The Impact of Management Decisions and Other Topics When you have completed your exam and reviewed..

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The Impact of Management Decisions and Other Topics When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you hit Submit Exam. If you need to exit before completing the exam, click Cancel Exam. Questions 1 to 20:Select the best answer to each question. Note that a question and its answers may be split across a pagebreak, so be sure that you have seen the entire question and all the answers before choosing an answer. Use the following information to answer this question. The most recent balance sheet and income statement of Teramoto Corporation appear below: Comparative Balance Sheet Ending Beginning Balance Balance Assets: Cash and cash equivalents $43 $35 Accounts receivable 53 59 Inventory 73 69 Plant and equipment 582 490 Less accumulated depreciation 301 286 Total assets $450 $367 Liabilities and stockholders equity Accounts payable $57 $48 Wages payable 21 18 Taxes payable 15 13 Bonds payable 21 20 Deferred taxes 20 21 Common stock 55 50 Retained earnings 261 197 Total liabilities and stockholders equity $450 $367 Income Statement Sales $893 Cost of good sold 587 Gross margin 306 Selling and administrative expense 189 Net operating income 117 Income taxes 35 Net income $82 1.The net cash provided by (used by) operations for the year was A. $30. B. $117. C. $112. D. $52. 2.Products A, B, and C are produced from a single raw material input. The raw material costs $90,000,from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. Product A should be A. processed further, since this will increase profits by $2,500 each period. B. sold at the split-off point, since further processing will result in a loss of $2,500 each period. C. sold at the split-off point, since further processing would result in a loss of $0.50 per unit. D. processed further, since this will increase profits by $12,500 each period. 3.The Clemson Company reported the following results last year for the manufacture and sale of one of itsproducts known as a Tam. Sales (6,500 Tams at $130 each) $845,000 Variable cost of sales 390,000 Variable distribution costs 65,000 Fixed advertising expense 275,000 Salary of product line manager 25,000 Fixed manufacturing overhead 145,000 Net operating loss $(55,000) Clemson Company is trying to determine whether to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product isnt dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturing costs of the company. Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be a A. $90,000 decrease. B. $70,000 increase. C. $55,000 decrease. D. $65,000 decrease. 4.Fonics Corporation is considering the following three competing investment proposals: Aye Bee Cee Initial investment required $62,000 $74,000 $95,000 Net present value $10,000 $8,000 $12,000 Internal rate of return 15% 17% 18% Using the project profitability index, how would the above investments be ranked (highest to lowest)? A. Cee, Bee, Aye B. Aye, Bee, Cee C. Bee, Cee, Aye D. Aye, Cee, Bee 5.VIM Company purchased $100,000 in inventory from its suppliers on credit terms. The companys acid-test ratio would most likely A. be unchanged. B. decrease. C. increase. D. be impossible to determine without more information. 6.Centerville Companys debt-to-equity ratio is 0.60 Total assets are $320,000, current assets are$170,000, and working capital is $80,000. Centervilles long-term liabilities must be A. $120,000. B. $80,000. C. $30,000. D. $90,000. Use the following information to answer this question. The most recent balance sheet and income statement of Teramoto Corporation appear below: Comparative Balance Sheet Ending Beginning Balance Balance Assets: Cash and cash equivalents $43 $35 Accounts receivable 53 59 Inventory 73 69 Plant and equipment 582 490 Less accumulated depreciation 301 286 Total assets $450 $367 Liabilities and stockholders equity Accounts payable $57 $48 Wages payable 21 18 Taxes payable 15 13 Bonds payable 21 20 Deferred taxes 20 21 Common stock 55 50 Retained earnings 261 197 Total liabilities and stockholders equity $450 $367 Income Statement Sales $893 Cost of good sold 587 Gross margin 306 Selling and administrative expense 189 Net operating income 117 Income taxes 35 Net income $82 Cash dividends were $18. 7.The net cash provided by (used by) financing activities for the year was A. ($12). B. ($18). C. $1. D. $5. 8.A project profitability index greater than zero for a project indicates that A. there has been a calculation error. B. the project is unattractive and shouldnt be pursued. C. the discount rate is less than the internal rate of return. D. the company should reevaluate its discount rate. 9.Which of the following would be considered a “use” of cash for the purpose of constructing a statementof cash flows? A. Amortizing a patent B. Purchasing equipment C. Issuing long-term debt D. Selling the companys own common stock to investors Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1 Current assets: Cash and marketable securities $180 $180 Accounts receivable, net 210 180 Inventory 130 120 Prepaid expenses 50 50 Total current assets 570 530 Noncurrent assets: Plant & equipment, net 1,540 1,480 Total assets $2,110 $2,010 Current liabilities: Accounts payable $100 $130 Accrued liabilities 60 60 Notes payable, short term 90 120 Total current liabilities 250 310 Noncurrent liabilities: Bonds payable 480 500 Total liabilities 730 810 Stockholders equity: Preferred stock, $20 par, 10% 120 120 Common stock, $10 par 180 180 Additional paid-in capitalcommon stock 240 240 Retained earnings 840 660 Total stockholders equity 1,380 1,200 Total liabilities & stockholders equity $2,110 $2,010 Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (all on account) $2,760 Cost of goods sold 1,930 Gross margin 830 Selling and administrative expense 330 Net operating income 500 Interest expense 50 Net income before taxes 450 Income taxes (30%) 135 Net income $315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150. 10.Larkins Companys return on total assets for Year 2 wasclosestto: A. 13.6%. B. 17.0%. C. 16.0%. D. 15.3%. 11.Cridwell Companys selling and administrative expenses for last year totaled $210,000. During the year,the companys prepaid expense account balance increased by $18,000, and accrued liabilities increased by $12,000. Depreciation charges for the year were $24,000. Based on this information, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be A. $240,000. B. $192,000. C. $228,000. D. $180,000. Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1 Current assets: Cash and marketable securities $180 $180 Accounts receivable, net 210 180 Inventory 130 120 Prepaid expenses 50 50 Total current assets 570 530 Noncurrent assets: Plant & equipment, net 1,540 1,480 Total assets $2,110 $2,010 Current liabilities: Accounts payable $100 $130 Accrued liabilities 60 60 Notes payable, short term 90 120 Total current liabilities 250 310 Noncurrent liabilities: Bonds payable 480 500 Total liabilities 730 810 Stockholders equity: Preferred stock, $20 par, 10% 120 120 Common stock, $10 par 180 180 Additional paid-in capitalcommon stock 240 240 Retained earnings 840 660 Total stockholders equity 1,380 1,200 Total liabilities & stockholders equity $2,110 $2,010 Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (all on account) $2,760 Cost of goods sold 1,930 Gross margin 830 Selling and administrative expense 330 Net operating income 500 Interest expense 50 Net income before taxes 450 Income taxes (30%) 135 Net income $315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150. 12.Larkins Companys price-earnings ratio on December 31, Year 2 wasclosestto: A. 6.00 B. 8.91 C. 20.79 D. 8.57 13.A weakness of the internal rate of return method for screening investment projects is that it A. implicitly assumes that the company is able to reinvest cash flows from the project at the companys discount rate. B. doesnt consider the time value of money. C. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return. D. doesnt take into account all of the cash flows from a project. 14.Degner Inc. has some material that originally cost $19,500. The material has a scrap value of $13,300as is, but if reworked at a cost of $2,100, it could be sold for $14,000. What would be the incremental effect on the companys overall profit of reworking and selling the material rather than selling it as is as scrap? A. -$7,600 B. $11,900 C. -$1,400 D. -$20,900 15.(Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipmentinvestment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment: Year Cash Inflows 1 $120,000 2 60,000 3 40,000 4 40,000 5 40,000 Total $300,000 Assuming that the cash inflows occur evenly over the year, the payback period for the investment is _______ years. A. 2.50 B. 4.91 C. 1.67 D. 0.75 Use the following information to answer this question. The most recent balance sheet and income statement of Teramoto Corporation appear below: Comparative Balance Sheet Ending Beginning Balance Balance Assets: Cash and cash equivalents $43 $35 Accounts receivable 53 59 Inventory 73 69 Plant and equipment 582 490 Less accumulated depreciation 301 286 Total assets $450 $367 Liabilities and stockholders equity Accounts payable $57 $48 Wages payable 21 18 Taxes payable 15 13 Bonds payable 21 20 Deferred taxes 20 21 Common stock 55 50 Retained earnings 261 197 Total liabilities and stockholders equity $450 $367 Income Statement Sales $893 Cost of good sold 587 Gross margin 306 Selling and administrative expense 189 Net operating income 117 Income taxes 35 Net income $82 16.The net cash provided by (used by) investing activities for the year was A.($92). B.$92. C.($77). D.$77. Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1 Current assets: Cash and marketable securities $180 $180 Accounts receivable, net 210 180 Inventory 130 120 Prepaid expenses 50 50 Total current assets 570 530 Noncurrent assets: Plant & equipment, net 1,540 1,480 Total assets $2,110 $2,010 Current liabilities: Accounts payable $100 $130 Accrued liabilities 60 60 Notes payable, short term 90 120 Total current liabilities 250 310 Noncurrent liabilities: Bonds payable 480 500 Total liabilities 730 810 Stockholders equity: Preferred stock, $20 par, 10% 120 120 Common stock, $10 par 180 180 Additional paid-in capitalcommon stock 240 240 Retained earnings 840 660 Total stockholders equity 1,380 1,200 Total liabilities & stockholders equity $2,110 $2,010 Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (all on account) $2,760 Cost of goods sold 1,930 Gross margin 830 Selling and administrative expense 330 Net operating income 500 Interest expense 50 Net income before taxes 450 Income taxes (30%) 135 Net income $315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150. 17.Larkins Companys book value per share at the end of Year 2 wasclosestto: A. $10.00. B. $76.67. C. $23.33. D. $70.00. 18.Part N19 is used by Malouf Corporation to make one of its products. A total of 7,000 units of this part are produced and used every year. The companys Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $2.20 Direct labor $8.50 Variable manufacturing overhead $1.30 Supervisors salary $5.80 Depreciation of special equipment $7.20 Allocated general overhead $4.60 An outside supplier has offered to make the part and sell it to the company for $24.50 each. If this offer is accepted, the supervisors salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part N19 could be used to make more of one of the companys other products, generating an additional segment margin of $25,000 per year for that product. What would be the impact on the companys overall net operating income of buying part N19 from the outside supplier? A. Net operating income would decline by $10,700 per year. B. Net operating income would decline by $21,900 per year. C. Net operating income would increase by $25,000 per year. D. Net operating income would decline by $60,700 per year. 19.(Ignore income taxes in this problem.) The following data pertain to an investment: Cost of the investment $18,955 Life of the project 5 years Annual cost savings $5,000 Estimated salvage value $1,000 Discount rate 10% The net present value of the proposed investment is A.$3,355. B.$621. C.$(3,430). D.$0. Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1 Current assets: Cash and marketable securities $180 $180 Accounts receivable, net 210 180 Inventory 130 120 Prepaid expenses 50 50 Total current assets 570 530 Noncurrent assets: Plant & equipment, net 1,540 1,480 Total assets $2,110 $2,010 Current liabilities: Accounts payable $100 $130 Accrued liabilities 60 60 Notes payable, short term 90 120 Total current liabilities 250 310 Noncurrent liabilities: Bonds payable 480 500 Total liabilities 730 810 Stockholders equity: Preferred stock, $20 par, 10% 120 120 Common stock, $10 par 180 180 Additional paid-in capitalcommon stock 240 240 Retained earnings 840 660 Total stockholders equity 1,380 1,200 Total liabilities & stockholders equity $2,110 $2,010 Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (all on account) $2,760 Cost of goods sold 1,930 Gross margin 830 Selling and administrative expense 330 Net operating income 500 Interest expense 50 Net income before taxes 450 Income taxes (30%) 135 Net income $315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150. 20.Larkins Companys dividend payout ratio for Year 2 wasclosestto: A. 40.6% B. 42.9% C. 24.6% D. 14.8% End of exam

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