 $    4,000

     Short-term investments                        75,000

     Accounts receivable                             61,000

     Inventory                                           110,000

     Prepaid expenses                                 30,000

                 Total current assets              $280,000

Total current liabilities are $110,000. The acid-test ratio for Morton is

a.   2.55 to 1.

b.   2.27 to 1.

c.   1.27 to 1.

d.   0.72 to 1.

 Multiple Choice Answers—Computational

  Multiple Choice—CPA Adapted

  136.     Which of the following is generally associated with payables classified as accounts payable?

               Periodic Payment         Secured

                     of Interest           by Collateral

           a.             No                         No

           b.             No                         Yes

           c.            Yes                        No

           d.            Yes                        Yes

  137.     On January 1, 2012, Beyer Co. leased a building to Heins Corp. for a ten-year term at an annual rental of $140,000. At inception of the lease, Beyer received $560,000 covering the first two years' rent of $280,000 and a security deposit of $280,000. This deposit will not be returned to Heins upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $560,000 should be shown as a current and long-term liability, respectively, in Beyer's December 31, 2012 balance sheet?

                Current Liability       Long-term Liability

           a.        $0                               $560,000

           b.        $140,000                    $280,000

           c.        $280,000                    $280,000

           d.       $280,000                    $140,000

  138.     On September 1, 2012, Herman Co. issued a note payable to National Bank in the amount of $1,800,000, bearing interest at 12%, and payable in three equal annual principal payments of $600,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2013. At December 31, 2013, Herman should record accrued interest payable of

a.   $72,000.

b.   $66,000.

c.   $48,000.

d.   $44,000.

  139.     Included in Vernon Corp.'s liability account balances at December 31, 2012, were the following:

7% note payable issued October 1, 2012, maturing September 30, 2013              $250,000

8% note payable issued April 1, 2012, payable in six equal annual

     installments of $150,000 beginning April 1, 2013                                             600,000

Vernon's December 31, 2012 financial statements were issued on March 31, 2013. On January 15, 2013, the entire $600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2013, Vernon consummated a noncancelable agreement with the lender to refinance the 7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2012 balance sheet, the amount of the notes payable that Vernon should classify as short-term obligations is

a.   $175,000.

b.   $125,000.

c.   $50,000.

d.   $0.

  140.     Edge Company’s salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2013 is as follows:

                                                                                                           12/31/12         12/31/13  

Employee advances                                                     $24,000           $ 36,000

Accrued salaries payable                                             130,000                ?

Salaries expense during the year                                                        1,300,000

Salaries paid during the year (gross)                                                  1,250,000

           At December 31, 2013, what amount should Edge report for accrued salaries payable?

a.   $180,000.

b.   $168,000.

c.   $144,000.

d.   $50,000.

  141.     Risen Corp.'s payroll for the pay period ended October 31, 2012 is summarized as follows:

                                                    Federal                      Amount of Wages Subject

Department       Total                Income Tax                            to Payroll Taxes          

Payroll             Wages                 Withheld                F.I.C.A.           Unemployment

Factory          $  75,000                $  9,000                 $70,000                 $32,000

Sales                  22,000                    3,000                   16,000                     2,000

Office                18,000                    2,000                     8,000                      —    

                      $115,000                $14,000                 $94,000                 $34,000

Assume the following payroll tax rates:

F.I.C.A. for employer and employee                    7%  each

Unemployment                                                     3%

           What amount should Risen accrue as its share of payroll taxes in its October 31, 2012 balance sheet?

a.   $21,600.

b.   $15,020.

c.   $14,180.

d.   $7,600.

  142.     Felton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $720,000 at December 31, 2011 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $180,000 at December 31, 2011. Outstanding service contracts at December 31, 2011 expire as follows:

During 2012                During 2013                During 2014

 $150,000                       $240,000                     $105,000

           What amount should be reported as unearned service contract revenues in Felton's December 31, 2011 balance sheet?

a.   $540,000.

b.   $495,000.

c.   $360,000.

d.   $330,000.

  143.     Yount Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Yount's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Yount's liability for stamp redemptions was $6,000,000 at December 31, 2011. Additional information for 2012 is as follows:

Stamp service revenue from stamps sold to licensees                         $4,000,000

Cost of redemptions                                                                             2,720,000

           If all the stamps sold in 2012 were presented for redemption in 2013, the redemption cost would be $2,000,000. What amount should Yount report as a liability for stamp redemptions at December 31, 2012?

a.   $7,280,000.

b.   $5,280,000.

c.   $4,880,000.

d.   $3,280,000.

  144.     Neer Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be

a.   zero.

b.   the maximum of the range.

c.   the mean of the range.

d.   the minimum of the range.

  145.     During 2012, Eaton Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 3% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2012 and 2013 are as follows:

                                                        Actual Warranty

                           Sales                         Expenditures

2012                $   800,000                       $12,000

2013                  1,000,000                         35,000

                       $1,800,000                       $47,000

           At December 31, 2013, Eaton should report an estimated warranty liability of

a.   $0.

b.   $15,000.

c.   $35,000.

d.   $43,000.

  146.     In March 2013, an explosion occurred at Kirk Co.'s plant, causing damage to area properties. By May 2013, no claims had yet been asserted against Kirk. However, Kirk's management and legal counsel concluded that it was reasonably possible that Kirk would be held responsible for negligence, and that $4,000,000 would be a reasonable estimate of the damages. Kirk's $5,000,000 comprehensive public liability policy contains a $400,000 deductible clause. In Kirk's December 31, 2012 financial statements, for which the auditor's fieldwork was completed in April 2013, how should this casualty be reported?

a.   As a note disclosing a possible liability of $4,000,000.

b.   As an accrued liability of $400,000.

c.   As a note disclosing a possible liability of $400,000.

d.   No note disclosure of accrual is required for 2012 because the event occurred in 2013.

 Multiple Choice Answers—CPA Adapted

     IFRS QUESTIONS

 True / False Questions

 1.    Short-term debt obligations are classified as current liabilities unless an agreement to refinance is completed before the financial statements are issued.

 2.    For purposes of recognizing a provision,”probable” is defined as more likely than not

 3.    A Provision differs from other liabilities in that there is greater uncertainty about the timing and amount of settlement.

 4.    IFRS allows for reduced disclosure of contingent liabilities if the disclosure could increase the company`s chance of losing a lawsuit.

 5.    Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible.

 6.    A company can exclude a short-term obligation from current liablities if it intends to refinance the obligation and has an unconditional right to defer settlement of the obligation for at least 12 months following the due date.

 7.    Provisions are only recorded if it is likely that the company will have to settle an obligation at some point in the future.

 8.    An onerous contract is one in which the unavoidable costs of satisfying the obligations outweigh the economic benefits to be received.

 9.    Contingent assets are not reported in the statement of financial position.

10.    IFRS uses the term “contigent” for assets and liabilities not recognized in the financial statement.

 Answers to True / False:

  CHAPTER 14

 LONG-TERM LIABILITIES

 IFRS questions are available at the end of this chapter.

  TRUE FALSE—Conceptual

       1.    Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.

       2.    A mortgage bond is referred to as a debenture bond.

       3.    Bond issues that mature in installments are called serial bonds.

       4.    If the market rate is greater than the coupon rate, bonds will be sold at a premium.

       5.    The interest rate written in the terms of the bond indenture is called the effective yield or market rate.

       6.    The stated rate is the same as the coupon rate.

       7.    Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.

       8.    A bond may only be issued on an interest payment date.

       9.    The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond.

     10.    Bond issue costs are capitalized as a deferred charge and amortized to expense over the life of the bond issue.

     11.    The replacement of an existing bond issue with a new one is called refunding.

     12.    If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate.

     13.    The implicit interest rate is the rate that equates the cash received with the amounts received in the future.

     14.    An unrealized holding gain or loss is the net change in the fair value of the liability from one period to another, exclusive of interest expense recognized but not recorded.

     15.    Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet.

     16.    The debt to total assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.

     17.    If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.

     18.    The times interest earned ratio is computed by dividing income before interest expense by interest expense.

   *19.    The loss to be recognized by a creditor on an impaired loan is the difference between the investment in the loan and the expected undiscounted future cash flows from the loan.

   *20.    In a troubled debt restructuring, the loss recognized by the creditor will equal the gain recognized by the debtor.

  True False Answers—Conceptual

   MULTIPLE CHOICE—Conceptual

   21.     An example of an item which is not a liability is

a.   dividends payable in stock.

b.   advances from customers on contracts.

c.   accrued estimated warranty costs.

d.   the portion of long-term debt due within one year.

   22.     The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the

a.   bond indenture.

b.   bond debenture.

c.   registered bond.

d.   bond coupon.

   23.     The term used for bonds that are unsecured as to principal is

a.   junk bonds.

b. �� debenture bonds.

c.   indebenture bonds.

d.   callable bonds.

  P24.     Bonds for which the owners' names are not registered with the issuing corporation are called

a.   bearer bonds.

b.   term bonds.

c.   debenture bonds.

d.   secured bonds.

  S25.     Bonds that pay no interest unless the issuing company is profitable are called

a.   collateral trust bonds.

b.   debenture bonds.

c.   revenue bonds.

d.   income bonds.

  S26.     If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be

a.   greater than if the straight-line method were used.

b.   greater than the amount of the interest payments.

c    the same as if the straight-line method were used.

d.   less than if the straight-line method were used.

   27.     The interest rate written in the terms of the bond indenture is known as the

a.   coupon rate.

b.   nominal rate.

c.   stated rate.

d.   coupon rate, nominal rate, or stated rate.

   28.     The rate of interest actually earned by bondholders is called the

a.   stated rate.

b.   yield rate.

c.   effective rate.

d.   effective, yield, or market rate.

 Use the following information for questions 29 and 30:

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.

   29.     One step in calculating the issue price of the bonds is to multiply the principal by the table value for

a.   10 periods and 10% from the present value of 1 table.

b.   20 periods and 5% from the present value of 1 table.

c.   10 periods and 8% from the present value of 1 table.

d.   20 periods and 4% from the present value of 1 table.

   30.     Another step in calculating the issue price of the bonds is to

a.   multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table.

b.   multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table.

c.   multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table.

d.   none of these.

   31.     Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that

a.   the effective yield or market rate of interest exceeded the stated (nominal) rate.

b.   the nominal rate of interest exceeded the market rate.

c.   the market and nominal rates coincided.

d.   no necessary relationship exists between the two rates.

   32.     If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

a.   exceed what it would have been had the effective-interest method of amortization been used.

b.   be less than what it would have been had the effective-interest method of amortization been used.

c.   be the same as what it would have been had the effective-interest method of amortiza-tion been used.

d.   be less than the stated (nominal) rate of interest.

   33.     Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to

a.   the stated (nominal) rate of interest multiplied by the face value of the bonds.

b.   the market rate of interest multiplied by the face value of the bonds.

c.   the stated rate multiplied by the beginning-of-period carrying amount of the bonds.

d.   the market rate multiplied by the beginning-of-period carrying amount of the bonds.

   34.     When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will

a.   increase if the bonds were issued at a discount.

b.   decrease if the bonds were issued at a premium.

c.   increase if the bonds were issued at a premium.

d.   increase if the bonds were issued at either a discount or a premium.

   35.     If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

a.   debit to Interest Payable.

b.   credit to Interest Receivable.

c.   credit to Interest Expense.

d.   credit to Unearned Interest.

   36.     When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be

a.   decreased by accrued interest from June 1 to November 1.

b.   decreased by accrued interest from May 1 to June 1.

c.   increased by accrued interest from June 1 to November 1.

d.   increased by accrued interest from May 1 to June 1.

   37.     Theoretically, the costs of issuing bonds could be

a.   expensed when incurred.

b.   reported as a reduction of the bond liability.

c.   debited to a deferred charge account and amortized over the life of the bonds.

d.   any of these.

   38.     The printing costs and legal fees associated with the issuance of bonds should

a.   be expensed when incurred.

b.   be reported as a deduction from the face amount of bonds payable.

c.   be accumulated in a deferred charge account and amortized over the life of the bonds.

d.   not be reported as an expense until the period the bonds mature or are retired.

   39.     Treasury bonds should be shown on the balance sheet as

a.   an asset.

b.   a deduction from bonds payable issued to arrive at net bonds payable and outstanding.

c.   a reduction of stockholders' equity.

d.   both an asset and a liability.

   40.     An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition

a.   any costs of issuing the bonds must be amortized up to the purchase date.

b.   the premium must be amortized up to the purchase date.

c.   interest must be accrued from the last interest date to the purchase date.

d.   all of these.

   41.     The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as

a.   an adjustment to the cost basis of the asset obtained by the debt issue.

b.   an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument.

c.   an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt.

d.   a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

  P42.     "In-substance defeasance" is a term used to refer to an arrangement whereby

a.   a company gets another company to cover its payments due on long-term debt.

b.   a governmental unit issues debt instruments to corporations.

c.   a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust.

d.   a company legally extinguishes debt before its due date.

  P43.     A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

a.   The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability.

b.   The balance of mortgage payable will remain a constant amount over the 10-year period.

c.   The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period.

d.   The amount of interest expense will remain constant over the 10-year period.

  S44.     A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place

a.   the present value of the debt instrument must be approximated using an imputed interest rate.

b.   it should not be recorded on the books of either party until the fair value of the property becomes evident.

c.   the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction.

d.   the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.

 45.     When a note payable is issued for property, goods, or services, the present value of the note is measured by

a.   the fair value of the property, goods, or services.

b.   the fair value of the note.

c.   using an imputed interest rate to discount all future payments on the note.

d.   any of these.

   46.     When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless

a.   no interest rate is stated.

b.   the stated interest rate is unreasonable.

c.   the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note.

d.   any of these.

   47.     If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting

a.   Bonds Payable.

b.   Gain on Restructuring of Debt.

c.   Unrealized Holding Gain/Loss-Income.

d.   None of these.

   48.     Which of the following is an example of "off-balance-sheet financing"?

1.   Non-consolidated subsidiary.

2.   Special purpose entity.

3.   Operating leases.

a.   1

b.   2

c.   3

d.   All of these are examples of "off-balance-sheet financing."

  S49.     When a business enterprise enters into what is referred to as off-balance-sheet financing, the company

a.   is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet.

b.   wishes to confine all information related to the debt to the income statement and the statement of cash flow.

c.   can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.

d.   is in violation of generally accepted accounting principles.

  S50.     Long-term debt that matures within one year and is to be converted into stock should be reported

a.   as a current liability.

b.   in a special section between liabilities and stockholders’ equity.

c.   as noncurrent.

d.   as noncurrent and accompanied with a note explaining the method to be used in its liquidation.

   51.     Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements?

a.   The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

b.   The present value of scheduled interest payments on long-term debt during each of the next five years.

c.   The amount of scheduled interest payments on long-term debt during each of the next five years.

d.   The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

   52.     Note disclosures for long-term debt generally include all of the following except

a.   assets pledged as security.

b.   call provisions and conversion privileges.

c.   restrictions imposed by the creditor.

d.   names of specific creditors.

   53.     The times interest earned ratio is computed by dividing

a.   net income by interest expense.

b.   income before taxes by interest expense.

c.   income before income taxes and interest expense by interest expense.

d.   net income and interest expense by interest expense.

   54.     The debt to total assets ratio is computed by dividing

a.   current liabilities by total assets.

b.   long-term liabilities by total assets.

c.   total liabilities by total assets.

d.   total assets by total liabilities.

  *55.     In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

a.   a loss should be recognized by the debtor.

b.   a gain should be recognized by the debtor.

c.   a new effective-interest rate must be computed.

d.   no interest expense or revenue should be recognized in the future.

  *56.     A troubled debt restructuring will generally result in a

a.   loss by the debtor and a gain by the creditor.

b.   loss by both the debtor and the creditor.

c.   gain by both the debtor and the creditor.

d.   gain by the debtor and a loss by the creditor.

  *57.     In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize

a.   no gain or loss on the restructuring.

b.   a gain on the restructuring.

c.   a loss on the restructuring.

d.   none of these.

  *58.     In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure, but no interest expense should be recognized over the remaining life of the debt, whenever the

a.   carrying amount of the pre-restructure debt is less than the total future cash flows.

b.   carrying amount of the pre-restructure debt is greater than the total future cash flows.

c.   present value of the pre-restructure debt is less than the present value of the future cash flows.

d.   present value of the pre-restructure debt is greater than the present value of the future cash flows.

  *59.     In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, the creditor should

a.   compute a new effective-interest rate.

b.   not recognize a loss.

c.   calculate its loss using the historical effective rate of the loan.

d.   calculate its loss using the current effective rate of the loan.

     Multiple Choice—Computational

 Use the following information for questions 60 through 62:

On January 1, 2012, Ellison Co. issued eight-year bonds with a face value of $2,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:

Present value of 1 for 8 periods at 6%............................................         .627

Present value of 1 for 8 periods at 8%............................................         .540

Present value of 1 for 16 periods at 3%..........................................         .623

Present value of 1 for 16 periods at 4%..........................................         .534

Present value of annuity for 8 periods at 6%..................................       6.210

Present value of annuity for 8 periods at 8%..................................       5.747

Present value of annuity for 16 periods at 3%................................     12.561

Present value of annuity for 16 periods at 4%................................     11.652

   60.     The present value of the principal is

a.   $1,068,000.

b.   $1,080,000.

c.   $1,246,000.

d.   $1,254,000.

   61.     The present value of the interest is

a.   $689,640.

b.   $699,120.

c.   $745,200.

d.   $753,660.

   62.     The issue price of the bonds is

a.   $1,767,120.

b.   $1,769,640.

c.   $1,779,120.

d.   $1,999,200.

   63.     Downing Company issues $3,000,000, 6%, 5-year bonds dated January 1, 2012 on January 1, 2012. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?

 2.5%

3.0%

5.0%

6.0%

Present value  of a single sum for 5 periods

.88385

.86261

.78353

.74726

Present value  of a single sum for 10 periods

.78120

.74409

.61391

.55839

Present value  of an annuity for 5 periods

4.64583

4.57971

4.32948

4.21236

Present value  of an annuity for 10 periods

8.75206

8.53020

7.72173

7.36009

a.   $3,000,000

b.   $3,129,896

c.   $3,131,285

d.   $3,130,385

     64.    Feller Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

a.   $9,700,000

b.   $10,225,000

c.   $9,850,000

d.   $9,550,000

     65.    Everhart Company issues $15,000,000, 6%, 5-year bonds dated January 1, 2012 on January 1, 2012. The bonds pays interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?

 2.5%

3.0%

5.0%

6.0%

Present value  of a single sum for 5 periods

.88385

.86261

.78353

.74726

Present value  of a single sum for 10 periods

.78120

.74409

.61391

.55839

Present value  of an annuity for 5 periods

4.64583

4.57971

4.32948

4.21236

Present value  of an annuity for 10 periods

8.75206

8.53020

7.72173

7.36009

 a.   $15,000,000

b.   $15,649,482

c.   $15,656,427

d.   $15,651,924

   66.     Farmer Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

a.   $19,400,000

b.   $20,450,000

c.   $19,700,000

d.   $19,100,000

   67.     A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, how much interest expense will be recognized in 2012?

a.   $585,000

b.   $1,170,000

c.   $1,176,374

d.   $1,176,249

   68.     A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2012 balance sheet?

a.   $14,709,482

b.   $15,000,000

c.   $14,718,844

d.   $14,706,232

   69.     A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013?

a.   $14,752,673

b.   $14,955,466

c.   $14,725,375

d.   $14,747,642

   70.     A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. What is interest expense for 2013, using straight-line amortization?

a.   $1,540,207

b.   $1,170,000

c.   $1,176,894

d.   $1,184,845

   71.     A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2012?

a.   $390,000

b.   $780,000

c.   $784,248

d.   $784,166

   72.     A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2012 balance sheet?

a.   $9,806,320

b.   $10,000,000

c.   $9,812,562

d.   $9,804,154

   73.     A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013?

a.   $9,835,116

b.   $9,970,312

c.   $9,816,916

d.   $9,831,762

   74.     A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. What is interest expense for 2013, using straight-line amortization?

a.   $770,104

b.   $780,000

c.   $784,596

d.   $789,896

   75.     On January 1, 2012, Huber Co. sold 12% bonds with a face value of $800,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $861,600 to yield 10%. Using the effective-interest method of amortization, interest expense for 2012 is

a.   $80,000.

b.   $85,914.

c.   $86,160.

d.   $96,000.

   76.     On January 2, 2012, a calendar-year corporation sold 8% bonds with a face value of $900,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $830,400 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2012?

a.   $72,000.

b.   $83,040.

c.   $83,316.

d.   $90,000.

The following information applies to both questions 77 and 78.

On October 1, 2012 Macklin Corporation issued 5%, 10-year bonds with a face value of $2,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.

   77.     The entry to record the issuance of the bonds would include a credit of

a.   $50,000 to Interest Payable.

b.   $80,000 to Discount on Bonds Payable.

c.   $1,920,000 to Bonds Payable.

d.   $80,000 to Premium on Bonds Payable.

   78.     Bond interest expense reported on the December 31, 2012 income statement of Macklin Corporation would be

a.   $23,000

b.   $25,000

c.   $27,000

d.   $46,000

 The following information applies to both questions 79 and 80.

On October 1, 2012 Bartley Corporation issued 5%, 10-year bonds with a face value of $3,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.

   79.     The entry to record the issuance of the bonds would include a

a.   credit of $75,000 to Interest Payable.

b.   credit of $120,000 to Premium on Bonds Payable.

c.   credit of $2,880,000 to Bonds Payable.

d.   debit of $120,000 to Discount on Bonds Payable.

   80.     Bond interest expense reported on the December 31, 2012 income statement of Bartley Corporation would be

a.   $40,500

b.   $69,000

c.   $34,500

d.   $37,500

   81.     At the beginning of 2012, Wallace Corporation issued 10% bonds with a face value of $1,500,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,389,600 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2012? (Round your answer to the nearest dollar.)

a.   $172,080

b.   $167,255

c.   $166,750

d.   $166,250

   82.     On January 1, Patterson Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of

a.   $164,700.

b.   $171,300.

c.   $154,830.

d.   $153,000.

   83.     On January 1, Martinez Inc. issued $4,000,000, 11% bonds for $4,260,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of:

a.   $246,840

b.   $246,000

c.   $231,400

d.   $220,000

   84.     At the beginning of 2012, Winston Corporation issued 10% bonds with a face value of $1,200,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,111,680 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2012? (Round your answer to the nearest dollar.)

a.   $133,000

b.   $133,400

c.   $133,804

d.   $137,664

   85.     Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record the redemption will include a

a.   credit of $18,750 to Loss on Bond Redemption.

b.   credit of $18,750 to Discount on Bonds Payable.

c.   debit of $28,750 to Gain on Bond Redemption.

d.   debit of $10,000 to Premium on Bonds Payable.

   86.     Carr Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $518,725. The entry to record the redemption will include a

a.   credit of $18,725 to Loss on Bond Redemption.

b.   debit of $18,725 to Premium on Bonds Payable.

c.   credit of $6,275 to Gain on Bond Redemption.

d.   debit of $25,000 to Premium on Bonds Payable.

   87.     At December 31, 2012 the following balances existed on the books of Foxworth Corporation:

Bonds Payable                                                      $3,000,000

Discount on Bonds Payable                                       240,000

Interest Payable                                                           75,000

Unamortized Bond Issue Costs                                 180,000

If the bonds are retired on January 1, 2013, at 102, what will Foxworth report as a loss on redemption?

a.   $555,000

b.   $480,000

c.   $405,000

d.   $300,000

   88.     At December 31, 2012 the following balances existed on the books of Rentro Corporation:

Bonds Payable                                                      $2,500,000

Discount on Bonds Payable                                       200,000

Interest Payable                                                           60,000

Unamortized Bond Issue Costs                                 150,000

 If the bonds are retired on January 1, 2013, at 102, what will Rentro report as a loss on redemption?

a.   $250,000

b.   $337,500

c.   $400,000

d.   $460,000

   89.     The December 31, 2012, balance sheet of Hess Corporation includes the following items:

9% bonds payable due December 31, 2021          $2,000,000

Unamortized premium on bonds payable                    54,000

The bonds were issued on December 31, 2011, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2013, Hess retired $800,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes.

a.   $37,600.

b.   $21,600.

c.   $37,200.

d.   $40,000.

   90.     On January 1, 2006, Hernandez Corporation issued $3,600,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).

           On December 31, 2012, when the fair value of the bonds was 96, Hernandez repurchased $800,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2012. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as

a.   a loss of $39,200.

b.   a gain of $39,200.

c.   a loss of $48,800.

d.   a gain of $48,800.

   91.     The 10% bonds payable of Nixon Company had a net carrying amount of $760,000 on December 31, 2012. The bonds, which had a face value of $800,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2013, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2013 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2013? Ignore taxes.

a.   $16,000.

b.   $50,400.

c.   $44,800.

d.   $56,000.

   92.     A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $600,000. To extinguish this debt, the company had to pay a call premium of $200,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?

a.   Amortize $800,000 over four years.

b.   Charge $800,000 to a loss in the year of extinguishment.

c.   Charge $200,000 to a loss in the year of extinguishment and amortize $600,000 over four years.

d.   Either amortize $800,000 over four years or charge $800,000 to a loss immediately, whichever management selects.

   93.     The 12% bonds payable of Nyman Co. had a carrying amount of $2,080,000 on December 31, 2012. The bonds, which had a face value of $2,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2013, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is

a.   $0.

b.   $16,000.

c.   $24,800.

d.   $80,000.

   94.     Didde Company issues $15,000,000 face value of bonds at 96 on January 1, 2011. The bonds are dated January 1, 2011, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2014, $9,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2014?

a.   $900,000 loss

b.   $408,000 loss

c.   $540,000 loss

d.   $680,000 loss

   95.     Cortez Company issues $3,000,000 face value of bonds at 96 on January 1, 2011. The bonds are dated January 1, 2011, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2014, $1,800,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2014?

a.   $180,000 loss

b.   $81,600 loss

c.   $108,000 loss

d.   $136,000 loss

   96.     On January 1, 2012, Ann Price loaned $90,156 to Joe Kiger. A zero-interest-bearing note (face amount, $120,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2014. The prevailing rate of interest for a loan of this type is 10%. The present value of $120,000 at 10% for three years is $90,156. What amount of interest income should Ms. Price recognize in 2012?

a.   $9,016.

b.   $12,000.

c.   $36,000.

d.   $27,048.

   97.     On January 1, 2012, Jacobs Company sold property to Dains Company which originally cost Jacobs $950,000. There was no established exchange price for this property. Danis gave Jacobs a $1,500,000 zero-interest-bearing note payable in three equal annual installments of $500,000 with the first payment due December 31, 2012. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,500,000 note payable in three equal annual installments of $500,000 at a 10% rate of interest is $1,243,500. What is the amount of interest income that should be recognized by Jacobs in 2012, using the effective-interest method?

a.   $0.

b.   $50,000.

c.   $124,350.

d.   $150,000.

   98.     On January 1, 2012, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $3,000,000 zero-interest-bearing note payable in 5 equal annual installments of $600,000, with the first payment due December 31, 2012. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $2,163,000 at January 1, 2012. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2012 after adjusting entries are made, assuming that the effective-interest method is used?

a.   $0

b.   $642,330

c.   $669,600

d.   $837,000

   99.     Putnam Company’s 2012 financial statements contain the following selected data:

Income taxes                                      $40,000

Interest expense                                   25,000

Net income                                           60,000

           Putnam’s times interest earned for 2012 is

a.   3.0 times

b.   3.4 times.

c.   4.0 times.

d.   5.0 times.

  100.     In the recent year Hill Corporation had net income of $280,000, interest expense of $60,000, and tax expense of $80,000. What was Hill Corporation's times interest earned ratio for the year?

a.   7.0

b.   5.0

c.   4.7

d.   3.7

  101.     In recent year Cey Corporation had net income of $350,000, interest expense of $70,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

a.   $700,000

b.   $630,000

c.   $560,000

d.   None of the above.

  102.     The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2012, contained the following accounts.

5-year Bonds Payable 8%                                     $2,000,000

Interest Payable                                                           50,000

Premium on Bonds Payable                                       100,000

Notes Payable (3 mo.)                                                  40,000

Notes Payable (5 yr.)                                                 165,000

Mortgage Payable ($15,000 due currently)               200,000

Salaries and wages Payable                                         18,000

Income Taxes Payable (due 3/15 of 2013)            25,000

 The total long-term liabilities reported on the balance sheet are

a.   $2,365,000.

b.   $2,350,000.

c.   $2,465,000.

d.   $2,450,000.

 Use the following information for questions *103 through *105:

 On December 31, 2010, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,200,000 note with $120,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $580,000, an original cost of $960,000, and accumulated depreciation of $460,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2013, reduces the face amount of the note to $500,000, and reduces the interest rate to 6%, with interest payable at the end of each year.

*103.   Nolte should recognize a gain or loss on the transfer of the equipment of

a.   $0.

b.   $80,000 gain.

c.   $120,000 gain.

d.   $380,000 loss.

  *104.   Nolte should recognize a gain on the partial settlement and restructure of the debt of

a.   $0.

b.   $30,000.

c.   $110,000.

d.   $150,000.

  *105.   Nolte should record interest expense for 2013 of

a.   $0.

b.   $30,000.

c.   $60,000.

d.   $90,000.

  Multiple Choice Answers—Computational

    Multiple Choice—CPA Adapted

  106.     On July 1, 2012, Spear Co. issued 3,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2012 and mature on April 1, 2022. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?

a.   $3,045,000

b.   $3,000,000

c.   $2,970,000

d.   $2,895,000

  107.     On January 1, 2012, Solis Co. issued its 10% bonds in the face amount of $4,000,000, which mature on January 1, 2022. The bonds were issued for $4,540,000 to yield 8%, resulting in bond premium of $540,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2012, Solis's adjusted unamortized bond premium should be

a.   $540,000.

b.   $503,200.

c.   $486,000.

d.   $406,000.

  108.     On July 1, 2011, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which mature on July 1, 2017. The bonds were issued for $9,390,000 to yield 10%, resulting in a bond discount of $610,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2013, Noble's unamortized bond discount should be

a.   $528,100.

b.   $510,000.

c.   $488,000.

d.   $430,000.

  109.     On January 1, 2012, Huff Co. sold $3,000,000 of its 10% bonds for $2,655,888 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2012?

a.   $132,798

b.   $150,000

c.   $159,353

d.   $180,000

  110.     On January 1, 2013, Doty Co. redeemed its 15-year bonds of $3,500,000 par value for 102. They were originally issued on January 1, 2001 at 98 with a maturity date of January 1, 2016. The bond issue costs relating to this transaction were $210,000. Doty amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Doty recognize on the redemption of these bonds (ignore taxes)?

a.   $126,000

b.   $84,000

c.   $70,000

d.   $0

  111.     On its December 31, 2012 balance sheet, Emig Corp. reported bonds payable of $9,000,000 and related unamortized bond issue costs of $480,000. The bonds had been issued at par. On January 2, 2013, Emig retired $4,500,000 of the outstanding bonds at par plus a call premium of $105,000. What amount should Emig report in its 2013 income statement as loss on extinguishment of debt (ignore taxes)?

a.   $0

b.   $105,000

c.   $240,000

d.   $345,000

  112.     On January 1, 2008, Goll Corp. issued 4,000 of its 10%, $1,000 bonds for $4,160,000. These bonds were to mature on January 1, 2016 but were callable at 101 any time after December 31, 2011. Interest was payable semiannually on July 1 and January 1. On July 1, 2013, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2013 on this early extinguishment of debt was

a.   $120,000 gain.

b.   $48,000 gain.

c.   $40,000 loss.

d.   $32,000 gain.

  113.     On June 30, 2013, Omara Co. had outstanding 8%, $4,000,000 face amount, 15-year bonds maturing on June 30, 2023. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2013 were $140,000 and $40,000, respectively. On June 30, 2013, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?

a.   $3,960,000.

b.   $3,860,000.

c.   $3,820,000.

d.   $3,760,000.

  114.     A ten-year bond was issued in 2011 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2013, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2013 should have equaled the

a.   call price.

b.   call price less unamortized discount.

c.   face amount less unamortized discount.

d.   face amount plus unamortized discount.

  115.     Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a

a.   gain, net of income taxes.

b.   loss, net of income taxes.

c.   part of continuing operations.

d.   deferred credit to be amortized over the life of the new debt.

  *116.   Eddy Co. is indebted to Cole under a $600,000, 12%, three-year note dated December 31, 2011. Because of Eddy's financial difficulties developing in 2013, Eddy owed accrued interest of $72,000 on the note at December 31, 2013. Under a troubled debt restructuring, on December 31, 2013, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of $540,000. Eddy's acquisition cost of the land is $435,000. Ignoring income taxes, on its 2013 income statement Eddy should report as a result of the troubled debt restructuring

                 Gain on Disposal      Restructuring Gain

           a.        $237,000                    $0

           b.        $165,000                    $0

           c.        $105,000                    $60,000

           d.       $105,000                    $132,000

Multiple Choice Answers—CPA Adapted

  IFRS QUESTIONS

 True/False

1.   Similar to U.S. practice, IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity.

 2.   Similar to U.S. practice, IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of magnitude.

 3.   Both IFRS and U.S. GAAP prohibit the recognition of liabilities for future losses.

 4.   IFRS and U.S. GAAP are similar in the treatment of asset retirement obligations.

 5.   The recognition criteria for an asset retirement obligation (ARO) are more stringent under IFRS.

 6.   IFRS and U.S. GAAP are dissimilar in their treatment of contingencies.

 7.   The criteria for recognizing contingent assets are more stringent under U.S. GAAP.

 8.   Under IFRS, the measurement of a provision related to a contingency is based on an average estimate of the expenditure required to settle the obligation.

 9.   U.S. GAAP permits recognition of a restructuring liability, once a company has committed to a restructuring plan.

 10. The recognition criteria for an ARO are more stringent under U.S. GAAP: The ARO is not recognized unless there is a present legal obligation and the fair value of the obligation can be reasonably estimated.

 Answers to True/False:

  Multiple Choice Questions

1.   The primary IFRS related to reporting and recognition of liabilities is found in

a.   IAS 10 and IAS 39.

b.   IAS 17 and IAS 23.

c.   IAS   1 and IAS 37.

d.   IAS 27 and IAS 32.

2.   Similar to U.S. practice, IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet with current liabilities

a.   generally presented in order of magnitude.

b.   presented in alphabetic order.

c.   presented in order of liquidity.

d.   presented in the order in which they were incurred.

 3.   Under IFRS, the measurement of a provision related to a contingency is based on

a.   the best estimate of the expenditure required to settle the obligation.

b.   the minimum amount from among a number of alternative estimates.

c.   an average from among a number of alternative estimates.

d.   whatever management feels that shareholders would be willing to accept because of the impact on current earnings.

 4.   Both U.S. GAAP and IFRS prohibit

a.   the recognition of a restructuring liability, once a company has committed to a restructuring plan.

b.   the recognition of liabilities for future losses.

c.   communicating information on a restructuring plan to employees, before a liability can be established.

d.   all of the above.

 5.   IFRS and U.S. GAAP are

a.   similar in the treatment of asset retirement obligations (AROs).

b.   significantly different when it comes to the treatment of asset retirement obligations (AROs).

c.   continuing to evolve in the area of asset retirement obligations (AROs).

d.   in conflict with respect to the accounting for and presentation of asset retirement obligations (AROs).

 6.   Both IFRS and U.S. GAAP permit valuation of long-term debt and other liabilities at

a.   present value discounted at the firm's cost of capital.

b.   current market values of the obligations, based on changes in the discount rate with unrealized gains and losses reflected in a separate account in stockholders' equity.

c.   fair value with gains and losses on changes in fair value recorded in income in certain situations.

d.   historic costs without reflecting changes in valuation as obligations will be retired at their maturity date.

 7.   As there is no comparable institution to the SEC in international securities markets, many international companies (those not registered with the SEC)

a.   voluntarily adhere to SEC criteria in providing information related to contractual obligations.

b.   are not required to provide disclosures such as those related to contractual obligations.

c.   follow the requirements established for contractual obligations put forth by the IASB.

d.   follow the requirements established for contractual obligations put forth by the FASB.

 8.   Under U.S. GAAP, contingent assets for insurance recoveries are recognized if __________; IFRS requires the recovery be "___________" before recognition of an asset is permitted.

a.   probable and virtually certain

b.   possible and very likely

c.   possible and definite

d.   certain and probable

 9.   IFRS rules for establishing restructuring liabilities could be used as an earnings management tool because IFRS rules are

a.   more-stringent that U.S. GAAP.

b.   less-stringent that U.S. GAAP.

c.   virtually the same as U.S. GAAP.

d.   totally different than U.S. GAAP.

 10. A concern with IFRS is that its less-stringent rules for establishing restructuring liabilities could be used as

a.   a more appropriate method than that employed under U.S. GAAP.

b.   an appropriate method, but complex and difficult to explain to shareholders.

c.   a method readily employed to make the understanding of financial information more comprehensible to shareholders.

d.   an earinings management tool.

  Answers to multiple choice:

  IFRS Short Answer:

 1.   Briefly describe some of the similarities and differences between U.S. GAAP and IFRS with respect to the accounting for liabilities.

       1.   Among the similarities are: (1) IFRS requires that companies present current and non-current liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity, (2) Both GAAPs prohibit the recognition of liabilities for future losses; (3) IFRS and U.S. GAAP are similar in the treatment of asset retirement obligations (AROs), and (4) IFRS and U.S. GAAP are similar in their treatment of contingencies.

 2.   Briefly discuss how accounting convergence efforts addressing liabilities is related to the IASB/FASB conceptual framework project.

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ECO 405 Week 9 Quiz – Strayer

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 Quiz 8 Chapter 11 and 12

 Economic Growth: Why Is The Economic Road So Bumpy?

  Multiple Choice Questions  

1. Which Of The Following Is Consistent With Economic Growth?  A. Lower Unemployment B. Increased Gdp C. Increased Aggregate Demand D. Increased Sales E. All Of The Above

 2. Why Is Economic Growth An Important Economic And Social Issue?  A. Economic Growth Leads To Improvements In Our Standard Of Living B. Lower Levels Of Unemployment And Poverty Can Be Achieved Through Economic Growth C. A Growing Economy Provides Consumers With More Choices And Opportunities D. All Of The Above E. Economic Growth Is Not An Important Economic Issue

 3. Which Of The Following Statements Is  About Economic Growth?  A. Economic Growth Is A Short-Run Process B. Growth Of An Economy Is Generally A Smooth Process That Occurs Over Time C. Economic Growth Is A Long-Run Process Resulting From The Compounding Of Many Events D. To Measure Economic Growth, Economists Analyze Changes In The National Debt E. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth

 4. Which Of The Following Is The Most Commonly Used Measurement Of Economic Growth? Changes In  A. Real Gdp B. The Money Supply C. Nominal Gdp D. The Federal Government Debt E. The Level Of International Trade

 5. Why Do Small Differences In Economic Growth Rates Today Result In Significant Differences In The Level Of Economic Activity In The Future?  A. Growth Rates Discount Over Time B. Economic Growth Compounds Year After Year C. Economics Grow In An Arithmetic Fashion D. Business Cycles Are Less Likely At Higher Rates Of Growth E. All Of The Above

 6. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country A's Level Of Real Gdp After 3 Years?  A. $1,000 B. $1,050 C. $1,158 D. $1,500 E. $2,500

 7. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country B's Level Of Real Gdp After 3 Years?  A. $1,000 B. $1,100 C. $1,210 D. $1,300 E. $1,331

 8. Of The Following, Which Of The Following Values Most Closely Approximates The Average Annual Rate Of Growth For The U.S. Economy Since 1960?  A. 1.65% B. 10.22% C. 5.35% D. 4.02% E. 3.26%

 9. Which Decade Resulted In The Lowest Average Annual Rate Of Economic Growth In The U.S.?  A. 1950s B. 1960s C. 1970s D. 1980s E. Unknown

 10. Which Of The Following Decades Had The Highest Average Annual Rate Of Economic Growth In The U.S.?  A. 1930s B. 1960s C. 1970s D. 1980s E. 1990s

 11. What Term Is Used To Describe An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend?  A. Economic Depression B. Economic Boom C. Business Cycle D. Recession E. Diminishing Returns

 12. Which Of The Following Is Not A Phase Of Every Business Cycle?  A. Trough B. Expansion C. Contraction D. Depressions E. Peak

 13. Which Of The Following Lists The Four Phases Of The Business Cycle In The Correct Sequence?  A. Expansion, Peak, Contraction, Trough B. Expansion, Contraction, Peak, Trough C. Expansion, Peak, Contraction, Depression D. Expansion, Peak, Depression, Trough E. Peak, Recession, Trough, Depression

 14. Which Phase Of The Business Cycle Best Describes An Economy That Is Experiencing A Positive Rate Of Economic Growth?  A. Expansion B. Peak C. Contraction D. Trough E. Depression

 15. When The Economy Ends An Expansion, It Enters Which Phase Of The Business Cycle?  A. Expansion B. Peak C. Contraction D. Trough E. Depression

 16. A Decline In The Level Of Economic Activity Occurs During Which Phase Of The Business Cycle?  A. Expansion B. Peak C. Contraction D. Trough E. Depression

 17. When Economic Output Hits A Short-Run Economic Low, The Economy Is In Which Phase Of The Business Cycle?  A. Expansion B. Peak C. Contraction D. Trough E. Depression

 18. An Exceptionally Strong And Prolonged Contraction Is Known As  A. A Trough B. A Recession C. An Economic Bust D. A Super Contraction E. A Business Cycle

 19. The Last Depression Experienced By The U.S. Economy Occurred  A. During The 1970s B. In 1982 C. During The 1930s D. Between 1974-1975 E. In 1990

 20. What Is The Average Length Of A Typical Business Cycle In The Modern U.S. Economy?  A. 12 Months B. 36 Months C. 60 Months D. 95 Months E. 120 Months

 21. Which Group Is Responsible For Announcing The Dates For Each Phase Of A U.S. Business Cycle?  A. The Federal Reserve B. The National Bureau Of Economic Research C. The Department Of Commerce D. The Bureau Of Labor Statistics E. The Federal Business Cycle Committee

 22. The Most Commonly Used Tool To Forecast Future Changes In Economic Activity Is The  A. Leading Economic Indicators Index B. Supply Of Money C. Unemployment Rate D. Lagging Economic Indicators Index E. Federal Budget Deficit

 23. The Economic Variables That Make Up The Leading Economic Indicators Index Tend To Move In The ______ Direction As Overall Economic Output And Do So _____ Changes In Real Gdp.  A. Opposite; Prior To B. Same; After C. Opposite; After D. Same; Prior To E. Same; Simultaneously As

 24. Which Of The Following Is Not  About Business Cycles?  A. All Business Cycles Have Four Distinct Phases B. The Average Length Of A U.S. Business Cycle Is About 60 Months C. Since 1960, The U.S. Has Experienced Six Complete Business Cycles D. The Last Economic Depression In The U.S. Occurred In The 1930s E. The Turning Points Of A Business Cycle Can Be Easily Predicted

 25. What Do You Call Business Cycle Theories Based On The Belief That Economic Activity Follows General Trends Of Optimism And Pessimism?  A. Theories Of Expectations B. Real Business Cycle Theories C. Theories Of Innovation D. Theories Of Externalities E. Sunspot Theories

 26. Which Of The Following Economists Is Associated With The Business Cycle Theory Of Innovations?  A. John Maynard Keynes B. William Stanley Jones C. Joseph Schumpeter D. Ansel Sharp E. Adam Smith

 27. Monetary Theories Of The Business Cycle Postulate That Cycles Are Strongly Influenced By The Policy Actions Of The  A. U.S. Congress B. Federal Reserve C. World Trade Organization D. National Bureau Of Economic Research E. U.S. Department Of Commerce

 28. Which Of The Following Focuses Primarily On Aggregate Supply Variables?  A. Theory Of Expectations B. Exogenous Theories C. Monetary Theories D. Real Business Cycle Theories E. Jevons' Sunspot Theory

 29. What Was The First Theory Put Forth By An Economist To Explain The Phenomena Of Business Cycles?  A. Inventory Theory B. Schumpeter's Theory Of Innovation C. Real Business Cycle Theories D. Theory Of Expectations E. Jevons' Sunspot Theory

 30. What Are The Two Primary Determinants Of Economic Growth?  A. The Availability Of Resources And Productivity Factors B. Technology And Money C. The Quantity Of Capital And The Quantity Of Money D. The Ability To Trade And The Size Of The Labor Force E. Comparative Advantage And The Law Of Diminishing Returns

 31. What Is The Result Of A Growing Labor Force?  A. Lower Rates Of Interest In The Capital Market B. Higher Rates Of Unemployment C. The Economy's Production Possibilities Curve Shifts Outward D. The Economy's Production Possibilities Curve Shifts Inward E. The Economy's Rate Of Growth Must Slow To Accommodate More People

 32. Which Of The Following Terms Is Used To Describe The Purchase Of Capital?  A. Savings B. Consumption C. Technology D. Investment E. Production

 33. Why Does Spending On Capital Tend To Increase Economic Growth More Than Spending Of Consumption Goods? Because  A. Capital Lasts Longer Than Consumer Goods B. Capital Can Be Used To Produce Future Goods And Services C. Capital Puts Technology To Use D. People Prefer To Invest In Capital In Order To Generate Income E. Capital Purchases Are Taxed At A Lower Rate Than Consumption Purchases

 34. What Was The Primary Opportunity Cost Of The Former Soviet Union's Policy To Heavily Invest In Capital For Economic Growth?  A. An Inability To Trade With Other Nations B. Democracy C. Foregone Consumer Goods D. Technological Innovations E. Foregone Military Goods

 35. Initially 10 Workers Produce 100 Units Of Output In An Economy. The Next Year, 20 Workers Produce 250 Units Of Output In The Same Economy. Productivity In The Economy Has  A. Doubled B. More Than Doubled C. Increased D. Decreased E. Not Changed

 36. Which Of The Following Is The Best Definition Of "Productivity"?  A. A Measurement Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process B. A Measurement Of How Technology Increases The Ability Of An Economy To Produce Goods And Services C. The Ratio Of Inputs To Output D. The Quantity Of Goods And Services Produced During A Given Period Of Time By Labor E. The Total Output Produced In An Economy Given Its Set Of Resources And The Current State Of Technology

 37. How Do You Calculate The Average Product Of Labor?  A. Total Quantity Of Inputs Divided By Total Output B. The Average Number Of Workers Times The Average Level Of Output Produced C. Total Output Produced Divided By Total Units Of Labor Employed D. Total Units Of Labor Employed Divided By The Total Output Produced E. The Average Number Of Labor Units Employed Times The Quantity Of Capital Employed

 38. In An Economy, 100 Workers Can Produce 500 Units Of Output And 110 Workers Produce 600 Units Of Output. Which Of The Following Is ? The Average Product With  A. 100 Workers Is 500 B. 100 Workers Is 5 C. 110 Workers Is 600 D. 10 Workers Is 100 E. Both A) And C)

 39. In An Economy, 10 Workers Can Produce 500 Units Of Output And 20 Workers Produce 800 Units Of Output. Which Of The Following Is ? The Average Product With  A. 10 Workers Is 500 B. 10 Workers Is 5 C. 20 Workers Is 800 D. 20 Workers Is 300 E. 20 Workers Is 40.

 40. What Is Technology?  A. The Tools Of Production B. The Human Input Of Production C. Computers, Robots, And Factories D. The Means And Methods Of Production E. The Mix Of Labor And Capital Used In Production

 41. Which Of The Following Is Cited As Contributing To The Recent Slowdown In Economic Growth?  A. Slower Rates Of Technological Advancement B. Changes In Composition Of The Labor Force C. Low Rates Of Saving And Investment D. Government Regulation And Public Debt E. All Of The Above

 42. How Has The Increasing Importance Of The U.S. Service Sector Contributed To The Slowdown In Economic Growth?  A. Services Are Less Important To The Economy Than Goods B. The Productivity Of The Service Sector Is Hard To Accurately Measure C. Most Investment Takes Place In The Goods Producing Sector Of The Economy D. Services Cannot Be Easily Exported To Foreign Nations E. Technological Advances Have Had A Smaller Impact On The Service Sector

 43. What Is The "Crowding Out" Effect?  A. Consumption Spending Is Reduced Because Of Spending On Capital B. Capital Spending Is Reduced Because People Purchase Great Quantities Of Consumer Goods C. Private Investment Is Reduced Because Government Borrowing Diverts Dollars Away D. Government Spending Creates A Larger Demand For Capital Goods E. Savings Is Insufficient To Support The Level Of Capital Investment In The Economy

 44. Which Of The Following Is A "Pro-Growth" Economic Policy?  A. Raising The Tax On Capital Gains B. Encouraging People To Save Less C. Reducing Public Dollars Available For Education D. Investing In Human Capital E. None Of The Above

 45. How Much Does The Federal Government Spend Annually On Research And Development?  A. Less Than 1% Of Gdp B. About 10% Of Gdp C. More Than 25% Of Its Budget D. Zero E. Exactly 5% Of Its Budget

 46. Which Theories Concerning The Business Cycle Focus On Factors Outside Of The Economy?  A. Expectations Theories B. Inventory Theories C. Exogenous Theories D. Monetary Theories E. Theories Of Innovation

 47. The Economic Growth Of An Economy Is Generally Measured By Examining Changes In  A. Employment B. Real Gdp C. Income D. Government Revenues E. Current Gdp

 48. Which Of The Following Statements Is ?  A. The U.S. Economy Grew At A Higher Rate In The 1980s Than It Did In The 1960s B. The Leading Economic Indicators Index Is Useful For Predicting Economic Recessions, But Not Economic Expansions C. The Economist Most Often Associated With Theories Of Innovation Used To Explain Business Cycles Is Milton Friedman D. A Small Reduction In Economic Growth Can Have Large Long-Run Effects On Real Gdp E. All Of The Above Statements Are  

 49. How Many Complete Business Cycles Has The U.S. Experienced Since 1960?  A. 7 B. 1 C. 12 D. 2 E. 23

 50. Relative To The Past, Business Cycles In The U.S. Are Becoming  A. Shorter In Duration B. More Severe C. Longer In Duration D. (A) And (B) E. Non-Existent

 51. Which Of The Following Is Responsible For Officially Tracking The Index Of Leading Economic Indicators?  A. The U.S. Department Of Commerce B. The Conference Board C. The Bureau Of Labor Statistics D. The Council Of Economic Advisors E. The Federal Reserve Board Of Governors

 52. Which Of The Following Is Not A Component Of The Index Of Leading Economic Indicators?  A. Stock Market Prices B. An Index Of Consumer Expectations C. New Building Permits Granted D. Real Money Supply E. None Of The Above. All Are Part Of The Index

 53. In Response To An Economic Recession, Monetary Theories Of The Business Cycle Predict That The Federal Reserve Would  A. Increase The Supply Of Money To Create An Expansion B. Reduce The Supply Of Money To Create An Expansion C. Raise Interest Rates To Increase Real Economic Growth D. Increase The Demand For Money To Bring About Economic Growth E. Lower Taxes To Avoid A Full Depression

 54. Which Famous Economist Is Associated With The Sunspot Theory Of Business Cycles?  A. Joseph Schumpeter B. Milton Friedman C. William Stanley Jevons D. John Maynard Keynes E. Charles Alan Register

 55. Which Set Of Theories Can Be Used To Explain All Business Cycles?  A. Exogenous Theories B. Theories Of Innovation C. Inventory Theories D. Monetary Theories E. None Of The Above. No One Theory Can Explain Every Business Cycle

 56. For An Economy To Expand Its Investment In The Production Of Capital Goods, It Must  A. Enhance Its Current Level Of Technology B. Forego Some Production Of Consumer Goods And Services C. Expand Its Geographic Territory D. Increase Its Real Supply Of Money E. Reduce The Level Of Savings By Consumers

 57. The Quantity Of Capital In The U.S. Economy Has Grown At A Rate ________ The Growth In The Labor Force.  A. Slower Than B. About The Same As C. Faster Than D. Only Half As Much As E. Unknown

 58. Human Capital Refers To  A. Foregone Earnings Of Students Enrolled In College B. Money Required To Enroll In Educational Programs C. Slaves Owned By Capitalists D. Skills And Training That Increase A Worker's Productivity E. Factories And Equipment Owned By Workers

 59. The First Decade Of The 21st Century Has Been Characterized By ______.  A. A Booming Economy Through The Period B.  A Recession At The Start Of The Decade, Followed By A Slow Recovery And Then A Second Recession C. Stagflation D. One Recession Followed By An Unprecedented Economic Boom E. None Of The Above

 60. Which Of The Following Statements Is ?  A. In The Foreseeable Future, Real Gdp Will Grow Slower Than The U.S. Population B. Based On Past Economic Performance, It Is Likely That Standards Of Living In The U.S. Will Fall During The Early Part Of The 21st Century C. Real Per Capita Gdp Will Likely Increase In The Near Future Due In Part To The Slowdown In The Rate Of Population Growth D. In Economics, The Past Is A Very Poor Predictor Of The Future E. The Rate Of Economic Growth Does Not Affect Individual People

  Questions 61 - 65 Refer To The Graph Below.

  61. An Economy's Production Possibilities Curve Will Shift Out The Farthest In 2017 If It Chooses To Operate At Which Point In 2012?  A. A B. B C. C D. F E. E

 62. An Increase In Labor Resources Will Cause Which Of The Following Shifts On The Graph?  A. Bf To Ag B. Ag To Bf C. D To C D. C To D E. D To E

 63. Economic Growth Is Represented On The Graph As A Movement From  A. Bf To Ag B. Ag To Bf C. D To C D. C To D E. D To E

 64. An Increase In Productivity Is Consistent With Which Of The Following Movements?  A. Bf To Ag B. Ag To Bf C. D To C D. C To D E. D To E

 65. A Movement From Point D To Point C Is Consistent With  A. An Increase In Capital Goods Without A Decrease In Consumer Goods B. Technological Change Between 2012 And 2017 C. An Increase In Productivity Between 2012 And 2017 D. All Of The Above E. None Of The Above

  Questions 66 - 70 Refer To The Graph Below.   

 66. An Economic Expansion Is Illustrated On The Graph  A. At Point T2 B. At Point T3 C. Between T1 And T2 D. Between T2 And T3 E. Along The Straight Line

 67. An Economic Contraction Is Illustrated On The Graph  A. At Point T2 B. At Point T3 C. Between T1 And T2 D. Between T2 And T3 E. Along The Straight Line

 68. A Peak In The Business Cycle Is Illustrated On The Graph  A. At Point T2 B. At Point T3 C. Between T1 And T2 D. Between T2 And T3 E. Along The Straight Line

 69. A Trough In The Business Cycle Is Illustrated On The Graph  A. At Point T2 B. At Point T3 C. Between T1 And T2 D. Between T2 And T3 E. Along The Straight Line

 70. The Straight Line On The Graph Represents  A. An Economic Expansion B. An Economic Contraction C. A Business Cycle D. A Long-Run Growth Trend E. A Boom Period

 71. The Longest Sustained Period Of Economic Growth In Modern U.S. History Occurred During The  A. 1920s B. 1950s C. 1960s D. 1980s E. 1990s

 72. Which Of The Following Factors Was Not One Of The Reasons Why A Recession Started In 2008?  A. The Collapse Of A Speculative Bubble In The Real Estate Market B. A Spike In Interest Rates C. A Significant Rise In The World Price Of Oil D. A Series Of Financial Fraud Schemes In The Financial Industry E. All Of The Above

 73.  The Decline That Occurred In Real Gdp In The Fourth Quarter Of 2008 Was ________ .

A. The Smallest Decrease On Record B. The Average Reduction C. Smaller Than The Decrease In The Third Quarter D. The Largest In Over 50 Years E. There Was No Decline In Real Gdp During 2008

74. Which Of The Following Contributed To The Inflation-Free Economic Expansion Of The 1990s And Early 2000s?  A. Fed Policies To Raise Interest Rates B. An Increase In Aggregate Supply C. Improvements In Productivity D. Improvements In Technology E. All Of The Above

 75. Productivity Gains In The 1990s Were A Result Of Which Of The Following?  A. Capital Investment B. Improved Labor Quality C. Technological Progress D. Increased Use Of Computers E. All Of The Above

 76. Saving In An Economy Is Important For Economic Growth Because  A. If Households Don't Save, They Cannot Consume In The Future B. Without Saving, Aggregate Demand Increases C. One Person's Saving Is Another Person's Consumption D. It Is The Source Of Funds For Investment E. Of None Of The Above; Saving Is Not Important For Economic Growth

 77. Which Of The Following Is Not Something That Will Increase Economic Growth?  A. Expenditures On Research And Development B. Increased Education C. Using Resources To Develop Additional Capital D. Replacing Old Machinery E. All Of The Above Will Increase Economic Growth

 78. According To Real Business Cycle Theory, The Primary Factor That Increases Aggregate Supply Is  A. Savings B. Increases In The Size Of The Labor Force C. Technological Improvements D. Government Spending E. Reductions In Regulation

   True / False Questions  

79. Economic Growth Is Necessary To Create New Jobs, Increase Incomes, And Raise Standards Of Living. 

 80. Economic Growth Is An Important Social Issue, But It Is Not Related To Other Problems Such As Unemployment And Poverty. 

 81. Economists Consider Economic Growth As A Short-Run Process. 

 82. Between 1960 And The Mid-1990s, The American Economy More Than Tripled Its Level Of Real Gdp. 

 83. During The Past Three Decades, The U.S. Economy Experienced Significant Periods Of Growth Without Interruption. 

 84. Even Small Differences In Growth Rates Can Result In Significant Gaps In Gdp Between Two Countries Over The Long Run. 

 85. Economic Growth Compounds Over Time. 

 86. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth. 

 87. U.S. Economic Growth Rates In The 1990s Have Been Higher Than Those Experienced In The 1960s. 

 88. An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend Is Called A Business Cycle. 

 89. Every Business Cycle Has Four Distinct Phases; Expansion, Peak, Contraction, And Trough. 

 90. Strong Economic Expansions Are Sometimes Referred To As Economic Booms. 

 91. Another Name For The Trough Of A Business Cycle Is Recession. 

 92. Each Phase Of A Business Cycle Has Approximately The Same Duration. 

 93. Since Wwii, The Average Length Of A Typical U.S. Business Cycle Is Approximately 60 Months. 

 94. Given Modern Data Collection Techniques, It Is Very Easy To Identify When The Economy Is About To Move Into The Next Phase Of A Business Cycle. 

 95. In The U.S., The Official Dates For Each Phase Of A Business Cycle Are Determined After The Fact By The National Bureau Of Economic Research (Nber). 

 96. The Index Of Leading Economic Indicators Is Used By Economists To Forecast Changes In Economic Performance Over Time. 

 97. The Components Of The Index Of Leading Economic Indicators Tend To Change Prior To Changes In The Economy As A Whole. 

 98. The Components Of The Index Of Leading Economic Indicators Lead Changes In The Aggregate Economy, But Move In An Opposite Direction. 

 99. Economists Have Agreed Upon One Widely Accepted Theory To Explain Business Cycle Behavior. 

 100. Expectations About The Future Influence The Economic Decisions That People Make Today. 

 101. Joseph Schumpeter Theorized That Business Cycles Were Determined Primarily By Long-Run Waves Of Innovation. 

 102. Monetary Theories Of Business Cycles Are Based On How The Federal Reserve Manages The Money Supply In Response To Changing Economic Conditions. 

 103. Real Business Cycle Theorists Postulate That Economic Fluctuations Are Primarily Due To Changes In Aggregate Demand. 

 104. Jevons' Sunspot Theory Of The Business Cycle Is Widely Used By Economists Today To Forecast Future Levels Of Economic Activity. 

 105. The Primary Determinants Of Economic Growth Include The Availability Of Resources And Productivity Factors. 

 106. As An Economy's Labor Force Increases In Size, Its Production Possibilities Frontier Shifts Outward. 

 107. The U.S. Labor Force Has Not Grown Substantially During The Past Four Decades. 

 108. The Term Investment Is Used To Describe The Purchase Of Consumer Goods By Households In The Economy. 

 109. Investments In Capital Goods Increase An Economy's Ability To Produce Consumer Goods In The Future. 

 110. In Recent Years, Capital Has Grown At A Slower Rate Than The Labor Force Within The U.S. Economy. 

 111. Productivity Is A Measure Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process. 

 112. The Total Output Produced Divided By The Total Units Of Labor Employed Is Called The Average Product Of Labor. 

 113. Productivity Is Not Influenced By The Law Of Diminishing Returns. 

 114. The Average Level Of Educational Attainment In The U.S. Has Been Gradually Declining Since The Mid-1970s. 

 115. Technology Refers To The Means And Methods Of Production. 

 116. On Average, The U.S. Economy Has Grown About 3.12% Annually Since 1960. 

 117. The U.S. Economy Grew At A Faster Rate In The 1980s Relative To The 1960s. 

 118. In The 1990s, The U.S. Economy Grew At An Average Annual Rate Of Only 2.1%. 

 119. The Rate Of Technological Growth In The U.S. Economy Is Higher Today Than It Was In The 1960s. 

 120. Capital Accumulation In An Economy Is Dependent Upon Savers To Provide Funds For Investors. 

 121. The Increasing Importance Of The Service Sector In The American Economy May Lead To An Overestimation Of Economic Growth. 

 122. Some Forms Of Government Regulation Of Business May Reduce Productivity And Therefore Contribute To The Slowdown Of Economic Growth. 

 123. "Crowding Out" Occurs When Government Borrowing To Finance Its Debt Diverts Funds Away From The Private Sector. 

 123. The Size Of The American Economy Will Double Within The Next Ten Years. 

 125. Currently, The Population Of The U.S. Is Growing At A Faster Rate Than Real Gdp Is Growing. 

 126. To Stimulate Additional Economic Investment, Some Policy Makers Favor Increasing The Tax Rate On Capital Gains. 

 127. Government Policies That Subsidize Higher Education Should Stimulate Labor Productivity And Enhance Long-Run Economic Growth. 

 128. The U.S. Government Spends Less Than 1% Of Gdp On Research And Development Each Year. 

 129. In Economics, The Past Is A Very Poor Predictor Of The Future. 

 130. The Slowdown In The Rate Of Population Growth Has Increased The Growth Rate In The Real Per Capita Gdp For The U.S. 

 131. The Rate Of Economic Growth Affects Everyone Living In An Economy. 

 132. Most Economic Forecasts Of The Near Future Predict That The Standard Of Living In The United States Will Fall. 

 133. One Strategy To Promote Economic Growth Is To Encourage People To Save More. 

 134. Savings Can Only Occur When The Economy Is In The Expansion Phase Of A Business Cycle. 

 135. A Reduction In Savings Will Lead To A Reduction In The Level Of Investment. 

 136. The Average Annual Rate Of Growth For The U.S. Economy During The Twentieth Century Was Between 3% And 3.5%. 

 137. The Most Important Determinants Of Economic Growth Are The Availability Of Resources And Productivity Factors. 

 138. Close Examination Of The Recent History Of Real Gdp In The U.S. Reveals That The Rate Of Economic Growth Has Been Diminishing Over Time. 

 Chapter 12

 Money, Banking, And The Financial System: Old Problems With New Twists

Multiple Choice Questions

 1. Commercial Banks Operate  A. By Attracting Deposits And Making Loans B. Both Pay And Charge Interest C. By Engaging In Financial Intermediation D. All Of The Above E. Under The Control Of State Governments

  2. Commercial Banks A. Attract Deposits By Offering To Pay Interest B. Sell New Issues Of Stocks And Bond C. Operate On A Non-Profit Basis D. Attract Deposits By Offering Free Toasters E. None Of The Above

 3. Commercial Banks A. Started By Offering Credit To Wealthy Landowners B. Began As Goldsmiths That Provided Receipts To Customers Who Stored Their Gold With The Goldsmith C. Operate In Both The Primary And Secondary Financial Markets D. Operate Only In Cities With Major Financial Markets E. Began In Germany

  4. A Financial Intermediary   A. Seeks Deposits B. Makes Loans C. Matches Up Savers And Borrowers D. All Of The Above E. Operates In Between Two Banks

  5.  Investment Banks A. Make Loans To Individual Households To Buy Houses And Cars B. Work With Corporations To Finance Their Operations Through Primary Financial Markets C. Work With Corporations To Finance Their Operations Through Secondary Financial Markets D. Work With Investments From Private Individuals E. None Of The Above

 6.  A Stock Is

A. A Financial Instrument That Provides Ownership Rights To Shareholders B. A Financial Instrument That Provides Annual Payments Of Interest C. A Financial Instrument That Is Traded Only In Primary Financial Markets

D. A Financial Instrument That Is Bought And Sold By Commercial Banks E. All Of The Above

 7. A Dividend

A. Must Be Paid By A Commercial Banks B.  Must Be Paid By Corporations To Owners Of The Company’s Stock C.  Is A Distribution Of A Corporation’s Profits To Stockholders

D. Is A Financial Instrument That Is Bought And Sold By Commercial Banks E. None Of The Above

 8.  Corporations Raise Funds In A. The Money Market B.  The Primary Financial Market C.  The Secondary Financial Market  

D. Both The Primary And Secondary Financial Markets E. None Of The Above

 9.  When A Person Buys A Stock On A Stock Exchange They Are Participating In

A. The Money Market B. The Primary Financial Market C. The Secondary Financial Market  

D. Both The Primary And Secondary Financial Markets E. None Of The Above

  10.  Insurance Policies

A. Require An Initial, One-Time Payment By Policy Holders But No Further Outlay

B. Make Payments To Policy Holders On A Monthly Basis C. Require A Regular Payment Of Insurance Premiums By Policy Holders

D. Require An Initial Payment And Regular Payments Of Insurance Premiums By Policy  Holders E. None Of The Above

  11.  The Financial Crisis Of 2008 Affected

A. Only Commercial Banks

B. Only Investment Banks

C. Only Insurance Companies

D. All Of The Above E. The Revenues Of Only State Governments

 12.  In The Early Years Of The American Republic, The First Bank Of The United States Was Established Through The Efforts Of

A. Thomas Jefferson

B. George Washington

C. James Madison

D. Alexander Hamilton

E. Aaron Burr

 13.  During Most Of The 1800s, The Federal Monetary Authority Was Called

A. The Bank Of America

B. The Bank Of Washington

C. The First National Bank

D. The Third Bank Of The United States

E. None Of The Above

 14.  Throughout The History Of The U.S., Until The Creation Of The Federal Reserve System In 1913, The Monetary System Was

A. Characterized By A Series Of Panics And Periods Of Instability B. Under The Control Of The Second Bank Of The United States C. The Product Of The Work Of President Andrew Jackson

D. Based Upon The English System E. Under The Supervision Of The Us Mint

 15.  Prior To The Creation Of The Federal Reserve System, The Money Supply

A. Was Very Stable And Highly Valued B. Was Comprised Of Currency Printed By The Department Of The Treasury C. Was Produced By Local Banks And Often Traded At A Discount D. Was Available Only To Bank Depositors E. Was Comprised Of Gold

  16. Money Serves As  A. A Unit Of Account B. A Store Of Value C. A Medium Of Exchange D. All Of The Above E. An Emblem Of Personal Wealth

 17. When You Use Dollar Bills To Pay For A Purchase At A Store, Money Is Serving Which Function?  A. A Medium Of Exchange B. A Measure Of Value C. A Store Of Value D. A Barter Facilitator E. All Of The Above

 18. When You Compare A Dollar's Worth Of Apples To A Dollar's Worth Of Oranges, Money Is Serving Which Function?  A. A Medium Of Exchange B. A Measure Of Value C. A Store Of Value D. A Barter Facilitator E. A Measure Of Wealth

 19. If You Keep Some Cash In A Safe Place So That You Have It To Use Later, Money Is Serving Which Function?  A. A Medium Of Exchange B. A Measure Of Value C. A Store Of Value D. A Barter Facilitator E. All Of The Above

 20. Banking Regulation Is Intended To Prevent  A. Bank Failures B. Excess Bank Profits C. Bank Losses D. Banks From Selling Securities E. Banking Monopolies

 21. The Gramm-Leach-Bliley Act Allows Banks To  A. Sell Insurance B. Underwrite Insurance C. Sell Securities D. Invest In Real Estate E. Do All Of The Above

 22. Money Is "Liquid" Because  A. It Loses Value With Inflation B. Coins Can Be Melted To Use Their Metal To Make Goods C. It Serves As A Measure Of Value D. It Does Not Have To Be Sold To Buy Goods And Services E. It Is A Valuable Asset

 23. Which Of The Following Is  Of A Fractional Reserve Banking System?  A. Banks Must Hold All Of Depositors' Deposits In Their Vaults B. Banking Is Only A Fraction Of The Services Banks Provide To Their Customers C. Banks Lend Out Part Of Their Depositors' Deposits D. The Reserve Ratio Is 100% E. Banks May Not Hold Excess Reserves

 24. If The Reserve Ratio Is 10% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?  A. $1,000 B. $9,000 C. $10,000 D. $90,000 E. $100,000

     25. If The Reserve Ratio Is 10% And A New Demand Deposit Of $5,000 Is Made, What Is The Maximum Deposit Creation Possible?  A. $500 B. $4,500 C. $5,000 D. $45,000 E. $50,000

 26. If The Reserve Ratio Is 20% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?  A. $1,500 B. $10,000 C. $15,000 D. $40,000 E. $50,000

 27. Money Does Not Serve As A  A. Medium Of Exchange B. Store Of Value C. Measure Of Value D. Price Index E. It Serves As All Of The Above

 28. M1 Includes  A. Currency And Coins In Circulation, Traveler's Checks, Demand Deposits At Commercial Banks, And Other Checkable Deposits B. Currency And Coins In Circulation, All Demand Deposits, And All Time Deposits C. All Demand Deposits And All Time Deposits D. Just Currency And Coins In Circulation E. None Of The Above

 29. Banks Make Loans From Their  A. Required Reserves B. Excess Reserves C. Net Worth D. U.S. Government Securities E. None Of The Above

  30. Which Of The Following Is Among The Assets Of A Commercial Bank?  A. Demand Deposits B. Net Worth C. Any Liability D. Loans And Investments E. Time Deposits

 31. M2 Includes  A. M1, Plus Savings And Time Deposits Of Small Denomination, And Money Market Mutual Funds B. M1 Plus Savings And Time Deposits Of Large Denomination (Over $100,000) C. M1 Plus Banks Acceptances And Treasury Bills D. M1 Plus Currency And Demand Deposits E. None Of The Above

 32. The Basic Money Supply Is  A. Composed Of Small Denomination Time Deposits Plus Coin And Currency Held By The Nonbank Public B. Composed Of Assets That Are Completely Liquid And Easily Accessible C. Our Broadest Measure Of Money D. Simply The Coins And Currency Held By The Nonbank Public E. None Of The Above

 33. Excess Reserves Refer To  A. Reserves That Banks Are Required By Law To Hold B. The Major Assets Of The Bank C. Reserves A Bank Holds In Case Of Unexpected Case Needs D. Reserves Over And Above The Bank's Required Reserves E. None Of The Above

 34. The Money Multiplier Is  A. 1/R B. Er C. R/E D. E/R E. 1+1/Er

    35. Suppose The Legal Reserve Requirement Is 0.20, And A Bank Has Excess Reserves Of $1,000,000. The Ultimate Increase In The Money Supply Will Be  A. $2,000,000 B. $200,000 C. $800,000 D. $5,000,000 E. $500,000

 36. The Inflation Rate And The Growth In The Money Supply Are

A. Usually Inversely Related B. Usually Directly Related C. Never Directly Related D. Not Related To One Another E. Negatively Related

 37. Who Controls The Aggregate Volume Of Demand Deposits In The Banking System?  A. The U.S. Treasury B. The Federal Reserve Board Of Governors C. Congress D. Bankers E. The President Of The United States

 38. To Reduce Inflationary Pressures, The Federal Reserve Authorities Should  A. Sell Government Securities, Raise Reserve Requirements, And Lower The Discount Rate B. Sell Government Securities, Lower Reserve Requirements, And Lower The Discount Rate C. Buy The Government Securities, Raise Reserve Requirements, And Raise The Discount Rate D. Sell Government Securities, Raise Reserve Requirements, And Raise The Discount Rate E. Buy Government Securities, Decrease Reserve Requirements, Decrease The Discount Rate

 39. If The Open Market Committee Of The Federal Reserve Sells Securities, This Action Will  A. Decrease The Money Supply B. Increase The Money Supply C. Reduce The Reserve Requirement D. Decrease The Discount Rate E. Do None Of The Above

     40. When A Central Bank Wants To Increase The Money Supply, It  A. Sells Bonds B. Buys Bonds C. Sells Good And Services D. Buys Goods And Services E. Does None Of The Above

 41. The Federal Reserve Can Decrease The Supply Of Money By  A. Selling U.S. Government Securities B. Buying U.S. Government Securities C. Selling Goods And Services D. Buying Goods And Services E. Decreasing The Reserve Requirement

  42.  The Federal Open Market Committee (Fomc) Is Highly Concerned With

A. The National Unemployment Rate

B. The Growth Of Real Gdp  

C.  Interest Rates  

D. The Level Of The Stock Market     E. All Of The Above  

 43.  When The Open Market Committee (Fomc) Purchases Government Securities, Their Actions Are An Attempt To

A.  Raise Interest Rates

B.  Lower Interest Rates

C.  Reduce Borrowing

D.  Raise The Inflation Rate

E.  Influence Voters In The Next Presidential Election

 44.  When The Fed Increases The Money Supply, It Generally Has The Effect Of

A.  Making Banks More Profitable

B.  Increasing The Value Of Stocks

C.  Lowering Interest Rates

D.  Lowering The Inflation Rate

E.  Increasing The Size Of Bank Deposits

    45. When The Fed Wishes To Increase The Money Supply, It Can Do So By

A.  Purchasing Government Securities Through Open Market Operations

B.  Lowering The Discount Rate

C.  Reducing The Reserve Requirement

D.  All Of The Above

E.  Increasing The Size Of Bank Deposits

  Questions 46 - 49 Refer To The Graph Below.

  46.  Suppose That The Fed Has Increased The Money Supply. This Is Shown In The Diagram By

A.  Q1 To Q0

B.  Q0 To Q1

C.  Ms1

D.  Ms2

E.  None Of The Above

      47.  Based On The Diagram, The Opportunity Cost Of Money Is Higher If

A.  The Interest Rate Is I0

B.  The Interest Rate Is I1

C.  The Money Supply Is Curve Ms1

D.  The Money Supply Is Curve Ms2

E.  The Opportunity Cost Of Money Is Not Shown In The Diagram

 48.  A Shift From Ms1 To Ms2 Would Be The Result Of

A.  An Increase In Aggregate Demand

B.  An Increase In Aggregate Supply

C.  A Decision By The Fed To Purchase Government Securities By The Fomc

D.  A Decision By The Fed To Sell Government Securities By The Fomc

E.  A Change In The Stock Market

 49.  If The Fed Wanted To Stimulate Business Investment, It Could Do So By

A.  Increasing Interest Rates From I1 To I0

B.  Decreasing The Money Supply From Ms2 To Ms1

C.  Increasing The Money Supply From Ms1 To Ms2

D.  Raising The Reserve Requirement

E.  Increasing The Discount Rate

 50. The Equation Of Exchange Is  A. Mp = Qv B. Mv = Pq C. M = V/Pq D. P = Q/Mv E. Pv = Qm

 51. The Value Of Money Varies  A. Directly With The Interest Rate B. Directly With The Price Level C. Directly With The Volume Of Employment D. Inversely With The Price Level E. With None Of The Above

     52.  According To The Equation Of Exchange,  A. The Right-Hand Side Will Equal The Left-Hand Side Only If Velocity Does Not Change From Year To Year B. Velocity Must Be Constant C. An Increase In The Quantity Of Money Will Lead To An Increase In The Price Level, Other Things Constant D. Prices Cannot Change E. All Of The Above

 53. The Quantity Theory Of Money Emphasizes  A. Government Taxation Policies B. Government Spending Policies C. Labor Productivity D. Changes In The Money Supply E. None Of The Above

 54.  A Key Assumption In The Quantity Theory Of Money Is That

A. The Supply Of Money Is Increasing At A Constant Rate

B  The Price Level Is Stable Over Long Periods Of Time

C. The Level Of Output Of Goods And Services Changes Frequently In Response To Changes In Velocity

D. The Velocity Of Money Is Constant

E. None Of The Above

 55.  The Residential Housing Market Saw Remarkable Increases In

A. Housing Prices At The End Of The 1990’s And Through The First Half Of The 2000’s

B. Housing Prices At The End Of The 1980’s And Beginning Of The 1990’s

C. Foreclosure Rates At The End Of The 1990’s And Through The First Half Of The 2000’s

D. Foreclosure Rates At The End Of The 1980’s And Beginning Of The 1990’s

E. Both A And C

     56.  The Growth In The Residential Real Estate Market Is Largely A Product Of

A. A Large Increase In The Demand For Housing

B. An Unexpected Growth In Us Population

C. A Decline In Housing Prices

D. A Tightening Of Government Policies That Restrict Homeownership

E. A Decrease In Mortgage Availability

   57.  The Federal National Mortgage Association (Or Fannie Mae) Was Created To

A. Make Mortgages Hard To Obtain

B. Make Mortgages Less Likely To Go Into Foreclosure

C. Make A Larger Market In Mortgages By Establishing A Secondary Financial Market In Mortgages

D. Make Mortgages Available To New Immigrants To The Us

E. None Of The Above

 58.  A Mortgage Backed Security Is

A. A Share Of Common Stock Based Upon Home Mortgages

B. A Financial Instrument That Reduces Risk By Pooling Together A Large Number Of Mortgages Into One Asset

C. A Financial Instrument Developed To Reduce Liquidity In The Housing Market

D. A Financial Instrument That Is The Combination Of Only Subprime Mortgages

E. All Of The Above

 59.  A Subprime Mortgage

A. Made Obtaining A Mortgage Easier For Low Income Households

B. Is A Mortgage That Does Not Meet The Requirements For A Conventional Mortgage

C. Is Usually Structured As An Adjustable Rate Mortgage

D. All Of The Above

E. Is No Different From A Conventional Mortgage

 60.  A Collateralized Debt Obligation (Or Cdo)

A. Is Generally Riskier Than A Single Debt Of An Equal Value

B. Sells For A Lower Price Than Re-Sales Of Individual Mortgages That Comprise Them

C. Is Sold In The Primary Financial Market

D. Is A Financial Instrument That Obscures The Underlying Risks Of The Mortgages That Comprise Them

E. Is Always A Bad Financial Investment

 61.  The Interest Rate On An Adjustable Rate Mortgage (Arm) Is

A. Set To Equal The Fed Funds Rate

B. Adjusted On A Daily Basis

C. Set To Rise At The End Of Every Year For The Life Of The Mortgage

D. Adjusted Periodically Based Upon Current Market Conditions

E. Adjusted Based Upon The Value Of The House Purchase

 62.  Home Equity Loans

A. Allow A Home Owner To Recapture Some Of The Increase In The Value Of Their Home Without Selling The Home

B. A Way For Homeowners To Issue Stock, Or Equity, In Their Home

C. Only Used When Home Prices Are Increasing

D. A Way For The Market To Eliminate Paper Profits

E. None Of The Above

 63.  Besides Homeowners, Who Attempted To Profit From Increasing Home Prices During The Housing Bubble In The Early Part Of The 2000s?

A. Large Corporations

B. Speculators

C. Foreign Investors

D. Individuals Who Had Low Incomes

E. All Of The Above

 64.  A Credit Default Swap

A. Is What Happens When Homeowners Swap Their Mortgages With Their Neighbors

B. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Make Even More Money

C. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Reduce The Risk Of An Increase In Mortgage Foreclosures

D. Is A Way For Investors To Increase The Risks To Homeowners

E. Exists Only In Markets With Subprime Mortgages

 65.  Assets That Are “Marked To Market” Will Be Priced At

A. Their Original Purchase Price

B. Their Original Purchase Price Less The Depreciation Of The Asset

C. A Price That Is Equal To The Original Purchase Price Plus The Rate Of Inflation

D. A Price That Is Based Upon The Asset’s Current Market Value

E. A Price Determined In The Stock Market

  66.  Many Large Banks And Wall Street Investment Firms Got Into Financial Problems Due To

A. Investments In Subprime Mortgages

B. Required Payments On Credit Default Swaps

C. Failures Of Collateralized Debt Obligations Resulting From Home Foreclosures

D. Having To Mark Down A Significant Number Of Their Assets Due To The “Mark To Market” Accounting Requirement

E. All Of The Above

 67.  The Federal Government Stepped In During 2008 To Prevent Several Commercial Banks And Investment Banks From Failing Based Upon The Idea That

A. They Were “Too Big To Fail”

B. Any Business Failure Would Hurt Shareholders

C. These Banks Made Large Political Contributions And This Was A Way For Politicians To Pay Them Back

D. Government Would Make Large Profits By Doing So

E. None Of The Above

 68.  In Late 2008, The Us Treasury Department Began

A. Closing Banks That Were Not Following Regulations

B. To Implement The Troubled Asset Relief Program (Tarp)

C. Raising Interest Rates To Stimulate The Economy

D. Engaging In Open Market Operations

E. To Implement The Opening Of A New Bank Of The United States

 69.  Each Of The Following Is A Financial Intermediary Except

A. Commercial Banks

B. Investment Banks

C. Insurance Companies

D. Credit Unions

E. All Of The Above Are Financial Intermediaries

 70.  A Capital Gain Exists

A. When One Political Party Increases The Number Of Its Members In Congress

B. When An Interest Payment Is Made

C. When The Price Of An Asset Goes Up

D. When The Price Of An Asset Exceeds The Price Paid For It

E. When Taxes Are Paid On The Asset

  71.  Liquidity Of An Asset Increases When

A. It Is Easier To Convert The Asset Into Cash

B. The Asset’s Value Is Below Its Original Price

C. The Asset Is Purchased

D. The Asset Depreciates

E. The Asset Is Put On The Market

 72.  When A Share Of Stock Is Sold On The New York Stock Exchange, It Is Traded

A. In A Prime Financial Market

B. In A Primary Financial Market

C. For A Promise To Pay A Fixed Return

D. To Another Stock Exchange

E. In A Secondary Financial Market  

 73.  The Financial Crisis That Began In 2008 Is A Result Of All Of The Following Except

A. The Bursting Of The Dot.Com Bubble

B. Problems In The Residential Real Estate Market

C. Changes In Accounting Rules About Asset Valuation

D. Large Firms Taking On Assets Whose Value Was Not Well Determined

E. Policies That Allowed Many Unqualified Homebuyers To Receive Mortgages That They Could Not Pay

 74.  Historically, Many Commercial Banks Began As

A. Coffee Houses And Taverns Where Stocks Were Traded

B. Jewelry Stores That Specialized In The Sale Of Precious Stones

C. Businesses That Engaged In Small Loans

D. Goldsmiths That Held Stores Of Gold For Their Customers

E. None Of The Above  

 75.  An Increase In The Reserve Requirement Can

A. Decrease Interest Rates

B. Increase Liquidity

C. Decrease The Money Supply

D. Increase The Money Supply

E. Decrease The Profits Of Banks

   True / False Questions

76.  Commercial Banks Are Financial Intermediaries But Insurance Companies Are Not.

  77.  Investment Banks Assist Corporations In Issuing Stocks And Bonds In The Primary Financial Market.

  78.  Silversmiths Became Banks When They Started Lending Out Money Based Upon The Excess Silver That They Held For Their Customers.

  79.  Residential Real Estate Is Generally Considered To Be More Liquid Than A Savings Account.

  80.  The Us Has, Over Its History, Had Only One National Bank, That Is, A Bank Of The United States.

  81. The Most Important Function Of Money Is As A Medium Of Exchange. 

 82. If The Supply Of Money Decreases, The Value Of A Dollar Increases. 

 83. The Key To The Federal Reserve's Control Over The Money Supply Is Its Ability To Create Money By Making Loans. 

 84. A Commercial Banking System With Excess Reserves Has The Ability To Create Money In The By Making Loans. 

 85.  A Credit Union, Unlike A Bank, Is Not A Financial Intermediary, Since It Is A Cooperative Banking Venture.

  86. In The U.S. Banking System, The Ratio Of A Bank's Reserves And Its Outstanding Deposits Is Usually Less Than One. 

 87. During Inflationary Periods, The Federal Reserve Should Lower The Discount Rate So That Member Banks May More Easily Obtain Needed Reserves To Enable Them To Increase Their Loans. 

 88. The Money Supply Consists Primarily Of Gold, Silver, And Other Metals Held By The Government. 

 89. Monetary Policy Refers To Control Of The Money Supply By The Federal Reserve Authorities. 

 90. Appropriate Federal Reserve Actions To Combat Inflation Are An Increase In The Discount Rate, An Increase In The Reserve Ratio And The Sale Of Government Securities. 

 91. The Reserve Ratio Is The Rate Of Interest Charged Commercial Banks When They Borrow From The Federal Reserve. 

 92. During Inflationary Periods, The Federal Reserve Should Buy Securities So That Commercial Banks Will Have More Reserves To Loan Out. 

 93. One Of The Main Functions Of Banks Is To Create Money. 

 94. When A Bank Makes A Loan To One Of Its Customers, It Increases Its Liabilities. 

 95. The Maximum Demand Deposit Creation Possible From A New Deposit Is Derived From The Equation D =  E X 1/R. 

 96. The Discount Rate Is The Ratio Of Demand Deposits To Reserves That Banks Have To Maintain. 

 97. Policy Actions That Affect Changes In The Growth Rate Of The Money Supply To Keep Interest Rates At Levels That Promote Economic Stability And Growth Are Called "Fine Tuning" Policies. 

 98. The Issue Of The Appropriate Monetary Policy Target Has Been Resolved To The Satisfaction Of All Policy Makers. 

 99. The Quantity Theory Of Money States That Increases In The Money Supply Cause Increases In Both The Price Level And Output. 

 100. A Credit Union Is A Cooperative Banking Venture Where The Members Or Owners Of The Organization Have A Common Employer Or Union. 

 101. The Main Purpose Of The Fed Is To Control The Rate Of Interest. 

 102. The Annual Growth Rate In The Money Supply Has Been Held Constant By The Federal Reserve. 

 103. The Quantity Theory Of Money Stresses The Importance Of The Velocity Of Money. 

 104. The Money Multiplier Is Derived From The Legal Reserve Requirement. 

 105. An Increase In The Supply Of Money Will Decrease Interest Rates. 

 106.  The Federal Reserve Open Market Committee’s Primary Function Is To Open New Banks.

  107.  The Discount Rate Charged By The Federal Reserve, Is Lower For More Creditworthy Banks.

   108.  Any Time The Discount Rate Increases, The Money Supply Also Increases.

  109.  If The Required Reserve Ratio Is Increased By The Fed, One Could Assume That The Fed Is Attempting To Control Inflation.

  110.  Prior To The Enactment Of The Monetary Control Act Of 1980, State-Chartered Banks Had The Option Of Whether Or Not They Wanted To Be A Member Of The Federal Reserve System.

  111.  Interest Rates Increase Or Decrease So That An Equilibrium Exists In The Money Market.

  112.  The Federal Government, Through The Work Of Agencies Like The Federal National Mortgage Association, Has Worked To Increase The Supply Of Funds Available To Mortgage Lenders.

  113.  A Policy Implemented By The Clinton Administration Resulted In Tighter Financial Requirements For Less Creditworthy Borrowers, So That Financial Markets Were Less Risky.

  114.  A Subprime Mortgage Is A Mortgage Issued To A Highly Qualified Borrower At Reduced Interest Rates.

  115.  Subprime Mortgages And Home Equity Loans Contributed Little To The Increase In The Demand For Residential Real Estate, Increasing Prices Dramatically.

  116.  A Homeowner Whose House Is Worth $500,000 But Who Owes $600,000 On Their Mortgage Is A Good Candidate For A Home Equity Loan, So That The Homeowner Can Build Their Equity.

  117.  Collateralized Debt Obligations Are A Way That Lenders Can Reduce The Risk Of Individual Mortgage Lending.

  118.  Collateralized Debt Obligations Always Exclude Subprime Mortgages, Because These Are Too Risky For Most Investors.

  119.    A Credit Default Swap Is One Way That Lenders Can Offset Some Of The Risks Associated With Investing In Subprime Mortgages.

  120.  A Number Of Banks Encountered Problems Because A Change In Accounting Rules Required Firms To Mark Assets At Their Original Purchase Price.

  121.  Borrowers Who Obtain A Mortgage Will Always Find That Their Mortgage Payments Rise Over Time.

  122.  The Definition Of The Money Supply Called M1 Includes All Of The Assets Included In The Definition Of M2.

  123.  An Increase In The Required Reserve Ratio Will Allow Banks To Create Less Money.

  124.  The Open Market Committee Of The Federal Reserve System Meets Regularly To Determine The Required Reserve Ratio.

  125.  Because Of Recent Changes In The Regulatory System, Commercial Banks Are Able To Offer A Smaller Variety Of Financial Products And Services Than In The Past.

  126.  The Distinctions Between Commercial Banks And Other Financial Institutions Has Blurred In Recent Years.

  127.  Large Corporations Enter The Secondary Financial Market To Provide Themselves Adequate Liquidity To Conduct Their Day To Day Operations.

  128.  Stockholders Can Receive A Capital Gain When They Purchase A Financial Asset.

  129.  Stocks And Bonds Are Essentially Interchangeable Financial Assets, Since Owners Of Both Of These Instruments Receive Regular Interest Payments.

  130.  When Ben Bernanke Became Fed Chairman, The Federal Reserve Began Explicitly Announcing Money Supply Targets.

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 Chapter 12

 All possible questions with answers

 TRUE-FALSE STATEMENTS

 Corporations purchase investments in debt or stock securities generally for one of two reasons.

  Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

   A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.

  Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

   The accounting for short-term debt investments and for long-term debt investments is similar.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   When debt investments, are sold, the gain or loss is the difference between the net proceeds from the sale and the fair value of the bonds.

  Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Debt investments are investments in government and corporation bonds.

  Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

   In accordance with the cost principle, brokerage fees should be added to the cost of an investment.

  Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   In accordance with the cost principle, the cost of debt investments includes brokerage fees and accrued interest.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   In accounting for stock investments of less than 20%, the equity method is used.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

   Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

   If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

   The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

 Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

  Ans:LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   The valuation of non-trading securities is similar to the procedures followed for trading securities, except that changes in fair value are not recognized in current income.

  Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   For non-trading securities, the unrealized gain or loss account is carried forward to future periods.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair value Adjustment account.

  Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   If the fair value of a non-trading security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   The Fair Value Adjustment account can only have a credit balance or a zero balance.

  Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

  Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   An investment is readily marketable if it is management's intent to sell the investment.

  Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   Stocks traded on the New York Stock Exchange are considered readily marketable.

  Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   When a parent company acquires a wholly owned subsidiary for an amount in excess of the book value of the net assets acquired, the excess is always allocated to good will.

  Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

   A consolidated income statement will reflect only revenue and expense transactions between the consolidated entity and parties outside the affiliated group.

  Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

   The process of excluding intercompany transactions in preparing consolidated statements is referred to as intercompany eliminations.

  Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

   One of the reasons a corporation may purchase investments is that it has excess cash.

  Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

   When recording bond interest, Interest Receivable is reported as a long-term asset in the balance sheet.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

  Ans:LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

   Non-trading securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

   "Intent to convert" does not include an investment used as a resource that will be used whenever the need for cash arises.

  Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

           MULTIPLE CHOICE QUESTIONS

 Corporations invest excess cash for short periods of time in each of the following except

equity securities.

highly liquid securities.

low-risk securities.

government securities.

  Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

   Corporations invest in other companies for all of the following reasons except to

house excess cash until needed.

generate earnings.

meet strategic goals.

increase trading of the other companies’ stock.

  Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

   A typical investment to house excess cash until needed is

stocks of companies in a related industry.

debt securities.

low-risk, highly liquid securities.

stock securities.

  Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

   A company may purchase a noncontrolling interest in another firm in a related industry

to house excess cash until needed.

to generate earnings.

for strategic reasons.

for speculative reasons.

  Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

   Pension funds and mutual funds regularly invest in debt and stock securities primarily to

generate earnings.

house excess cash until needed.

meet strategic goals.

control the company in which they invest.

  Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

   At the time of acquisition of a debt investment,

no journal entry is required.

the cost principle applies.

the Stock Investments account is debited when bonds are purchased.

the Investment account is credited for its cost plus brokerage fees.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 Which of the following is not a true statement regarding short-term debt investments?

The securities usually pay interest.

Investments are frequently government or corporate bonds.

This type of investment must be currently traded in the securities market.

Debt investments are recorded at the price paid less brokerage fees.

  Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

   On January 1, 2013, Danner Company purchased at face value, a $1,000, 8% bond that pays interest on January 1 and July 1. Danner Company has a calendar year end.

The entry for the receipt of interest on July 1, 2013, is

 Cash....................................................................................... 40

Interest Revenue........................................................... 40

 Cash....................................................................................... 80

Interest Revenue........................................................... 80

 Interest Receivable................................................................ 40

Interest Revenue........................................................... 40

 Interest Receivable................................................................ 80

Interest Revenue........................................................... 80

   Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On January 1, 2013, Danner Company purchased at face value, a $1,000, 10% bond that pays interest on January 1 and July 1. Danner Company has a calendar year end.

The adjusting entry on December 31, 2013, is

 not required.

Cash....................................................................................... 50

Interest Revenue........................................................... 50

 Interest Receivable................................................................ 50

Interest Revenue........................................................... 50

 Interest Receivable................................................................ 50

Debt Investments.......................................................... 50

   Ans:LO: 2, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On January 1, 2013, Milton Company purchased at face value, a $1,000, 4% bond that pays interest on January 1 and July 1. Milton Company has a calendar year end.

The entry for the receipt of interest on January 1, 2014 is

 Cash....................................................................................... 40

Interest Revenue........................................................... 40

 Cash....................................................................................... 40

Interest Receivable....................................................... 40

 Cash....................................................................................... 20

Interest Revenue........................................................... 20

 Cash....................................................................................... 20

Interest Receivable....................................................... 20

   Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On January 1, Talent Company purchased as a short-term investment a $1,000, 8% bond for $1,050. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,200 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?

Cash....................................................................................... 1,200

Debt Investments ......................................................... 1,200

 Cash....................................................................................... 1,220

Debt Investments.......................................................... 1,050

 Gain on Sale of Debt Investments................................. 150

 Interest Revenue........................................................... 20

 Cash....................................................................................... 1,220

Debt Investments.......................................................... 1,200

 Interest Revenue........................................................... 20

 Cash....................................................................................... 1,200

Debt Investments.......................................................... 1,050

 Gain on Sale of Debt Investments................................. 150

   Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Which of the following is not a true statement about the accounting for debt investments?

At acquisition, the cost principle applies.

The cost includes any brokerage fees.

Debt investments include investments in government and corporation bonds.

The cost includes any accrued interest.

  Ans:LO: 2, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   The cost of debt investments includes each of the following except

brokerage fees.

commissions.

accrued interest.

the price paid.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   If a short-term debt investment is sold, the Investment account is

credited for the face value of the bonds at the sale date.

credited for the cost of the bonds at the sale date.

credited for the fair value of the bonds at the sale date.

debited for the cost of the bonds at the sale date.

  Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   In accounting for debt investments, entries are made to recordeach of the following except the

acquisition.

interest revenue.

amortization of any discount or premium.

sale.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   Key Company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2013 for $61,250. This includes a brokerage commission of $1,250.

The journal entry to record this investment includes a debit to

 Debt Investments for $60,000.

Debt Investments for $61,250.

Cash for $61,250.

Stock Investments for $60,000.

  Ans:LO: 2, Bloom: AP, Difficulty: Hard, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Key Company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2013 for $61,250. This includes a brokerage commission of $1,250.

Assume Community pays interest on January 1 and July 1, and the July 1 entry was made correctly. The journal entry at December 31, 2013 would include a credit to

 Interest Receivable for $3,000.

Interest Revenue for $6,000.

Accrued Expense for $6,000.

Interest Revenue for $3,000.

  Ans:LO: 2, Bloom: AP, Difficulty: Hard, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Key Company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2013 for $61,250. This includes a brokerage commission of $1,250. If Key sells all of its Community bonds for $62,500 and pays $1,500 in brokerage commissions, what gain or loss is recognized?

Gain of $2,500

Loss of $250

Gain of $250

Gain of $1,250

  Ans:LO: 2, Bloom: AP, Difficulty: Hard, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Locke Co. purchased 50, 6% Johnston Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

debit to Interest Receivable for $1,500.

credit to Interest Revenue for $1,500.

credit to Interest Revenue for $1,515.

credit to Debt Investments for $1,515.

  Ans:LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Locke Co. purchased 50, 6% Johnston Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

debit to Interest Receivable for $1,500.

debit to Interest Revenue for $1,500.

credit to Interest Revenue for $1,515.

debit to Debt Investments for $1,500.

  Ans:LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Temper Co. purchased 60, 6% Irick Company bonds for $60,000 cash plus brokerage fees of $600. Interest is payable semiannually on July 1 and January 1. If 30 of the securities are sold on July 1 for $32,000 less $300 brokerage fees, the entry would include a credit to Gain on Sale of Debt Investments for

$2,000.

$1,700.

$2,300.

$1,400.

  Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On January 1, Bacon Company purchased as an investment a $1,000, 7% bond for $1,020. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

Interest Receivable................................................................ 35

Interest Revenue .......................................................... 35

 Debt Investments .................................................................. 35

Interest Revenue .......................................................... 35

 Interest Receivable................................................................ 70

Interest Revenue .......................................................... 70

 Debt Investments .................................................................. 70

Interest Revenue .......................................................... 70

   Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Eck Corporation sells 250 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $25 a share. Eck sold the shares for $40 a share. The entry to record the sale is

Cash....................................................................................... 6,250

Loss on Sale of Stock Investments ...................................... 3,750

 Stock Investments ........................................................ 10,000

 Stock Investments ................................................................. 10,000

Cash ............................................................................. 10,000

 Cash....................................................................................... 10,000

Gain on Sale of Stock Investments .............................. 3,750

 Stock Investments ........................................................ 6,250

 Cash....................................................................................... 10,000

Stock Investments ........................................................ 10,000

   Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   White Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $60 a share. White sold the shares for $40 a share. The entry to record the sale is

Cash....................................................................................... 12,000

Loss on Sale of Stock Investments ...................................... 6,000

 Stock Investments ........................................................ 18,000

 Cash....................................................................................... 18,000

Gain on Sale of Stock Investments .............................. 6,000

 Stock Investments ........................................................ 12,000

 Cash....................................................................................... 12,000

Stock Investments ........................................................ 12,000

 Stock Investments ................................................................. 12,000

Loss on Sale of Stock Investments ...................................... 6,000

 Cash.............................................................................. 18,000

   Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Tan Company had these transactions pertaining to stock investments:

Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $48,800 cash plus brokerage fees of $1,400.

 June 1 Received cash dividends of $2 per share on Norton stock.

 Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600.

 The entry to record the purchase of the Norton stock would include a

 debit to Stock Investments for $48,800.

credit to Cash for $48,800.

debit to Stock Investments for $50,200.

debit to Investment Expense for $1,400.

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Tan Company had these transactions pertaining to stock investments:

Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $49,800 cash plus brokerage fees of $1,200.

 June 1 Received cash dividends of $3 per share on Norton stock.

 Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600.

 The entry to record the receipt of the dividends on June 1 would include a

 debit to Stock Investments for $9,000.

credit to Dividend Revenue for $9,000.

debit to Dividend Revenue for $9,000.

credit to Stock Investments for $9,000.

  Ans:LO: 3, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Tan Company had these transactions pertaining to stock investments:

Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $49,800 cash plus brokerage fees of $1,200.

 June 1 Received cash dividends of $2 per share on Norton stock.

 Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600.

 The entry to record the sale of the stock would include a

 debit to Cash for $24,000.

credit to Gain on Sale of Stock Investments for $1,200.

debit to Stock Investments for $20,400.

credit to Gain on Sale of Stock Investments for $3,000.

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Wise Company owns 30% interest in the stock of Dark Corporation. During the year, Dark pays $20,000 in dividends to Wise, and reports $200,000 in net income. Wise Company’s investment in Dark will increase Wise’s net income by

$6,000.

$60,000.

$66,000.

$80,000.

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Nickel Company owns 30% interest in the stock of Finn Corporation. During the year, Finn pays $25,000 in dividends, and reports $200,000 in net income. Nickel Company’s investment in Finn will increase by

$25,000.

$60,000.

$67,500.

$52,500.

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On January 1, 2013, Great Corporation purchased 25% of the common stock outstanding of Long Corporation for $250,000. During 2013, Long Corporation reported net income of $80,000 and paid cash dividends of $40,000. The balance of the Stock Investments—Long account on the books of Great Corporation at December 31, 2013 is

$250,000.

$290,000.

$330,000.

$260,000.

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 Dayton Corporation purchased 1,000 shares of Kart common stock at $77 per share plus $2,000 brokerage fees as a short-term investment. The shares were subsequently sold at $80 per share less $3,400 brokerage fees. The cost of the securities purchased and gain or loss on the sale were

Cost Gain or Loss

 $77,000 $3,000 gain

$77,000 $1,400 loss

$79,000 $2,000 gain

$79,000 $2,400 loss

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   In accounting for stock investments between 20% and 50%, the _______ method is used.

consolidated statements

controlling interest

cost

equity

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   When a company holds stock of several different corporations, the group of securities is identified as a(n)

affiliated investment.

consolidated portfolio.

investment portfolio.

controlling interest.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Jerome Corporation makes a short-term investment in 160 shares of Singer Company's common stock. The stock is purchased for $50 a share plus brokerage fees of $550. The entry for the purchase is

Debt Investments................................................................... 8,000

Cash.............................................................................. 8,000

 Stock Investments.................................................................. 8,550

Cash.............................................................................. 8,550

 Stock Investments.................................................................. 8,000

Brokerage Fee Expense........................................................ 550

 Cash.............................................................................. 8,550

 Stock Investments.................................................................. 8,000

Cash.............................................................................. 8,000

   Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Cooke Corporation sells 400 shares of common stock being held as a short-term investment. The shares were acquired six months ago at a cost of $55 a share. Cooke sold the shares for $40 a share. The entry to record the sale is

Cash....................................................................................... 16,000

Loss on Sale of Stock Investments....................................... 6,000

 Stock Investments......................................................... 22,000

 Cash....................................................................................... 22,000

Gain on Sale of Stock Investments............................... 6,000

 Stock Investments......................................................... 16,000

   MC 69. (cont.)

 Cash....................................................................................... 16,000

Stock Investments......................................................... 16,000

 Stock Investments.................................................................. 16,000

Loss on Sale of Stock Investments....................................... 6,000

 Cash.............................................................................. 22,000

   Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   For accounting purposes, the method used to account for long-term investments in common stock is determined by

the amount paid for the stock by the investor.

the extent of an investor's influence on the operating and financial affairs of the investee.

whether the stock has paid dividends in past years.

whether the acquisition of the stock by the investor was "friendly" or "hostile."

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

the equity method of accounting for the investment should be employed.

no dividends can be expected.

it is presumed that the investor has relatively little influence on the investee.

it is presumed that the investor has significant influence on the investee.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If the cost method is used to account for a long-term investment in common stock, dividends received should be

credited to the Stock Investments account.

credited to the Dividend Revenue account.

debited to the Stock Investments account.

recorded only when 20% or more of the stock is owned.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   If 10% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is

the cost method.

the equity method.

the preparation of consolidated financial statements.

determined by agreement with whomever owns the remaining 90% of the stock.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The cost method of accounting for long-term investments in stock should be employed when the

investor owns more than 50% of the investee's stock.

investor has significant influence on the investee and the stock held by the investor are marketable equity securities.

market value of the shares held is greater than their historical cost.

investor's influence on the investee is insignificant.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

has insignificant influence on the investee and that the cost method should be used to account for the investment.

should apply the cost method in accounting for the investment.

will prepare consolidated financial statements.

has significant influence on the investee and that the equity method should be used to account for the investment.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Under the equity method of accounting for long-term investments in common stock, when a dividend is received from the investee company,

the Dividend Revenue account is credited.

the Stock Investments account is increased.

the Stock Investments account is decreased.

no entry is necessary.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   On January 1, 2013, Dart Corporation purchased 30% of the common stock outstanding of Run Corporation for $700,000. During 2013, Run Corporation reported net income of $200,000 and paid cash dividends of $100,000. The balance of the Stock Investments—Run account on the books of Dart Corporation at December 31, 2013 is

$700,000.

$730,000.

$760,000.

$670,000.

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Under the equity method, the Stock Investments account is increased when the

investee company reports net income.

investee company pays a dividend.

investee company reports a loss.

stock investment is sold at a gain.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The account, Stock Investments, is

a subsidiary ledger account.

a long-term liability account.

a general ledger control account.

another name for Debt Investments.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Which of the following would not be considered a motive for making a stock investment in another corporation?

Appreciation in the market value of the stock investment

Use of the investment for expanding its own operations

Use of the investment to diversify its own operations

An increase in the amount of interest revenue from the stock investment

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

   Revenue is recognized when cash dividends are received under

the controlling interest method.

the cost method.

the equity method.

both the cost and equity methods.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?

% of Investor Ownership Presumed Influence

 Less than 20% Short-term

Between 20%-50% Significant

More than 50% Long-term

Between 20%-50% Controlling

  Ans:LO: 3, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?

% of Investor Ownership Accounting Guidelines

 Less than 20% Cost method

Between 20%–50% Cost method

More than 50% Cost or equity method

Between 20%–50% Consolidated financial statements

  Ans:LO: 3, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If the cost method is used to account for a long-term investment in common stock,

it is presumed that the investor has significant influence on the investee.

the earning of net income by the investee is considered a proper basis for recognition of income by the investor.

net income of the investee is not considered earned by the investor until dividends are declared by the investee.

the Investment account may be, at times, greater than the acquisition cost.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If a company acquires a 40% common stock interest in another company,

the equity method is usually applicable.

all influence is classified as controlling.

the cost method is usually applicable.

the ability to exert significant influence over the activities of the investee does not exist.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If a common stock investment is sold at a gain, the gain

is reported as operating revenue.

is reported under a special section, "Discontinued investments," on the income statement.

is reported in the Other revenues and gains section of the income statement.

contributes to gross profit on the income statement.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If the equity method is being used, cash dividends received

are credited to Dividend Revenue.

require no entry because investee net income has already been recorded at the proper proportion on the investor's books.

are credited to the Stock Investments account.

are credited to the Revenue from Stock Investments account.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

     If the equity method is being used, the Revenue from Stock Investments account is

just another name for a Dividend Revenue account.

credited when dividends are declared by the investee.

credited when net income is reported by the investee.

debited when dividends are declared by the investee.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   Under the equity method, the Stock Investments account is credited when the

investee reports net income.

investee reports a net loss.

investment is originally acquired.

investee reports net income and when the investment is originally acquired.

  Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   On August 1, Mistery Company buys 2,000 shares of ABC common stock for $70,000 cash plus brokerage fees of $2,200. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries to record for the purchase and sale of the common stock?

Aug. 1 Cash........................................................ 72,200

Stock Investments............................. 72,200

 Dec. 1 Cash........................................................ 76,000

 Stock Investments............................. 72,200

 Gain on Sale of Stock Investments 3,800

   Aug. 1 Stock Investments................................... 72,200

Cash.................................................. 72,200

 Dec. 1 Cash........................................................ 76,000

 Stock Investments............................. 72,200

 Gain on Sale of Stock Investments 3,800

   Aug. 1 Stock Investments................................... 72,200

Cash.................................................. 72,200

 Dec. 1 Stock Investments................................... 76,000

 Cash.................................................. 72,200

 Gain on Sale of Stock Investments 3,800

   Aug. 1 Cash........................................................ 72,200

Stock Investments............................. 72,200

 Dec. 1 Stock Investments................................... 76,000

 Cash.................................................. 72,200

 Gain on Sale of Stock Investments 3,800

   Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Laramie industries owns 45% of McCook Company. For the current year, McCook reports net income of $250,000 and declares and pays a $60,000 cash dividend. Which of the following correctly presents the journal entries to record Laramie's equity in McCook's net income and the receipt of dividends from McCook?

Dec. 31 Stock Investments................................... 112,500

Revenue from Stock Investments …. 112,500

 Dec. 31 Cash......................................................... 27,000

 Stock Investments............................... 27,000

     MC 91. (cont.)

 Dec. 31 Stock Investments.................................... 112,500

Revenue from Stock Investments …. 112,500

 Dec. 31 Cash.......................................................... 60,000

 Stock Investments................................ 60,000

 Dec. 31 Stock Investments................................... 85,500

Revenue from Stock Investments … 85,500

 Dec. 31 Revenue from Stock Investments ………. 112,500

Stock Investments........................... 112,500

 Dec. 31 Stock Investments.................................... 27,000

 Cash.................................................. 27,000

   Ans:LO: 3, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On January 1, 2013, Audrey Corp. paid $800,000 for 100,000 shares of Off Company's common stock, which represents 40% of Off's outstanding common stock. Off reported net income of $200,000 and paid cash dividends of $60,000 during 2013. Audrey should report the investment in Off Company on its December 31, 2013, balance sheet at:

$800,000

$744,000

$824,000

$856,000

  Ans:LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Mission Inc. earns $600,000 and pays cash dividends of $150,000 during 2013. Cox Corporation owns 70,000 of the 210,000 outstanding shares of Mission.

What amount should Cox show in the investment account at December 31, 2013 if the beginning of the year balance in the account was $40,000?

 $190,000

$200,000

$175,000

$180,000

  Ans:LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Mission Inc. earns $450,000 and pays cash dividends of $150,000 during 2013. Cox Corporation owns 70,000 of the 210,000 outstanding shares of Mission.

How much revenue from investment should Cox report in 2013?

 $50,000

$100,000

$150,000

$200,000

  Ans:LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   On January 1, 2013, Dumar Industries acquired a 15% interest in Virginia Corporation through the purchase of 12,000 shares of Virginia Corporation common stock for $240,000. During 2013, Virginia Corp. paid $60,000 in dividends and reported a net loss of $90,000. Dumar is able to exert significant influence on Virginia. However, Dumar mistakenly records these transactions using the cost method rather than the equity method of accounting. Which of the following would show the correct presentation for Dumar's investment using the equity method?

Investment Net

 Account Earnings (loss)

 $90,000 ($30,000)

$217,500 ($13,500)

$226,500 ($13,500)

$226,500 ($4,500)

  Ans:LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

less than 20%

between 20% and 50%

less than 50%

more than 50%

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Consolidated financial statements present all of the following except the

individual assets and liabilities of the parent company

individual assets and liabilities of the subsidiary.

total revenues and expenses of the subsidiary.

All of these are presented in consolidated financial statements.

  Ans:LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The company whose stock is owned by the parent company is called the

controlled company.

subsidiary company.

investee company.

sibling company.

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   A company that owns more than 50% of the common stock of another company is known as the

charge company.

subsidiary company.

parent company.

management company.

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If one company owns more than 50% of the common stock of another company,

the cost method should be used to account for the investment.

a partnership exists.

a parent-subsidiary relationship exists.

the company whose stock is owned must be liquidated.

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If a parent company has two wholly owned subsidiaries, how many legal and economic entities are there from the viewpoint of the shareholders of the parent company?

Legal Economic

 3 3

1 2

3 1

2 1

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 When a company owns more than 50% of the common stock of another company,

affiliated financial statements are prepared.

consolidated financial statements are prepared.

controlling financial statements are prepared.

significant financial statements are prepared.

  Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Changes from cost are reported as part of net income for

non-trading securities.

held-for-collection securities.

debt securities.

trading securities.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Short-term investments are listed on the balance sheet immediately below

cash.

inventory.

accounts receivable.

prepaid expenses.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Short-term stock investments should be valued on the balance sheet at

the lower of cost or fair value.

the higher of cost or fair value.

cost.

fair value.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   In recognizing a decline in the fair value of short-term stock investments, an unrealized loss account is debited because

management intends to realize this loss in the near future.

the securities have not been sold.

the stock market is volatile.

management cannot determine the exact amount of the loss in value.

  Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The Fair Value Adjustment account

is set up for each security in the company's portfolio.

relates to the entire portfolio of securities held by the company.

is closed at the end of each accounting period.

appears on the income statement as Other Expenses and Losses.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The contra-account, Fair Value Adjustment, is also called a(n)

offset account.

adjustment account.

valuation account.

opposite account.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Reporting investments at fair value is

applicable to stock securities only.

applicable to debt securities only.

applicable to both debt and stock securities.

a conservative approach because only losses are recognized.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Randy Corporation's trading portfolio at the end of the year is as follows:

  Security Cost Fair Value

 Common Stock A $10,000 $12,000

 Common Stock B 8,000 5,000

 $18,000 $17,000

   At the end of the year, Randy Corporation should

 set up a Fair Value Adjustment account for Stock B.

set up a Fair Value Adjustment account for the portfolio.

recognize an Unrealized Gain or Loss—Income for $3,000.

report a loss on the income statement for $3,000 under "Other expenses and losses."

  Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Randy Corporation's trading portfolio at the end of the year is as follows:

  Security Cost Fair Value

 Common Stock A $10,000 $12,000

 Common Stock B 9,000 5,000

 $19,000 $17,000

   Randy subsequently sells Stock B for $10,000. What entry is made to record the sale?

 Cash....................................................................................... 10,000

Stock Investments......................................................... 10,000

 Cash....................................................................................... 10,000

Market Adjustment........................................................ 1,000

 Stock Investments......................................................... 9,000

 Cash....................................................................................... 10,000

Stock Investments......................................................... 9,000

 Gain on Sale of Stock Investments............................... 1,000

 Cash....................................................................................... 10,000

Stock Investments......................................................... 5,000

 Gain on Sale of Stock Investments............................... 5,000

   Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Which of the following would not be reported under "Other Revenues and Gains" on the income statement?

Unrealized gain on non-trading securities

Dividend revenue

Interest revenue

Gain on sale of short-term debt investments

  Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The balance in the Unrealized Loss—Equity account will

appear on the balance sheet as a contra asset.

appear on the income statement under Other Expenses and Losses.

appear as a deduction in the stockholders' equity section.

not be shown on the financial statements until the securities are sold.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 If the cost of a non-trading security exceeds its fair value by $40,000, the entry to recognize the loss

is not required since the share prices will likely rebound in the long run.

will show a debit to an expense account.

will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet.

will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

  Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   The balance sheet presentation of an unrealized loss on a non-trading security is similar to the statement presentation of

treasury stock.

discount on bonds payable.

allowance for doubtful accounts.

prepaid expenses.

  Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   At the end of its first year, the trading securities portfolio consisted of the following common stocks.

Cost Fair Value

 Atrium Corporation $ 46,400 $ 50,000

 Barnes Inc. 60,000 57,000

 Cantor Corporation 80,000 76,000

 $186,400 $183,000

   The unrealized loss to be recognized under the fair value method is

 $3,000.

$6,000.

$3,400.

$4,000.

  Ans:LO: 5, Bloom: K, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   At the end of its first year, the trading securities portfolio consisted of the following common stocks.

Cost Fair Value

 Atrium Corporation $ 46,400 $ 50,000

 Barnes Inc. 60,000 55,800

 Cantor Corporation 80,000 76,000

 $186,400 $181,800

   In the following year, the Barnes common stock is sold for cash proceeds of $56,000. The gain or loss to be recognized on the sale is a

 gain of $1,200.

loss of $4,000.

gain of $200.

loss of $4,200.

  Ans:LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   At the end of the first year of operations, the total cost of the trading securities portfolio is $244,000. Total fair value is $250,000. The financial statements should show

an addition to an asset of $6,000 and a realized gain of $6,000.

an addition to an asset of $6,000 and an unrealized gain of $6,000 in the stockholders’ equity section.

an addition to an asset of $6,000 in the current assets section and an unrealized gain of $6,000 in “Other revenues and gains.”

an addition to an asset of $6,000 in the current assets section and a realized gain of $6,000 in “Other revenues and gains.”

  Ans:LO: 5, Bloom: K, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Nadia Corp. has common stock of $5,500,000, retained earnings of $3,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on non-trading securities of $200,000. What is the total amount of its stockholders’ equity?

$8,300,000

$8,500,000

$8,400,000

$8,600,000

  Ans:LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   Cost and fair value data for the trading securities of Carson Company at December 31, 2013, are $115,000 and $85,000, respectively. Which of the following correctly presents the adjusting journal entry to record the securities at fair value?

  Dec. 31 Unrealized Loss¾Income..................... 30,000

Trading Securities........................... 30,000

 Dec. 31 Unrealized Gain¾Income....................... 30,000

Trading Securities............................ 30,000

 Dec. 31 Unrealized Loss¾Income...................... 30,000

Fair Value Adjustment¾Trading...... 30,000

 Dec. 31 Fair Value Adjustment -Trading............. 30,000

Unrealized Gain-Income................... 30,000

   Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   At December 31, 2013, the trading securities for Settle, Inc. are as follows:

  Security Cost Fair Value 12/31/13

 X $90,000 $93,000

 Y 150,000 141,000

 Z 32,000 29,000

   Settle should report the following amount related to the securities in its 2013 income statement:

   $3,000 gain

$9,000 realized loss.

$9,000 unrealized loss.

$12,000 unrealized loss.

  Ans:LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

     At December 31, 2013, Gammon Inc. has these data on its security investments:

  Security Cost Fair Value 12/31/13

 Trading $ 140,000 $192,000

 Non-trading 137,000 125,000

 MC 122. (cont.)

 If the non-trading securities are held as long-term investments, which of the following will be recorded to adjust the securities to fair value?

   Securities.......................................................... 40,000

Unrealized Gain¾Income........................... 40,000

   Unrealized Loss¾Income.................................. 12,000

Securities........................................................... 40,000

 Unrealized Gain¾Income........................... 52,000

   Fair Value Adjustment¾Trading........................ 52,000

Unrealized Gain¾Income........................... 52,000

 Unrealized Gain or Loss¾Equity....................... 12,000

 Fair Value Adjustment¾Non-Trading........ 12,000

   Unrealized Gain¾Income................................... 52,000

Fair Value Adjustment¾Trading................ 52,000

 Fair Value Adjustment¾Non-Trading................. 12,000

 Unrealized Gain or Loss¾Equity................ 12,000

   Ans:LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On September 19, 2013, Fowler Corporation invested $800,000 in common stock of Norton Industries as short-term trading securities. The fair value of this investment was $775,000 at December 31, 2013. In financial statements and records prepared on December 31, 2013, Fowler Corporation reports Stock Investments

at $800,000 cost, with footnote disclosure of the fair value of $775,000.

under current assets at $775,000 fair value in the balance sheet, and a $25,000 Unrealized Loss reported under Other Expenses and losses in the income statement.

at $800,000 cost in the balance sheet, and a $25,000 debit to Fair Value Adjustment–Trading in the adjusting entry.

at $800,000 cost, and a $25,000 Unrealized Loss included in the balance sheet as part of stockholders’ equity

  Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   On September 30, 2013, Fowler Corporation invested $800,000 in common stock of Mallard Industries as short-term non-trading securities. The market value of this investment was $830,000 at December 31, 2013, but had slipped to $825,000 by December 31, 2014. Assuming Fowler does not sell this investment and last adjusted the investment when preparing the financial statements on December 31, 2013, the adjustment necessary at December 31, 2014, includes a(an)

$5,000 debit to Unrealized Gain or Loss-Equity.

$25,000 credit to Unrealized Gain or Loss-Equity.

$5,000 debit to Stock Investments.

$825,000 debit to Fair Value Adjustment-Non-Trading

  Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Gorman Corporation has the following trading portfolio of stock investments as of December 31, 2013.

Security Cost Fair Value

 A $21,000 $19,000

 B 19,000 25,000

 C 37,000 31,000

 $77,000 $75,000

 On January 22, 2014, Gorman Corporation sold security C for $32,000. Assuming that Gorman made the proper adjustments when closing its books on December 31, 2013, the journal entry for the 2014 sale would include a

 debit to Loss on Sale of Stock Investments for $5,000.

credit to Unrealized Gain–Income for $1,000.

debit to Unrealized Loss–Income for $5,000.

credit to Fair Value Adjustment–Trading for $32,000.

  Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Cosmic Company has the following data at December 31, 2013 for its securities:

Securities Cost Fair Value

 Non-trading $46,000 $48,000

 Trading 65,000 61,000

   Based on this information, the adjusting entry to report the securities at fair value at December 31, 2013 will include a

 debit to Unrealized Gain or Loss–Equity for $4,000.

credit to Unrealized Gain or Loss–Equity for $2,000.

credit to Fair Value Adjustment–Non-Trading for $4,000.

debit to Fair Value Adjustment–Trading for $4,000.

  Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   Benton Company has the following data at December 31, 2013 for its securities:

Securities Cost Fair Value

 Trading $80,000 $82,000

 Non-trading 94,000 91,000

   On the financial statements, which of the following correctly explains the presentation of the related unrealized gain (loss) for these securities?

 An unrealized gain of $2,000 will be reported on the income statement under other revenues and gain.

An unrealized loss of $3,000 will be reported on the income statement under other revenues and gain.

An netted unrealized loss of $1,000 will be reported on the income statement under other revenues and gain.

An unrealized gain of $2,000 will be reported on the balance sheet as part of stockholders’ equity.

  Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

   All of the following statements about short-term investments are true except:

Short-term investments are also called marketable securities

Trading securities are always classified as short-term investments.

Short-term investments are listed below accounts receivable in the current asset section of the balance sheet.

Short-term assets must be readily marketable.

  Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Non-trading securities are classified as

short-term investments only.

long-term investments only.

either short-term or long-term investments.

current assets only.

  Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Which one of the following would not be classified as a short-term investment?

Marketable stock securities

Equity method investments

Marketable debt securities

Short-term paper

  Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

year.

two years.

year or operating cycle, whichever is shorter.

year or operating cycle, whichever is longer.

  Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

   Which of the following would not be classified as a short-term investment?

Short-term commercial paper

Idle cash in a bank checking account

Marketable stock securities

Marketable debt securities

  Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   If a parent company acquires wholly owned subsidiary at an amount greater than the book value, the excess should be

allocated to expense on the date of acquisition.

allocated to identifiable assets to the extent of their fair values, with any remainder allocated to goodwill.

allocated to goodwill, with any remainder allocated to the identifiable assets.

set up as a liability to the controlling interest.

  Ans:LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The consolidated worksheet shows Excess of Cost Over Book Value of Subsidiary of $210,000. Management of the parent company determines that the market values for subsidiary company plant assets are $90,000 higher than book values. In the consolidated balance sheet, goodwill will be reported at

$210,000.

$120,000.

$90,000.

$0.

  Ans:LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Daniel Corporation acquired 100% of the common stock of Tysen Company for $1,100,000. On the date of acquisition, Tysen Company’s stockholders’ equity consisted of: Common Stock, $530,000; Retained Earnings, $410,000. The intercompany elimination to be made on a worksheet to prepare a consolidated balance sheet is

a... Common Stock–Tysen...................................................... 530,000

 ..... Retained Earnings–Tysen................................................ 410,000

 Investment in Tysen Stock......................................... 940,000

 b... Investment in Tysen Stock............................................... 1,100,000

 Cash........................................................................... 1,100,000

 c... Common Stock–Daniel...................................................... 530,000

 ..... Retained Earnings–Daniel................................................. 410,000

 ..... Goodwill........................................................................... 160,000

 Investment in Tysen Stock......................................... 1,100,000

 d... Common Stock–Tysen...................................................... 530,000

 ..... Retained Earnings–Tysen................................................ 410,000

 ..... Excess of Cost Over Book Value of Subsidiary.............. 160,000

 Investment in Tysen Stock......................................... 1,100,000

   Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   A consolidated income statement will show

revenue and expense transactions between the consolidated entity and parties outside the affiliated group.

only the parent company’s net income.

only the income of partially owned subsidiaries.

only the income of wholly owned subsidiaries.

  Ans:LO: 7, Bloom: k, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   When preparing a consolidated income statement,

only the revenues and expenses of the parent company are presented.

the income from partially owned subsidiaries is excluded.

all revenue and expense transactions between the parent and subsidiaries must be eliminated.

intercompany transactions between affiliated companies do not have to be eliminated.

  Ans:LO: 7, Bloom: k, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Which of the following reasons best explains why a company that experiences seasonal fluctuations in sales may purchase investments in debt or stock securities?

The company may have excess cash.

The company may generate a significant portion of its earnings from investment income.

The company may invest for the strategic reason of establishing a presence in a related industry.

The company may invest for speculative reasons to increase the value in pension funds.

  Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

   When bonds are sold, the gain or loss on sale is the difference between the

sales price and the cost of the bonds.

net proceeds and the cost of the bonds.

sales price and the fair value of the bonds.

net proceeds and the fair value of the bonds.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   Debt investments are recorded at the

face value of the bonds purchased.

face value of the bonds purchased plus interest.

price paid for the bonds plus interest.

price paid for the bonds plus brokerage fees.

  Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   Under the equity method, the investor records dividends received by crediting

Dividend Revenue.

Investment Income.

Revenue from Investment.

Stock Investments.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

   A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

the cost method.

the equity method.

the significant method.

consolidated financial statements.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   The equity method of accounting for an investment in the common stock of another company should be used by the investor when the investment

is composed of common stock and it is the investor's intent to vote the common stock.

ensures a source of supply of raw materials for the investor.

enables the investor to exercise significant influence over the investee.

is obtained by an exchange of stock for stock.

  Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   On January 2, Dickson Corporation acquired 30% of the outstanding common stock of Crane Company for $550,000. For the year ended December 31, Crane reported net income of $90,000 and paid cash dividends of $30,000 on its common stock. At December 31, the carrying value of Dickson's investment in Crane under the equity method is

$541,000.

$550,000.

$577,000.

$568,000.

  Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

   An unrealized loss on non-trading securities is

reported under Other Expenses and Losses in the income statement.

closed-out at the end of the accounting period.

reported as a separate component of stockholders' equity.

deducted from the cost of the investment.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

trading securities.

non-trading securities.

never-sell securities.

held-for-collection securities.

  Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

   Short-term investments are

(1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is shorter.

(1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is longer.

(1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is longer.

(1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is shorter.

  Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

   Short-term investments are securities held by a company that are

readily marketable.

intended to be converted into cash within the next year.

readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer.

readily marketable and intended to be held until maturity.

  Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

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CIS 525 Week 9 Assignment 3 – Strayer NEW

CIS 525 Week 9 Assignment 3 – Strayer NEW

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  Assignment 3: Resolve Conflicts and Promote Collaboration as an Agile Coach  Due Week 9 and worth 90 points The following resources may be helpful when completing this assignment.

Handling Conflict on Agile     Teams: What to Do When a Team Member Complains (http://www.agilejournal.com/articles/columns/articles/892-handling-conflict-on-agile-teams-what-to-do-when-a-team-member-complains)

Unsolvable Conflict on Agile     Teams (http://www.agilejournal.com/articles/columns/articles/888-unsolvable-conflict-on-agile-teams)

Navigating Conflicts: A     Guide to Frosting High-Performing Agile Teams  (http://www.nxtbook.com/nxtbooks/sqe/bettersoftware_0409/#/36)

Determining how to build a high-performing agile team, while managing conflicts, is a considerable task for any agile coach. In this assignment, you are asked to explore and discuss various conflict resolution methods and determine when and how to use them as an agile coach. You must discuss the techniques in a context of an agile project team environment with various scenarios, and must also demonstrate how you can turn the high-contention situations into high-collaboration situations. For example, the project team has consistently encountered changes of scope by the product owner. The QA team also emailed the whole team on how poorly the developers have done in their coding. The developers escalated to their manager about the documentation errors done by architects.  Write a four to five (4-5) page paper in which you:

Identify and evaluate at     least three (3) conflict resolution techniques that can be used by the     agile coach to change the dynamics of the team in the example     provided. 

Summarize at least five (5)     common causes of conflicts in this team and analyze why agile strategies     can be applied to resolve those conflicts. 

Analyze the pros and cons of     conflict resolution techniques and their usefulness in at least three (3)     different situations (e.g., levels of conflicts).

Suggest at least three (3)     strategies for an agile coach to use conflict as a catapult to achieve     high performance. 

Recommend at least five (5)     best practices for collaboration and cooperation within agile teams.     Justify your response for each best practice with an example.

Use at least three (3)     quality resources in this assignment. Note: Wikipedia and similar Websites     do not qualify as quality resources. You may use the resources above or     others of your choosing.

Your assignment must follow these formatting requirements:

Be typed, double spaced,     using Times New Roman font (size 12), with one-inch margins on all sides;     citations and references must follow APA or school-specific format. Check     with your professor for any additional instructions.

Include a cover page     containing the title of the assignment, the student’s name, the     professor’s name, the course title, and the date. The cover page and the     reference page are not included in the required assignment page     length. 

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FIN 540 Week 9 Homework Problems – Strayer NEW

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 Week 9

Homework Problems Chapter 29

 1. Which of the following statements about pension plans if any, is incorrect?

a.         Under a defined benefit plan, the employer agrees to give retirees a specifically defined benefit.

b.          If assets exceed the present value of benefits, the pension plan is fully funded.

c.         Such as $500 per month or 50 percent of the employee’s final salary.

d.         A portable pension plan is one that an employee can carry from one employer to another

e.         An employer’s obligation is satisfied under a defined contribution plan when it makes the required contributions to the plan. The risk of inadequate investment returns is borne by the employee.

f.          A defined contribution plan is, in effect, a savings plan that is funded by employers, although many plans also permit additional contributions by employees.

 2. Which of the following statements about defined contribution plans is incorrect?

      a. In general, employees can choose the investment vehicle under a defined contribution plan. Thus, highly risk-averse employees can choose low-risk investments, while more risk-tolerant employees can choose high-risk investments.

     b. In a defined contribution plan, the employer must make larger-than-average contributions to the pension plan when investment returns have been below expectations.

c.         Defined benefit plans are used more often by large corporations than by small companies.

d.         The PBGC insures a portion of pension benefits.

e.         A defined contribution plan places the risk of poor pension portfolio performance on the employee.

 3.         Which of the following statements about pension plan portfolio performance is incorrect?

a. Alpha analysis, which relies on the Capital Asset Pricing Model, considers the risk of the portfolio when measuring performance.

b. Peer comparison examines the relative performance of portfolio managers with similar investment objectives.

c.         A portfolio annual return of 12 percent from one investment advisor is not necessarily better than a return of 10 percent from another advisor.

d.         In managing the retiree portfolio, fund managers often use immunization techniques such as alpha analysis to eliminate, or at least significantly reduce, the risk associated with changing interest rates.

e.         Pension fund sponsors must evaluate the performance of their portfolio managers periodically as a basis for future asset allocations.

 4.         Ms. Lloyd, who is 25 and expects to retire at age 60, has just been hired by the Chambers Corporation. Ms. Lloyd's current salary is $30,000 per year, but her wages are expected to increase by 5 percent annually over the next 35 years. Chambers has a defined benefit pension plan in which workers receive 2 percent of their final year's wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Ms. Lloyd's expected annual retirement benefit, rounded to the nearest thousands of dollars? 


a. $35,000

b. $57,000

c. $89,000

d. $116,000

e. $132,000

    5.         Kumar Consulting operates several stock investment portfolios that are used by firms for investment of pension plan assets. Last year, one portfolio had a realized return of 12.6 percent and a beta coefficient of 1.15. The average T-bond rate was 7 percent and the realized rate of return on the S&P 500 was 12 percent. What was the portfolio's alpha? 


a. −0.75%

b. −0.15%

c. 0%


d. 0.15%

e. 0.75%

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FIN 534 Week 9 Assignment 1 – Strayer

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Assignment 1: Financial Research Report Due Week 9 and worth 300 points

Imagine that you are a financial manager researching investments for your client that align with its investment goals. Use the Internet or the Strayer Library to research any U.S. publicly traded company that you may consider as an investment opportunity for your client. (Note: Please ensure that you are able to find enough information about this company in order to complete this assignment. You will create an appendix, in which you will insert related information.)

The assignment covers the following topics:

·         Rationale for choosing the company for which to invest

·         Ratio analysis 

·         Stock price analysis

·         Recommendations

Write a ten to fifteen (10-15) page paper in which you:

1.      Provide a rationale for the U.S. publicly traded company that you selected, indicating the significant factors driving your decision as a financial manager.

2.      Determine the profile of the investor for which this company may be a fit, relative to that potential investor’s investment strategy. Provide support for your rationale.

3.      Select any five (5) financial ratios that you have learned about in the text. Analyze the past three (3) years of the company’s financial data, which you may obtain from the company’s financial statements. Determine the company’s financial health. (Note: Suggested ratios include, but are not limited to, current ratio, quick ratio, earnings per share, and price earnings ratio.)

4.      Based on your financial review, determine the risk level of the company from your investor’s point of view. Indicate key strategies that you may use in order to minimize these perceived risks.

5.      Provide your recommendations of this stock as an investment opportunity. Support your rationale with resources, such as peer-reviewed articles or material from the Strayer Library.

6.      Use at least five (5) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

·         Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

·         Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

·         Critique financial management strategies that support business operations in various market environments.

·         Analyze financial statements for key ratios, cash flow positions, and taxation effects.

·         Review fixed income strategies using time value of money concept, bond valuation methods, and interest rate calculations.

·         Estimate the risk and return on financial investments.

·         Apply financial management options to corporate finance.

·         Determine the cost of capital and how to maximize returns.

·         Formulate cash flow analysis for capital projects including project risks and returns.

·         Evaluate how corporate valuation and forecasting affect financial management.

·         Analyze how capital structure decision-making practices impact financial management.

·         Use technology and information resources to research issues in financial management.

·         Write clearly and concisely about financial management using proper writing mechanics.

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LEG 500 Week 9 Assignment 4 – Strayer

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 Assignment 4: Legal and Ethical Considerations in Marketing, Product Safety, and Intellectual Property

Due Week 9 and worth 300 points

You are a new associate at the law firm of Dewey, Chetum, and Howe. John, a former researcher at PharmaCARE, comes to your office. He has concerns about PharmaCARE’s use of AD23, one of the company’s top-selling diabetes drugs. Two (2) years ago, after PharmaCARE’s research indicated that AD23 might also slow the progression of Alzheimer’s disease, John and his team of pharmacists began reformulating the drug to maximize that effect. In order to avoid the Food and Drug Administration’s (FDA) scrutiny, PharmaCARE established a wholly-owned subsidiary, CompCARE, to operate as a compounding pharmacy to sell the new formulation to individuals on a prescription basis. CompCARE established itself in a suburban office park near its parent’s headquarters. To conserve money and time, CompCARE did a quick, low-cost renovation.

CompCARE benefited from PharmaCARE’s reputation, databases, networks, and sales and marketing expertise, and within six (6) months had the medical community buzzing about AD23. Demand soared, particularly among Medicare, Medicaid, and Veterans Affairs patients. Seeing the opportunity to realize even more profit, CompCARE began advertising AD23 directly to consumers and marketing the drug directly to hospitals, clinics, and physician offices, even though compounding pharmacies are not permitted to sell drugs in bulk for general use. To circumvent this technicality, CompCARE encouraged doctors to fax lists of fictitious patient names to CompCARE. PharmaCARE sold CompCARE to WellCo, a large drugstore chain, just weeks before AD23 was publicly linked to over 200 cardiac deaths.

As CompCARE and its new parent company enjoyed record profits and PharmaCARE’s stock price approached $300 per share, reports started surfacing that people who received AD23 seemed to be suffering heart attacks at an alarming rate. The company ignored this data and continued filling large orders and paying huge bonuses to all the executives and managers, including John, whose wife recently died from a heart attack after using AD23.

John has come to you with an internal company memo describing the potential problems with AD23, and information describing the company’s willingness “roll the dice” and continue to market the drug.

Your senior partner has asked you to write a memo outlining the following issues for review by the senior partners.

In preparation for this assignment, use the Internet or Strayer Library to research examples of intellectual property theft that occurred within the past two (2) years.

Write an eight to ten (8-10) page paper in which you:

1.      Research three to five (3-5) ethical issues relating to marketing and advertising, intellectual property, and regulation of product safety and examine whether PharmaCARE violated any of the issues in question.

2.      Argue for or against Direct-to-Consumer (DTC) marketing by drug companies. Provide support for your response.

3.      Determine the parties responsible for regulating compounding pharmacies under the current regulatory scheme, the actions that either these parties or the FDA could / should have taken in this scenario, and whether PharmaCARE could face legal exposure surrounding its practices. Support your response.

4.      Analyze the manner in which PharmaCARE used U.S. law to protect its own intellectual property and if John has any claim to being the true “inventor” of AD23. Suggest at least three (3) ways the company could compensate John for the use of his intellectual property.

5.      Summarize at least one (1) current example (within the past two [2] years) of intellectual property theft, and examine the effect on that company’s brand.

6.      Analyze the potential issue surrounding the death of John’s wife and other potential litigants against PharmaCARE as a result of AD23.

7.      Specify both the major arguments that John can make to claim that he is a whistleblower and the type of protections that he should be afforded. Justify your response.

8.      Use at least three (3) quality resources in this assignment. Note: Wikipedia is not an acceptable reference and proprietary Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

·         Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

·         Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

·         Analyze and assess legal and ethical restraints on marketing and advertising, relative to both consumers and organizations.

·         Analyze and evaluate laws and regulations relative to product safety and liability.

·         Explore copyright laws and intellectual property rights and assess how well they balance competing interests.

·         Use technology and information resources to research issues in law, ethics, and corporate governance.

·         Write clearly and concisely about law, ethics, and corporate governance using proper writing mechanics.

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BUS 599 Week 9 Project Deliverable 5 – Strayer New

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 Project Deliverable 5: Executive Summary & Presentation

Due Week 9 and worth 100 points

This assignment consists of two (2) sections: a written executive summary, and a slide presentation consisting of twelve (12) slides. Note: You must submit both sections as separate files for the completion of this assignment.

Now that you have completed a draft for all primary sections of your business plan, you will complete the executive summary. The executive summary is the section of your plan that is often read first, especially by investors. Your executive summary must persuade a reader to spend the time to find out about your product, market, and techniques. For this reason, it’s best to prepare your summary last—after you have thought through all the issues.

Like the executive summary, only after you have fleshed out your business plan will you have the information you will need for a slide presentation (e.g., PowerPoint). This 12­slide presentation conveys the most important aspects of your business in a short time. More sophisticated investors, such as angel investors and venture capitalists, will typically not look at your written business plan until they have seen your slide presentation.

Section 1: Written Executive Summary (MS Word or equivalent)

Read Chapters 4 and 18 of the course text: Successful Business Plan. Use the plan preparation worksheets on pp. 58–61 and the sample executive summaries on pp. 62–66 to help guide you, choose to write either a synopsis summary or a narrative summary, and include highlights from the each section of your business plan.

1. Write a one to three (1–3) page executive summary for your business plan, in which you justify: a. A clear and concise business concept.
b. A thoroughly planned business concept.
c. A capable management structure.

d. A clear­cut market need.
e. Significant competitive advantages for your business.

f. Realistic financial projections.
g. That investors have an excellent chance to make money. h. A realistic and developed exit plan.

2. Format your assignment according to these formatting requirements:

a.  Include a cover page containing the title of the assignment, the student’s name, the 
professor’s name, the course title, and the date. The cover page and the reference page are 
not included in the required page length.

b.  Cite the resources you have used to complete the exercise. Note: There is no minimum 
requirement for the number of resources used in the exercise.

c.  Be typed, double spaced, using Times New Roman font (size 12), with one­inch margins on 
all sides; references must follow APA or school­specific format. Check with your professor for any additional instructions.

Section 2: Presentation (MS PowerPoint or equivalent)

3. Create a 12­slide presentation. Follow the outline on pp. 343–346 for the critical slides of your presentation and their placement.

Hints: Include the highlights of your elevator pitch, which shows that you understand your business. The elevator pitch is a concise description of your company—its product, market, competitive advantages, and so on. Whether pitching your business to an investor or describing it to a potential connection at a networking event, you need to be able explain your business succinctly to someone in the amount of time it would take to ride up a few floors in an elevator. Use the worksheet in the text (p. 362 | Your “Elevator Pitch”) to develop your elevator pitch.

Hints: You must limit your presentation to twelve (12) slides. You do not want to overwhelm your audience with too many slides or bore them with information they already know.

The specific course learning outcomes associated with this assignment are:

Describe strategic planning techniques used to formulate alternative strategies designed to achieve stated business goals.
Create a plan to implement a firm’s strategy and manage the change from current operations. Analyze strategies for exerting the internal leadership needed to drive the implementation of strategic initiatives and improve operating excellence.

Use technology and information resources to research issues in strategic management. Write clearly and concisely about strategic management using proper writing mechanics.

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BUS 508 Week 9 Assignment 3: Promotional and Advertising Strategies

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Due Week 9 and worth 240 points

Select one (1) of the following categories of products to research: sports apparel, automobiles, home furnishings, or televisions. Use the Internet to research at least two (2) companies within the selected product category. Take note of the leading companies in this product group, as well as the types of marketing, pricing, and consumer-oriented promotional strategies that these leading companies within the product group use.

Write a six to eight (6-8) page paper in which you:

1.  Compare and contrast the promotional strategies used by two (2) different companies for a similar product within the category that you selected.

2.  Recommend two (2) ways in which a company within the selected product group could use marketing information to differentiate itself in the marketplace to gain an advantage over its competitors. Provide a rationale to support your recommendations.

3.  Propose two (2) uses for consumer-oriented promotions that could assist a company in both the short and long term for the product group that you selected. Provide a rationale for your response.

4.  Analyze the strategic manner in which the leading company in this product group has made its pricing decisions by using one or more of the four (4) pricing objectives. Suggest two (2) actions that other companies within the same product group may take in order to differentiate themselves and gain a competitive advantage. Provide a rationale for your response.

5.  Determine the most effective advertising medium for a company in the selected product category. Support your response with two (2) examples of the effectiveness of the chosen medium.

6.  Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.

Your assignment must follow these formatting requirements:

                           Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

                           Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

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ACC 350 Week 9 Quiz – Strayer New

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 Quiz 7 Chapter 8  

 Flexible Budgets, Overhead Cost Variances, and Management Control

 1)

 Overhead costs are a major part of costs for most companiesmore than 50% of all costs for some companies.  

 2)

 At the start of the budget period, management will have made most decisions regarding the level of variable costs to be incurred.  

 3)

 One way to manage both variable and fixed overhead costs is to eliminate nonvalue-adding activities.  

 4)

 The planning of fixed overhead costs does not differ from the planning of variable overhead costs.  

 5)

 In a standard costing system, the variable-overhead rate per unit is generally expressed as a standard cost per output unit.  

 6)

 For calculating the cost of products and services, a standard costing system does not have to track actual costs.  

 7)

 Standard costing is a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced.  

 8)

 The budget period for variable-overhead costs is typically less than 3 months.  

 9)

 A favorable variable overhead spending variance can be the result of paying lower prices than budgeted for variable overhead items such as energy.  

 10)

 The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items.  

 11)

 The variable overhead flexible-budget variance measures the difference between standard variable overhead costs and flexible-budget variable overhead costs.  

 12)

 The variable overhead efficiency variance measures the efficiency with which the cost-allocation base is used.  

 13)

 The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items.  

 14)

 An unfavorable variable overhead efficiency variance indicates that variable overhead costs were wasted and inefficiently used.  

 15)

 Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected.  

 16)

 If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable variable overhead efficiency variance.  

 17)

 If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable fixed overhead efficiency variance.  

 18)

 For fixed overhead costs, the flexible-budget amount is always the same as the static-budget amount.  

 19)

 The fixed overhead flexible-budget variance is the difference between actual fixed overhead costs and the fixed overhead costs in the flexible budget.  

 20)

 There is never an efficiency variance for fixed costs.  

 21)

 All unfavorable overhead variances decrease operating income compared to the budget.  

 22)

 A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted.  

 23)

 Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.  

 24)

 Caution is appropriate before interpreting the production-volume variance as a measure of the economic cost of unused capacity.  

 25)

 The production-volume variance arises whenever the actual level of the denominator differs from the level used to calculate the budgeted fixed overhead rate.  

 26)

 The lump sum budgeted for fixed overhead will always be the same amount for the static budget and the flexible budget.  

 27)

 A favorable production-volume variance arises when manufacturing capacity planned for is not used.  

 28)

 The fixed overhead flexible budget variance is the difference between actual fixed overhead costs and fixed overhead costs in the flexible budget.  

 29)

 An unfavorable production-volume variance always infers that management made a bad planning decision regarding the plant capacity.  

 30)

 Favorable overhead variances are always recorded with credits in a standard cost system.  

 31)

 Under activity-based costing, the flexible-budget amount equals the static-budget amount for fixed overhead costs.  

 32)

 Managers should use unitized fixed manufacturing overhead costs for planning and control.  

 33)

 For purposes of allocating fixed overhead costs to products, managers may view the fixed overhead costs as if they had a variable-cost behavior pattern.  

 34)

 Both financial and nonfinancial performance measures are key inputs when evaluating the performance of managers.  

 35)

 In the journal entry that records overhead variances, the manufacturing overhead allocated accounts are closed.  

 36)

 Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can also be useful when planning for capacity.  

 37)

 At the end of the fiscal year, the fixed overhead spending variance is always written off to cost of goods sold.  

 38)

 Variance analysis of fixed overhead costs is also useful when a company uses activity-based costing.  

39)

 An unfavorable fixed setup overhead spending variance could be due to higher lease costs of new setup equipment.  

 40)

 A favorable variable setup overhead efficiency variance could be due to actual setup-hours exceeding the setup-hours planned for the units produced.  

 41)

 Overhead costs have been increasing due to all of the following EXCEPT:  

A)

 increased automation  

B)

 more complexity in distribution processes  

C)

 tracing more costs as direct costs with the help of technology  

D)

 product proliferation  

 42)

 Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily add value for:  

A)

 the current shareholders  

B)

 the customer using the products or services  

C)

 plant employees  

D)

 major suppliers of component parts  

 43)

 Variable overhead costs include:  

A)

 plant-leasing costs  

B)

 the plant manager's salary  

C)

 depreciation on plant equipment  

D)

 machine maintenance  

 44)

 Fixed overhead costs include:  

A)

 the cost of sales commissions  

B)

 property taxes paid on plant facilities  

C)

 energy costs  

D)

 indirect materials  

 45)

 Effective planning of fixed overhead costs includes all of the following EXCEPT:  

A)

 planning day-to-day operational decisions  

B)

 eliminating nonvalue-added costs  

C)

 planning to be efficient  

D)

 choosing the appropriate level of capacity  

 46)

 Effective planning of variable overhead includes all of the following EXCEPT:  

A)

 choosing the appropriate level of capacity  

B)

 eliminating nonvalue-adding costs  

C)

 redesigning products to use fewer resources  

D)

 redesigning the plant layout for more efficient processing  

 47)

 Choosing the appropriate level of capacity:  

A)

 is a key strategic decision  

B)

 may lead to loss of sales if overestimated  

C)

 may lead to idle capacity if underestimated  

D)

 All of these answers are correct.  

 48)

 The MAJOR challenge when planning fixed overhead is:  

A)

 calculating total costs  

B)

 calculating the cost-allocation rate  

C)

 choosing the appropriate level of capacity  

D)

 choosing the appropriate planning period  

 49)

 In a standard costing system, a cost-allocation base would MOST likely be:  

A)

 actual machine-hours  

B)

 normal machine-hours  

C)

 standard machine-hours  

D)

 Any of these answers is correct.  

 50)

 For calculating the costs of products and services, a standard costing system:  

A)

 only requires a simple recording system  

B)

 uses standard costs to determine the cost of products  

C)

 does not have to keep track of actual costs  

D)

 All of these answers are correct.  

 51)

 The variable overhead flexible-budget variance measures the difference between:  

A)

 actual variable overhead costs and the static budget for variable overhead costs  

B)

 actual variable overhead costs and the flexible budget for variable overhead costs  

C)

 the static budget for variable overhead costs and the flexible budget for variable overhead costs  

D)

 None of these answers is correct.  

 52)

 A $5,000 unfavorable flexible-budget variance indicates that:  

A)

 the flexible-budget amount exceeded actual variable manufacturing overhead by $5,000  

B)

 the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000  

C)

 the flexible-budget amount exceeded standard variable manufacturing overhead by $5,000  

D)

 the standard variable manufacturing overhead exceeded the flexible-budget amount by $5,000  

 53)

 Which of the following is NOT a step in developing budgeted variable overhead rates?  

A)

 identifying the variable overhead costs associated with each cost-allocation base  

B)

 estimating the budgeted denominator level based on expected utilization of available capacity  

C)

 selecting the cost-allocation bases to use  

D)

 choosing the period to be used for the budget  

 54)

 In flexible budgets, costs that remain the same regardless of the output levels within the relevant range are:  

A)

 allocated costs  

B)

 budgeted costs  

C)

 fixed costs  

D)

 variable costs  

Answer the following questions using the information below:

 Shimon Corporation manufactures industrial-sized water coolers and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

 Budgeted output units            15,000 units

Budgeted machine-hours        5,000 hours

Budgeted variable manufacturing overhead costs for 15,000 units   $161,250

 Actual output units produced 22,000 units

Actual machine-hours used     7,200 hours

Actual variable manufacturing overhead costs           $242,000

 55)

 What is the budgeted variable overhead cost rate per output unit?  

A)

 $10.75  

B)

 $11.00  

C)

 $32.25  

D)

 $48.40  

 56)

 What is the flexible-budget amount for variable manufacturing overhead?  

A)

 $165,000  

B)

 $236,500  

C)

 $242,000  

D)

 None of these answers is correct.  

 57)

 What is the flexible-budget variance for variable manufacturing overhead?  

A)

 $5,500 favorable  

B)

 $5,500 unfavorable  

C)

 $4,300 favorable  

D)

 None of these answers is correct.  

 58)

 Variable manufacturing overhead costs were ________ for actual output.  

A)

 higher than expected  

B)

 the same as expected  

C)

 lower than expected  

D)

 indeterminable  

 Answer the following questions using the information below:

 White Corporation manufactures football jerseys and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

 Budgeted output units            20,000 units

Budgeted machine-hours        30,000 hours

Budgeted variable manufacturing overhead costs for 20,000 units   $360,000

 Actual output units produced 18,000 units

Actual machine-hours used     28,000 hours

Actual variable manufacturing overhead costs           $342,000

 59)

 What is the budgeted variable overhead cost rate per output unit?  

A)

 $12.00  

B)

 $12.21  

C)

 $18.00  

D)

 $19.00  

 60)

 What is the flexible-budget amount for variable manufacturing overhead?  

A)

 $324,000  

B)

 $342,000  

C)

 $380,000  

D)

 None of these answers is correct.  

 61)

 What is the flexible-budget variance for variable manufacturing overhead?  

A)

 $18,000 favorable  

B)

 $18,000 unfavorable  

C)

 zero  

D)

 None of these answers is correct.  

 62)

 Variable-manufacturing overhead costs were ________ for actual output.  

A)

 higher than expected  

B)

 the same as expected  

C)

 lower than expected  

D)

 indeterminable  

 Answer the following questions using the information below:

 Fearless Frank's Fertalizer Farm produces fertalizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

 Budgeted output units            300 truckloads

Budgeted fleet hours  225 hours

Budgeted pounds of fertalizer            12,000,000 pounds

Budgeted variable manufacturing overhead costs for 300 loads       $37,500

 Actual output units produced and delivered  315 truckloads

Actual fleet hours       218 hours

Actual pounds of fertalizer produced and delivered  12,600,000 pounds

Actual variable manufacturing overhead costs           $38,250

 63)

 What is the budgeted variable overhead cost rate per output unit?  

A)

 $120.00  

B)

 $125.00  

C)

 $166.67  

D)

 $175.00  

 64)

 What is the flexible-budget amount for variable manufacturing overhead?  

A)

 $40,000  

B)

 $39,375  

C)

 $37,500  

D)

 $38,250  

 65)

 What is the flexible-budget variance for variable manufacturing overhead?  

A)

 $1,125 favorable  

B)

 $1,125 unfavorable  

C)

 zero  

D)

 None of these answers are correct.  

 66)

 Variable-manufacturing overhead costs were ________ for actual output.  

A)

 higher than expected  

B)

 the same as expected  

C)

 lower than expected  

D)

 indeterminable  

 67)

 The variable overhead flexible-budget variance can be further subdivided into the:  

A)

 price variance and the efficiency variance  

B)

 static-budget variance and sales-volume variance  

C)

 spending variance and the efficiency variance  

D)

 sales-volume variance and the spending variance  

 68)

 An unfavorable variable overhead spending variance indicates that:  

A)

 variable overhead items were not used efficiently  

B)

 the price of variable overhead items was more than budgeted  

C)

 the variable overhead cost-allocation base was not used efficiently  

D)

 the denominator level was not accurately determined  

 69)

 When machine-hours are used as an overhead cost-allocation base, the MOST likely cause of a favorable variable overhead spending variance is:  

A)

 excessive machine breakdowns  

B)

 the production scheduler efficiently scheduled jobs  

C)

 a decline in the cost of energy  

D)

 strengthened demand for the product  

 70)

 When machine-hours are used as an overhead cost-allocation base and the unexpected purchase of a new machine results in fewer expenditures for machine maintenance, the MOST likely result would be to report a(n):  

A)

 favorable variable overhead spending variance  

B)

 unfavorable variable overhead efficiency variance  

C)

 favorable fixed overhead flexible-budget variance  

D)

 unfavorable production-volume variance  

 71)

 For variable manufacturing overhead, there is no:  

A)

 spending variance  

B)

 efficiency variance  

C)

 flexible-budget variance  

D)

 production-volume variance  

 Answer the following questions using the information below:

 Kellar Corporation manufactured 1,500 chairs during June. The following variable overhead data pertain to June:

 Budgeted variable overhead cost per unit      $ 12.00

Actual variable manufacturing overhead cost            $16,800

Flexible-budget amount for variable manufacturing overhead           $18,000

Variable manufacturing overhead efficiency variance           $360 unfavorable

 72)

 What is the variable overhead flexible-budget variance?  

A)

 $1,200 favorable  

B)

 $360 unfavorable  

C)

 $1,560 favorable  

D)

 $1,200 unfavorable  

 73)

 What is the variable overhead spending variance?  

A)

 $840 unfavorable  

B)

 $1,200 favorable  

C)

 $1,200 unfavorable  

D)

 $1,560 favorable  

 Answer the following questions using the information below:

 Patel Corporation manufactured 1,000 coolers during October. The following variable overhead data pertain to October:

 Budgeted variable overhead cost per unit      $ 9.00

Actual variable manufacturing overhead cost            $8,400

Flexible-budget amount for variable manufacturing overhead           $9,000

Variable manufacturing overhead efficiency variance           $180 unfavorable

 74)

 What is the variable overhead flexible-budget variance?  

A)

 $600 favorable  

B)

 $420 unfavorable  

C)

 $780 favorable  

D)

 $600 unfavorable  

 75)

 What is the variable overhead spending variance?  

A)

 $420 unfavorable  

B)

 $600 favorable  

C)

 $600 unfavorable  

D)

 $780 favorable  

 Answer the following questions using the information below:

 Roberts Corporation manufactured 100,000 buckets during February. The overhead cost-allocation base is $5.00 per machine-hour. The following variable overhead data pertain to February:

             Actual Budgeted

Production      100,000 units  100,000 units

Machine-hours            9,800 hours     10,000 hours

Variable overhead cost per machine-hour       $5.25   $5.00

 76)

 What is the actual variable overhead cost?  

A)

 $49,000  

B)

 $50,000  

C)

 $51,450  

D)

 None of these answers is correct.  

 77)

 What is the flexible-budget amount?  

A)

 $49,000  

B)

 $50,000  

C)

 $51,450  

D)

 None of these answers is correct.  

 78)

 What is the variable overhead spending variance?  

A)

 $1,000 favorable  

B)

 $1,450 unfavorable  

C)

 $2,450 unfavorable  

D)

 None of these answers is correct.  

 79)

 What is the variable overhead efficiency variance?  

A)

 $1,000 favorable  

B)

 $1,450 unfavorable  

C)

 $2,450 unfavorable  

D)

 None of these answers is correct.  

 Answer the following questions using the information below:

 Roberson Corporation manufactured 30,000 ice chests during September. The overhead cost-allocation base is $11.25 per machine-hour. The following variable overhead data pertain to September:

             Actual Budgeted

Production      30,000 units    24,000 units

Machine-hours            15,000 hours   10,800 hours

Variable overhead cost per machine-hour:      $11.00 $11.25

 80)

 What is the actual variable overhead cost?  

A)

 $121,500  

B)

 $151,875  

C)

 $165,000  

D)

 $168,750  

 81)

 What is the flexible-budget amount?  

A)

 $121,500  

B)

 $151,875  

C)

 $165,000  

D)

 $168,750  

 82)

 What is the variable overhead spending variance?  

A)

 $3,750 favorable  

B)

 $16,875 unfavorable  

C)

 $13,125 unfavorable  

D)

 $30,375 unfavorable  

 83)

 What is the variable overhead efficiency variance?  

A)

 $3,750 favorable  

B)

 $16,875 unfavorable  

C)

 $13,125 unfavorable  

D)

 $30,375 unfavorable  

 Answer the following questions using the information below:

 Russo Corporation manufactured 16,000 space heaters during November. The overhead cost-allocation base is $15.75 per machine-hour. The following variable overhead data pertain to November:

             Actual Budgeted

Production      16,000 units    18,000 units

Machine-hours            7,875 hours     9,000 hours

Variable overhead cost per machine-hour:      $15.50 $15.75

 84)

 What is the actual variable overhead cost?  

A)

 $122,063  

B)

 $ 139,500  

C)

 $124,031  

D)

 $125,000  

 85)

 What is the flexible-budget amount?  

A)

 $ 124,031.30  

B)

 $126,000.00  

C)

 $124,000.00  

D)

 $139,500.00  

 86)

 What is the variable overhead spending variance?  

A)

 $2,250 unfavorable  

B)

 $1,968.75 unfavorable  

C)

 $2,250 favorable  

D)

 $1,968.75 favorable  

 87)

 What is the variable overhead efficiency variance?  

A)

 $1,968.75 favorable  

B)

 $1,968.75 unfavorable  

C)

 $2,250 favorable  

D)

 $2,250 unfavorable  

 88)

 What is the total variable overhead variance  

A)

 $3,937.50 unfavorable  

B)

 $1,968.75 unfavorable  

C)

 $3,937.50 favorable  

D)

 $1,968.75 favorable  

 89)

 The variable overhead efficiency variance is computed ________ and interpreted ________ the direct-cost efficiency variance.  

A)

 the same as; the same as  

B)

 the same as; differently than  

C)

 differently than; the same as  

D)

 differently than; differently than  

 90)

 An unfavorable variable overhead efficiency variance indicates that:  

A)

 variable overhead items were not used efficiently  

B)

 the price of variable overhead items was less than budgeted  

C)

 the variable overhead cost-allocation base was not used efficiently  

D)

 the denominator level was not accurately determined  

 91)

 Variable overhead costs can be managed by:  

A)

 reducing the consumption of the cost-allocation base  

B)

 eliminating nonvalue-adding variable costs  

C)

 planning for appropriate capacity levels  

D)

 Both A and B are correct.  

 92)

 When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable variable overhead efficiency variance is:  

A)

 excessive machine breakdowns  

B)

 the production scheduler's impressive scheduling of machines  

C)

 a decline in the cost of energy  

D)

 strengthened demand for the product  

 93)

 When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable variable overhead efficiency variance is:  

A)

 using more machine hours than budgeted  

B)

 workers wastefully using variable overhead items  

C)

 unused capacity  

D)

 more units being produced than planned  

 94)

 When machine-hours are used as an overhead cost-allocation base, a rush order resulting in unplanned overtime that used less-skilled workers on the machines would MOST likely contribute to reporting a(n):  

A)

 favorable variable overhead spending variance  

B)

 unfavorable variable overhead efficiency variance  

C)

 favorable fixed overhead flexible-budget variance  

D)

 unfavorable production-volume variance  

 95)

 When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the MOST likely result would be to report a(n):  

A)

 unfavorable variable overhead spending variance  

B)

 favorable variable overhead efficiency variance  

C)

 unfavorable fixed overhead flexible-budget variance  

D)

 favorable production-volume variance  

 96)

 The fixed overhead cost variance can be further subdivided into the:  

A)

 price variance and the efficiency variance  

B)

 spending variance and flexible-budget variance  

C)

 production-volume variance and the efficiency variance  

D)

 flexible-budget variance and the production-volume variance  

 97)

 The amount reported for fixed overhead on the static budget is also reported:  

A)

 as actual fixed costs  

B)

 as allocated fixed overhead  

C)

 on the flexible budget  

D)

 Both B and C are correct.  

 98)

 An unfavorable fixed overhead spending variance indicates that:  

A)

 there was more excess capacity than planned  

B)

 the price of fixed overhead items cost more than budgeted  

C)

 the fixed overhead cost-allocation base was not used efficiently  

D)

 the denominator level was more than planned  

 99)

 A favorable fixed overhead spending variance might indicate that:  

A)

 more capacity was used than planned  

B)

 the denominator level was less than planned  

C)

 the fixed overhead cost-allocation base was not used efficiently  

D)

 a plant expansion did not proceed as originally planned  

 100)

 For fixed manufacturing overhead, there is no:  

A)

 spending variance  

B)

 efficiency variance  

C)

 flexible-budget variance  

D)

 production-volume variance  

 Answer the following questions using the information below:

 Jenny's Corporation manufactured 25,000 grooming kits for horses during March. The fixed-overhead cost-allocation rate is $20.00 per machine-hour. The following fixed overhead data pertain to March:

             Actual Static Budget

Production      25,000 units    24,000 units

Machine-hours            6,100 hours     6,000 hours

Fixed overhead costs for March         $123,000         $120,000

 101)

 What is the flexible-budget amount?  

A)

 $120,000  

B)

 $122,000  

C)

 $123,000  

D)

 $125,000  

 102)

 What is the amount of fixed overhead allocated to production?  

A)

 $120,000  

B)

 $122,000  

C)

 $123,000  

D)

 $125,000  

 103)

 What is the fixed overhead spending variance?  

A)

 $1,000 unfavorable  

B)

 $2,000 favorable  

C)

 $3,000 unfavorable  

D)

 $5,000 favorable  

 104)

 What is the fixed overhead production-volume variance?  

A)

 $1,000 unfavorable  

B)

 $2,000 favorable  

C)

 $3,000 unfavorable  

D)

 $5,000 favorable  

  Answer the following questions using the information below:

 Rutch Corporation manufactured 54,000 door jambs during September. The fixed-overhead cost-allocation rate is $50.00 per machine-hour. The following fixed overhead data pertain to September:

             Actual Static Budget

Production      54,000 units    60,000 units

Machine-hours            985 hours        1150 hours

Fixed overhead costs for September  $53,400           $57,500

 105)

 What is the flexible-budget amount?  

A)

 $100,000  

B)

 $53,400  

C)

 $57,500  

D)

 $51,750  

 106)

 What is the amount of fixed overhead allocated to production?  

A)

 $51,750  

B)

 $100,000  

C)

 $53,400  

D)

 $57,500  

 107)

 What is the fixed overhead spending variance?  

A)

 $5,750 unfavorable  

B)

 $5,750 favorable  

C)

 $4,100 favorable  

D)

 $4,100 unfavorable  

  Answer the following questions using the information below:

 Matthew's Corporation manufactured 10,000 golf bags during March. The fixed overhead cost-allocation rate is $20.00 per machine-hour. The following fixed overhead data pertain to March:

             Actual Static Budget

Production      10,000 units    12,000 units

Machine-hours            5,100 hours     6,000 hours

Fixed overhead cost for March           $122,000         $120,000

 108)

 What is the flexible-budget amount?  

A)

 $100,000  

B)

 $102,000  

C)

 $120,000  

D)

 $122,000  

 109)

 What is the amount of fixed overhead allocated to production?  

A)

 $100,000  

B)

 $102,000  

C)

 $120,000  

D)

 $122,000  

 110)

 What is the fixed overhead production-volume variance?  

A)

 $2,000 unfavorable  

B)

 $18,000 favorable  

C)

 $20,000 unfavorable  

D)

 $22,000 unfavorable  

 111)

 Fixed overhead is:  

A)

 overallocated by $2,000  

B)

 underallocated by $2,000  

C)

 overallocated by $22,000  

D)

 underallocated by $22,000  

 112)

 The production-volume variance may also be referred to as the:  

A)

 flexible-budget variance  

B)

 denominator-level variance  

C)

 spending variance  

D)

 efficiency variance  

 113)

 A favorable production-volume variance indicates that the company:  

A)

 has good management  

B)

 has allocated more fixed overhead costs than budgeted  

C)

 has a total economic gain from using excess capacity  

D)

 should increase capacity  

 114)

 An unfavorable production-volume variance of $40,000 indicates that the company has:  

A)

 unused fixed manufacturing overhead capacity  

B)

 overallocated $40,000 of fixed manufacturing overhead costs  

C)

 $40,000 more capacity than needed  

D)

 an economic loss of $40,000 from selling fewer products than planned  

 115)

 When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable production-volume variance is:  

A)

 an increase in the selling price of the product  

B)

 the purchase of a new manufacturing machine costing considerably less than expected  

C)

 a decline in the cost of energy  

D)

 strengthened demand for the product  

 116)

 When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable production-volume variance is:  

A)

 a new competitor gaining market share  

B)

 a new manufacturing machine costing considerably more than expected  

C)

 an increase in the cost of energy  

D)

 strengthened demand for the product  

 117)

 Excess capacity is a sign:  

A)

 that capacity should be reduced  

B)

 that capacity may need to be re-evaluated  

C)

 that the company is suffering a significant economic loss  

D)

 of good management decisions  

 118)

 An unfavorable production-volume variance:  

A)

 is not a good measure of a lost production opportunity  

B)

 measures the total economic gain or loss due to unused capacity  

C)

 measures the amount of extra fixed costs planned for but not used  

D)

 takes into account the effect of additional revenues due to maintaining higher prices  

 119)

 The difference between budgeted fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units achieved is called the fixed overhead:  

A)

 efficiency variance  

B)

 flexible-budget variance  

C)

 combined-variance analysis  

D)

 production-volume variance  

 120)

 Variable overhead costs:  

A)

 never have any unused capacity  

B)

 have no production-volume variance  

C)

 allocated are always the same as the flexible-budget amount  

D)

 All of these answers are correct.  

 121)

 Fixed overhead costs:  

A)

 never have any unused capacity  

B)

 should be unitized for planning purposes  

C)

 are unaffected by the degree of operating efficiency in a given budget period  

D)

 Both A and B are correct.  

 122)

 Fixed overhead costs must be unitized for:  

A)

 financial reporting purposes  

B)

 planning purposes  

C)

 calculating the production-volume variance  

D)

 Both A and C are correct.  

 123)

 Generally Accepted Accounting Principles require that unitized fixed manufacturing costs be used for:  

A)

 pricing decisions  

B)

 costing decisions  

C)

 external reporting  

D)

 All of these answers are correct.  

 124)

 A nonfinancial measure of performance evaluation is:  

A)

 increased sales  

B)

 reducing distribution costs  

C)

 energy used per machine-hour  

D)

 All of these answers are correct.  

 125)

 Variance information regarding nonmanufacturing costs can be used to:  

A)

 plan capacity in the service sector  

B)

 control distribution costs in the retail sector  

C)

 determine the most profitable services offered by a bank  

D)

 All of these answers are correct.  

 126)

 Tucker Company uses a standard cost system. In March, $133,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $150,000. Which of the following variable manufacturing overhead entries would have been recorded for March?  

A)

 Accounts Payable Control and other accounts           150,000

           Work-in-Process Control        150,000

B)

 Variable Manufacturing Overhead Allocated            150,000

           Accounts Payable and other accounts            150,000  

C)

 Work-in-Process Control        133,000

           Accounts Payable Control and other accounts           133,000  

D)

 Variable Manufacturing Overhead Control    133,000

           Accounts Payable Control and other accounts           133,000  

 127)

 Alvarado Company made the following journal entry:

 Variable Manufacturing Overhead Allocated            100,000

Variable Manufacturing Overhead Efficiency Variance        30,000

           Variable Manufacturing Overhead Control    125,000

           Variable Manufacturing Overhead Spending Variance          5,000

 A)

 Alvarado overallocated variable manufacturing overhead.  

B)

 A $5,000 favorable spending variance was recorded.  

C)

 Work-in-Process is currently overstated.  

D)

 This entry may be recorded yearly to provide timely feedback to managers.  

 128)

 John's Football Manufacturing Company reported:

           Actual fixed overhead            $800,000

           Fixed manufacturing overhead spending variance     $20,000 favorable

           Fixed manufacturing production-volume variance     $30,000 unfavorable

 To isolate these variances at the end of the accounting period, John would debit Fixed Manufacturing Overhead Allocated for:  

A)

 $780,000  

B)

 $790,000  

C)

 $800,000  

D)

 $810,000  

 129)

 Brandon's Basketball Manufacturing Company reported:

           Actual fixed overhead            $1,000,000

           Fixed manufacturing overhead spending variance     $60,000 unfavorable

           Fixed manufacturing production-volume variance     $40,000 unfavorable

 To isolate these variances at the end of the accounting period, Brandon would:  

A)

 debit Fixed Manufacturing Overhead Allocated for $1,000,000  

B)

 debit Fixed Manufacturing Overhead Spending Variance for $60,000  

C)

 credit Fixed Manufacturing Production-Volume Variance for $40,000  

D)

 credit Fixed Manufacturing Control Allocated for $900,000  

 130)

 Jovana Company uses a standard cost system. In March, $117,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $120,000. Which of the following variable manufacturing overhead entries would have been recorded for March?  

A)

 Accounts Payable Control and other accounts           120,000

           Work-in-Process Control        120,000

B)

 Work-in-Process Control        120,000

           Variable Manufacturing Overhead Allocated            120,000  

C)

 Work-in-Process Control        117,000

           Accounts Payable Control and other accounts           117,000  

D)

 Accounts Payable Control and other accounts           117,000

           Variable Manufacturing Overhead Control    117,000  

 131)

 Tate Company makes the following journal entry:

 Variable Manufacturing Overhead Allocated            150,000

Variable Manufacturing Overhead Efficiency Variance        5,000

           Variable Manufacturing Overhead Control    125,000

           Variable Manufacturing Overhead Spending Variance          30,000

 A)

 Tate underallocated variable manufacturing overhead.  

B)

 A $30,000 unfavorable spending variance was recorded.  

C)

 Work-in-Process is currently understated.  

D)

 A $25,000 favorable flexible-budget variance was recorded.  

 132)

 Jeremy's Football Manufacturing Company reported:

           Actual fixed overhead            $500,000

           Fixed manufacturing overhead spending variance     $30,000 favorable

           Fixed manufacturing production-volume variance     $20,000 unfavorable

 To isolate these variances at the end of the accounting period, Jeremy would debit Fixed Manufacturing Overhead Allocated for:  

A)

 $480,000  

B)

 $490,000  

C)

 $500,000  

D)

 $510,000  

 133)

 Kristin's Basketball Manufacturing Company reported:

           Actual fixed overhead            $800,000

           Fixed manufacturing overhead spending variance     $60,000 favorable

           Fixed manufacturing production-volume variance     $40,000 favorable

 To isolate these variances at the end of the accounting period, Kristin would debit:  

A)

 Fixed Manufacturing Overhead Allocated for $900,000  

B)

 Fixed Manufacturing Overhead Spending Variance for $60,000  

C)

 Fixed Manufacturing Production-Volume Variance for $40,000  

D)

 All of these answers are correct.  

 Answer the following questions using the information below:

             Production-

Variances        Spending         Efficiency       Volume

Variable manufacturing overhead       $ 4,500 F         $15,000 U       (B)

Fixed manufacturing overhead           $10,000 U       (A)       $40,000 U

 134)

 Above is a:  

A)

 4-variance analysis  

B)

 3-variance analysis  

C)

 2-variance analysis  

D)

 1-variance analysis  

 135)

 In the above chart, the amounts for (A) and (B), respectively, are:  

A)

 $10,500 U; $55,000 U  

B)

 $10,500 U; Zero  

C)

 Zero; $55,000 U  

D)

 Zero; Zero  

 136)

 In a 3-variance analysis the spending variance should be:  

A)

 $ 4,500 F  

B)

 $10,000 U  

C)

 $ 5,500 U  

D)

 $10,500 U  

 137)

 In a 2-variance analysis the flexible-budget variance and the production-volume variance should be ________, respectively.  

A)

 $5,500 U; $55,000 U  

B)

 $20,500 U; $40,000 U  

C)

 $10,500 U; $50,000 U  

D)

 $60,500 U; Zero  

 138)

 In a 1-variance analysis the total overhead variance should be:  

A)

 $20,500 U  

B)

 $60,500 U  

C)

 $121,000 U  

D)

 None of these answers is correct.  

 Answer the following questions using the information below:

 Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc., produces the cars in batches. To manufacture a batch of the cars, Munoz, Inc., must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of car.

 Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2004:

             Actual Static-budget

           Amounts         Amounts

           Units produced and sold        15,000 11,250

           Batch size (number of units per batch)           250      225

           Setup-hours per batch 5          5.25

           Variable overhead cost per setup-hour           $40      $38

           Total fixed setup overhead costs        $14,400           $14,000

 139)

 Calculate the efficiency variance for variable setup overhead costs.  

A)

 $1,900 unfavorable  

B)

 $600 unfavorable  

C)

 $1,900 favorable  

D)

 $600 favorable  

 140)

 Calculate the spending variance for variable setup overhead costs.  

A)

 $1,900 unfavorable  

B)

 $1,900 favorable  

C)

 $600 unfavorable  

D)

 $600 favorable  

 141)

 Calculate the flexible-budget variance for variable setup overhead costs.  

A)

 $600 favorable  

B)

 $1,300 favorable  

C)

 $600 unfavorable  

D)

 $1,300 unfavorable  

 142)

 Calculate the spending variance for fixed setup overhead costs.  

A)

 $3,200 unfavorable  

B)

 $400 unfavorable  

C)

 $3,600 unfavorable  

D)

 $400 favorable  

 143)

 Calculate the production-volume variance for fixed setup overhead costs.  

A)

 $4,666.67 unfavorable  

B)

 $400 unfavorable  

C)

 $4,666.67 favorable  

D)

 $400 favorable  

 Answer the following questions using the information below:

 Lukehart Industries, Inc., produces  air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and tooling for different models of the air purifiers.

 Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2008:

             Budget            Actual

           Amounts         Amounts

           Units produced and sold        10,000 9,000

           Batch size (number of units per batch)           400      375

           Setup-hours per batch 6          5.5

           Variable overhead cost per setup-hour           $50      $52

           Total fixed setup overhead costs        $18,000           $17,750

 144)

 Calculate the efficiency variance for variable setup overhead costs.  

A)

 $150 favorable  

B)

 $114 favorable  

C)

 $264 unfavorable  

D)

 $264 favorable  

 145)

 Calculate the spending variance for variable setup overhead costs.  

A)

 $150 unfavorable  

B)

 $150 favorable  

C)

 $264 unfavorable  

D)

 $264 favorable  

 146)

 Calculate the flexible-budget variance for variable setup overhead costs.  

A)

 $114 favorable  

B)

 $264 favorable  

C)

 $264 unfavorable  

D)

 $114 unfavorable  

 147)

 Calculate the spending variance for fixed setup overhead costs.  

A)

 $250 unfavorable  

B)

 $150 unfavorable  

C)

 $250 favorable  

D)

 $150 favorable  

 148)

 Calculate the production-volume variance for fixed setup overhead costs.  

A)

 $1,800 favorable  

B)

 $1,800 unfavorable  

C)

 $250 unfavorable  

D)

 $250 favorable  

149)

 Fixed and variable cost variances can ________ be applied to activity-based costing systems.  

A)

 always  

B)

 most times  

C)

 seldom  

D)

 never  

 150)

 Jael Equipment uses a flexible budget for its indirect manufacturing costs. For 20X5, the company anticipated that it would produce 18,000 units with 3,500 machine-hours and 7,200 employee days. The costs and cost drivers were to be as follows:

             Fixed   Variable           Cost driver

Product handling        $30,000           $0.40   per unit

Inspection       8,000   8.00     per 100 unit batch

Utilities           400      4.00     per 100 unit batch

Maintenance    1,000   0.20     per machine-hour

Supplies                       5.00     per employee day

 During the year, the company processed 20,000 units, worked 7,500 employee days, and had 4,000 machine-hours. The actual costs for 20X5 were:

             Actual costs

Product handling        $36,000

Inspection       9,000

Utilities           1,600

Maintenance    1,200

Supplies           37,500

 Required:

a.         Prepare the static budget using the overhead items above and then compute the static-budget variances.

b.         Prepare the flexible budget using the overhead items above and then compute the flexible-budget variances.  

   151)

 Heather's Pillow Company manufactures pillows. The 20X5 operating budget is based on production of 20,000 pillows with 0.5 machine-hour allowed per pillow. Variable manufacturing overhead is anticipated to be $220,000.

 Actual production for 20X5 was 18,000 pillows using 9,500 machine-hours. Actual variable costs were $20 per machine-hour.

 Required:

 Calculate the variable overhead spending and efficiency variances.  

 152)

 Cirilla's Weathervane Company manufactures weathervanes. The 2008 operating budget is based on the  production of 10,000 weathervanes with 1.25 machine-hour allowed per weathervane. Variable manufacturing overhead is anticipated to be $300,000.

 Actual production for 2008 was 11,000 weathervanes using 12,100 machine-hours. Actual variable costs were $23.75 per machine-hour.

 Required:

 Calculate the variable overhead spending and the efficiency variances.  

 153)

 McKenna Company manufactured 1,000 units during April with a total overhead budget of $12,400. However, while manufacturing the 1,000 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report is lettered in the following set of data:

 Variable overhead:

           Standard cost per unit: 0.4 labor hour at $4 per hour

           Actual costs: $2,100 for 376 hours

           Flexible budget: a

           Total flexible-budget variance: b

           Variable overhead spending variance: c

           Variable overhead efficiency variance: d

 Fixed overhead:

           Budgeted costs: e

           Actual costs: f

           Flexible-budget variance: $500 favorable

 Required:

Compute the missing elements in the report represented by the lettered items.  

 154)

 Everjoice Company makes clocks. The fixed overhead costs for 20X5 total $720,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 240,000 hours during the year for 480,000 units. An equal number of units are budgeted for each month.

 During June, 42,000 clocks were produced and $63,000 were spent on fixed overhead.

 Required:

a.         Determine the fixed overhead rate for 20X5 based on units of input.

b.         Determine the fixed overhead static-budget variance for June.

c.         Determine the production-volume overhead variance for June.  

 155)

 Brown Company makes watches. The fixed overhead costs for 2008 total $324,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 10,800 hours during the year for 540,000 units. An equal number of units are budgeted for each month.

 During October, 48,000 watches were produced and $28,000 was spent on fixed overhead.

 Required:

a.         Determine the fixed overhead rate for 2008 based on the units of input.

b.         Determine the fixed overhead static-budget variance for October.

c.         Determine the production-volume overhead variance for October.  

 156)

 Lungren has budgeted construction overhead for August of $260,000 for variable costs and $435,000 for fixed costs. Actual costs for the month totaled $275,000 for variable and $445,000 for fixed. Allocated fixed overhead totaled $440,000. The company tracks each item in an overhead control account before allocations are made to individual jobs. Spending variances for August were $10,000 unfavorable for variable and $10,000 unfavorable for fixed. The production-volume overhead variance was $5,000 favorable.

 Required:

a.         Make journal entries for the actual costs incurred.

b.         Make journal entries to record the variances for August.  

 157)

 Different management levels in Bates, Inc., require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows:

             Budgeted output units            3,200   units

           Budgeted fixed manufacturing overhead       $20,000

           Budgeted variable manufacturing overhead   $5        per direct labor hour

           Budgeted direct manufacturing labor hours   2          hours per unit

           Fixed manufacturing costs incurred   $26,000

           Direct manufacturing labor hours used           7,200

           Variable manufacturing costs incurred           $35,600

           Actual units manufactured     3,400

 Required:

a.         Compute a 4-variance analysis for the plant controller.

b.         Compute a 3-variance analysis for the plant manager.

c.         Compute a 2-variance analysis for the corporate controller.

d.         Compute the flexible-budget variance for the manufacturing vice president.  

 158)

 Casey Corporation produces a special line of basketball hoops. Casey Corporation produces the hoops in batches. To manufacture a batch of the basketball hoops, Casey Corporation must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of basketball hoops.

 Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to January 2005.

             Static-budget  Actual

           Amounts         Amounts

           Basketball hoops produced and sold  30,000 28,000

           Batch size (number of units per batch)           200      250

           Setup-hours per batch 5          4

           Variable overhead cost per setup hour            $10      $9

           Total fixed setup overhead costs        $22,500           $21,000

 Required:

 a.         Calculate the efficiency variance for variable setup overhead costs.

b.         Calculate the spending variance for variable setup overhead costs.

c.         Calculate the flexible-budget variance for variable setup overhead costs.

d.         Calculate the spending variance for fixed setup overhead costs.

e.         Calculate the production-volume variance for fixed setup overhead costs.  

 159)

 Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.  

 160)

 Briefly explain why a favorable variable overhead spending variance may not always be desireable.  

 161)

 Can the variable overhead efficiency variance

a.         be computed the same way as the efficiency variance for direct-cost items?

b.         be interpreted the same way as the efficiency variance for direct-cost items? Explain.  

 162)

 Explain why there is no efficiency variance for fixed manufacturing overhead costs.  

 163)

 How is a budgeted fixed overhead cost rate calculated?  

 164)

 Explain why there is no production-volume variance for variable manufacturing overhead costs.  

 165)

 Abby Company has just implemented a new cost accounting system that provides two variances for fixed manufacturing overhead. While the company's managers are familiar with the concept of spending variances, they are unclear as to how to interpret the production-volume overhead variances. Currently, the company has a production capacity of 54,000 units a month, although it generally produces only 46,000 units. However, in any given month the actual production is probably something other than 46,000.

  Required:

 a.         Does the production-volume overhead variance measure the difference between the 54,000 and 46,000, or the difference between the 46,000 and the actual monthly production? Explain.

 b.         What advice can you provide the managers that will help them interpret the production-volume overhead variances?  

 166)

 Explain the meaning of a favorable production-volume variance.  

 167)

 What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold?  

 168)

 Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.  

 169)

 Explain why sales-volume variance could be helpful to managers.  

 170)

 The chapter shows that variance analysis of overhead costs can be presented in 4, 3, 2, and 1-variance analysis. Explain what each of the variances presented under each method shows about overhead costs.  

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ACC 410 Week 9 Quiz – Strayer NEW

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 Quiz 7 Chapter 12 and 13

 Not-for-Profit Organizations

  TRUE/FALSE (CHAPTER 12)

 1.    The FASB has standard-setting jurisdiction over all private not-for-profits and all government-owned not-for-profits.

 2.    Private not-for-profit accounting is closer to business than to government accounting.

 3.    FASB Statement No. 117 directs that revenues and expenses be reported in a statement of financial position.

 4.    In the statement of activities, FASB Statement No. 117 requires revenues to be reported as increases in one of the three categories of net assets, depending on donor-imposed restrictions; however, all expenses should be reported as decreases in unrestricted net assets.

 5.    Restricted contributions may be reported as unrestricted if the restriction has been met in the same period as the contribution is made.

 6.    FASB Statement No. 95 requires not-for-profits use the direct method in the preparation of the statement of cash flows.

 7.    In accounting for investments, not-for-profits, like businesses, must report their investments at fair value and classify the investments as either trading, available-for-sale, or held-to-maturity.

 8.    Absent explicit donor or legal stipulations, a not-for-profit’s endowment principal (permanently restricted net assets) would not be affected by either gains or losses on investments.

 9.    Not-for-profits cannot own or be integrally affiliated with either businesses or other not-for-profits.

 10.  FASB Statement No. 93 makes the recognition of depreciation on long-lived assets optional at the discretion of the not-for-profit.

  MULTIPLE CHOICE (CHAPTER 12)

 1.    Financial statements for Smith College, a church-supported college, should be prepared according to standards set by

       a)   AICPA.

       b)   FASB.

       c)   GASB.

       d)   Smith may choose any of the above.

 2.    The basis of accounting used by not-for-profit organizations in their external financial reports is

       a)   Industry-specific basis of accounting.

       b)   Cash basis of accounting.

       c)   Modified accrual basis of accounting.

       d)   Accrual basis of accounting.

 3.    FASB requires the focus of external financial reporting be on

       a)   The donor-imposed restrictions on resources.

       b)   All restrictions on resources.

       c)   Funds of the entity.

       d)   The entity taken as a whole.

 4.    Expenses incurred by not-for-profit organizations should be reported as

       a)   Decreases in one of the three categories of net assets.

       b)   Decreases in unrestricted net assets.

       c)   Decreases in temporarily restricted net assets.

       d)   Decreases in permanently restricted net assets.

 5.    Revenues of a not-for-profit organization should be reported as

       a) Increases in one of the three categories of net assets.

       b)   Increases in unrestricted net assets.

       c)   Increases in temporarily restricted net assets.

       d)   Increases in permanently restricted net assets.

 6.    Restricted gifts to not-for-profit organizations

       a)   Must always be shown as an increase in restricted net assets.

       b)   Must always be shown as an increase in unrestricted net assets.

       c)   May be shown as an increase in unrestricted net assets if the restriction is met in the same period.

       d)   May be shown as an increase in unrestricted net assets at the discretion of management.

 7.    The account title “Resources Released from Restriction” is reported by a ‘restricted fund’ as a

       a)   Revenue account.

       b)   Contra-revenue account.

       c)   Expense account.

       d)   Contra-expense account.

 8.    The account title “Resources Released from Restriction” is reported by an ‘unrestricted fund’ as a

       a)   Revenue account.

       b)   Contra-revenue account.

       c)   Expense account.

       d)   Contra-expense account.

 9.    FASB requires that all not-for-profit organizations report expenses

       a)   By object.

       b)   By function.

       c)   By natural classification.

       d)   By budget code.

 10.  Voluntary health and welfare organizations must also report expenses by

       a)   Object.

       b)   Function.

       c)   Natural classification.

       d)   Budget code.

 11.  The National Association for the Preservation of Wildlife received $10,000 from a benefactor to support the overall objective of the organization.  This amount will be recognized as revenue

       a)   In the period received.

       b)   In the period spent.

       c)   Never, because it is not earned.

       d) In the period it becomes susceptible to accrual.

 12.  Not-for-profit organizations report their cash flows in which of the following categories?

       a)   Operating, noncapital financing, capital financing, investing.

       b)   Operating, noncapital financing, investing.

       c)   Operating capital financing, investing.

       d)   Operating, financing, investing.

 13.  Not-for-profit organization should report contributions restricted for long-term purposes in which of the following categories?

       a)   Operating.

       b)   Financing.

       c)   Capital financing.

       d)   Investing.

 14.  Not-for-profit organizations should report interest and dividends earned and restricted for long-term purposes in which of the following categories?

       a)   Operating.

       b)   Financing.

       c)   Capital financing.

       d)   Investing.

 15.  Revenue from an exchange transaction may be classified as an increase in which class of net assets?

       a)   Unrestricted net assets.

       b)   Temporarily restricted net assets.

       c) Permanently restricted net assets.

       d)   Any of the above.

 16.  During the annual fundraising drive, the Cancer Society raised $900,000 in pledges of financial support for their general operations.  By the fiscal year-end, the Society had collected $600,000 of the pledges.  The Society estimates that 10% of the remaining pledges will be uncollectible. The NET amount of revenue the Society should recognize during the current year from this pledge drive is

       a)   $900,000.

       b)   $870,000.

       c)   $810,000.

       d)   $600,000.

 Use the following information to answer #17 - #19.

United Charities’ annual fund raising drive in 2001 raised pledges of $600,000 of which $400,000 were collected in 2001 and $100,000 were collected in 2002.  United Charities estimates $75,000 of the remaining pledges will never be collected.

 17.  The increase in unrestricted net assets in 2001 as a result of the fund raising drive is

       a)   $600,000.

       b)   $525,000.

       c)   $400,000.

       d)   $125,000.

 18.  The increase in temporarily restricted net assets in 2001 as a result of the fundraising drive is

       a)   $600,000.

       b)   $525,000.

       c)   $400,000.

       d)   $125,000.

 19.  In 2002, the change in unrestricted net assets is

       a)   $0

       b)   $100,000 increase.

       c)   $100,000 decrease.

       d)   $500,000 increase.

  20.  In a prior year, United Charities received a $100,000 gift to be used to acquire vans to provide transportation for physically challenged adults.  During the current year, United acquired two vans at a cost of $60,000 each.  The appropriate entry(ies) to record the acquisition should be

       a)   UNRESTRICTED FUND

Resources Released from Restriction             $100,00

Cash                                                                $100,000

             RESTRICTED FUND

Fixed Assets                                                   $120,000

                            Cash                                                                $   20,000

                            Resources Released from Restriction             $100,000

       b)   RESTRICTED FUND

Resources Released from Restriction             $ 100,000

                             Cash                                                               $100,000

             UNRESTRICTED FUND

Fixed Assets                                                    $120,000

                            Resources Released from Restriction             $100,000

                            Cash                                                                 $  20,000

      c)   UNRESTRICTED FUND

Fixed Assets                                                   $120,000

                            Cash                                                                $120,000

       d)   RESTRICTED FUND

Fixed Assets                                                   $120,000

                            Cash                                                                $120,000

 21.   In the current year National Pet Charities, which uses fund-type accounting to maintain its books and records, received a $30,000 contribution to help educate people on responsible pet ownership.  During the current year, the entry to record this donation is

       a)   UNRESTRICTED FUND.  No entry.

             RESTRICTED FUND.  Debit Cash $30,000; Credit Revenues $30,000.

       b)   UNRESTRICTED FUND.  No entry.

             RESTRICTED FUND.  Debit Cash $30,000; Credit Net Assets $30,000.

       c)   UNRESTICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.  

             RESTRICTED FUND.  No entry.

       d)   UNRESTRICTED FUND.  Debit Cash $30,000; Credit Net Assets $30,000.

             RESTRICTED FUND.  No entry.

 22.  Grace Church, a nondenominational not-for-profit entity, operates a school in connection with the Church.  This year members of the Church decided to construct a new wing on the school with six classrooms.  The Church hired an architect and a construction supervisor.  The bulk of the labor for construction was donated by Church members who were willing workers but not necessarily skilled carpenters. Materials for the construction cost $300,000 and the paid labor was $100,000.  The fair value of the completed building is $1 million.  When the building is completed what should be the balance in the asset account ‘Building’ and the account ‘Contributed Revenue.’

       a)   Building $400,000; Contributed Revenue $0.

       b)   Building $400,000; Contributed Revenue $600,000.

       c)   Building $1 million; Contributed Revenue $600,000.

       d)   Building $1 million; Contributed Revenue $0.

 23.   Mary’s Extended Care Center, a not-for-profit entity, enjoys the services of a group of high school age people who each agree to work three afternoons a week for three hours each afternoon performing a variety of patient-related services such as writing letters for those who are unable to do so, delivering mail to the patient rooms, and pushing wheel-chair patients across the grounds.  The services rendered by these young people enhance the quality of life for the residents. They could not be provided if they were not donated because there are not enough resources to do so.  The past year the young people donated 5000 hours in total.  The services would have cost $6.00 per hour if they had been purchased but they were worth $10 an hour to St. Mary’s.  What is the amount of contributed revenue that should be recognized by St. Mary’s related to these services?

a)   $50,000.

       b)   $30,000.

       c)   $0.

       d)   Cannot determine.

 24.  Simplex Games, a not-for-profit entity organized to provide athletic competition opportunities for high school students, utilizes a number of volunteers in carrying out its mission.  At the 2002 Games 50 volunteers provided a total of 1000 hours of service performing tasks such as picking up litter and delivering water to the athletes.  A local CPA firm donates its services to prepare the annual tax return and other federal and state required paperwork which must be filed to maintain its status as a tax-exempt organization.  During 2002 the CPA firm provided 50 hours of service. If purchased, the CPA services would have cost $50 per hour and the game workers would have cost $5 per hour.  How much contributed service revenue should Simplex Games recognize in 2002?

       a)   $7,500.

       b)   $5,000.

       c)   $2,500.

       d)   $0.

 25.  A not-for-profit Art Museum that has elected not to capitalize its art collection receives a donation of a rare piece of Tlinket Indian art.  The donor paid $8,000 for the piece several years ago.  Today the piece has an estimated fair value of $50,000.  What entry should the Art Museum make upon receipt of this donation?

       a)   Debit Collection Items $50,000; Credit Donated Revenue $50,000.

       b)   Debit Collection Items $8,000; Credit Donated Revenue $8,000.

       c)   Debit Collection Items $50,000; Credit Unrestricted Net Assets $50,000.

       d)   No entry required.

 26.  Native Art Museum, a not-for-profit entity that elects not to capitalize its collection items, purchased for $10,000 a wonderful totem pole for display near the door of the Museum.  As a result of this transaction, which of the following entries should be made?

       a)   Debit Collection Items $10,000; Credit Cash $10,000.

       b)   Debit Collection Expense $10,000; Credit Cash $10,000.

       c)   Debit Unrestricted Net Assets $10,000; Credit Cash $10,000.

       d)   No entry is required.

  27.  The Nature Conservatory, a not-for-profit entity, engaged in a fundraising drive to raise money to buy land to provide a habitat for the endangered Sleepy Eagle. A donor pledged $1 million to the project provided that the Nature Conservatory was able to raise an additional $1.5 million from other sources.  What entry should the Nature Conservatory make at the time of the $1 million pledge?

       a)   Debit Pledge Receivable $1 million; Credit Unrestricted Revenue $1 million.

       b)   Debit Pledges Receivable $1 million; Credit Temporarily Restricted Revenue $1 million.

       c)   Debit Pledges Receivable $1 million; Credit Temporarily Restricted Net Assets $1 million.

       d)   No entry is made at the time of the pledge.

 28.  When should a not-for-profit entity recognize pledge revenue that is contingent upon raising a matching amount?

       a)   When the pledge is made.

       b)   When the cash is received.

       c)   When the matching funds have been raised.

       d)   When the project is completed.

 29.  A donor pledges $100,000 to the Shakespeare Foundation to be used only to support the summer Shakespeare Theater—an event that has been held every summer for 38 years. This is an example of a(an)

       a)   Conditional contribution.

       b)   Unconditional contribution.

       c)   Restricted contribution.

       d)   Unrestricted contribution.

 30.  United Charities accepted a contribution from a donor and agreed to transfer the assets to Aid for Friends, a not-for-profit that provides temporary shelter to the homeless.  United Charities should debit cash or other assets and credit

       a)   Unrestricted revenue.

       b)   Temporarily restricted revenue.

       c)   Liability to Aid for Friends.

       d)   United Charities should not make an entry.

 31.  Music Lovers Foundation, a not-for-profit governed by an independent board, was founded to support the Northern State University Choir until such time as the state legislature shall adequately fund the choir.  When the Choir is adequately funded by appropriation the Foundation may direct resources to other music projects that it deems acceptable.  When Music Lovers accepts a contribution from a donor it should debit cash and/or other assets and credit

       a)   Unrestricted revenue.

       b)   Temporarily restricted revenue.

       c)   Liability.

       d)   It should not make an entry.

  32.  The Save the Animals Foundation received a gift of $500,000 from a donor who wanted the gift used to acquire habitat for endangered snails.  The money may be invested but all earnings are restricted to habitat acquisition.  During the year all of the gift was invested in corporate securities.  At year-end, the securities had a value of $501,0000. The appropriate way to recognize the change in fair value is

       a)   Debit Investment $1,000; Credit Unrestricted Revenue $1,000.

       b)   Debit Investment $1,000; Credit Temporarily Restricted Revenue $1,000.

       c)   Debit Investment $1,000; Credit Permanently Restricted Revenue $1,000.

       d)   No entry should be made until the securities are sold.

 33.  Sheridan Public School Foundation had available temporarily restricted gifts in excess of $200,000.  The Foundation decided to invest this money temporarily until it needs the funds for the restricted purpose.  The donors had made no specific stipulations regarding investment earnings but the Foundation board had voted to use the earnings on the projects for which the gift had originally been restricted.  At year-end, the securities had a fair value of $200,500.  The appropriate way to recognize the change in fair value is

       a)   Debit Investment $500; Credit Unrestricted Revenue $500.

       b)   Debit Investment $500; Credit Temporarily Restricted Revenue $500.

       c)   Debit Investment $500; Credit Permanently Restricted Revenue $500.

       d)   No entry should be made until the securities are sold.

 34.  The Friends of the Library (FOL), a not-for-profit entity, received a gift restricted to acquisition of a special piece of the equipment used to restore books. Late last year FOL acquired the machine at a total cost of $19,000.  The machine is estimated to have a useful life of eight years and a salvage value of $3,000.  In what fund should FOL make the entry to record the depreciation for the current year?

       a)   Unrestricted fund.

       b)   Temporarily restricted fund.

       c)   Permanently restricted fund.

       d)   FOL should not recognize depreciation.

 35.  A not-for-profit would include which of the following financial statements in is Basic Financial Statements?

       a)   Statement of Financial Position and Statement of Activities.

       b)   Statement of Financial Position, Statement of Activities, and Cash Flow Statement.

       c)   Statement of Financial Position, Statement of Activities, Cash Flow Statement, and a Statement of Functional Expenses.

       d)   Statement of Financial Position, Statement of Activities, and a Statement of Functional Expenses.

  PROBLEMS (CHAPTER 12)

 1.  United Charities, a not-for-profit entity, supports activities for lower-income families. They have regularly engaged in activities such as providing transportation for physically-challenged individuals, providing shelters for the temporarily homeless,  providing congregate meals for the homeless, and providing shelters for abused women and children. Record the following transactions. Your account titles should clearly indicate to which class of net assets the entry will be closed or the fund in which the entry is being made.  If no entry is required, write “No entry required.”

        a. United Charities engaged in a fund-raising campaign which resulted in pledges of $600,000 to support activities of the current year.  During the year, United collected $500,000 on these pledges.

        b. A local citizen pledged $50,000 to purchase and equip a van to provide transportation for physically challenged individuals.   This citizen has donated regularly and there is no reason to believe that this pledge will not be collectible.

        c. In prior years, an advocacy group for abused women donated $10,000 to be used to furnish a ‘safe-house’ for abused women and children.  During the current year renovation of the safe house was completed and furniture was acquired at a total cost of $15,000.

        d. A wealthy benefactor pledges $100,000 to United if United successfully raises a matching amount in a capital asset fund-raising drive being conducted over a 12-month period.

        e. $60,000 cash is received from a donor who specifies that the money must be spent to provide educational activities for children who will be living in the ‘safe-house’.  It will be next year before the ‘safe-house’ has its first residents.

        f. A local attorney has agreed to provide legal services to United on a pro-bona basis.  During the current period the attorney provided services for which she would have billed $1,500.

        g. Several older housewives provide services at the United Charities congregate meal setting facility.  These women work in the kitchen serving meals and cleaning up the kitchen.  If these services were not donated they would have to purchased. The value of these services at the prevailing wage rate for similar employees would have amounted to $50,000 for the current year.

        h. Fixed assets belonging to United Charities have an original cost of $270,000, an estimated salvage value of $70,000, and an estimated useful life of 20 years.  Record depreciation if applicable.

  2.  The Heritage Art Museum, a not-for-profit entity specializing in art items created by natives of the Pacific Northwest, has a December 31 fiscal year-end.  The Museum has a policy of not capitalizing collection items.  Your entry should clearly indicate to which class of net assets the account would be closed, or in which fund the entry is being made. If no entry is required, write “No entry required.”

        a. During the current year the Museum received admissions fees in cash $500,000.

        b. Citizens of the local community are encouraged to participate in a program called ‘Friends of the Museum.’ For a yearly contribution of $25 per family, a family is entitled to free admission to the Museum during the calendar year.  A ‘Friend of the Museum; also receives a monthly one-page newsletter announcing upcoming events.  At year-end, there were 1000 members in the ‘Friends of the Museum.’

        c. During the current year the Museum incurred salary expense of  $1 million of which $60,000 remains unpaid at year end.

        d. During the year the Museum incurred operating expenses of $400,000 of which $30,000 remains unpaid at year end. Of the $400,000,  $50,000 was used to buy supplies of which $20,000 remains on hand at year-end.

       e.  Office equipment owned by the Museum has a historical cost of $100,000, salvage value of $20,000 and can be depreciated over 8 years on the straight-line basis.

        f. During the year the Museum conducted a fund-raising drive to raise money to acquire new art items for the Museum. The Museum received pledges of $200,000 of which the Museum had collected $150,000 by year-end and expected to ultimately collect another $20,000.  

        g. The Museum had a small portfolio of investments in equity securities..  At the beginning of the year the portfolio had a fair value of $60,000. During the year the Museum collected $3,000 in dividends on the securities.  At year-end the portfolio had a market value of $61,000.

        h. During the year a citizen died and willed his wonderful collection of native art to the Museum.  The appraised value of the collection was $600,000.

        i. To balance its collection, the Museum sold two of its collection items for $250,000 which approximates fair value.  These items had a historical cost to the Museum of $10,000.  

        j. The proceeds of the sale were used to acquire two new items at a cost of $310,000.

   ESSAYS (CHAPTER 12)

 1.  For each of the cases below state whether or not the contributed services would be recognized, how much would be recognized, and how it would be recognized.  Explain your answer in terms of the existing standard. Also explain why, in your opinion, the standard permits/prohibits recognition of this particular type of contribution.  

        a. A non-denominational church votes to construct a new educational wing on their existing facility.  The church will hire an architect to design the new wing and a construction supervisor to oversee the construction.  Church members will provide most of the labor for the construction.   Labor donated by members who have construction experience or who are considered professional craftsmen at the prevailing wage for their trade or craft is $500,000.  Labor donated by persons possessing non-building specialized skills (doctors, teachers, lawyers, etc.) at their prevailing wage rates is $700,000.  Labor donated by non-professionals measured at the minimum wage is $300,000.  The appraised value of the building when completed is $3 million.  The architect was paid $700,000, the construction supervisor was paid $50,000 and the materials purchased for use in the building cost $1 million.

        b. An investment advisor, a member of the Board of a not-for-profit entity, provides pro bono investment advise to the NFP. The NFP does not have a particularly large investment portfolio and without the advise of the Board member the NFP would probably invest its idle cash in certificates of deposits at an insured commercial bank to protect itself against loss of its principal.  If the investment advisor had provided similar services to his customers he would have charged  $2,000.

        c. Members of a religious order provide professional nursing services for a health-care facility that is run by their order.  The members are not compensated but their order provides lodging, food, and other necessities.  The cost of the lodging, food, etc., is paid by the health-care entity and classified as Nursing Service Expense.  At the end of the year the balance in the Nursing Service Expense account is $3 million. The value of the nursing services provided, measured at the prevailing wage for nurses, is $5 million.

 2.  A generous benefactor pledges $1 million to The R. J. Smith Foundation,  a not-for-profit entity that promotes the arts. The gift is to be used to provide scholarships for talented musicians at a music camp operated by the Foundation. The gift was given in August, 2002 to support the Summer 2003 music program.  The Foundation Director argues that the gift is a conditional restricted gift and therefore cannot be recognized as revenue in 2002.  The accountant argues that the gift is an unconditional restricted gift and must be recognized in the current year.  What is the basis for the Director’s argument? What is the basis for the accountant’s argument?  In your answer provide an explanation of the terms conditional, unconditional, restricted and unrestricted.

  Chapter 13

 Special Issues for Not-for-Profit Health Care Providers and Institutions of Higher Education

 TRUE/FALSE (CHAPTER 13)

 1.    The statement of financial position of a not-for-profit health care organization should distinguish among unrestricted, temporarily restricted, and permanently restricted net assets.

 2.    The statement of activities of a not-for-profit health care organization should classify the revenues as unrestricted, temporarily restricted, or permanently restricted, but should report expenses only as decreases in unrestricted resources.

 3.    Temporarily restricted funds related to plant and equipment generally account only for resources restricted to their purchase or construction, not for the plant and equipment itself, which are typically reported in the general operating fund.

 4.    Not-for-profit health care organizations must use exactly three funds to account for the three categories of restrictiveness.

 5.    In classifying expenses in the statement of activities of a not-for-profit health care organization, all expenses are reported exclusively within the temporarily restricted category.

 6.    Unlike businesses, not-for-profit health care providers often serve patients who they know will be unable to pay the amounts billed.

 7.    According to the AICPA audit guide, Health Care Organizations, revenue must be recorded using the patient discharge method.

 8.    The Hill-Burton Act stipulates that hospitals receiving federal construction funds must provide a certain amount of charity care.

 9.    Government hospitals are subject to the same FASB standards as private not-for-profit health care organizations.

 10.  Private not-for-profit colleges and universities are subject to the same FASB standards as other not-for-profit entities.

 MULTIPLE CHOICE (CHAPTER 13)

 1.    For a not-for-profit hospital, which of the following financial statements is NOT required?

       a)   Statement of financial position.

       b)   Statement of activities.

       c)   Statement of cash flows.

       d)   Statement of functional expenses.

 2.    For a not-for-profit college or university, which of the following categories of net assets is NOT appropriate in its external financial statements?

       a)   Unrestricted net assets.

       b)   Temporarily restricted net assets.

       c)   Permanently restricted net assets.

       d)   None.  All of the above are appropriate.

 3.    New College, a private college, received a $1 million donation.  The donor specified that the principal of her gift could not be used for program activities but the earnings on the principal must be used to provide scholarships to academically qualified students in the business school. The $1 million gift would increase which of the following categories of net assets?

       a)   Unrestricted net assets.

       b)   Temporarily restricted net assets.

       c)   Permanently restricted net assets.

       d)   Either (b) and (c).

 4.    Intermountain Hospital, a not-for-profit health care provider, issued $70 million in term bonds to finance construction of a new wing at its main hospital. Terms of the bond issue require that $5 million of the proceeds of the bond issue be invested in U.S. government securities.  The $5 million must be held until maturity of the bonds.  The $5 million will increase which class of net assets?  

       a)   Unrestricted net assets.

       b)   Temporarily restricted net assets.

       c)   Permanently restricted net assets.

       d)   Either (b) or (c).

 5.    During the current year, Jones University received a $50,000 gift from an alumnae who specified that it must be used to pay travel costs for faculty to attend health care conferences in foreign countries.  During the year the university spent $8,000 to support travel to a health care conference in Italy.  The $8,000 disbursement will cause a NET decrease in which class of net assets?

       a)   Unrestricted net assets.

       b)   Temporarily restricted net assets.

       c)   Permanently restricted net assets.

       d)   Cannot be determined.

Use the following information to answer #6 and #7.

Kale Hospital, a not-for-profit entity, received a pledge from a donor in support of a fund raising effort by the Hospital to finance construction of a new facility for cancer treatment.  The donor promised to pay $1 million in equal annual installments of $100,000 over the next 10 years.  The present value of the gift at the risk-free interest rate is $736,000.

 6.    The amount of unrestricted revenue that should be recognized by Kale in the year of the gift is

       a)   $1 million.

       b)   $736,000.

       c)   $100,000.

       d)   $0.

 7.    The amount of restricted revenue that should be recognized by Kale in the year of the gift is

       a)   $1 million.

       b)   $736,000.

       c)   $100,000.

       d)   $0.

 8.    An accountant has encountered a perplexing financial reporting issue related to the hospital for which she is preparing financial statements.  The issue is not specifically addressed by  FASB statements.  To which of the following sources would the accountant probably look for industry-specific guidance?

       a)   GASB Statements.

       b)   AICPA accounting and auditing guide, Not-for-Profit Organizations.

       c)   AICPA accounting and auditing guide, Health Care Organizations.

       d)   Pronouncements of the HFMA or AHA.

 9.    Which of the following entities should recognize depreciation expense on its operating statement?

       a)   Not-for-profit University.

       b)   Not-for-profit Foundation.

       c)   Not-for-profit Hospital.

       d)   All of the above.

 10.  In prior years, a not-for-profit hospital received funds from a donor who restricted the use of those funds to providing nursing scholarships.  During the current year $8,000 of scholarships were awarded. These scholarships should be reported

       a)   As expenses in the unrestricted fund.

       b)   As reductions in the revenue section in the unrestricted fund.

       c)   As expenses in the temporarily restricted fund.

       d)   As expenses in the permanently restricted fund.

  11.  During the current year, St. Mary’s Hospital (a not-for-profit entity) earned, based on its normal billings rate, $1 million in patient service revenues.  Many of these patients belong to a health plan that has an established pay schedule.  Based on the specific services rendered to members of the plan, the hospital estimates that $.05 million  will not be collectible from the plan or the patient.  Some of the patients are Hospital employees.  These employees are given a 50% discount on the services rendered. Employee discounts for the current year total $.01 million.  Some of the patients are uninsured and the hospital estimates, that of the amount billed to the uninsured patients, $.2 million  will not be collectible (bad debts).  The amount of net patient service revenues for St. Mary’s Hospital for the current year is

       a)   $1 million.

       b)   $.94 million.

       c)   $.87 million.

       d)   $.74 million.

 12.  A consortium of physicians agree to provide services to the employees of a large County government.  The agreement calls for monthly payments from the County to the consortium in the amount of $100,000 per month.  County employees are not billed for services rendered by the consortium.  All County employees are required to use the consortium under their health care program (any services rendered to County employees by other physicians are not covered under the health plan).  During the period the consortium performed services for County employees for which it would have billed $85,000.  The consortium referred patients to other health care providers for services they could not perform.  The consortium estimates that it will be billed $5,000 for those services.  The amount of revenue that should be recognized by the consortium is

       a)   $100,000.

       b)   $95,000.

       c)   $85,000.

       d)   $80,000.

 13.  A hospital estimates, based on past experience, that it will incur $5 million in malpractice claims as a result of services rendered in the current period. The hospital carries a malpractice insurance policy with a yearly $2 million deductible clause.  The amount that should appear on its year-end financial statement as Claims Expense (Loss) should be

       a)   $0.

       b)   $2 million.

       c)   $3 million.

       d)   $5 million.

 14.  A hospital carried a 2-year malpractice insurance policy that allows for retroactive premium adjustments based on experience (claims actually incurred). The basic premium is $150,000 for the 2-year policy payable in advance.  At the end of the first year the hospital estimates that it will have to pay an additional $40,000 in premiums as a result of claims filed in the current year and it estimates that it will incur additional premiums in the second year of $50,000 as a result of claims filed in the second year.  The amount of insurance expense that should appear on the financial statements at the end of the first year should be

       a)   $75,000.

       b)   $115,000.

       c)   $150,000.

       d)   $240,000.

 15.  An accountant has encountered a perplexing financial reporting issue related to the private college for which he is preparing financial statements.  The issue is not specifically addressed by FASB Statements.   To what standards would the accountant now look for guidance?

       a)   GASB Statements.

      b)   AICPA accounting and auditing guide, Not-for-Profit Organizations.

       c)   AICPA accounting and auditing guide, Audits of Colleges and Universities and/or AICPA SOP 74-8, Financial Accounting and Financial Reporting by Colleges and Universities.

       d)   College textbooks.

 16.  A private not-for-profit college would include which of the following financial statements in is Basic Financial Statements?

       a)   Statement of Financial Position and Statement of Activities.

       b)   Statement of Financial Position, Statement of Activities, and Cash Flow Statement.

       c)   Statement of Financial Position, Statement of Activities, Cash Flow Statement, and a Statement of Functional Expenses.

       d)   Statement of Financial Position, Statement of Activities, and a Statement of Functional Expenses.

 17.  For financial reporting purposes, government hospitals are within the jurisdiction of the

       a)   FASB.

       b)   GASB.

       c)   AICPA.  

       d)   Hill-Burton Act.

 18.  For financial reporting purposes, private not-for-profit health care providers are within the jurisdiction of the

       a)   FASB.

       b)   GASB.

       c)   AICPA.  

       d)   Hill-Burton Act.

 19.  For financial reporting purposes, state supported colleges and universities are within the jurisdiction of the

       a)   FASB.

       b)   GASB.

       c)   AICPA.  

       d)   NACUBO.

 20.  For financial reporting purposes, private not-for-profit colleges and universities are within the jurisdiction of the

       a)   FASB.

       b)   GASB.

       c)   AICPA.  

       d)   NACUBO.

  PROBLEMS (CHAPTER 13)

 1.  St. Anthony’s hospital is a private not-for-profit entity that provides health care services to the citizens in the small rural community in which it is located. The most recent construction at the Hospital was financed using Hill-Burton funds.  During the current month, St. Anthony’s engaged in the following transactions.  Using the following information make the appropriate entries for St. Anthony's for the current month.

      a. The Hospital would have billed $1.2 million for services rendered to in-patients.  The $1.2 million is based on the hospital’s established billing rate.   Of this amount $800,000 will be billed to Delta Medical Group, a third-party payor that insurers many state employees, $150,000 will be billed to uninsured patients, $200,000 is provided to indigents and will be considered charity care, and $50,000 was for services rendered to Hospital employees.  

      b. Based on prior experience with uninsured patients, the Hospital estimates that $60,000 of the $150,000 will be uncollectible.

      c. The Hospital recognizes the value of charity services rendered.

  2.  Richards College is a not-for-profit college.  Record the following transactions for Richards College.  The College has a June 30 fiscal year.

      a. Tuition revenue for the Fall semester 2002 (August - December) was $4 million; tuition for the Spring semester 2003 (January - May) was $3.8 million; tuition for the Summer semester 2003 (June 1-August 15) was $1 million.  All tuition received in cash.

      b. Faculty salaries for the Fall semester were $3 million; for the Spring semester, $2.9 million; for the Summer semester were $.5 million.  All salaries are paid at the end of the month earned.  Salaries earned in summer are June $.2 million, July $2 and August .5 million.

      c.   During June $3.2 million of tuition applicable to the Fall 2003 was received in cash.

      d.  Fixed assets of the University have a historical cost of $120 million, estimated salvage value of $20 million and an estimated useful life of 50 years.  

  ESSAYS (CHAPTER 13)

 1.  Alpha Hospital is a recipient of Hill-Burton funds and must provide some hospital care for which it will not be compensated.   During the current year Alpha Hospital provided $1 million in charity care.  What is the current financial reporting requirement for charity care?  Do you agree or disagree with the current financial reporting requirement?  Why or why not?  If you do not agree, how do you think charity care should be reported?  If you agree with the current standards, what alternative reporting requirements do you believe will be proposed by those who do not agree with the current standards?

  2. Neither the FASB nor the GASB pronouncements, nor the current AICPA not-for-profit audit guide, addresses the issue of tuition revenue.  Thus, the 1973 AICPA college and university guide remains the most authoritative source of guidance for both government and not-for-profit institutions.  What is the directive on how to report revenues and expenditures of an academic term, such as a summer session, which is conducted over a fiscal year-end?

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ECO 305 Week 9 Quiz – Strayer

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 Quiz 8 Chapter 12 and 13

 EXCHANGE-RATE DETERMINATION

 MULTIPLE CHOICE

             1.         The relationship between the exchange rate and the prices of tradable goods is known as the:

a.         Purchasing-power-parity theory

b.         Asset-markets theory

c.         Monetary theory

d.         Balance-of-payments theory

               2.         If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals:

a.         20 pounds

b.         40 pounds

c.         60 pounds

d.         80 pounds

               3.         Low real interest rates in the United States tend to:

a.         Decrease the demand for dollars, causing the dollar to depreciate

b.         Decrease the demand for dollars, causing the dollar to appreciate

c.         Increase the demand for dollars, causing the dollar to depreciate

d.         Increase the demand for dollars, causing the dollar to appreciate

               4.         High real interest rates in the United States tend to:

a.         Decrease the demand for dollars, causing the dollar to depreciate

b.         Decrease the demand for dollars, causing the dollar to appreciate

c.         Increase the demand for dollars, causing the dollar to depreciate

d.         Increase the demand for dollars, causing the dollar to appreciate

               5.         Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to:

a.         Appreciate by 8 percent against the yen

b.         Depreciate by 8 percent against the yen

c.         Remain at its existing exchange rate

d.         None of the above

               6.         In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost:

a.         200 pounds

b.         400 pounds

c.         600 pounds

d.         800 pounds

               7.         If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:

a.         $.50 per pound

b.         $1.00 per pound

c.         $2.00 per pound

d.         $8.00 per pound

               8.         A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is:

a.         Large trade surpluses for the United States

b.         Relatively high inflation rates in the United States

c.         Lack of investor confidence in the U.S. monetary policy

d.         Relatively high interest rates in the United States

               9.         The high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by:

a.         Additional investment funds made available from overseas

b.         Lack of investor confidence in U.S. fiscal policy

c.         Market expectations of rising inflation in the United States

d.         American tourists overseas finding costs increasing

               10.       When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level:

a.         An excess demand for that currency exists in the foreign exchange market

b.         An excess supply of that currency exists in the foreign exchange market

c.         The demand for foreign exchange shifts outward to the right

d.         The demand for foreign exchange shifts backward to the left

               11.       When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level:

a.         An excess supply of that currency exists in the foreign exchange market

b.         An excess demand for that currency exists in the foreign exchange market

c.         The supply of foreign exchange shifts outward to the right

d.         The supply of foreign exchange shifts backward to the left

               12.       The appreciation in the value of the dollar in the early 1980s is explained by all of the following except:

a.         The United States being considered a safe haven by foreign investors

b.         Relatively high real interest rates in the United States

c.         Confidence of foreign investors in the U.S. economy

d.         Relatively high inflation rates in the United States

               13.       Suppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that:

a.         Mexico's current account is in surplus

b.         Mexico's current account is in deficit

c.         The U.S. current account is in deficit

d.         The U.S. current account is in equilibrium

               14.       If Canada runs a trade surplus with Mexico and exchange rates are floating:

a.         The peso will depreciate relative to the dollar

b.         The dollar will depreciate relative to the peso

c.         The prices of all foreign goods will fall for Canadians

d.         The prices of all foreign goods will rise for Canadians

               15.       If Mexico's labor productivity rises relative to Europe's labor productivity:

a.         The peso tends to depreciate against the euro in the short run

b.         The peso tends to appreciate against the euro in the short run

c.         The peso tends to depreciate against the euro in the long run

d.         The peso tends to appreciate against the euro in the long run

               16.       The international exchange value of the U.S. dollar is determined by:

a.         The rate of inflation in the United States

b.         The number of dollars printed by the U.S. government

c.         The international demand and supply for dollars

d.         The monetary value of gold held at Fort Knox, Kentucky

               17.       For the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from:

a.         The United States to Japan, causing the dollar to depreciate

b.         The United States to Japan, causing the dollar to appreciate

c.         Japan to the United States, causing the yen to depreciate

d.         Japan to the United States, causing the yen to appreciate

               18.       For the United States, suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause investment funds to flow from:

a.         The United States to Japan, causing the dollar to depreciate

b.         The United States to Japan, causing the dollar to appreciate

c.         Japan to the United States, causing the yen to depreciate

d.         Japan to the United States, causing the yen to appreciate

               19.       Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:

a.         An increase in the demand for imports and an increase in the demand for foreign currency

b.         An increase in the demand for imports and a decrease in the demand for foreign currency

c.         A decrease in the demand for imports and an increase in the demand for foreign currency

d.         A decrease in the demand for imports and a decrease in the demand for foreign currency

               20.       Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger:

a.         An increase in the demand for imports and an increase in the demand for foreign currency

b.         An increase in the demand for imports and a decrease in the demand for foreign currency

c.         A decrease in the demand for imports and an increase in the demand for foreign currency

d.         A decrease in the demand for imports and a decrease in the demand for foreign currency

               21.       Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in:

a.         An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

b.         An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

c.         A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

d.         A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

               22.       Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in:

a.         An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

b.         An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

c.         A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

d.         A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

               23.       Which example of market expectations causes the dollar to appreciate against the yen--expectations that the U.S. economy will have:

a.         Faster economic growth than Japan

b.         Higher future interest rates than Japan

c.         More rapid money supply growth than Japan

d.         Higher inflation rates than Japan

               24.       Which example of market expectations causes the dollar to depreciate against the yen--expectations that the U.S. economy will have:

a.         Faster economic growth than Japan

b.         Higher future interest rates than Japan

c.         Less rapid money supply growth than Japan

d.         Lower inflation rates than Japan

               25.       For an American investor, the expected rate of return on European securities depends on all of the following factors except the:

a.         Rate of return on equivalent American securities

b.         The current exchange rate between the dollar and the pound

c.         Exchange rate anticipated to prevail when the securities mature

d.         Interest rate paid on European securities

               26.       Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro?

a.         Relatively low interest rates in the United States

b.         Relatively high labor productivity in the United States

c.         Tariffs levied by the United States on steel imports from Europe

d.         Stronger American preferences for goods produced in Europe

               27.       Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso?

a.         Relatively high interest rates in Mexico

b.         Relatively high labor productivity in Mexico

c.         Tariffs applied by Mexico on computer imports from the United States

d.         Stronger Mexican preferences for goods produced in the United States

               28.       Long-run determinants of the dollar's exchange value include all of the following except:

a.         Preferences of Americans for foreign produced goods

b.         U.S. tariffs placed on imports of foreign produced goods

c.         Productivity of the American worker

d.         Interest rates in U.S. financial markets

               29.       Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?

a.         Balance-of-payments approach

b.         Purchasing-power-parity approach

c.         Asset-markets approach

d.         Monetary approach

               30.       According to the purchasing-power-parity theory, the U.S. dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of:

a.         U.S. interest rates over foreign interest rates

b.         Foreign interest rates over U.S. interest rates

c.         U.S. inflation over foreign inflation

d.         Foreign inflation over U.S. inflation

               31.       An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response.

a.         Overshoot

b.         Undershoot

c.         Depreciate

d.         Appreciate

               32.       Concerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and economic data.

a.         Econometric analysis

b.         Technical analysis

c.         Judgmental analysis

d.         Sunspot analysis

               33.       Concerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements.

a.         Econometric analysis

b.         Judgmental analysis

c.         Technical analysis

d.         Sunspot analysis

               34.       Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values.

a.         Fundamental analysis

b.         Technical analysis

c.         Judgmental analysis

d.         Sunspot analysis

               35.       Concerning exchange-rate determination, "market fundamentals" include all of the following except:

a.         Monetary policy and fiscal policy

b.         Profitability and riskiness of investments

c.         Speculative opinion about future exchange rates

d.         Productivity changes affecting production costs

               36.       In the short run, exchange rates respond to market forces such as:

a.         Inflation rates

b.         Expectations of future exchange rates

c.         Investment profitability

d.         Government trade policy

               37.       Long-run exchange rate movements are governed by all of the following except:

a.         National productivity levels

b.         Consumer tastes and preferences

c.         Rates of inflation

d.         Interest rate levels

               38.       Exchange rate determination in the short run is underlied by which of the following assumptions:

a.         Tariffs and quotas affect trade patterns only in the short run

b.         Prices of goods and services affect trade patterns only in the short run

c.         Expected returns on financial assets affect investment flows in the short run

d.         Preferences for goods and services affect trade flows only in the short run

               39.       That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the:

a.         Monetary approach to exchange-rate determination

b.         Law of one price

c.         Fundamentalist approach to exchange-rate determination

d.         Exchange-rate-overshooting principle

               40.       The Canadian dollar would depreciate on the foreign exchange market if:

a.         Canadian consumer tastes change in favor of goods produced domestically

b.         The profitability of assets in Canada rises relative to the profitability of assets abroad

c.         Canada experiences a disastrous wheat-crop failure, leading to imports of more wheat

d.         Canada realizes technological improvements in the production of manufactured goods, leading to relatively low costs for Canada

               41.       The demand in the United States for yen will increase if, other things remaining equal:

a.         Labor costs rise in Japan

b.         Income rises in Japan

c.         Prices rise in Japan

d.         Interest rates rise in Japan

               42.       The quantity of Canadian dollars supplied to the foreign exchange market would increase if, other things remaining equal:

a.         Preferences for imports rise in Canada

b.         Labor productivity increases in Canada

c.         Prices of goods and services decrease in Canada

d.         Import tariffs rise in Canada

               43.       The U.S. demand for pesos would shift to the right if there occurred a (an):

a.         Change in preferences toward U.S. manufactured goods

b.         Increase in the dollar/peso exchange rate

c.         Decrease in the U.S. population

d.         Increase in the U.S. price level

               44.       The supply of francs, would shift to the right for all of the following reasons except:

a.         An increase in Swiss real income

b.         An increase in Swiss prices

c.         An increase in the Swiss population

d.         An increase in Swiss interest rates

   The figure below illustrates the supply and demand schedules of Swiss francs in a market of freely-floating exchange rates.

 Figure 12.1 The Market for Francs

               45.       Refer to Figure 12.1. Should preferences for imports rise in the United States and fall in Switzerland, there would occur a (an):

a.         Increase in the demand for francs--decrease in the supply of francs-depreciation of the dollar

b.         Increase in the demand for francs--decrease in the supply of francs-appreciation of the dollar

c.         Decrease in the demand for francs--decrease in the supply of francs-appreciation of the dollar

d.         Decrease in the demand for francs--increase in the supply of francs-depreciation of the dollar

               46.       Refer to Figure 12.1. Should real interest rates in the United States rise relative to real interest rates in Switzerland, there would occur a (an):

a.         Increase in the demand for francs--decrease in the supply of francs-depreciation of the dollar

b.         Increase in the demand for francs--decrease in the supply of francs-appreciation of the dollar

c.         Decrease in the demand for francs--increase in the supply of francs-appreciation of the dollar

d.         Decrease in the demand for francs--decrease in the supply of francs-depreciation of the dollar

               47.       Refer to Figure 12.1. Should the U.S. price level rise relative to the Swiss price level, there would occur a (an):

a.         Increase in the demand for francs--increase in the supply of francs-appreciation of the dollar

b.         Decrease in the demand for francs--decrease in the supply of francs-depreciation of the dollar

c.         Increase in the supply of francs--decrease in the demand for francs-appreciation of the dollar

d.         Decrease in the supply of francs--increase in the demand for francs-depreciation of the dollar

               48.       Refer to Figure 12.1. Should the United States impose tariffs on imports from Switzerland, there would occur a (an):

a.         Increase in the demand for francs and a depreciation of the dollar

b.         Decrease in the demand for francs and an appreciation of the dollar

c.         Decrease in the supply of francs and an appreciation of the dollar

d.         Increase in the supply of francs and a depreciation of the dollar

               49.       Refer to Figure 12.1. Should Swiss labor productivity rise, leading to a decrease in Swiss manufacturing costs, there would occur a (an):

a.         Increase in the supply of francs and a depreciation of the dollar

b.         Increase in the supply of francs and an appreciation of the dollar

c.         Decrease in the demand for francs and an appreciation of the dollar

d.         Increase in the demand for francs and a depreciation of the dollar

               50.       Refer to Figure 12.1. If Switzerland experienced a disastrous wheat-crop failure, leading to additional wheat imports from the United States, there would occur an:

a.         Increase in the supply of francs and an appreciation of the dollar

b.         Increase in the supply of francs and a depreciation of the dollar

c.         Increase in the demand for francs and a depreciation of the dollar

d.         Increase in the demand for francs and an appreciation of the dollar

               51.       Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to:

a.         Appreciate against the dollar

b.         Depreciate against the dollar

c.         Remain constant against the dollar

d.         Appreciate, depreciate, or remain constant against the dollar

               52.       Given floating exchange rates, assume that the Swiss decrease their import purchases from Italy while at the same time the Italians increase their purchases of Swiss government securities. The first action by itself would lead to a (an) ____ of the franc against the lira while the second action by itself would lead to a (an) ____ of the franc against the lira.

a.         Appreciation, appreciation

b.         Depreciation, depreciation

c.         Appreciation, depreciation

d.         Depreciation, appreciation

               53.       Given floating exchange rates, a simultaneous decrease in the Canadian demand for British products and increase in the British desire to invest in Canadian government securities would cause a (an):

a.         Appreciation of the pound against the dollar

b.         Depreciation of the pound against the dollar

c.         Unchanged pound/dollar exchange rate

d.         None of the above

               54.       Assume a system of floating exchange rates. Due to a high savings rate, suppose the level of savings in Japan is in excess of domestic investment needs. If Japanese residents invest abroad, the yen's exchange value will ____ and the Japanese trade balance will move toward ____.

a.         Appreciate, deficit

b.         Appreciate, surplus

c.         Depreciate, deficit

d.         Depreciate, surplus

               55.       Given a system of floating exchange rates, assume that Boeing Inc. of the United States places a large order, payable in yen, with a Japanese contractor for jet engine parts. The immediate effect of this transaction will be a shift in the:

a.         Supply curve of yen to the left which causes the dollar to appreciate against the yen

b.         Supply curve of yen to the right which causes the dollar to depreciate against the yen

c.         Demand curve for yen to the left which causes the dollar to appreciate against the yen

d.         Demand curve for yen to the right which causes the dollar to depreciate against the yen

               56.       For purchasing-power parity to exist:

a.         Flows of currency in the trade account must be offset by flows of currency in the capital account

b.         The nominal interest rate must be equal to the real interest rate in all countries

c.         Converting a sum of funds from one currency to another does not alter its purchasing power

d.         A country's trade account must always be in balance

               57.       Assume that interest rates in the United States and Britain are the same. If a U.S. resident anticipates that the exchange value of the dollar is going to appreciate against the pound, she should:

a.         Borrow needed funds from British banks rather than U.S. banks

b.         Borrow needed funds from U.S. banks rather than British banks

c.         Convert U.S. dollars into British pounds

d.         Any of the above

               58.       Given a system of floating exchange rates, if Canada's labor productivity rises relative to the labor productivity of its trading partners:

a.         Canadian imports will fall and the dollar will appreciate

b.         Canadian imports will fall and the dollar will depreciate

c.         Canadian imports will rise and the dollar will appreciate

d.         Canadian imports will rise and the dollar will depreciate

               59.       Assume that labor productivity growth is slower in the United States than in its trading partners. Given a system of floating exchange rates, the impact of this growth differential for the United States will be:

a.         Increased exports and an appreciation of the dollar

b.         Increased exports and a depreciation of the dollar

c.         Increased imports and an appreciation of the dollar

d.         Increased imports and a depreciation of the dollar

               60.       Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 10 percent in the United States and remains constant in Japan, the exchange rate will become

a.         72 yen per dollar

b.         81 yen per dollar

c.         99 yen per dollar

d.         108 yen per dollar

               61.       Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 5 percent in the United States and 15 percent in Japan, the exchange rate will become:

a.         72 yen per dollar

b.         81 yen per dollar

c.         99 yen per dollar

d.         108 yen per dollar

               62.       Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing power parity, if the price of traded goods falls by 5 percent in the United States and rises by 5 percent in Japan, the exchange rate will become:

a.         72 yen per dollar

b.         81 yen per dollar

c.         99 yen per dollar

d.         108 yen per dollar

               63.       Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar. One can say that the:

a.         Yen has appreciated against the dollar and the dollar has depreciated against the yen

b.         Yen has depreciated against the dollar and the dollar has appreciated against the yen

c.         Yen has appreciated against the dollar and the dollar has appreciated against the yen

d.         Yen has depreciated against the dollar and the dollar has depreciated against the yen

               64.       Given a floating exchange rate system an increase in ____ would cause the dollar to appreciate against the euro.

a.         U.S. labor costs

b.         The U.S. money supply

c.         U.S. prices of goods

d.         U.S. real interest rates

               65.       Under a system of floating exchange rates, a Japanese trade surplus against Canada would result in a (an):

a.         Rise in the dollar price of the yen

b.         Fall in the dollar price of the yen

c.         Rise in the yen price of the dollar

d.         Unchanged dollar/yen exchange rate

               66.       When deciding between U.S. and British government securities, an American investor typically considers:

a.         U.S. and British interest rates and anticipated changes in the exchange rate

b.         Budget deficits of the U.S. government and British government

c.         Shifts in the demand for U.S. goods and British goods

d.         U.S. and British inflation rates and anticipated changes in the exchange rate

               67.       In the long run, exchange rates are primarily determined by:

a.         Agreements among governments of the world's industrial countries

b.         Relative interest rates in developing countries and industrial countries

c.         Economic fundamentals such as relative productivity levels

d.         The rate at which country's currencies exchange for gold

               68.       Increased tariffs on U.S. steel imports cause the dollar to ____ in the ____.

a.         Appreciate, long run

b.         Depreciate, long run

c.         Appreciate, short run

d.         Depreciate, short run

               69.       Lower tariffs on U.S. agricultural imports cause the dollar to ____ in the ____.

a.         Appreciate, long run

b.         Depreciate, long run

c.         Appreciate, short run

d.         Depreciate, short run

               70.       Relatively high interest rates in the United States causes the dollar to ____ in the ____.

a.         Appreciate, long run

b.         Depreciate, long run

c.         Appreciate, short run

d.         Depreciate, short run

               71.       The asset market theory of exchange rate determination suggests that the most important factor influencing the demand for domestic and foreign securities is:

a.         Expected return on these assets relative to one another

b.         Ability of these assets to easily be converted into cash

c.         Riskiness of these assets relative to one another

d.         Level of government restrictions on trade and investment flows

               72.       With floating exchange rates, easy credit and low short term interest rates lead to

a.         Exchange rate depreciation in the short run

b.         Exchange rate appreciation in the short run

c.         Exchange rate depreciation in the long run

d.         Exchange rate appreciation in the long run

               73.       With floating exchange rates, relatively high productivity growth for a nation leads to

a.         Exchange rate depreciation in the short run

b.         Exchange rate appreciation in the short run

c.         Exchange rate depreciation in the long run

d.         Exchange rate appreciation in the long run

               74.       All of the following are important long-run determinants of exchange rates except

a.         Consumer tastes

b.         Trade policy

c.         Labor productivity

d.         Interest rates

               75.       The purchasing-power parity theory suffers from the problem

a.         Of choosing the appropriate price index

b.         That it overlooks the influence of capital flows

c.         That government policy may modify exchange rates

d.         All of the above

   TRUE/FALSE

             1.         In a free market, exchange rates are determined by market fundamentals and market expectations.

              2.         Concerning exchange-rate determination, market fundamentals include inflation rates, productivity levels, and speculative opinion about future exchange rates.

              3.         Market expectations include news about market fundamentals, speculative opinion about future exchange rates, and profitability and riskiness of investments.

              4.         In a free market, the equilibrium exchange rate occurs at the point where the quantity demanded of a foreign currency equals the quantity of that currency supplied.

              5.         Exchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as central banks do not intervene in the foreign exchange markets.

              6.         Over the long run, foreign exchange rates are determined by transfers of bank deposits that respond to differences in real interest rates and to shifting expectations of future exchange rates.

  The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates.

 Figure 12.2. The Market for Swiss Francs

               7.         Refer to Figure 12.2. If the United States decreases tariffs on imports from Switzerland, there would occur a decrease in the demand for francs and a decrease in the dollar price of the franc.

              8.         Refer to Figure 12.2. If Swiss manufacturing costs increase relative to those of the United States, there would occur an increase in the supply of francs and an appreciation in the dollar's exchange value.

              9.         Refer to Figure 12.2. If the Federal Reserve adopts a restrictive monetary policy that leads to relatively high interest rates in the United States, the demand for francs would decrease, the supply of francs would increase, and the dollar's exchange value would appreciate.

              10.       Refer to Figure 12.2. As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States, U.S. residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.

              11.       Refer to Figure 12.2. If the rate of inflation in the United States is higher than the rate of inflation in Switzerland, the demand for francs decreases, the supply of francs increases, and the dollar's exchange value appreciates.

              12.       Under floating exchange rates, short-run exchange rates are primarily determined by national differences in real interest rates and shifting expectations of future exchange rates.

              13.       Day-to-day influences on foreign exchange rates always cause rates to move in the same direction as changes in long-term market fundamentals.

              14.       With floating exchange rates, a country experiencing faster economic growth than its trading partners find its currency's exchange value appreciating.

              15.       If U.S. labor productivity growth is 2 percent per annum and Swiss labor productivity growth is 6 percent per annum, the dollar will depreciate against the franc under a system of floating exchange rates.

              16.       In 1985 and 1986 U.S. interest rates fell relative to interest rates in Japan. Under floating exchange rates, this would lead to the dollar's exchange value depreciating against the yen.

              17.       A country having stronger preferences for imports than its trading partners have for its exports finds its demand for foreign exchange rising more rapidly than its supply of foreign exchange.

              18.       Economies with relatively high growth rates in labor productivity tend to find their currencies' exchange values appreciating under a floating exchange-rate system.

              19.       Under floating exchange rates, relatively low domestic interest rates tend to promote depreciation of a currency's exchange value while relatively high domestic interest rates lead to currency appreciation.

              20.       Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent while tight monetary policy in Switzerland leads to interest rates rising to 8 percent. With floating exchange rates, the dollar would appreciate against the franc.

              21.       The purchasing-power-parity theory is used to predict exchange-rate movements in the short run.

              22.       According to the law of one price, identical goods should cost the same in all nations, assuming there are no shipping costs nor trade barriers.

              23.       The purchasing- power-parity theory predicts that if the U.S. inflation rate exceeds the Japanese inflation rate by 4 percent, the dollar's exchange value will appreciate by 4 percent against the yen.

              24.       Assume the initial yen/dollar exchange rate to be 100 yen per dollar. If the U.S. inflation rate is 2 percent and the Japanese inflation rate is 7 percent, the exchange rate should move to 105 yen per dollar according to the purchasing-power-parity theory.

              25.       Assume the initial dollar/pound exchange rate to be $2 per pound. If the U.S. inflation rate is 8 percent and the U.K. inflation rate is 3 percent, the exchange rate should move to $2.10 per pound according to the purchasing-power-parity theory.

              26.       If consumer tastes in the United States change in favor of goods produced in France, the demand for francs will increase which causes an appreciation of the dollar against the franc under a floating exchange rate system.

              27.       As the profitability of Japanese assets rises relative to the profitability of Australian assets, Australian residents will make additional investments in Japan; this results in an increased demand for yen and a depreciation of the dollar under a system of floating exchange rates.

              28.       If the United States experiences an enormous wheat crop failure, it will have to import more wheat and the dollar's exchange value will depreciate under a system of floating exchange rates.

              29.       If Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise and the yen's exchange value will appreciate under a system of floating exchange rates.

              30.       If Mexico applies tariffs to imports of manufactured goods, Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.

              31.       According to the "Big Mac" index, if a Big Mac costs $2.28 in the United States and 25.75 krone in Denmark (equivalent to $4.25), the Danish krone is an undervalued currency.

              32.       According to the "Big Mac" index, if a Big Mac costs $2.28 in the United States and 48 baht in Thailand (equivalent to $1.91), the baht is an undervalued currency.

              33.       Long-run determinants of exchange rate include labor productivity levels, inflation rates, consumer preferences for goods and services, and trade barriers.

              34.       In the short run, exchange rates are primarily determined by investor expectations of returns on assets such as government securities and bank accounts.

              35.       Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to the short run.

              36.       If it is widely expected that the British economy will experience more rapid inflation than the Australian economy, the pound will depreciate against the dollar under a system of floating exchange rates.

              37.       According to the asset-markets approach, adjustments among financial assets are a key determinant of long-run movements in exchange rates.

              38.       The asset-markets approach views exchange-rate determination as similar to the stock market in which prices are volatile and expectations are important.

              39.       According to the principle of exchange-rate overshooting, a short-run depreciation of a currency is likely to be greater than a long-run depreciation of that currency.

              40.       Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.

              41.       According to exchange-rate overshooting, an appreciation of the Australian dollar is likely to be greater over a long time period than over a short time period.

              42.       Concerning exchange rate forecasting, fundamental analysis involves consideration of a variety of macroeconomic variables and policies that tend to affect currency values.

              43.       Econometric models are best suited for forecasting long-run exchange rates rather than short-run exchange rates.

              44.       Concerning exchange rate forecasting, technical analysis extrapolates from past exchange-rate trends while ignoring economic and political determinants of exchange rates.

              45.       Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.

              46.       A forward premium on the British pound serves as a rough benchmark of the expected rate of appreciation in the pound's spot rate.

              47.       A forward discount on Mexico's peso serves as a rough benchmark of the expected appreciation in the peso's spot rate.

              48.       If you were considering hiring a forecasting firm to predict future spot rates of the yen, you would hope that the firm could predict better what would be implied by the yen's forward rate.

              49.       Although the law of one price predicts that identical goods should cost the same in all nations, transportation costs and tariffs tend to prevent this prediction from actually occurring.

              50.       If real interest rates decline in the United States relative to real interest rates abroad, the dollar's exchange value will appreciate under a floating exchange-rate system.

  SHORT ANSWER

             1.         What is the purchasing power parity approach to exchange rate determination?

               2.         What is exchange rate overshooting?

   ESSAY

             1.         In a free market, what determines exchange rates in the long run and the short run?

               2.         What is the asset market approach to exchange rate determination?

  CHAPTER 13—BALANCE-OF-PAYMENTS ADJUSTMENTS

 MULTIPLE CHOICE

             1.         Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

a.         Domestic income

b.         Foreign prices

c.         Domestic prices

d.         Foreign par values

               2.         The balance-of-payments adjustment mechanism developed during the 1700s by the English economist David Hume is the:

a.         Income-adjustment mechanism

b.         Flexible-exchange-rate-adjustment mechanism

c.         Price-adjustment mechanism

d.         Rank-reserve-adjustment mechanism

               3.         Which chain of events would promote payments equilibrium for a surplus nation, according to the price-adjustment mechanism?

a.         Increasing money supply--increasing domestic prices--rising imports--falling exports

b.         Increasing money supply--falling domestic prices--rising imports--falling exports

c.         Decreasing money supply--increasing domestic prices--falling imports--rising exports

d.         Decreasing money supply--decreasing domestic prices--falling imports--rising exports

               4.         Which chain of events would promote payments equilibrium for a deficit nation, according to the price-adjustment mechanism?

a.         Increasing money supply--increasing domestic prices--rising imports--falling exports

b.         Increasing money supply--falling domestic prices--rising imports--falling exports

c.         Decreasing money supply--increasing domestic prices--falling imports--rising exports

d.         Decreasing money supply--decreasing domestic prices--falling imports--rising exports

               5.         During the gold standard era, central bankers agreed to react positively to international gold flows so as to reinforce the automatic adjustment mechanism. Which of the following best represents the above statement?

a.         Income-adjustment mechanism

b.         Price-adjustment mechanism

c.         Rules of the game

d.         Discretionary fiscal policy

               6.         During the gold standard era, the "rules of the game" suggested that:

a.         Surplus countries should increase their money supplies

b.         Deficit countries should increase their money supplies

c.         Surplus and deficit countries should increase their money supplies

d.         Surplus and deficit countries should decrease their money supplies

               7.         Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?

a.         Income-adjustment mechanism

b.         Price-adjustment mechanism

c.         Interest-rate-adjustment mechanism

d.         Output-adjustment mechanism

               8.         Under the gold standard, a surplus nation facing a gold inflow and an increase in its money supply would also experience a:

a.         Rise in its interest rate and a short-term financial inflow

b.         Rise in its interest rate and a short-term financial outflow

c.         Fall in its interest rate and a short-term financial inflow

d.         Fall in its interest rate and a short-term financial outflow

               9.         Under the gold standard, a deficit nation facing a gold outflow and a decrease in its money supply would also experience a:

a.         Rise in its interest rate and a short-term financial inflow

b.         Rise in its interest rate and a short-term financial outflow

c.         Fall in its interest rate and a short-term financial inflow

d.         Fall in its interest rate and a short-term financial outflow

               10.       Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account. Now suppose that Canadian interest rates increase to levels higher than those abroad. For Canada, this tends to promote:

a.         Net financial inflows

b.         Net financial outflows

c.         Net merchandise exports

d.         Net merchandise imports

               11.       Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account. Now suppose that Canadian interest rates fall to levels below those abroad. For Canada, this tends to promote:

a.         Net financial inflows

b.         Net financial outflows

c.         Net merchandise exports

d.         Net merchandise imports

               12.       Suppose the United States levies an interest equalization tax, which taxes Americans on dividend and interest income from foreign securities. Such a tax would be intended to:

a.         Encourage financial movements from the United States to overseas

b.         Discourage financial movements from the United States to overseas

c.         Discourage financial movements from overseas to the United States

d.         None of the above

               13.       Assume that interest rates on comparable securities are identical in the United States and foreign countries. Now suppose that investors anticipate that in the future the U.S. dollar will appreciate against foreign currencies. Investment funds would thus be expected to:

a.         Flow from the United States to foreign countries

b.         Flow from foreign countries to the United States

c.         Remain totally in foreign countries

d.         Not be affected by the expected dollar appreciation

               14.       Suppose Japan increases its imports from Sweden, leading to a rise in Sweden's exports and income level. With a higher income level, Sweden imports more goods from Japan. Thus a change in imports in Japan results in a feedback effect on its exports. This process is best referred to as the:

a.         Monetary approach to balance-of-payments adjustment

b.         Discretionary income adjustment process

c.         Foreign repercussion effect

d.         Price-specie flow mechanism

   Exhibit 13.1

 Assume the marginal propensity to consume for U.S. households equals 0.9, and the marginal propensity to import for the United States equals 0.1. Suppose there occurs an increase in investment of $10 billion at each level of income.

             15.       Refer to Exhibit 13.1. The value of the multiplier for the United States equals:

a.         2

b.         3

c.         4

d.         5

               16.       Refer to Exhibit 13.1. The change in the level of U.S. income resulting from the additional investment spending equals

a.         $20 billion

b.         $30 billion

c.         $40 billion

d.         $50 billion

               17.       Refer to Exhibit 13.1. The change in the level of U.S. imports resulting from the rise in U.S. income equals:

a.         $5 billion

b.         $10 billion

c.         $15 billion

d.         $20 billion

               18.       The monetary approach to balance-of-payments adjustments suggests that all payments deficits are the result of:

a.         Too high interest rates in the home country

b.         Too low interest rates in the home country

c.         Excess money supply over money demand in the home country

d.         Excess money demand over money supply in the home country

               19.       The monetary approach to balance-of-payments adjustments suggests that all payments surpluses are the result of:

a.         Too high interest rates in the home country

b.         Too low interest rates in the home country

c.         Excess money supply over money demand in the home country

d.         Excess money demand over money supply in the home country

               20.       Starting from a position where the nation's money demand equals the money supply, and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

a.         Decrease in the money supply

b.         Increase in the money demand

c.         Decrease in the money demand

d.         None of the above

               21.       Which approach to balance-of-payments adjustment suggests that balance-of-payments surpluses are the result of excess money demand in the home country?

a.         Absorption approach

b.         Elasticities approach

c.         Monetary approach

d.         Purchasing-power-parity approach

               22.       According to the "rules of the game" of the gold standard era, a country's central bank agreed to react to international gold flows so as to:

a.         Officially devalue a currency during eras of payments surpluses

b.         Officially revalue a currency during eras of payments deficits

c.         Offset the automatic-adjustment mechanism (e.g., prices)

d.         Reinforce the automatic-adjustment mechanism

               23.       According to the quantity theory of money, a change in the domestic money supply will bring about:

a.         Inverse and proportionate changes in the price level

b.         Inverse and less-than-proportionate changes in the price level

c.         Direct and proportionate changes in the price level

d.         Direct and less-than-proportionate changes in the price level

               24.       The formulation of the so-called income adjustment mechanism is associated with:

a.         Adam Smith

b.         David Ricardo

c.         David Hume

d.         John Maynard Keynes

               25.       The value of the foreign trade multiplier equals the reciprocal of the sum of the marginal propensities to:

a.         Save plus import

b.         Import plus invest

c.         Consume plus export

d.         Save plus import

               26.       Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation:

a.         An increase in the money supply

b.         A decrease in the money supply

c.         An increase in money demand

d.         None of the above

               27.       Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

a.         A decrease in the money supply

b.         An increase in the money supply

c.         A decrease in the money demand

d.         None of the above

               28.       Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

a.         An increase in the money demand

b.         A decrease in the money demand

c.         An increase in the money supply

d.         None of the above

               29.       Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S. dollar will depreciate against foreign currencies. Investment funds would tend to:

a.         Flow from the United States to foreign countries

b.         Flow from foreign countries to the United States

c.         Remain totally in foreign countries

d.         Remain totally in the United States

               30.       Suppose that rising U.S. income leads to higher sales and profits in the United States. This would likely result in:

a.         Increasing portfolio investment into the United States

b.         Decreasing portfolio investment into the United States

c.         Increasing direct investment into the United States

d.         Decreasing direct investment into the United States

   Figure 13.1. U.S. Capital and Financial Account

               31.       Refer to Figure 13.1. Upward movements along U.S. capital and financial account schedule CA0 would be caused by:

a.         U.S. interest rates rising relative to foreign interest rates

b.         U.S. interest rates falling relative to foreign interest rates

c.         Taxes placed on income earned by U.S. residents from their foreign investments

d.         Taxes placed on income earned by foreign residents from their U.S. investments

               32.       Refer to Figure 13.1. Downward movements along U.S. capital and financial account schedule CA0 would be caused by:

a.         U.S. interest rates rising relative to foreign interest rates

b.         U.S. interest rates falling relative to foreign interest rates

c.         Taxes placed on income earned by U.S. residents from their foreign investments

d.         Taxes placed on income earned by foreign residents from their U.S. investments

               33.       Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 if:

a.         U.S. interest rates exceeded foreign interest rates

b.         Foreign interest rates exceeded U.S. interest rates

c.         Taxes were placed on income earned by U.S. residents from their foreign investments

d.         Taxes were placed on income earned by foreign residents from their U.S. investments

               34.       Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 if:

a.         U.S. residents receive subsidies to invest in foreign nations

b.         U.S. interest rates rise relative to foreign interest rates

c.         Taxes are reduced on income earned by U.S. residents from their foreign investments

d.         Expected profits decline on U.S. investments in foreign manufacturing

               35.       Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 for all of the following reasons except:

a.         U.S. political stability improves relative to foreign political stability

b.         U.S. interest rates fall relative to foreign interest rates

c.         Taxes are placed on income earned by U.S. residents from foreign investments

d.         Restrictions are imposed on foreign loans granted by U.S. banks

               36.       Refer to Figure 13.1. U.S. capital and financial account schedule CA0 would shift upwards, or downwards, for all of the following reasons except:

a.         U.S. residents being taxed on income earned from foreign investments

b.         U.S. banks being restricted on loans that can be made abroad

c.         U.S. political stability changing relative to foreign political stability

d.         U.S. interest rates changing relative to foreign interest rates

   Table 13.1. Canada's Saving, Investment, Import, and Export Functions (in billions of dollars) Under a System of Fixed Exchange Rates

 Export Function          X = 3000

Investment Function   I = 1000

Saving Function          S = -1000 + 0.2Y

Import Function          M = 500 + 0.25Y

              37.       Referring to Table 13.1, if Canada's income rises by $200 billion, saving would rise by:

a.         $10 billion

b.         $20 billion

c.         $30 billion

d.         $40 billion

               38.       Referring to Table 13.1, if Canada's income rises by $200 billion, imports would rise by:

a.         $50 billion

b.         $75 billion

c.         $100 billion

d.         $125 billion

               39.       Referring to Table 13.1, Canada's foreign trade multiplier equals:

a.         1.75

b.         2.05

c.         2.22

d.         2.64

               40.       Referring to Table 13.1, Canada's equilibrium level of income is:

a.         $8000 billion

b.         $9000 billion

c.         $10,000 billion

d.         $11,000 billion

               41.       Refer to Table 13.1. If improved business optimism leads to increases in Canada's planned investment spending from $1000 billion to $1200 billion, Canada's equilibrium income rises by approximately:

a.         $444 billion

b.         $555 billion

c.         $666 billion

d.         $777 billion

               42.       Refer to Table 13.1. If weak economic conditions abroad result in Canada's exports falling from $3000 billion to $2500 billion, Canada's equilibrium income falls by approximately:

a.         $888 billion

b.         $990 billion

c.         $1110 billion

d.         $1220 billion

   Figure 13.2. Australian Economy Under a Fixed Exchange Rate System

               43.       Refer to Figure 13.2. The slope of the (X-M) schedule and (S-I) schedule indicates that Australia's foreign trade multiplier is:

a.         0.5

b.         1.0

c.         1.5

d.         2.0

               44.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that improving economic conditions abroad lead to an autonomous increase in Australian exports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, surplus of $2.5 billion

b.         Rises to $60 billion, surplus of $5 billion

c.         Falls to $40 billion, deficit of $2.5 billion

d.         Falls to $40 billion, deficit of $5 billion

               45.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S- I)0 intersects (X-M)0, suppose that worsening economic conditions abroad lead to an autonomous decrease in Australian exports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, surplus of $2.5 billion

b.         Rises to $60 billion, surplus of $5 billion

c.         Falls to $40 billion, deficit of $2.5 billion

d.         Falls to $40 billion, deficit of $5 billion

               46.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that improving profit expectations lead to an autonomous increase in Australian investment of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, deficit of $2.5 billion

b.         Rises to $60 billion, deficit of $5 billion

c.         Falls to $40 billion, surplus of $2.5 billion

d.         Falls to $40 billion, surplus of $5 billion

               47.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that worsening profit expectations lead to an autonomous decrease in Australian investment of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, deficit of $2.5 billion

b.         Rises to $60 billion, deficit of $5 billion

c.         Falls to $40 billion, surplus of $2.5 billion

d.         Falls to $40 billion, surplus of $5 billion

               48.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that increased thriftiness leads to an autonomous increase in Australian saving of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, deficit of $2.5 billion

b.         Rises to $60 billion, deficit of $5 billion

c.         Falls to $40 billion, surplus of $2.5 billion

d.         Falls to $40 billion, surplus of $5 billion

               49.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that dwindling thriftiness leads to an autonomous decrease in Australian saving to $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, deficit of $2.5 billion

b.         Rises to $60 billion, deficit of $5 billion

c.         Falls to $40 billion, surplus of $2.5 billion

d.         Falls to $40 billion, surplus of $5 billion

               50.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that changing preferences lead to an autonomous increase in Australian imports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, surplus of $2.5 billion

b.         Rises to $60 billion, surplus of $5 billion

c.         Falls to $40 billion, deficit of $2.5 billion

d.         Falls to $40 billion, deficit of $5 billion

               51.       Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that changing preferences lead to an autonomous decrease in Australian imports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a.         Rises to $60 billion, surplus of $2.5 billion

b.         Rises to $60 billion, surplus of $5 billion

c.         Falls to $40 billion, deficit of $2.5 billion

d.         Falls to $40 billion, deficit of $5 billion

               52.       In explaining balance-of-payments adjustments, the classical economists

a.         Focused on interest rates exclusively

b.         Remained aware of the role of interest rates

c.         Only focused their attention on short-term interest rates

d.         Paid exclusive attention to long-tem interest rates

               53.       J. M. Keynes suggested that a trade deficit nation

a.         Would experience a fall in income

b.         Would experience a decline in imports

c.         Would require active intervention by the government

d.         Both a and b

               54.       The classical gold standard

a.         Existed from early 1800's to early 1900's

b.         Did not allow for imports and exports of gold

c.         Led to the outflow of gold from surplus nations

d.         Led to the inflow of gold to deficit nations

               55.       The classical economists assumed

a.         That the volume of final output is fixed at the full-employment level in the long-run

b.         The velocity of money is constant

c.         The velocity of money depends on physical, structural, and institutional factors

d.         All of the above

   TRUE/FALSE

             1.         Under a fixed exchange rate system, adjustment mechanisms work for the automatic return to current-account balance after the initial balance has been disrupted.

              2.         When a country's current account moves into disequilibrium, automatic adjustments in tariffs and quotas occur which move the current account back into equilibrium.

              3.         Prices, interest rates, and income are the automatic adjustment variables that help restore current-account equilibrium under a system of fixed exchange rates.

              4.         That the balance of payments could be adjusted by prices and interest rates, under a fixed exchange rate system, originated with Keynesian theory during the 1930s.

              5.         David Hume's price-adjustment mechanism supported the mercantilist view that a nation could maintain a trade surplus indefinitely.

              6.         Under the price-adjustment mechanism, a government's efforts to maintain a current-account surplus is self defeating over the long run because a nation's current account automatically moves toward equilibrium.

              7.         Under the gold standard of the 1800s, exchange rates were allowed to float freely in the currency markets.

              8.         Under the gold standard, each participating nation defined the mint price of gold in terms of its national currency was prepared to buy and sell gold at that price.

              9.         Under the gold standard, a nation with a current-account surplus would realize gold outflows, a decrease in its money supply, and a fall in its domestic price level.

              10.       The essence of the classical price-adjustment mechanism is embodied in the quantity theory of money.

              11.       According to the equation of exchange, the total expenditures on final goods equals the monetary value of the final goods sold.

              12.       Regarding the equation of exchange, the classical economists assumed that final output was below its maximum level while the velocity of money was volatile.

              13.       According to the quantity theory of money, a change in the money supply will induce an inverse and less-than-proportionate change in the price level.

              14.       Under the price-adjustment mechanism, a trade-surplus nation would realize gold inflows, an increase in its money supply, and a loss of international competitiveness.

              15.       The price-adjustment mechanism's relevance to the real world has been questioned on the grounds that national output is generally not at the full-employment level and that the velocity of money is not always constant.

              16.       According to the price-adjustment mechanism, trade deficits can occur only in the long run rather than in the short run.

              17.       Under the price-adjustment mechanism, trade-deficit nations realize price inflation and a loss of competitiveness while trade surplus nations realize price deflation and an improvement in competitiveness.

              18.       Under the classical gold standard, adjustments in domestic prices and short-term interest rates automatically promoted balance-of-payments equilibrium over the long run.

              19.       Under the classical gold standard, a trade surplus nation would realize gold inflows, an increase in its money supply, rising interest rates, and net investment inflows.

              20.       The gold standard's "rules of the game" required central bankers in a surplus country to initiate contractionary monetary policies which lead to higher interest rates and net investment inflows.

              21.       The gold standard's "rules of the game" required central bankers in a trade deficit nation to expand the money supply, leading to falling interest rates and net investment outflows.

              22.       The "rules of the game" served to reinforce and speed up the interest-rate-adjustment mechanism under a system of fixed exchange rates.

  Figure 13.3. U.S. Capital and Financial Account Under a Fixed Exchange Rate System

               23.       Refer to Figure 13.3. As U.S. interest rates rise relative to foreign interest rates, the U.S. slides upward along schedule CA0, thus moving towards capital and financial account surplus.

              24.       Refer to Figure 13.3. Decreases in U.S. interest rates relative to foreign interest rates would shift U.S. capital and financial account schedule CA0 downward toward CA1, resulting in net financial outflows from the United States.

              25.       Refer to Figure 13.3. Falling investment profitability in the United States, relative to investment profitability abroad, would shift the U.S. capital and financial account schedule downward from CA0 to CA1, resulting in net financial outflows from the United States.

              26.       Refer to Figure 13.3. As the U.S. government decreases taxes on income earned by U.S. residents from foreign investments, the U.S. capital and financial account schedule shifts downward from CA0 to CA1 and the United States realizes net financial outflows.

              27.       Refer to Figure 13.3. If the political and economic stability of foreign countries worsens relative to that of the United States, the U.S. capital and financial account schedule would shift downward from CA0 to CA1, resulting in net financial outflows from the United States.

              28.       According to the Keynesian income-adjustment mechanism, income differentials among nations guarantee current-account equilibrium in a world of fixed exchange rates.

              29.       Keynesian theory asserts that, under a system of fixed exchange rates, the influence of income changes in surplus and deficit countries will automatically promote current-account equilibrium.

              30.       The Keynesian income-adjustment mechanism contends that a trade-surplus nation tends to realize falling income and falling imports, thus accentuating the trade surplus.

              31.       The foreign-trade multiplier equals the sum of the marginal propensity to import and the marginal propensity to save.

              32.       If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3, the foreign-trade multiplier equal 2.0.

              33.       For an open economy subject to international trade, equilibrium income occurs where saving plus investment equals imports plus exports.

              34.       If the marginal propensity to save equals 0.1 and the marginal propensity to import equals 0.3, an autonomous increase in exports of $1,000 would expand domestic income by $2,500 which leads to an increase in imports of $750.

              35.       If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3, an autonomous decrease in investment spending of $1 million leads to a $2 million decrease in domestic income and a $600,000 decrease in imports.

              36.       For the income adjustment mechanism to reverse a trade deficit, economic policymakers must be willing to permit domestic income to increase which leads to rising imports.

              37.       Reliance on an automatic adjustment process tends to be unacceptable in trade-deficit nations since it requires them to accept price deflation and/or falling income as a cost of reducing imports.

              38.       An "automatic" adjustment mechanism would require a trade-surplus nation to accept price deflation and/or falling income as the cost of increasing imports.

  Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System

               39.       Referring to Figure 13.4, Canada's marginal propensity to save equals 0.25 and marginal propensity to import equal 0.5.

              40.       Referring to Figure 13.4, Canada's foreign-trade multiplier equals 2.0.

              41.       Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous decrease in Canadian imports of $10 billion leads to a $20 billion decrease in income and a trade deficit of $5 billion.

              42.       Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous increase in Canadian investment of $10 billion leads to a $20 billion increase in income and no change in the country's trade account.

              43.       Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous decrease in saving of $10 billion leads to a $20 billion increase in income and a trade deficit of $5 billion.

              44.       Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

              45.       According to the monetary approach, balance-of-payments disequilibriums are the result of imbalances in a country's money supply and money demand.

              46.       The monetary approach contends that, under a fixed exchange rate system, an excess supply of money leads to a trade surplus.

              47.       The monetary approach contends that, under a fixed exchange rate system, an excess demand for money leads to a trade deficit.

              48.       The monetary approach contends that, under a fixed exchange rate system, policies that increase the supply of money relative to the demand for money lead to a trade surplus.

  SHORT ANSWER

             1.         Compared to classical economists, how did Keynesian economics change the discussion of trade adjustment?

               2.         What is the foreign repercussion effect?

   ESSAY

             1.         Explain David Hume's theory of automatic adjustment for balance of payments disequilibria.

               2.         Is the monetary approach to the balance-of-payments part of the traditional adjustment theories?

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PAD 530 Week 9 Assignment 4 – Strayer

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Assignment 4: Analysis of the Agency’s Policies, Procedures, and Plans Regarding Unions, Privatization, Pensions, and Productivity, Part 4

Due Week 9 and worth 220 points

Refer to the Scenario for Assignments 1, 2, 3, 4, and 5

Write a four to six (4-6) page paper in which you:

1.  Revise the previous assignment based on your professor’s feedback.

2.  Analyze at least three (3) of the agency’s policies, procedures, and / or plans regarding unions. (Title this section The Agency and Unions)

3.  Analyze at least three (3) of the agency’s policies, procedures, and / or plans regarding privatization. (Title this section The Agency and Privatization)

4.  Analyze at least three (3) of the agency’s policies, procedures, and / or plans regarding pensions. (Title this section Employee Pension Plans)

5.  Assess the agency’s approach to productivity and performance evaluation. (Title this section Productivity and Performance Evaluation)

6.  Recommend at least three (3) actions the agency could take to improve in the areas of productivity and performance evaluation. (Title this section Recommendations for Improving Productivity and Performance Evaluation)

7.  Provide at least four (4) relevant and credible outside sources that support the content of this assignment. (Include no more than one (1) non-government Website)

Your assignment must follow these formatting requirements:

                             Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

                             Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. 
The specific course learning outcomes associated with this assignment are:

                             Examine the major components of the personnel management system, procedures, and processes in the public sector.

                             Recommend improvements to processes involved in public personnel management and / or solutions to problems confronting those in the field.

                             Assess external organizational and employee conditions as well as their implications to and impact on personnel management.

                             Analyze pertinent issues, such as motivation and productivity, collective bargaining, labor relations, equal employment opportunity (EEO), affirmative action (AA), intergovernmental relations, and / or professionalism, facing public personnel managers.

                             Evaluate current and emerging issues and trends in public personnel management, such as evaluation, public sector recruitment, staffing employment development compensation, benefits, pensions, strategic planning, and / or succession planning.

                             Analyze pertinent public personnel management issues related to the federal government and / or privatization.

                             Develop a proposal for strategic public personnel management for a specific setting.

                             Use technology and information resources to research issues in public personnel management.

Write clearly and concisely about public personnel management using proper writing mechanics.

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MKT 506 Week 9 Assignment 4 – Strayer

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 Assignment 4: A Message Without Words

Due Week 9 and worth 200 points

 Select one (1) of the picture ads from the Benetton advertisement images document, located in the online course shell. Assume you are the project lead at Benetton. You and your team are tasked with revitalizing a social conscious campaign to address a world issue Benetton wants to draw attention to.

 Write a ten to fifteen (10-15) page paper in which you:

1.         Copy or re-create the picture advertisement and include it on the title page.

2.         Craft a message for this image and its appeal to the public on behalf of Benetton.

3.         Define the goal of this campaign and the targeted audience with supporting rationale.

4.         Develop a model for the advertisement strategy you will use and briefly discuss each stage of the model.  

5.         Formulate an integrated marketing communications plan that communicates the message to the targeted groups. Within this plan, be sure to address:

a.       The technologies used along with expected benefits of each.

b.      How the message and goals will be promoted.

6.       Decipher and select at least two (2) types of individuals, groups, companies, etc., that you reach out to gain support for the campaign. Be sure to discuss the expected benefits that accompany each external partner you identified.

7.       Use at least five (5) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

 Your assignment must follow these formatting requirements:

Be typed, double spaced,     using Times New Roman font (size 12), with one-inch margins on all sides;     citations and references must follow APA or school-specific format. Check     with your professor for any additional instructions.

Include a cover page     containing the title of the assignment, the student’s name, the     professor’s name, the course title, and the date. The cover page and the     reference page are not included in the required assignment page length.

 The specific course learning outcomes associated with this assignment are:

Formulate an integrated     marketing communications strategy to support a firm’s marketing objectives     that incorporates an effective media plan, direct marketing and     Internet-based applications, and other promotional activities to effectively     communicate with customers.

Develop an organizational     concept to execute an integrated marketing communications strategy.

Analyze audiences, assess     alternatives, and develop needed sales promotional, public relations, and     publicity actions to support an integrated marketing communications     strategy.

Integrate creative     strategies into planning, developing, implementation, and evaluation of an     advertising approach.

Use technology and     information resources to research issues in integrated marketing communications.

Write clearly and concisely     about integrated marketing communications using proper writing mechanics.

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CIS 555 Week 9 Case Study 2 – Strayer New

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 Case Study 2: A Framework for Process Reengineering in Higher Education

 Abdous and He (2008)[1] proposed a framework for process reengineering in higher education. Their framework was applied to reengineer the distance learning exam scheduling and distribution process. Read and analyze their paper titled, “A Framework for Process Reengineering in Higher Education: A case study of distance learning exam scheduling and distribution” located at http://www.irrodl.org/index.php/irrodl/article/view/535/1138.

 Write a four to five (4-5) page paper in which you:

Determine     the types of documents that would be worth considering for a background     study prior to the use of other elicitation techniques. Indicate if the     authors used the documents you identified.

Examine the     Structured Analysis and Design Technique (SADT) diagrams that were used to     document the reengineered parts of the exam scheduling and distribution     process.

Identify     the type of diagrams the authors used to document the reengineered parts     of the exam scheduling and distribution process.

Assess the     intentional, structural, responsibility, functional, and behavioral views     of the system.

Predict     five (5) potential failures of the reengineered system and indicate if the     authors’ framework deals with potential failures.

Use at least     three (3) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality     resources.

 Your assignment must follow these formatting requirements:

Be typed,     double spaced, using Times New Roman font (size 12), with one-inch margins     on all sides; citations and references must follow APA or school-specific     format. Check with your professor for any additional instructions.

Include a     cover page containing the title of the assignment, the student’s name, the     professor’s name, the course title, and the date. The cover page and the     reference page are not included in the required assignment page length.

 [1] Abdous, M.,& He, W. (2008). A Framework for process reengineering in higher education: A case study of distance learning exam scheduling and distribution. International Review of Research in Open Distance Learning Journal, 9(2).

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CIS 542 Week 9 Case Study Viruses – Strayer New

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 Case Study: Viruses

  The country of Iran is expending tremendous resources on developing a nuclear energy program that is believed by the Western countries to be weapons-oriented. Recently, a virus named the Stuxnet  has been in the news because it was introduced into the Iranian computers controlling their nuclear program and wreaked havoc on their centrifuges. Unfortunately, this virus has now escaped and is available to malicious attackers so that it could potentially be used against our own infrastructure.

 Watch the video from “60 Minutes” titled, “Stuxnet: Computer worm opens new era of warfare”, located at http://www.youtube.com/watch?v=6WmaZYJwJng, concerning the Stuxnet virus.

 Read the article titled, “News briefs: Flame, Stuxnet, breach at LinkedIn and other security news”, located at http://www.scmagazine.com/news-briefs-flame-stuxnet-breach-at-linkedin-and-other-security-news/article/245502/, concerning the Flame virus and Stuxnet.  

 Write a three to five (3-5) page paper in which you:

1.         Describe the virus and how it propagated itself onto servers over the Web based on the actual information provided. Assess the Web-based risks that led to the attack.

2.         Create a graphic rendering of how the virus was able to replicate onto remote servers using Visio or an equivalent such as Dia. Note: The graphically depicted solution is not included in the required page length.

3.         Describe some of the common vulnerabilities to utility companies with a virus such as Stuxnet.

4.         Discuss some secure coding efforts and practices under way to mitigate the vulnerabilities exposed by this particular episode.

5.         Determine if Stuxnet or a similar virus could happen here, and how you would protect the utility infrastructure in light of a heavy reliance on the Internet and Web-based applications which allow remote access.

6.         Use at least four (4) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

 Your assignment must follow these formatting requirements:

•           Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

•           Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

•           Include charts or diagrams created in Visio or Dia. The completed diagrams / charts must be imported into the Word document before the paper is submitted.

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PAD 530 Week 9 Discussion Questions – Strayer NEW

PAD 530 Week 9 Discussion Questions – Strayer NEW

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  Week 9 DQ 1

"The Challenges of Succession Planning in Turbulent Times" Please respond to the following:

·         Analyze this scenario: The Department of Social Services has lost 25% of its federal funding for the next fiscal year, leaving the budget at a $128,000 deficit. Within the agency, there are 125 full-time employees; the average pay for all employees is $39,000, 75% female and 25% male. In addition, 25% of employees have been with the agency for over 20 years, 20% are near retirement age in three years, and 50% are under the age of 30. Recommend three innovations to implement a succession plan for the agency.

Follow this format when responding

Analysis of the scenario: (Place your response here)

Recommend three innovations to implement a succession plan for the agency

1) (Place your response here)

2) (Place your response here)

3) (Place your response here)

  Week 9 DQ 2

"Obstacles and Opportunities due to Retirement of Employees" Please respond to the following:

·         From the eActivity, discuss at least two of the eight obstacles and opportunities that best address an agency’s challenge of 45% of its workforce retiring in the next 36 months. Provide a rationale for your views.

Follow this format when responding

From the eActivity, discuss at least two of the eight obstacles and opportunities that best address an agency’s challenge of 45% of its workforce retiring in the next 36 months.

Obstacle 1: (Place your response here/Provide a rationale for your views)

Obstacle 2: (Place your response here/Provide a rationale for your views)

Opportunity 1: (Place your response here/Provide a rationale for your views)

Opportunity 2: (Place your response here/Provide a rationale for your views)