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CHAPTER 10

 

 

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Quiz 1 Chapter 1

 

 

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Chapter 2

 

 

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Week 2 Homework

 

 

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Week 2 Quiz 1: Chapter 1

 

 

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Assignment 1: Corporate Fraud Schemes

 

 

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Quiz Chapter 1

 

 

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Quiz 1 Chapter 1

 

 

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Assignment 1: Strategic Management and Strategic Competitiveness

 

 

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Assignment 1: Developing a Vision and Mission Statement

 

 

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Assignment 1: Inventory Management Systems

 

 

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Assignment 1: Error Handling in an Activity Diagram

 

 

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Week 2 Exam, Quiz, Assignments, Discussion Questions, Homework Problems

BUS 365 Week 2 Quiz 1 Chapter 1 and 2 – Strayer

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Chapter 1 Information Systems in the 2010s

Multiple Choice

1. The importance of being an agile enterprise has increased significantly because of _________ and _________.
a) competition; slowed population growth
b) social networks; rapid economic recovery
c) slow economic recovery; advances in mobile technology
d) rapid population growth; corporate strategy

2. _________ are valuable to businesses because they can connect, communicate, collaborate, and do commerce on-demand, in real-time, and at a distance.
a) Multimedia networks
b) Interactivity applications
c) Broadband infrastructures
d) Podcasts

3. Which of the following is not an impact of the mass migration of users from PCs to mobile devices?
a) It has improved the privacy of users and security of corporate networks.
b) It has expanded the scope of information systems beyond traditional organizational boundaries.
c) It has torn down the walls between business, professional, and personal lives.
d) It has made location irrelevant to a large extent.

4. Which of the following is a characteristic of competitive advantage?
a) It is a long lasting edge over competitors if based on IT.
b) It is short-lived if competitors quickly duplicate it.
c) It requires the use of social media and networks.
d) It provides a big strategic payoff.

5. While of the following statements about mobile market opportunities is false?
a) Mobiles are replacing computers as the primary way to connect with public and private networks and to get work done.
b) Mobile gadgets are starting to look and feel like handheld computers, able to run all sorts of software.
c) Desktop and laptop computers are taking on more and more nontraditional duties, like streaming media to TV sets, stereos, and other household appliances.
d) Touch-navigate devices running on 3G and 4G networks create business opportunities and eliminate business threats.

6. According to Pew Research, newspapers have seen ad revenue __________ during the time between 2007 to 2010.
a) rise 10%
b) remain constant
c) fall 43%
d) fall 75%

7. Facebook’s rapid growth and its ranking as number one is an interesting and informative business case because:
a) it shows the power of IT to disrupt the status quo and transform industries.
b) it is a public company with an immensely-profitable business model.
c) it has positioned itself solely as a social network.
d) all of the above

8. In March 2010, __________ pulled in more Internet traffic in North America than Google.
a) eBay
b) Facebook
c) Microsoft
d) Apple

9. Innovation leads to profitable growth if that innovation:
a) generates new profit pools.
b) increases demand for products and services.
c) attracts new competitors.
d) Both a and b

10. How a company generates revenue from its assets is referred to as its __________.
a) asset infrastructure
b) business model
c) corporate culture
d) organizational structure

11. Nokia makes and sells cell phones and generates profit from these sales. This statement defines Nokia’s business __________.
a) model
b) processes
c) supply chain
d) value proposition

12. According to McKay and Marshall, a comprehensive business model is composed includes each of the following elements except:
a) A description of all products and services the business will offer.
b) A description of the business process required to make and deliver the products and services.
c) A description of the customers to be served.
d) A description of competitive forces in the industry.

13. Basic functions of an IS are:
a) input, processing, and output.
b) input, processing, output, and feedback.
c) user interfaces, data sources, processing, and reporting.
d) hardware, software, data, and procedures.

14. Which of the following is not a component of an information system?
a) input
b) hardware
c) network
d) people

15. A company believes that superb customer service and on-time delivery are valuable and critical to their success. Their beliefs and values form the __________ that influences the company’s IT investments.
a) feedback
b) business functions
c) social context
d) inputs

16. __________ are shaking-up or disrupting the ways companies do business, the jobs of managers and workers, the design of business processes, and the structure of markets.
a) IT innovations
b) Wireless networks
c) Social media
d) Social networks

17. Performance improved significantly at 1-800-Contacts after the company invested in __________ that enabled call center operators to monitor their performance as often as every 15 minutes.
a) semiautomatic business processes
b) dashboard reporting tools
c) private networks
d) social networks

18. IS capabilities support all of the following business objectives except:
a) improving productivity.
b) reducing waste.
c) facilitating collaboration.
d) automating decision making.

19. The value of an information system is determined by the relationships among ISs, people, and business processes—which are influenced strongly by:
a) fast, accurate communication and collaboration.
b) huge amounts of information that is accessible via networks.
c) organizational culture..
d) automation of decision making

20. Widespread adoption of new technology is going to __________ the usual way business is done.
a) disrupt
b) cause minor changes in
c) destroy
d) have little effect on

21. What has made location practically irrelevant to doing business?
a) social media
b) social networks
c) widespread use of mobile devices
d) Google

22. The 1-800-CONTACTS case study showed the importance of __________ on performance.
a) daily reports
b) feedback
c) IT departments
d) training

23. Information bottleneck can create __________ that keep managers from knowing what is going on as it is going on.
a) information overload
b) blindspots
c) windows
d) dashboards

24. A negative ethical impact of mobile marketing efforts is that they can be __________.
a) invasive
b) expensive
c) innovative
d) pervasive

25. Critical business processes are those that improve employee performance and __________.
a) strategic planning
b) commodities
c) profit margins
d) business models

26. Business models include a __________, which is an analysis of the benefits of using the specific model.
a) revenue model
b) supply chain
c) value proposition
d) profit margin

27. Managers decide to increase the number of new accounts by 4.0% within the next quarter. This is an example of:
a) an objective.
b) a strategy.
c) customer loyalty.
d) qualitative metric.

28. A company’s goals are increased sales and improved customer loyalty. Which of the following is correct?
a) Sales revenue is a rather easy-to-calculate quantitative metric.
b) Customer loyalty is a quantitative metric with a longer time dimension.
c) Sales revenue is a quantitative metric with a longer time dimension.
d) Customer loyalty is a qualitative metric with a shorter time dimension.

29. In order to manage performance, a fundamental requirement is __________.
a) using real-time dashboards and reporting tools
b) being able to measure
c) knowing that the indicator is measuring the right thing
d) b and c

30. Measuring performance requires each of the following except:
a) comparing results to competitors.
b) identifying the most meaningful measures of performance.
c) being able to measure them correctly.
d) selecting the set of measures that provides a holistic indicator of performance.

31. Concern about environmental damage and reducing a company’s carbon and energy footprints on the planet has triggered efforts for __________.
a) data centers
b) EPA
c) green IT
d) RFID

32. __________ are a measure of the impact a business’ activities have on the environment, and in particular climate change.
a) Carbon footprints
b) Hydrogen footprints
c) Toxic wastes
d) Greenhouse emissions

33. Why are companies, such as Monsanto and Wells Fargo, willing to invest in the building of new data centers?
a) To stop wasting capital maintaining outdated energy-inefficient data centers.
b) To comply with government energy regulations.
c) To develop new computing capabilities.
d) To improve business process performance.

34. Ethical issues can be challenging because:
a) there are no standards of right and wrong.
b) security is more important than privacy.
c) all countries agree on what is ethical.
d) what is considered ethical by one person may seem unethical to another.

35. KD Company is looking to expand its business operations into a developing country. As part of SWOT analysis, KD needs to investigate that country’s:
a) political stability
b) economic stability
c) critical infrastructure
d) All of the above

36. __________ is a series of processes in which an organization selects and arranges its businesses or services to keep the organization viable even when unexpected events disrupt its businesses, markets, products, or services.
a) Strategic planning
b) SWOT
c) Value proposition
d) Threat analysis

37. An organization’s __________ addresses questions such as, “What is the long-term direction of our business?”
a) operations
b) critical infrastructure
c) strategy
d) opportunities

38. __________ is the scanning and review of the political, social, economic and technical environment of the organization.
a) Strategic analysis
b) Business performance
c) Operational planning
d) Value analysis

39. __________ involves the evaluation of strengths and weaknesses, which are internal factors; and opportunities and threats, which are external factors.
a) Strategic analysis
b) Business performance
c) Operational planning
d) SWOT analysis

40. Price wars or other fierce reactions by competitors are examples of:
a) strengths.
b) weaknesses.
c) opportunities.
d) threats.

41. According to Porter’s competitive forces model, there are five major forces in an industry that affect the degree of competition. Those five forces impact:
a) sales.
b) profit margins.
c) marketing.
d) expenses.

42. FedEx and UPS have ISs that are difficult to duplicate and very expensive. Those ISs:
a) create barriers that reduce the threat of entry.
b) increase the threat of substitute services.
c) decrease bargaining power of customers.
d) increase bargaining power of suppliers.

43. __________ involve the purchase of materials, the processing of materials into products, and delivery of products to customers.
a) Supply chains
b) Logistics
c) Primary activities
d) Support activities

44. For most organizations, if their computer networks go down, __________.
a) social networks are used
b) data centers are used to store data
c) so does the business
d) business continues as usual

45. According to Occupational Outlook Handbook, 2010-11 Edition published by the U.S. Bureau of Labor Statistics, what is the outlook for Computer and Information Systems Manager?
a) Employment is expected to grow faster than the average for all occupations.
b) A master’s degree in a computer-related field is required for entry-level positions.
c) Employment is expected to grow slower than the average for all occupations.
d) Job prospects are uncertain.

True/False

46. During the last decade, Facebook, LinkedIn, YouTube, Twitter and blogs became extensions of businesses to reach customers, prospects, and business partners.

47. The massive adoption of smart devices has created a huge base of multi-tasking users, and a market for companies to tap and target.

48. Facebook created an entirely new market and changed the game for industries who were not its usual competitors–namely, music, media, and consumer electronics companies.

49. Some types of IT, such as databases and network services, are commodities, which do not provide a special advantage.

50. A SWOT model spells out how a company creates or adds value in terms of the goods or services it produces.

51. An IS can be as small as a smartphone with a software app that can snap tags to load a Web site. Or it may include several thousand computers of various types, scanners, printers, and other devices connected to databases via wired and wireless telecommunication networks.

52. ISs have a purpose and a social or organizational context.

53. Discarded PCs and other computer equipment are waste disposal problems.

54. IT no longer creates challenging ethical issues because practices such as employee e-mail monitoring and unrestricted use of customer data are accepted as necessary or legal.

55. Strategy planning is critical for all organizations, including government agencies, healthcare, education, military, and other nonprofit and not-for-profit ones.

56. During SWOT analysis, there is usually agreement among managers because SWOT analysis is objective, forward-looking, and data-driven.

57. According to Porter’s competitive forces model, Apple, Microsoft, and auto manufacturers have strong bargaining power as suppliers because their brands are powerful.

58. Rivalry among existing firms in the industry is a competitive force that is most likely to be weak when entry barriers are low; threat of substitute products is high, and suppliers and buyers in the market attempt to control.

59. Sabermetrics is the mathematical analysis of baseball player batting and pitching performances.

60. A batch system is an IS that provides fast enough access to information or data so that an appropriate decision can be made, usually before data or situation changes.

Short Answer

61. In March 2010, Facebook pulled in more traffic in North America than __________.

62. Basic types of IT are __________ because companies need to function, but they do not provide a special advantage.

63. How a company generates revenue from its assets is referred to as its __________.

64. A(n) __________ collects, processes, stores, analyzes, and distributes information for a specific purpose or objective.

65. __________ is a set of applications or programs that instruct the hardware to process data or other inputs such as voice commands.

66. Energy and __________ footprints are a measure of the impact a business’ activities have on the environment, and in particular climate change.

67. __________ relates to standards of right and wrong,

68. __________ analysis involves the evaluation of strengths and weaknesses, which are internal factors; and opportunities and threats, which are external factors.

69. __________ activities are those business activities through which a company produces goods. Examples of those activities are purchasing materials, processing materials, and delivery of products to customers.

70. Innovation and adaptability are __________ because they are examples of things that must go right for a company to achieve its mission.

Essay

71. Identify three interactivities that have potential business value and that can occur by snapping a 2D tag.

72. List and describe the four basic functions of an information system.

73. There are two fundamental requirements for managing business performance: being able to measure and knowing that your indicator is measuring the right thing. Explain each of these requirements and why they are challenging.

74. List and explain the four major steps in business performance management (BPM).

75. List and explain the five industry (market) forces in Michael Porter’s competitive forces model.

Chapter 2 Infrastructure and Support Systems

Multiple Choice

1. __________ is the collection of hardware, software, processes, networks, and users.
a) IT infrastructure
b) IT function
c) Transaction processing system
d) MIS

2. A transaction processing system (TPS):
a) processes raw data.
b) does reporting.
c) extracts, transforms, and loads data.
d) does advanced data analysis.

3. The number of hours an employee worked in a certain week is an example of:
a) information.
b) a transaction.
c) knowledge.
d) data.

4. __________ is data that has been processed, organized, or put into context so that it has meaning and value to the person receiving it.
a) Information
b) A transaction
c) Knowledge
d) A report

5. __________ consists of data that have been processed, organized, and put into context to be meaningful, and to convey understanding, experience, accumulated learning, and expertise.
a) Information
b) A transaction
c) Knowledge
d) Wisdom

6. Managing a product recall in a way that minimizes negative impacts on sales of other products and profits is an example of:
a) data.
b) information.
c) knowledge.
d) decision.

7. A __________ consists of stored data organized for access, search, retrieval, and update.
a) file
b) database
c) TPS
d) system

8. Why are TPSs critical systems?
a) Data need to be analyzed and reported to managers to support their decision making processes.
b) Manual systems are subject to too much human error.
c) Transactions that do not get captured can result in lost sales, dissatisfied customers, and other types of data errors.
d) They are essential components of process control systems.

9. Processing of transactions is done in one of two modes:
a) batch and real-time.
b) online and offline.
c) manual and computerized.
d) online and real-time.

10. Which of the following is an advantage of batch processing over online transaction processing?
a) higher data quality
b) costs less
c) more up-to-date data
d) a and b

11. If a customer sets up an account with REI.com to purchase from their Web site, the __________ will validate that the address, city, and postal code are consistent and valid in order to improve __________.
a) OLTP; data storage
b) OLTP: data visibility
c) TPS; data quality
d) TPS; data transfer

12. Data errors:
a) are difficult to correct the later they are detected.
b) expose the company to legal action.
c) may never be detected and corrected.
d) all of the above

13. Victims of identity theft face enormous challenges and frustration because:
a) data errors detected later are difficult to correct.
b) data processing does not improve data quality.
c) data processing is done in real-time.
d) data processing cannot detect obvious data errors.

14. Which of the following is not an example of a routine business transaction for a manufacturing company?
a) purchase orders
b) payroll
c) consolidation
d) billing

15. General purpose reporting systems are referred to as __________ systems.
a) management information
b) decision support
c) operational
d) transactional

16. Which of the following is not an objective of MIS?
a) to provide reports to managers for tracking operations
b) to provide reports to managers for monitoring
c) to provide reports to managers for control
d) to provide reports to managers for strategic planning

17. __________ reports are created or run according to a pre-set schedule, such as daily, weekly, or quarterly.
a) Periodic
b) Exception
c) Ad hoc
d) Functional

18. Sales of fresh produce drop during an E. coli food contamination crisis. What type of reports would be generated in this unique situation?
a) Periodic
b) Exception
c) Ad hoc
d) Functional

19. Sony’s managers notice a significant change in demand for the company’s eReaders. They request that reports be generated so they can learn more about this situation. What is this type of report?
a) Periodic
b) Exception
c) Ad hoc
d) Functional

20. Decision support systems are __________ that support unstructured and semi-structured decision making.
a) interactive applications
b) reporting applications
c) operations support systems
d) process control systems

21. Deciding which new products to develop or which new markets to enter are examples of __________ decisions because they depend on human intelligence, knowledge, and/or experience.
a) structured
b) semistructured
c) unstructured
d) routine

22. Decision makers manipulate models in a DSS to perform __________ analysis, which refers to changing assumptions or data in the model to see the impacts of those changes on the outcome.
a) goal seeking
b) experimental
c) structured
d) what-if

23. A __________ is a visual presentation of critical data, such as the results of a report or analysis, to more quickly understand data.
a) dashboard
b) GUI
c) touch screen
d) KPI

24. __________ is a computerized process for conducting searches in large amounts of data and information in order to discover unknown valuable relationships in the data.
a) Drill down
b) Data mining
c) Business mining
d) Data analytics

25. __________ is the science concerned with managing material and information flows to optimize supply chain operations.
a) Database management
b) Process control
c) Logistics
d) Sourcing

26. A company’s competitive advantage, such as low cost, quality, and/or speed to market, depends on:
a) how well its supply chain is aligned and managed.
b) minimizing the physical flows of its products.
c) how well it maximizes its global sourcing.
d) its ability to recycle.

27. Because Wal-Mart has thousands of suppliers to manage and is constantly looking for new ones worldwide, they invested in a new __________ strategy.
a) mobile networking
b) global sourcing
c) global support
d) mobile support

28. Wal-Mart’s global sourcing strategy is designed:
a) to reduce costs of goods, increase speed to market, and improve the quality of products.
b) to identify and evaluate marketing opportunities.
c) to increase production efficiency.
d) to process transactions in real-time.

29. By linking a company with its suppliers, vendors, and customers, the supply chain creates __________.
a) logistics inefficiencies
b) automated distribution centers
c) an extended enterprise
d) a warehouse control system

30. RFID is a technology that uses __________ instead of __________ to identify products or pallets.
a) electronic tags; bar codes
b) electronic tags; chips
c) bar codes; PINs
d) PINs; EPC tags

31. Which of the following best describes RFID implementation?
a) RFID systems are frequently implemented as stand-alone systems.
b) RFID implementation has been slow due to costs, privacy, and security concerns.
c) RFID implementations are used only to track products and pallets.
d) RFID implementation has been rapid and widespread for security reasons.

32. When employees log into the company network or e-mail accounts, or access data or documents to perform their jobs, two critical factors impacting their productivity are:
a) password strength and availability of mobile networks.
b) cloud computing and software applications.
c) virtualization and private clouds.
d) speed of the response and the reliability of the hardware.

33. A company’s __________ determines the workload that its ISs, apps, and mobile computing devices can handle and their speed.
a) TPS
b) network access point
c) IT infrastructure
d) firewall

34. IT infrastructure is the collection of:
a) hardware and software.
b) hardware, software, and networks.
c) hardware, software, networks, and mobile devices.
d) hardware, software, processes, networks, and users.

35. To improve the performance and ability to store, protect, and manage data at lower up-front costs, companies are turning to __________ options.
a) cloud computing
b) mainframe
c) visualization
d) data center

36. __________ is the term used to refer to the Internet.
a) Shadow
b) Cloud
c) Tag
d) Chain

37. The general name for Internet-based infrastructures is __________.
a) social networking
b) cloud computing
c) Web 1.0
d) Web 2.0

38. The U.S. Department of Defense implemented __________ to service many military agencies in order to reduce IT infrastructure costs while protecting its sensitive data.
a) RFID
b) cloud computing
c) a private cloud
d) virtualization

39. Which of the following represents the evolution to Internet-based infrastructure?
a) public cloud computing; private cloud computing; virtualization
b) wired; wireless; mobile computing
c) virtualization; cloud computing; enterprise computing
d) virtualization; private cloud computing; cloud computing

40. Which of the following statements about virtualization is false?
a) Virtualization is primarily about cost-cutting.
b) Virtualization is often a key part of an enterprise’s disaster recovery plan.
c) Virtualization separates business applications and data from hardware resources to pool hardware resources.
d) Virtualization increases the flexibility of IT assets, allowing companies to consolidate IT infrastructure.

41. Large companies and government agencies with multiple locations may set up __________ on servers that they own if data confidentiality is a key requirement.
a) public clouds
b) private clouds
c) encrypted clouds
d) social clouds

42. Cloud computing is Internet-based computing in which shared resources, such as hard drives and software apps, are provided to computers and other devices __________, like a public utility.
a) in batch
b) via mobile networks
c) on-demand
d) via SaaS

43. All of the following are characteristics of software-as-a-service (SaaS) except:
a) SaaS is an increasingly popular IT model for large but not small companies in which software is available to users as needed.
b) The SaaS model was developed to overcome the challenge to an enterprise of being able to meet fluctuating demands on IT resources efficiently.
c) Other terms for SaaS are on-demand computing, utility computing, and hosted services.
d) Usually there is no hardware and software to buy since the apps are used over the Internet and paid for through a fixed subscription fee, or payable per an actual usage fee.

44. What is a disadvantage of cloud computing?
a) It may be more difficult to get to the root of IT infrastructure performance problems.
b) It is higher cost than company-owned IT infrastructures.
c) There is more control than with company-owned IT infrastructures.
d) Service-level agreements (SLAs) with vendors are not necessary.

45. Which of the following is a major cloud computing vendor?
a) Amazon’s EC2
b) Google’s AppEngine
c) Microsoft’s Azure
d) All of the above

True/False

46. Business software applications are hardware devices that support a specific task or business process.

47. Multiple business apps form a system that supports a functional area–marketing, finance, human resources, production, operations, accounting, and IT.

48. To track attendance at basketball games, the Dallas Mavericks put RFID codes on tickets, which enabled them to assess the effectiveness of their marketing efforts.

49. The U.S. Army enlists video games and virtual worlds to teach soldiers interpersonal skills, cultural awareness, and negotiation skills that are heavily dependent on culture for combat in foreign environments.

50. Knowing how to manage a vehicle recall to minimize negative impacts on new vehicle sales is an example of information.

51. Data is the raw material from which information is produced; and the quality, reliability and integrity of the data must be maintained for the information to be useful.

52. The quarterly sales of new Toyota vehicles from 2008 through 2010 is knowledge because it would give some insight into how the vehicle recalls during 2009 and 2010 impacted sales.

53. Transaction processing systems (TPSs) process specific types of data input from ongoing transactions. TPSs can be manual or automated.

54. Decision support systems are critical systems because transactions that do not get captured can result in lost sales, dissatisfied customers, and many other types of data errors.

55. Transaction data that are captured by a TPS are always processed in real-time, stored in a database, and then are available for use by other information systems.

56. Payroll processing is typically done in batch mode; while e-commerce transactions are processed in real-time.

57. When a customer sets up an account with Newegg.com to purchase from their Web site, the TPS validates that the address, city, and postal code are correct and consistent to insure data quality.

58. DSSs support unstructured and semi-structured decisions, such as whether to make or buy products, or what new products to develop and introduce into existing markets.

59. Supply chains can be grossly inefficient unless the companies in the supply chain can share data, collaborate, and respond to changes in demand and do so efficiently and quickly.

60. Business intelligence (BI) increases the flexibility of IT assets, allowing companies to consolidate IT infrastructure, reduce maintenance and administration costs, and prepare for strategic IT initiatives.

Short Answer

61. In order for __________ or real-time processing to occur, the input device or Web site must be directly linked via a network to the TPS.

62. Processing improves _________, which is important because reports and decisions are only as good as the data they are based upon.

63. _________ is a computerized process for conducting searches in large amounts of data and information in an attempt to discover unknown valuable relationships in the data.

64. __________ involves identifying sellers that could provide a retailer, such as Wal-Mart, with products or services to sell in their stores and online.

65. __________ is the collection of hardware, software, processes, networks, and users.

66. The __________, which is the term used to refer to the Internet, has greatly expanded the options for enterprise IT infrastructures.

67. Cloud computing evolved from __________, which is an approach based on IT consolidation that enables more flexible IT infrastructures and lower IT costs.

68. With __________, instead of buying and installing expensive packaged enterprise applications, users can access software apps over a network, with an Internet browser being the only absolute necessity.

69. Large companies or government agencies with multiple locations can set up their own __________ on servers that they own if data confidentiality is a key requirement and they want to reduce IT infrastructure costs.

70. __________ is the pooling of physical storage from multiple network storage devices into what appears to be a single storage device that is managed from a central console.

Essay

71. Define data, information, and knowledge. Give an example of each.

72. What are the three defining characteristics of DSSs?

73. What is an advantage of virtualization? List and explain one type of virtualization.

74. Why would organizations use cloud computing during tough economic times?

75. When making decisions about how to acquire IT infrastructure components, what are two IT infrastructure characteristics that need to be considered? Explain each characteristic.

BUS 335 Week 2 Quiz 1 Chapter 1 – Strayer

BUS 335 Staffing Organizations Week 2 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 1
Student: ___________________________________________________________________________
1. Human capital refers to the knowledge, skill, and ability of people and their motivation to use them successfully on the job. 
True False

2. For the average organization, employee costs (wages or salaries and benefits) are under 10% of its total revenue. 
True False

3. Staffing is the process of acquiring, deploying, and retaining a workforce of sufficient quantity and quality to create positive impacts on the organization’s effectiveness. 
True False

4. Acquisition activities involve external staffing systems that govern the initial intake of applicants into the organization. 
True False

5. Internal staffing systems work in fundamentally different ways than external staffing systems. 
True False

6. Organizations should attempt to eliminate all employee turnover if at all possible. 
True False

7. Employee turnover does not represent a significant cost to most organizations. 
True False

8. Staffing is more of a process than an event. 
True False

9. Staffing the organization requires attention to both the quantity and quality of people brought into, moved within, and retained by the organization. 
True False

10. Staffing systems exist primarily to fill specific vacancies, and are not closely linked to overall organizational profitability and growth. 
True False

11. Quantity or quality labor shortages can mean lost business opportunities, scaled-back expansion plans, an inability to provide critical consumer goods and services, and even threats to organizational survival. 
True False

12. Employee shortages seldom require job reassignments or overtime for current employees. 
True False

13. When the federal government needed to hire airport security screeners, applicants started the process of getting a job with a structured interview and physical ability test. 
True False

14. Pfizer has concluded that it cannot project what kind of talent it needs in the next 10 years and then select employees whose skills matched these long-range future talent needs. 
True False

15. The process of acquiring, deploying, and retaining a workforce of sufficient quantity and quality to create positive impacts on the organization’s effectiveness is called ________. 
A. staffing
B. recruitment
C. selection
D. placement

16. Which of the following statements is true regarding staffing? 
A. The organization is the only active player in the staffing process.
B. The staffing process is composed of a series of interrelated parts including recruitment, selection, decision making and job offers.
C. The staffing process should only be viewed from the perspective of the individual (line) manager.
D. None of the above

17. The process that involves the placement of new hires on the actual job they will hold is called ___________. 
A. acquisition
B. deployment
C. retention
D. none of the above

18. The purpose of retention systems is to __________. 
A. attract qualified applicants to job openings in the organization
B. establish a good person-job match
C. manage the flow of employees out of the organization
D. establish a good person-organization match

19. Staffing systems exist, and should ultimately be used, to __________. 
A. ensure that day-to-day operations run smoothly
B. ensure that procedural, transactional, and routine activities are accomplished
C. reduce costs regardless of the effects on quality or quantity
D. contribute to the attainment of organizational goals such as survival, profitability, and growth

20. The quantity portion of the staffing definition means that organizations must be concerned about staffing levels and their adequacy. 
True False

21. When head count requirements exceed availabilities, the organization will be overstaffed. 
True False

22. The person/job match model says that jobs are characterized by their level of qualifications and motivation. 
True False

23. The person/job match model says that individuals are characterized by their level of qualifications and motivation. 
True False

24. The person/job match model states that it is more important to match job rewards to individual motivations than to match job requirements to KSAOs. 
True False

25. Matching concerns that involve the larger organization include organizational values, new job duties, multiple jobs, and future jobs. 
True False

26. In organizations where technology and globalization have caused jobs to change at a rapid pace, person/organization match is more important than person/job match. 
True False

27. It is usually wise to just focus on task and KSAO requirements when staffing, because job requirements almost never extend beyond task and KSAO requirements. 
True False

28. The three stages of entering an organization (in order) are selection, recruitment, and employment. 
True False

29. The initial stage in the staffing system components model is recruitment. 
True False

30. The recruitment stage of the staffing process involves identification and attraction activities by both the organization and the individual. 
True False

31. The selection stage of the staffing process emphasizes the assessment and evaluation of job applicants. 
True False

32. Self-selection refers to employee decisions about whether to continue in or drop out of the staffing process. 
True False

33. Organizational strategy usually dictates HR strategy, and HR strategy seldom has an impact on organizational strategy. 
True False

34. Support activities for HR include legal compliance, planning, and job analysis. 
True False

35. Core activities for HR include legal compliance, planning, and job analysis. 
True False

36. According to the staffing quantity model, an organization will be __________ when availabilities exceed requirements. 
A. fully staffed
B. understaffed
C. overstaffed
D. none of the above

37. The staffing quantity model uses _________ to determine whether a condition of being overstaffed, fully staffed, or understaffed exists. 
A. projected staffing requirements
B. projected staffing availabilities
C. projected economic trends
D. A and B are both needed

38. Which of the following are portions of person-job match? 
A. Jobs are characterized by their requirements.
B. Jobs are characterized by their embedded rewards.
C. Individuals are characterized by their level of qualification and motivation.
D. All of the above.

39. Which of the following statements is false regarding person-job match? 
A. Jobs are characterized by their requirements and embedded rewards.
B. Individuals are characterized by their level of qualification.
C. Organizational culture is an important aspect of person-job match.
D. Individuals can be characterized by their motivation levels.

40. The person/job match model says that there must be a match between _______. 
A. job requirements with KSAOs and job rewards with individual motivation
B. job requirements and individual motivation
C. KSAOs and individual motivation
D. none of the above

41. Regarding the person/job match model, _______. 
A. staffing is only concerned with the job requirements-KSAO portion of the match
B. job requirements should be expressed in terms of only tasks involved and not KSAOs
C. It applies only to tasks that have been identified and written down
D. none of the above are correct

42. In terms of the person/organization match ________. 
A. the “organization” includes only tasks to be performed that are written down as part of the job description
B. attempts to match people to organization values should not be made
C. there is a concern with the “fit” of people to multiple jobs or future jobs
D. all of the above are correct

43. Which of the following matching concerns arise in person-organization match? 
A. values, new job duties, multiple jobs, and future jobs
B. values, qualifications, and motivation
C. person, process, and principle
D. all of the above are correct

44. The staffing system components model says that the phases of the staffing process occur in which order after the initial interaction between the applicant and the organization? 
A. selection, recruitment, employment
B. recruitment, selection, employment
C. recruitment, employment, selection
D. employment, recruitment, selection

45. According to the overall staffing organizations model, one support activity is ________. 
A. external staffing
B. job analysis
C. internal staffing
D. labor relations

46. According to the overall staffing organizations model, an example of a core staffing activity is ______. 
A. HR strategy and planning
B. job analysis
C. internal recruitment
D. none of the above

47. According to the overall staffing organizations model, HR and staffing strategy are driven by _____________. 
A. the mission, goals and objectives of the organization
B. support activities
C. legal compliance activities
D. all of the above are correct

48. Which of the following is a part of the recruiting phase of the staffing process? 
A. drawing up job offers
B. completing application blanks
C. developing and conducting job fairs
D. both A and C

49. Which of these activities is most directly associated with the employment phase of the staffing process? 
A. screening job applications
B. deciding on finalists for a job
C. advertising a job opening
D. evaluating the results of a job aptitude test

50. Staffing system management involves _________. 
A. assessing applicant qualifications
B. facilitating employee retention
C. guiding, coordinating, controlling, and evaluating staffing activities
D. day-to-day legal compliance activities

51. Sound staffing strategy should always focus on acquiring employees who can hit the ground running and be at peak performance the moment they arrive. 
True False

52. Small and midsized organizations have increasingly turned to outsourcing as a way to improve the quality of certain recruiting and hiring processes. 
True False

53. Organizations choose to follow an internal staffing strategy if they want to cultivate a stable, committed workforce. 
True False

54. An organization’s core workforce is composed of workers who are used on an as-needed, just-in-time basis. 
True False

55. Some organizations accept a certain level of turnover as inevitable and frequently hire replacements to fill vacancies. 
True False

56. Outsourcing is when an organization sets up its own operations in another country. 
True False

57. Some organizations understaff in order to avoid costly layoffs. 
True False

58. When forced to choose between addressing short-term labor shortages and identifying talent for the long term, most organizations focus on developing the long-term concerns. 
True False

59. A person/organization match is likely to be more important than a person/job match when jobs are poorly defined and fluid. 
True False

60. Examples of job-specific KSAOs include flexibility and adaptability, ability to learn, written and oral communication skills, and algebra/statistics skills. 
True False

61. An active diversity strategy might be pursued as a way of acquiring workers who can help identify products that might be received favorably by various segments of the marketplace. 
True False

62. A _____________ staffing strategy would have an organization concentrate on acquiring new employees who can “hit the ground running.” 
A. pure acquisition
B. pure development
C. lead system
D. lag system

63. The ___________ is composed of more peripheral workers who are used on an as-needed, just-in-time basis. 
A. core workforce
B. high performance workforce
C. flexible workforce
D. none of the above

64. Outsourcing is _________. 
A. setting up operations in another country
B. typically prohibited by law in most states
C. a strategy that is being used less and less
D. moving a business process to another vendor

65. Organizations often __________ when they choose to ride out dips in demand for goods and services or to stockpile talent. 
A. understaff
B. overstaff
C. attract
D. relocate

66. A _____________ staffing strategy is when organizations decide to go to locations where there are ample labor supplies. 
A. transfer system
B. relocate system
C. factional system
D. extrinsic system

67. When jobs are highly fluid, it is probably advisable for organizations to focus more on: 
A. person-job match
B. person-organization match
C. recruiter-recruit match
D. dynamic equilibrium

BUS 325 Week 2 Quiz 1 Chapter 1 – Strayer

BUS 325 Global Human Resource Management Week 2 Quiz – Strayer (All Possible Questions With Answers)

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CHAPTER 1: Introduction

TRUE/FALSE

1. An inpatriate is an employee transferred out of the home base into the firm’s international organization.

2. The HR department is the major user of language translation services.

3. The IHR department does not get involved in the employee’s personal lives such as marital status and children when considered for assignments.

4. Less developed countries tend to have cheaper labor but more government regulations.

5. Culture shock is a phenomenon experiences by people who move across cultures.

6. A domestic HRM is involved with employees within one national boundary.

7. Compensation and benefit programs are not an activity of internal human resource management.

8. Awareness of cultural differences is not essential for the HR manager at corporate headquarters. It is only important for expatriate employees as well as those at the host location.

9. Multidomestic industries is one in which competition in each country is essentially independent of competition in other countries.

10. Multinational organizations need to strive for consistency in the ways of managing people on a worldwide basis in order to build, maintain and develop their corporate identity.

11. Cultural awareness is reflected by knowing that local employees feel an obligation to employ extended family even if they are unqualified for the position.

12. If a firm is in a multidomestic industry, the role of HR department will most likely be more domestic in structure and orientation.

13. A large home market is one of the key drivers for seeking a new international market.

14. Local HR activities, such as human resource planning and staffing, changes as a foreign subsidiary matures.

15. The nationality of an employee is not a major factor in determining the person “category” in an international firm.

16. Human considerations are as important as financial and marketing criteria in making decisions about multinational ventures.

17. Global mindset is necessary for the success of an international company.

18. The US had 8 companies in the top 30 multinationals ranked by the transnational index.

19. Cross- culture management is examining human behavior within organizations from an international perspective.

20. The way diversity is managed within a single national context should transfer to a multinational context without modification.

21. It is a correct assumption that culture is usually used as a synonym for nation or national difference represents culture differences.

MULTIPLE CHOICE

1. An expatriate:
a. Is an employee transferred out of their home base to the firm’s international operation
b. Is an employee transferred into a parents organization
c. Is an employee who understands international business operations
d. Is an employee who has works in more than one country

2. Which of the following is not a category of an employee in an international firm?
a. Third –country national c. Parent-country national
b. Host-country national d. Multi-country national

3. Which department of an organization is the major user of language translation services?
a. Tax c. Human resources
b. Shipping d. Operations

4. Tax equalization policies concerning expatriates are designed to :
a. Ensure no tax incentives are associated with any particular international assignment
b. Ensure taxes are paid
c. Ensure employees are aware of tax responsibilities
d. Keeps records up to date

5. The direct costs of international assignment failures can be as high as ___times the costs of those for similar failure in a domestic assignment:
a. Five c. Ten
b. Three d. Eight

6. One major difference between domestic and international HRM is:
a. Staff training c. housing relocation
b. Tax equalization d. risk

7. Which of the following is not a function of internal resource management?
a. Staffing c. Government regulations
b. Training and development d. Compensation

8. Which of the following is not a major external factor that influences IHRM?
a. The state of the economy
b. Type of government
c. Generally accepted practices of doing business
d. Regulatory requirements

9. Cultural difference is not necessarily equivalent to:
a. Social Factors
b. Values and beliefs
c. National Differences
d. Shared and recognized ways of looking at the world

10. A multidomestic industry is:
a. One in which competition in each country is essentially independent of other countries
b. One in which a firm competitive position in one’s country is significantly influenced by its position in other countries.
c. One in which domestic products are not sole
d. One in which many products are sold

11. Examples of a global industry include all of the following except:
a. Commercial air craft c. Copiers
b. Semi-conductors d. Insurance

12. Series of linked domestic industries in which rivals compete against each other on a worldwide basis is:
a. Multidomestic industry c. Conglometric industry
b. Global industry d. Automobile industry

13. Emnic refers to which kind of specific aspect of concepts or behaviors?
a. Language c. Country
b. Culture d. History

14. What is a key driver for firms seeking international markets?
a. A small home market c. Large home markets
b. Tax regulations d. Managerial incompetence

15. Which ratio is not part of” index of transnationality”?
a. Foreign assets to total assets c. Foreign debt to total debt
b. Foreign sales to total sales d. Foreign employment to total employment

16. Which of the following is a global mindset?
a. Focus on domestic issues
b. Minimize differences between international and domestic environments
c. Transferability between domestic and international HRM practices
d. To formulate and implement HR policies that develop globally oriented staff

17. An asymmetric event is:
a. Terrorist attack on 9/11 c. HR activities
b. London 2012 Olympics d. Weekly staff training

18. All of the following is a difference between international and domestic HR except:
a. Risk exposure c. More HR activities
b. More external influences d. Less involvement in employee lives

19. What activity in international human resource would not be required in a domestic environment?
a. Staff orientation c. Terrorism considerations
b. Tax equalization d. Relocation assistance

20. As foreign subsidiaries matures the local HR activities:
a. Have broadening responsibilities
b. Revert to the home office
c. decrease as government relations are understood
d. Stay largely the same

21. Which three dimensions are presented in Morgan’s model of IHRM?
a. Types of employees, countries and industries
b. Types of employees, countries and human resource activities
c. Types of products, industries and human resource activity
d. Types of employees, labor problems and human resource activity

22. Differences between domestic and international HRM include:
a. The cultural environment, the extent of reliance of the multinational on its home country or domestic market and the attitudes of senior management
b. The industry, the technology employed and communication capabilities
c. The cultural environment, the industry and the technology employed
d. The cultural environment, the attitudes of senior management and the organizations authority structure

23. Senior managers with little international experience:
a. Are very successful in multinational operations
b. Assume that there is no transferability between domestic and international HARM practices
c. Assume that there is a great deal of transferability between domestic and international HRM practices
d. Are usually very eager to take on international responsibilities

24. Successful internationalizing the HR function require all except:
a. International mindset of senior management
b. Right people to manage
c. Global mindset
d. International taxation procedures

25. In Porter’s value-chain model:
a. HRM is described as a primary activity
b. HRM is described as a support activity
c. HRM is not mentioned as an activity
d. HRM is described as an incidental activity

26. HRM in the multinational context contains an overlap between elements of:
a. Cross-cultural management and leadership
b. Cross-cultural management and strategic management
c. Strategic management, comparable human resource and industrial relations systems
d. Cross-cultural management, comparable human resource and industrial relations systems

27. A Japanese citizen working in Hong Kong for a Japanese multinational would be classified as:
a. A host country national (HCN) c. A parent country national (PCN)
b. A third country national (TCH) d. A related country national (RCN)

28. Human Resource Management (HRM) activities include all of the below EXCEPT:
a. Human resource planning c. Personal family planning
b. Performance management d. Training and development

29. International HRM is reflected in:
a. The need for a narrower perspective c. The need for a judgmental perspective
b. The need for a short term perspective d. The need for a broader perspective

30. As a foreign subsidiary matures:
a. The local HR unit’s responsibilities for planning, training and compensation would broaden
b. The responsibilities of planning, training and compensation would narrow
c. The local HR unit’s responsibilities for planning, training and compensation would stay the same
d. The local HR unit’s responsibility for planning, training and compensation would end

SHORT ANSWER

1. What are the 3 broad approaches for international human resource management and how do they relate to each other?

2. What are the 3 categories of employees in an international firm?

3. What are at least 2 types of risk exposure that international companies incur that domestic companies are not as liable to incur?

4. Why is an awareness of cultural differences important in an international company?

5. What is the difference between a multidomestic industry and a global industry?

BUS 309 Week 2 Quiz 1 Chapter 1 – Strayer

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Chapter 1—The Nature of Morality

MULTIPLE CHOICE

1. Which of the following characteristics distinguishes moral standards from other sorts of standards?
a. moral standards are purely optional
b. moral standards take priority over other standards, including self-interest
c. moral standards cannot be justified by reasons
d. moral standards must be set or validated by some authoritative body

2. Choose the statement that gives the most accurate description of etiquette:
a. the rules of etiquette are a fundamental branch of morality
b. conformity with the rules of etiquette is sufficient for moral conduct
c. etiquette refers to a special code of social behavior or courtesy
d. the rules of etiquette are backed by statutory law

3. Our relationship with the law is best described by which of the following?
a. To a significant extent, law codifies a society’s customs, norms, and moral values.
b. The law is a completely adequate guide to the moral standards that we should follow.
c. The law makes all immoral conduct illegal.
d. Violating the law is always immoral.

4. Which of the following is not one of the four basic kinds of law?
a. statutes b. constitutional law c. common law d. contractual law

5. A proper perspective of religion and morality is
a. only religion can tell us what is right and wrong
b. it’s not true that morality must be based on religion
c. religion never influences people’s moral beliefs
d. without religion, people wouldn’t have a reason to act morally

6. When religion and morality are considered,
a. the moral instructions of the world’s great religions are often general and imprecise.
b. most people act rightly only because their religion tells them to.
c. atheists are likely to be less moral than religious people.
d. in practice, people who share a religion will agree on all moral questions.

7. The divine command theory implies that
a. God commands us to do whatever our reason tells us is right.
b. God forbids stealing because stealing is wrong.
c. God leaves right and wrong up to us.
d. stealing is wrong only because God commands us not to steal.

8. Ethical relativism supports the theory that
a. what is morally right is what society says is morally right.
b. there are no moral values whatsoever.
c. morality is relative to the goal of promoting human well-being.
d. different societies have different ideas about right and wrong.

9. When ethical relativism is put into practice, it implies that
a. societies never share any moral values in common.
b. in ethics, sometimes the minority is right.
c. we cannot say that slavery is wrong if the society in question believes it is right.
d. as societies evolve, their morality improves.

10. Accepting a moral principle
a. is a purely intellectual act like accepting a scientific hypothesis.
b. generally involves a desire to follow that principle for its own sake.
c. means you will never go against that principle.
d. is a religiously based act of faith.

11. The example of Huckleberry Finn shows
a. one should always obey one’s conscience.
b. when in doubt, one should ignore one’s conscience.
c. we shouldn’t rely uncritically on what our conscience says.
d. unlike most people, Huckleberry Finn lacked a conscience.

12. Morality and self-interest
a. can sometimes conflict. c. can never come into genuine conflict.
b. boil down to the same thing. d. are in basic, irreconcilable conflict.

13. How did Aristotle view morality?
a. It’s necessary for us to try to be virtuous or excellent human beings.
b. Moral judgments are true because God commands them of us.
c. Moral judgments are determined differently by each culture.
d. It’s never right to help ourselves when we can help other people instead.

14. The code or principles of conduct that a person accepts
a. constitute the whole of his or her morality.
b. can be distinguished from the person’s morality in a broader sense that includes his or her values, ideals, and aspirations.
c. rarely guide his or her conduct in practice.
d. are always attained from his or her religion.

15. The famous experiments by social psychologist Solomon Asch show
a. the truth of utilitarianism.
b. the power of peer pressure has been greatly exaggerated.
c. business organizations put more pressure on individual integrity than do other kinds of organization.
d. even temporary groups can pressure people to conform.

16. The authors use the murder of Kitty Genovese to illustrate
a. ethical relativism. c. groupthink.
b. bystander apathy. d. the paradox of hedonism.

17. If an argument is valid, then
a. the argument is sound.
b. the argument’s conclusion must be true.
c. the argument’s premises are true.
d. its conclusion must be true, if its premises are.

18. Good moral judgments should be logical and
a. justified by fallacies.
b. proven beyond reasonable doubt.
c. based on facts and acceptable moral principles.
d. coincide with what most scientifically trained people think.

19. Philosophical discussion of moral issues typically involves
a. the revision and modification of arguments.
b. proof beyond a reasonable doubt.
c. circular reasoning.
d. determining what the majority thinks.

20. The following is a logical fact.
a. All valid arguments are sound arguments.
b. All sound arguments are valid arguments.
c. A sound argument may have a false conclusion.
d. A sound argument may have a false premise.

21. Choose the statement that is a true reflection of moral behavior.
a. Conscience is a perfectly reliable guide for moral behavior.
b. Peer pressure has no effect on whether or not people behave morally.
c. Bystander apathy appears to result in part from diffusion of responsibility.
d. All moral behavior is motivated from religious faith.

22. What criteria concerning moral judgments should we agree with?
a. As long as your conduct is legal, then it will be moral.
b. If you follow the rules of etiquette, your conduct will be moral.
c. Moral standards typically concern behavior that can be of serious consequence to human welfare.
d. If your conduct follows the guidelines of professional codes of ethics, it will be moral.

23. Which statement is true concerning moral principles and self interests?
a. Statutes are laws applied in the English-speaking world before there were any common laws.
b. Philosophers agree that morality is based on the commands of God.
c. “Groupthink” is a positive and necessary characteristic of all groups.
d. Morality serves to restrain our purely self-interested desires so that we can all live together.

24. Which of the following is an accurate statement?
a. There is a complete list of adequacy criteria for moral judgments that philosophers all agree on.
b. Professional codes are the rules that are supposed to govern the conduct of members of a given profession.
c. Professional codes of ethics provide a complete and reliable guide to one’s moral obligations.
d. People who are exclusively concerned with their own interests tend to have happier and more satisfying lives than those whose desires extend beyond themselves.

TRUE/FALSE

1. In business and elsewhere, an action can be legal and morally wrong.

2. For philosophers, the important question is not how we come to have the particular moral principles we have, but whether we can justify them.

3. Organizational norms always and inevitably lead to groupthink.

4. Enron executives acted wrongly simply because they broke the law.

5. If you do the right thing only because you think you will profit from it, then you are truly motivated by moral concerns.

6. Ethical relativism is the theory that what is right is determined by what a culture or society says is right.

7. If your conduct is legal, it will also be moral.

8. An organization is a group of people working together to achieve a common purpose.

9. Moral standards concern behavior that can be of serious consequence to human welfare.

10. Rules of etiquette are always moral rules.

11. An individual does not have to follow the code of one’s profession.

12. Bystander apathy appears to result in part from diffusion of responsibility.

13. Most people don’t distinguish between a person’s “morals” and his or her “ethics.”

14. Business ethics is the study of what constitutes right and wrong, or good and bad, human conduct in a business context.

15. “Etiquette” designates a special realm of morality.

16. There are four basic kinds of law: statutes, regulations, common law, and constitutional law.

17. In theory and practice, law codifies customs, ideals, beliefs, and a society’s moral values.

18. According to divine command theory, if something is wrong, then the only reason it is wrong is that God commands us not to do it.

19. Our conscience evolved as we internalized the moral instructions of the parents or other authority figures who raised us as children.

20. The paradox of hedonism (or the paradox of selfishness) is that people who are exclusively concerned with their own interests tend to have happier and more satisfying lives than those who are concerned about other people.

21. In a broad sense morality is the moral code of an individual or of a society (insofar as the moral codes of the individuals making up that society overlap).

22. One of the major characteristics of an organization is the shared acceptance of organizational rules by its members.

23. An argument is a group of statements, one of which is claimed to follow from the others.

24. An argument is valid only if all its premises are true.

25. According to Tom Regan, our considered moral beliefs are those we hold only after we have made a conscientious effort (a) to attain maximum conceptual clarity, (b) to acquire all relevant information, (c) to think about the belief and its implications rationally, (d) impartially, and with the benefit of reflection, (e) coolly.

SHORT ANSWER

1. What is the divine command theory?

2. What is meant by “diffusion of responsibility”?

3. Some philosophers distinguish between morality in a broad sense and morality in a narrow sense. What is this difference?

ESSAY

1. How do we develop our ethics? What are the primary sources for us to develop our ethical position?

2. If religion isn’t needed for morality, then how can we know which moral judgments are best?

BUS 230 Week 2 Quiz Chapter 1 – Strayer

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CHAPTER 1 PURCHASING AND SUPPLY MANAGEMENT

1. The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer is called:

a. strategic sourcing.
b. value management.
c. customer relationship management.
d. supply chain management.
e. strategic process management.

2. As supply chains have become more global, the risk of supply disruptions has:

a. decreased because risk is spread among suppliers all over the world.
b. decreased because there are also more international laws and treaties.
c. stayed the same because the issues are similar wherever suppliers are located.
d. increased because other countries lack the business ethics of the U.S.
e. increased because of financial and exchange rate fluctuations.

3. Performance of the supply management function can be viewed in two contexts:

a. operational and trouble-avoidance.
b. operational and strategic.
c. operational and transactional.
d. strategic and opportunistic.
e. strategic and future-oriented.

4. The return on assets effect (ROA) quantifies and measures:

a. the indirect contribution of supply management to profitability.
b. any increase in sales that occurs at a greater rate than the cost of assets.
c. the impact of supply actions on inventory and the balance sheet.
d. reductions in the allocations to the operating budget of the supply department.
e. the effect on profitability of reduced spend compared to a sales increase.

5. Supply has the potential to contribute to:

a. cost management, profitability, return on assets, competitive position and corporate social policy.
b. cost management, profitability, return on assets and competitive position.
c. cost management, profitability and return on assets.
d. cost management and profitability.
e. cost management.

6. In manufacturing organizations, the dollars spent with suppliers fall into what range as a percent of revenues?

a. 65 to 75.
b. 50 to 80.
c. 45 to 75.
d. 30 to 60.
e. 25 to 35.

7. Supply management may indirectly contribute to the organization’s competitive advantage by:

a. the profit-leverage effect.
b. the return on assets effect.
c. reducing annual spend.
d. improving process efficiency.
e. all of the above.

8. Evidence of the growth and influence of supply management in an organization includes:

a. fewer activities under the management or control of supply.
b. more intense involvement in fewer supply chain activities.
c. involvement in strategic planning and mergers and acquisitions.
d. a clear delineation between supply and accounting.
e. merging of supply and accounts payable.

9. The profit-leverage effect of supply savings means that:

b. a reduction in money tied up in inventory improves profits.
c. a reduction in purchase spend increases profit more than an equal sales increase.
d. effective price negotiations with a supplier will lower the supplier’s profits.
e. the buyer gains leverage over suppliers when purchases are standardized.
f. efficient and effective supply management processes will increase profits.

10. The use of the concepts of purchasing, procurement, supply, and supply chain
management will vary from organization to organization depending on:

a. the organization’s stage of development and/or sophistication.
b. the industry in which they operate
c. the organization’s competitive position.
d. a and b.
e. a, b and c.

True and False

1. The true test of supply’s contribution is when the chief executive officer and the management team recognize the value of supply and suppliers in reducing prices paid for goods and services.
2. Sustainability initiatives include the effective and efficient capture and disposition of downstream products from customers and the reduction of the impact of the organization’s supply chains on the natural environment

3. Terms such as purchasing, procurement, supply, supply chain and logistics do not have standard definitions that are widely used across sectors and industries.

4. Reductions in inventory investment primarily come from getting users to reduce their demand for inventoried items.

5. Supply management has evolved from a transaction-based, tactical function to a process-oriented, strategic function.

6. One of the most important steps in achieving the potential of the supply function in a company is elevation of the chief supply officer to executive status.

7. The increase in outsourcing has resulted in an increase in the percentage of revenue paid out to suppliers.

8. Since labor and other costs greatly exceed outlays for purchased materials and services in most service organizations, supply is of little consequence in most service organizations.

9. Supply makes a limited contribution to organizational risk management since most supply decisions have few downside risks that might impact the organization’s strategy.

10. The total purchase sales ratio (the percentage of sales dollars paid out to suppliers) varies little from industry to industry.

ACC 410 Week 2 Quiz 1 Chapter 1 – Strayer

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Chapter 1

The Government and Not-For-Profit Environment

TRUE/FALSE (CHAPTER 1)

1. The main objective of a typical governmental entity is to earn a profit.

2. A government’s budget may be backed by the force of law.

3. Governmental entities have no need for an accounting system.

4. Governments and not-for-profits employ a system of accounting known as fund accounting.

5. Governments and not-for-profits may never engage in business-type activities.

6. Lenders use the financial statements of governments and not-for profits just as they would those of businesses, that is, to help assess the borrower’s credit-worthiness.

7. Financial statements, no matter how prepared, do not directly impact the economic worth of an entity.

8. Cash flow statements are governments’ paramount financial documents.

9. Most governments budget on an accrual basis.

10. The Governmental Accounting Standards Board established generally accepted accounting principles for all state and local government entities, as well as all nongovernment entities.

MULTIPLE CHOICE (CHAPTER 1)

1. A primary characteristic that distinguishes governmental entities from business entities is
a) the need to generate revenues equal to or in excess of expenditures/expenses.
b) the importance of the budget in the governing process.
c) the need to provide goods or services.
d) the correlation between revenues generated and demand for goods or services.

2. Which of the following characteristics is NOT a characteristic that may distinguish a governmental or not-for-profit entity from a business entity?
a) There is often no direct link between revenues generated and expenditures/expenses incurred.
b) Capital assets may neither produce revenues nor save costs.
c) Revenues may not be indicative of demand for goods and services.
d) The mission of the entity will determine the goods or services provided.

3. The most significant financial document provided by a governmental entity may be
a) the balance sheet.
b) the operating statement.
c) the operating budget.
d) the cash flow statement.

4. Which of the following statements is NOT true?
a) All governmental entities engage in similar activities.
b) There are many different types of governments.
c) Governments may engage in activities similar to activities engaged in by for-profit entities.
d) Managers may have a short-term focus and thereby sacrifice the long-term viability of the entity.

5. Which of the following activities is NOT an activity in which a governmental entity might engage?
a) Selling electric power.
b) Operating a golf course.
c) Operating a book store.
d) All of the above are activities that might be carried out by a government.

6. In which of the following activities is a not-for-profit entity least likely to engage?
a) Providing educational services.
b) Providing health-care services.
c) Providing for the national defense.
d) Retail sales of cookies.

7. To obtain a comprehensive understanding of a government’s fiscal health, a financial analyst should obtain an understanding of which of the following?
a) All of the resources owned by the governmental entity.
b) All of the resources which may be summoned by a governmental entity.
c) Demographic data about the residents served by the governmental entity.
d) All of the above.

8. Which of the following is common to both governments and not-for-profit entities but distinguishes these entities from for-profit entities?
a) The budget is generally the most significant financial document.
b) Revenues are not necessarily indicative of demand for goods or services.
c) There is frequently no direct link between revenues and expenses.
d) All of the above are common to both governments and not-for-profit entities but distinguish them from for-profit entities.

9. Which of the following is NOT a purpose of external financial reporting by governments? External financial reports should allow users to
a) Assess financial condition.
b) Compare actual results with the budget.
c) Assess the ability of elected officials to effectively manage people.
d) Evaluate efficiency and effectiveness.

10. Which of the following is NOT a reason that users of government and not-for-profit external financial statements need to have information to enable them to assess the financial condition of a government?
a) To determine the ability of the entity to meet its obligations.
b) To determine the ability of the entity to continue to provide services.
c) To predict future fiscal developments.
d) To evaluate the overall profitability of the entity.

11. Users of financial statements should be interested in information about compliance with laws and regulations for which of the following reasons?
a) To determine if the entity has complied with bond covenants.
b) To determine if the entity has complied with taxing limitations.
c) To determine if the entity has complied with donor restrictions on the use of funds.
d) To determine all of the above.

12. Which of the following is NOT generally considered a main user of government and not-for-profit entity external financial statements?
a) Investors and creditors.
b) Taxpayers.
c) Donors.
d) Management.

13. Which of the following is NOT a probable use a donor would make of the external financial statements of a not-for-profit entity?
a) To determine the creditworthiness of the entity for investment purposes.
b) To determine the proportion of entity resources directed to programs as opposed to fund-raising.
c) To determine the salaries paid to the top officials of the entity.
d) To determine the allocation of resources within the entity.

14. A regulatory agency would use the external financial statements of a local government for which of the following purposes?
a) To assure that the entity is spending and receiving resources in accordance with laws, regulations or policies.
b) To help assess management’s performance.
c) To exercise general oversight responsibility.
d) To do all of the above.

15. Which of the following objectives is considered to be the cornerstone of financial reporting by a governmental entity?
a) Accountability.
b) Budgetary compliance.
c) Interperiod equity.
d) Service efforts and accomplishments.

16. Which of the following is NOT an objective of financial reporting by governmental entities as established by GASB?
a) Financial reporting should assist users in determining if current period revenues were sufficient to pay for current-period services.
b) Financial reporting should assist users in assessing the management skills of top management.
c) Financial reporting should assist users in evaluating the operating results of the governmental entity for the year.
d) Financial reporting should assist users in assessing the level of services that can be provided by the governmental entity and its ability to meet its obligations as they come due.

17. Which of the following is NOT an objective of financial reporting for not-for-profit entities as established by FASB? Financial reporting should provide information that is useful to present and potential resource providers and other users in:
a) Making rational decisions about the allocation of resources to those organizations.
b) Assessing the services provided and the entity’s ability to continue to provide those services.
c) Assessing the types of services provided and the need for those services.
d) Assessing how managers have discharged their stewardship responsibilities.

18. As used by GASB, interperiod equity refers to which of the following? Financial reporting should:
a) Demonstrate compliance with finance-related contractual requirements.
b) Provide information to determine whether current-year revenues were sufficient to pay for current-year services.
c) Demonstrate whether resources were obtained and used in accordance with the entity’s legally adopted budget.
d) Provide information to assist users in assessing the government’s economy, efficiency, and effectiveness.

19. Given a specific set of data, the basis of accounting selected by or imposed on a governmental entity will least affect which of the following?
a) Determining whether or not the governmental entity has a balanced budget.
b) Determining whether or not the governmental entity has the ability to issue debt.
c) Determining whether or not certain events occurred.
d) Determining the annual payments to a government-sponsored pension plan.

20. The Governmental Accounting Standards Board is the primary standard-setting body for:
a) All governments.
b) All state and local governmental entities.
c) All governments and all not-for-profit entities.
d) All state and local governments and all not-for-profit entities.

21. Under certain circumstances a governmental entity might use standards established by which of the following standard-setting bodies?
a) GASB.
b) FASB.
c) AICPA.
d) All of the above.

22. The primary standard-setting body for accounting and financial reporting by a state-supported college or university is:
a) GASB.
b) FASB.
c) AICPA.
d) All of the above.

23. In descending order, the hierarchy of GAAP applicable to a church-owned college may be:
a) FASB Statements, AICPA Industry Audit Guides, FASB Implementation Guides, GASB Standards.
b) FASB Statements, FASB Technical Bulletins, FASB Implementation Guides, AICPA Practice Bulletins (if cleared by FASB).
c) GASB Statements, AICPA Industry Audit Guides, GASB Implementation Guides, FASB Standards.
d) GASB Statements, GASB Technical Bulletins, GASB Implementation Guides, AICPA Practice Bulletins (if cleared by GASB).

24. Governments and not-for-profits employ a system of accounting known as
a) budget accounting.
b) financial accounting.
c) fund accounting
d) tax accounting.

25. Which of the following rule-making authorities would establish accounting standards for all nongovernment not-for-profits?
a) AICPA.
b) FASB.
c) GASB.
d) APB.

PROBLEMS (CHAPTER 1)

1. Thorn County adopted a cash budget for FY2000 as follows. The City budget laws prohibit budgeting or operating at a deficit. During the year the County collected or spent the following amounts. Was the County in compliance with the budget? Did the County accomplish the goal of interperiod equity? Explain your answers in detail.

Budgeted Collected/Spent
Receipts from Property tax collections
From the 1999 levy $ 100,000 $ -0-
From the 2000 levy $1,000,000 $ 900,000
In advance for 2001 $ 50,000 $ -0-
Receipts from Bonds Issued $ 500,000 $ 500,000
Borrowed from Bank (due in 5 years) $ -0- $ 75,000
Disbursements
Salaries and Wages $ 500,000 $ 500,000
Operating Expenses $ 200,000 $ 275,000
City Hall Annex purchased $ 500,000 $ 500,000
Payments on Debt-Principal $ 150,000 $ 150,000
Payments on Interest $ 50,000 $ 50,000
Pension Contribution $ 80,000 $ -0-

Explanations provided by the City for the differences between budget and actual are as follows. Property tax collections are down because the major industry in the community closed and many citizens are currently unemployed. Operating expenses are up because the only bridge over a river bisecting the City sustained damages by an uninsured motorist and had to be repaired immediately. The repair was not budgeted.

2. Save-the-Birds (STB), a not-for-profit entity dedicated to acquiring and preserving habitat for upland birds, prepares financial statements in accordance with generally accepted accounting principles. Currently, standards require that a not-for-profit entity report as revenue in the year received virtually all contributions. During the current year STB received a donation of several hundred acres of prime habitat for upland birds. STB will require several hundred thousand dollars in additional donations in order to make the land completely suitable for the birds. Before embarking on its fund-raising campaign STB prepares financial statements which are summarized as follows.

Statement of Financial Position (Balance Sheet)
Cash $ 8,000
Supplies $ 2,000
Equipment (net of depreciation) $ 5,000
Land $1,000,000
Total Assets $1,015,000

Liabilities $ 1,000
Net Assets—Unrestricted $ 14,000
Net Assets—Restricted $1,000,000
Total Liabilities and Net Assets $1,015,000

Statement of Activities (Income Statement)
Revenues $1,030,000
Expenses:
Salaries $ 30,000
Change in Net Assets $1,000,000

What difficulties, if any, will Save-the-Birds encounter in their new fund-raising drive? Knowing that the donation of the land accounted for $1,000,000 of the revenue reported by Save-the-Birds, do you think the financial statements present fairly the financial position and results of operations of this not-for-profit entity?

3. Johnson City prepares its budget on the cash basis and prepares its external financial statements on the accrual basis. From the following data prepare statements of activity (income statements) on both the cash basis and the accrual basis. Which statement best represents the results of operation of the City? Which statement best demonstrates compliance with laws and regulations? Which statement would you rather see? Which conveys the best information to the citizens of Johnson City?

The City levies taxes in the current year of $1 million. Of this amount $.9 million is collected during the current year, $.05 will be collected next year, and $.04 will be collected in the future. $.01 will never be collected. During the current year the City pays bills from prior periods $.06 million, bills of the current period $.8 million, and defers payment until future periods bills that were received for services consumed during the current period $.1 million.

ESSAY (CHAPTER 1)

1. In the United States, educational services can be provided by federal governmental entities, by non-federal governmental entities, by not-for-profit entities, and by for-profit entities. Are the accounting and financial reporting standards the same for each of these entities? Should they be the same?

2. The Governmental Accounting Standards Board (GASB) stated that an objective of financial reporting should be to measure interperiod equity. “Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.” What is your understanding of ‘interperiod equity.’? What costs incurred in the current year should be paid for by the taxpayers of the current period? What costs incurred in the current year should be paid for by future taxpayers?

3. A not-for-profit entity raises funds to support specific programs, services, and activities. The recipients of the programs, services, and activities are frequently not the providers of the resources to deliver the programs, services, and activities. What information would donors to these not-for-profit entities be interested in seeing? What information would program beneficiaries be interested in seeing? Identify other users of the financial statements of a not-for-profit and the types of information in which they would be interested.

ACC 401 Week 2 Quiz 1 Chapters 1 – 2 – Strayer

ACC 401 Advanced Accounting Week 2 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 1

Introduction to Business Combinations and the Conceptual Framework

Multiple Choice
1. Stock given as consideration for a business combination is valued at
a. fair market value
b. par value
c. historical cost
d. None of the above

2. Which of the following situations best describes a business combination to be accounted for as a statutory merger?
a. Both companies in a combination continue to operate as separate, but related, legal entities.
b. Only one of the combining companies survives and the other loses its separate identity.
c. Two companies combine to form a new third company, and the original two companies are dissolved.
d. One company transfers assets to another company it has created.

3. A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition?
a. Cash
b. Issuing Debt
c. Issuing Stock
d. All of the above

4. The objectives of FASB 141R (Business Combinations) and FASB 160 (NonControlling Interests in Consolidated Financial Statements) are as follows:
a. to improve the relevance, comparibility, and transparency of financial information related to business combinations.
b. to eliminate the amortization of Goodwill.
c. to facilitate the convergence project of the FASB and the International Accounting Standards Board.
d. a and b only

5. A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n)
a. agreeable combination.
b. friendly combination.
c. hostile combination.
d. unfriendly combination.

6. A merger between a supplier and a customer is a(n)
a. friendly combination.
b. horizontal combination.
c. unfriendly combination.
d. vertical combination.

7. When a business acquisition is financed using debt, the interest payments are tax deductible and create
a. operating synergy.
b. international synergy.
c. financial synergy.
d. diversification synergy.

8. The defense tactic that involves purchasing shares held by the would-be acquiring company at a price substantially in excess of their fair value is called
a. poison pill.
b. pac-man defense.
c. greenmail.
d. white knight.

9. The third period of business combinations started after World War II and is called
a. horizontal integration.
b. merger mania.
c. operating integration.
d. vertical integration.

10. A statutory ______________ results when one company acquires all the net assets of another company and the acquired company ceases to exist as a separate legal entity.
a. acquisition.
b. combination.
c. consolidation.
d. merger.

11. When a new corporation is formed to acquire two or more other corporations and the acquired corporations cease to exist as separate legal entities, the result is a statutory
a. acquisition.
b. combination.
c. consolidation.
d. merger.

12. The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the
a. bonus.
b. goodwill.
c. implied offering price.
d. takeover premium.

13. The difference between normal earnings and expected future earnings is
a. average earnings.
b. excess earnings.
c. ordinary earnings.
d. target earnings.

14. The first step in estimating goodwill in the excess earnings approach is to
a. determine normal earnings.
b. identify a normal rate of return for similar firms.
c. compute excess earnings.
d. estimate expected future earnings.

15. A potential offering price for a company is computed by adding the estimated goodwill to the
a. book value of the company’s net assets.
b. book value of the company’s net identifiable assets.
c. fair value of the company’s net assets.
d. fair value of the company’s net identifiable assets.

16. Estimated goodwill is determined by computing the present value of the
a. average earnings.
b. excess earnings.
c. expected future earnings.
d. normal earnings.

17. Which of the following statements would not be a valid or logical reason for entering into a business combination?
a. to increase market share.
b. to avoid becoming a takeover target.
c. to reduce risk by acquiring established product lines.
d. the operating costs of the combined entity would be more than the sum of the separate entities.

18. The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is:
a. to provide information relevant to the controlling stockholders.
b. to represent the view that the affiliated companies are a separate, identifiable economic entity.
c. to emphasis control of the whole by a single management.
d. to include only a portion of the subsidiary’s assets, liabilities, revenues, expenses, gains, and losses.

19. Which of the following statements is correct?
a. Total elimination is consistent with the parent company concept.
b. Partial elimination is consistent with the economic unit concept.
c. Past accounting standards required the total elimination of unrealized intercompany profit in assets acquired from affiliated companies.
d. none of these.

20. Under the parent company concept, consolidated net income __________ the consolidated net income under the economic unit concept.
a. is the same as
b. is higher than
c. is lower than
d. can be higher or lower than

21. Under the economic unit concept, noncontrolling interest in net assets is treated as
a. a liability.
b. an asset.
c. stockholders’ equity.
d. an expense.

22. The parent company concept adjusts subsidiary net asset values for the
a. differences between cost and fair value.
b. differences between cost and book value.
c. total fair value implied by the price paid by the parent.
d. total cost implied by the price paid by the parent.

23. According to the economic unit concept, the primary purpose of consolidated financial statements is to provide information that is relevant to
a. majority stockholders.
b. minority stockholders.
c. creditors.
d. both majority and minority stockholders.

24. Which of the following statements is correct?
a. The economic unit concept suggests partial elimination of unrealized intercompany profits.
b. The parent company concept suggests partial elimination of unrealized intercompany profits.
c. The economic unit concept suggests no elimination of unrealized intercompany profits.
d. The parent company concept suggests total elimination of unrealized intercompany profits.

25. When following the parent company concept in the preparation of consolidated financial statements, noncontrolling interest in combined income is considered a(n)
a. prorated share of the combined income.
b. addition to combined income to arrive at consolidated net income.
c. expense deducted from combined income to arrive at consolidated net income.
d. deduction from current assets in the balance sheet.

26. When following the economic unit concept in the preparation of consolidated financial statements, the basis for valuing the noncontrolling interest in net assets is the
a. book values of subsidiary assets and liabilities.
b. fair values of subsidiary assets and liabilities.
c. general price level adjusted values of subsidiary assets and liabilities.
d. fair values of parent company assets and liabilities.

27. The view that consolidated financial statements represent those of a single economic entity with several classes of stockholder interest is consistent with the
a. parent company concept.
b. current practice concept.
c. historical cost company concept.
d. economic unit concept.

28. The view that the noncontrolling interest in income reflects the noncontrolling stockholders’ allocated share of consolidated income is consistent with the
a. economic unit concept.
b. parent company concept.
c. current practice concept.
d. historical cost company concept.

29. The view that only the parent company’s share of the unrealized intercompany profit recognized by the selling affiliate that remains in assets should be eliminated in the preparation of consolidated financial statements is consistent with the
a. economic unit concept.
b. current practice concept.
c. parent company concept.
d. historical cost company concept.

Problems

1-1 Perkins Company is considering the acquisition of Barkley, Inc. To assess the amount it might be willing to pay, Perkins makes the following computations and assumptions.
A. Barkley, Inc. has identifiable assets with a total fair value of $6,000,000 and liabilities of $3,700,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Barkley, Inc.
B. Barkley, Inc.’s pretax incomes for the years 2009 through 2011 were $470,000, $570,000, and $370,000, respectively. Perkins believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings:

Depreciation on Buildings (each year) 380,000
Depreciation on Equipment (each year) 30,000
Extraordinary Loss (year 2011) 130,000
Salary Expense (each year) 170,000

C. The normal rate of return on net assets for the industry is 15%.

Required:
A. Assume that Perkins feels that it must earn a 20% return on its investment, and that goodwill is determined by capitalizing excess earnings. Based on these assumptions, calculate a reasonable offering price for Barkley, Inc. Indicate how much of the price consists of goodwill.
B. Assume that Perkins feels that it must earn a 15% return on its investment, but that average excess earnings are to be capitalized for five years only. Based on these assumptions, calculate a reasonable offering price for Barkley, Inc. Indicate how much of the price consists of goodwill.

1-2 Pierce Company is trying to decide whether to acquire Hager Inc. The following balance sheet for Hager Inc. provides information about book values. Estimated market values are also listed, based upon Pierce Company’s appraisals.

Hager Inc. Hager Inc.
Book Values Market Values

Current Assets $ 450,000 $ 450,000
Property, Plant & Equipment (net) 1,140,000 1,300,000
Total Assets $1,590,000 $1,750,000

Total Liabilities $700,000 $700,000
Common Stock, $10 par value 280,000
Retained Earnings 610,000
Total Liabilities and Equities $1,590,000

Pierce Company expects that Hager will earn approximately $290,000 per year in net income over the next five years. This income is higher than the 14% annual return on tangible assets considered to be the industry “norm.”

Required:
A. Compute an estimation of goodwill based on the information above that Pierce might be willing to pay (include in its purchase price), under each of the following additional assumptions:
(1) Pierce is willing to pay for excess earnings for an expected life of 4 years (undiscounted).
(2) Pierce is willing to pay for excess earnings for an expected life of 4 years, which should be capitalized at the industry normal rate of return.
(3) Excess earnings are expected to last indefinitely, but Pierce demands a higher rate of return of 20% because of the risk involved.
B. Determine the amount of goodwill to be recorded on the books if Pierce pays $1,300,000 cash and assumes Hager’s liabilities.

1-3 Pope Company acquired an 80% interest in the common stock of Simon Company for $1,540,000 on July 1, 2011. Simon Company’s stockholders’ equity on that date consisted of:

Common stock $800,000
Other contributed capital 400,000
Retained earnings 330,000

Required:
Compute the total noncontrolling interest to be reported in the consolidated balance sheet assuming the:
(1) parent company concept.
(2) economic unit concept.

1-4 The following balances were taken from the records of S Company:

Common stock (1/1/11 and 12/31/11) $720,000
Retained earnings 1/1/11 $160,000
Net income for 2011 180,000
Dividends declared in 2011 (40,000)
Retained earnings, 12/31/11 300,000
Total stockholders’ equity on 12/31/11 $1,020,000

P Company purchased 75% of S Company’s common stock on January 1, 2011 for $900,000. The difference between implied value and book value is attributable to assets with a remaining useful life on January 1, 2011 of ten years.

Required:

A. Compute the difference between cost/(implied) and book value applying:
1. Parent company theory.
2. Economic unit theory.

B. Assuming the economic unit theory:
1. Compute noncontrolling interest in consolidated income for 2011.
2. Compute noncontrolling interest in net assets on December 31, 2011.

Short Answer

1. Estimating the value of goodwill to be included in an offering price can be done under several alternative methods. The excess earnings approach is frequently used. Identify the steps used in this approach to estimate goodwill.

2. The two alternative views of consolidated financial statements are the parent company concept and the economic entity concept. Briefly explain the differences between the concepts.

Short Answer Questions in Textbook

1. Distinguish between internal and external expansion of a firm.

2. List four advantages of a business combination as compared to internal expansion.

3. What is the primary legal constraint on business combinations? Why does such a constraint exist?

4. Business combinations may be classified into three types based upon the relationships among the combining entities (e.g., combinations with suppliers, customers, competitors, etc.). Identify and define these types.

5. Distinguish among a statutory merger, a statutory consolidation, and a stock acquisition.

6. Define a tender offer and describe its use.

7. When stock is exchanged for stock in a business combination, how is the stock exchange ratio generally expressed?

8. Define some defensive measures used by target firms to avoid a takeover. Are these measures beneficial for shareholders?

9. Explain the potential advantages of a stock acquisition over an asset acquisition.

10. Explain the difference between an accretive and a dilutive acquisition.

11. Describe the difference between the economic entity concept and the parent company concept approaches to the reporting of subsidiary assets and liabilities in the consolidated financial statements on the date of the acquisition.

12. Contrast the consolidated effects of the parent company concept and the economic entity con-cept in terms of:
(a)The treatment of noncontrolling interests.
(b)The elimination of intercompany profits.
(c)The valuation of subsidiary net assets in the consolidated financial statements.
(d)The definition of consolidated net income.

13. Under the economic entity concept, the net as-sets of the subsidiary are included in the consolidated financial statements at the total fair value that is implied by the price paid by the parent company for its controlling interest. What practical or conceptual problems do you see in this approach to valuation?

14. Is the economic entity or the parent concept more consistent with the principles addressed in the FASB’s conceptual framework? Explain your answer.

15. How does the FASB’s conceptual framework influence the development of new standards?

16. What is the difference between net income, or earnings, and comprehensive income?

Business Ethics Questions from the Textbook

From 1999 to 2001, Tyco’s revenue grew approximately24% and it acquired over 700 companies. It was widely rumored that Tyco executives aggressively managed the performance of the companies that they acquired by suggesting that before the acquisition, they should accelerate the payment of liabilities, delay recording the collections of revenue, and increase the estimated amounts in reserve accounts.

1. What effect does each of the three items have on the reported net income of the acquired company before the acquisition and on the reported net income of the combined company in the first year of the acquisition and future years?

2. What effect does each of the three items have on the cash from operations of the acquired company before the acquisition and on the cash from operations of the combined company in the first year of the acquisition and future years?

3. If you are the manager of the acquired company, how do you respond to these suggestions?

4. Assume that all three items can be managed within the rules provided by GAAP but would be regarded by many as pushing the limits of GAAP.Is there an ethical issue? Describe your position as: (A) an accountant for the target company and (B) as an accountant for Tyco.

Chapter 2

Accounting for Business Combinations

Multiple Choice

1. SFAS 141R requires that all business combinations be accounted for using
a. the pooling of interests method.
b. the acquisition method.
c. either the acquisition or the pooling of interests methods.
d. neither the acquisition nor the pooling of interests methods.

2. Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by the purchase Pratt of the acquired company, the excess should be
a. accounted for as goodwill.
b. allocated to reduce current and long-lived assets.
c. allocated to reduce current assets and classify any remainder as an extraordinary gain.
d. allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.

3. In a period in which an impairment loss occurs, SFAS No. 142 requires each of the following note disclosures except
a. a description of the facts and circumstances leading to the impairment.
b. the amount of goodwill by reporting segment.
c. the method of determining the fair value of the reporting unit.
d. the amounts of any adjustments made to impairment estimates from earlier periods, if significant.

4. Once a reporting unit is determined to have a fair value below its carrying value, the goodwill impairment loss is computed by comparing the
a. fair value of the reporting unit and the fair value of the identifiable net assets.
b. carrying value of the goodwill to its implied fair value.
c. fair value of the reporting unit to its carrying amount (goodwill included).
d. carrying value of the reporting unit to the fair value of the identifiable net assets.

5. SFAS 141R requires that the acquirer disclose each of the following for each material business combination except the
a. name and a description of the acquiree.
b. percentage of voting equity instruments acquired.
c. fair value of the consideration transferred.
d. Each of the above is a required disclosure

6. In a leveraged buyout, the portion of the net assets of the new corporation provided by the management group is recorded at
a. appraisal value.
b. book value.
c. fair value.
d. lower of cost or market.

7. When the acquisition price of an acquired firm is less than the fair value of the identifiable net assets, all of the following are recorded at fair value except
a. Assumed liabilities.
b. Current assets.
c. Long-lived assets.
d. Each of the above is recorded at fair value.

8. Under SFAS 141R,
a. both direct and indirect costs are to be capitalized.
b. both direct and indirect costs are to be expensed.
c. direct costs are to be capitalized and indirect costs are to be expensed.
d. indirect costs are to be capitalized and direct costs are to be expensed.

9. A business combination is accounted for properly as an acquisition. Which of the following expenses related to effecting the business combination should enter into the determination of net income of the combined corporation for the period in which the expenses are incurred?

Security Overhead allocated
issue costs to the merger
a. Yes Yes
b. Yes No
c. No Yes
d. No No

10. In a business combination, which of the following costs are assigned to the valuation of the security?

Professional or Security
consulting fees issue costs
a. Yes Yes
b. Yes No
c. No Yes
d. No No

11. Par Company and Sub Company were combined in an acquisition transaction. Par was able to acquire Sub at a bargain Pratt. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Par. After eliminating previously recorded goodwill, there was still some “negative goodwill.” Proper accounting treatment by Par is to report the amount as
a. paid-in capital.
b. a deferred credit, which is amortized.
c. an ordinary gain.
d. an extraordinary gain.

12. With an acquisition, direct and indirect expenses are
a. expensed in the period incurred.
b. capitalized and amortized over a discretionary period.
c. considered a part of the total cost of the acquired company.
d. charged to retained earnings when incurred.

13. In a business combination accounted for as an acquisition, how should the excess of fair value of net assets acquired over the consideration paid be treated?
a. Amortized as a credit to income over a period not to exceed forty years.
b. Amortized as a charge to expense over a period not to exceed forty years.
c. Amortized directly to retained earnings over a period not to exceed forty years.
d. Recorded as an ordinary gain.

14. P Corporation issued 10,000 shares of common stock with a fair value of $25 per share for all the outstanding common stock of S Company in a business combination properly accounted for as an acquisition. The fair value of S Company’s net assets on that date was $220,000. P Company also agreed to issue an additional 2,000 shares of common stock with a fair value of $50,000 to the former stockholders of S Company as an earnings contingency. Assuming that the contingency is expected to be met, the $50,000 fair value of the additional shares to be issued should be treated as a(n)
a. decrease in noncurrent liabilities of S Company that were assumed by P Company.
b. decrease in consolidated retained earnings.
c. increase in consolidated goodwill.
d. decrease in consolidated other contributed capital.

15. On February 5, Pryor Corporation paid $1,600,000 for all the issued and outstanding common stock of Shaw, Inc., in a transaction properly accounted for as an acquisition. The book values and fair values of Shaw’s assets and liabilities on February 5 were as follows

Book Value Fair Value
Cash $ 160,000 $ 160,000
Receivables (net) 180,000 180,000
Inventory 315,000 300,000
Plant and equipment (net) 820,000 920,000
Liabilities (350,000) (350,000)
Net assets $1,125,000 $1,210,000

What is the amount of goodwill resulting from the business combination?
a. $-0-.
b. $475,000.
c. $85,000.
d. $390,000.

16. P Company purchased the net assets of S Company for $225,000. On the date of P’s purchase, S Company had no investments in marketable securities and $30,000 (book and fair value) of liabilities. The fair values of S Company’s assets, when acquired, were

Current assets $ 120,000
Noncurrent assets 180,000
Total $300,000

How should the $45,000 difference between the fair value of the net assets acquired ($270,000) and the consideration paid ($225,000) be accounted for by P Company?
a. The noncurrent assets should be recorded at $ 135,000.
b. The $45,000 difference should be credited to retained earnings.
c. The current assets should be recorded at $102,000, and the noncurrent assets should be recorded at $153,000.
d. An ordinary gain of $45,000 should be recorded.
17. If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be
a. allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.
b. allocated to reduce current and long-lived assets.
c. allocated to reduce long-lived assets.
d. accounted for as goodwill.

18. P Co. issued 5,000 shares of its common stock, valued at $200,000, to the former shareholders of S Company two years after S Company was acquired in an all-stock transaction. The additional shares were issued because P Company agreed to issue additional shares of common stock if the average post combination earnings over the next two years exceeded $500,000. P Company will treat the issuance of the additional shares as a (decrease in)
a. consolidated retained earnings.
b. consolidated goodwill.
c. consolidated paid-in capital.
d. non-current liabilities of S Company assumed by P Company.

19. In a business combination in which the total fair value of the identifiable assets acquired over liabilities assumed is greater than the consideration paid, the excess fair value is:
a. classified as an extraordinary gain.
b. allocated first to eliminate any previously recorded goodwill, and any remaining excess over the consideration paid is classified as an ordinary gain.
c. allocated first to reduce proportionately non-current assets then to non-monetary current assets, and any remaining excess over cost is classified as a deferred credit.
d. allocated first to reduce proportionately non-current, depreciable assets to zero, and any remaining excess over cost is classified as a deferred credit.

20. The first step in determining goodwill impairment involves comparing the
a. implied value of a reporting unit to its carrying amount (goodwill excluded).
b. fair value of a reporting unit to its carrying amount (goodwill excluded).
c. implied value of a reporting unit to its carrying amount (goodwill included).
d. fair value of a reporting unit to its carrying amount (goodwill included).

21. If an impairment loss is recorded on previously recognized goodwill due to the transitional goodwill impairment test, the loss should be treated as a(n):
a. loss from a change in accounting principles.
b. extraordinary loss
c. loss from continuing operations.
d. loss from discontinuing operations.

22. P Company acquires all of the voting stock of S Company for $930,000 cash. The book values of S Company’s assets are $800,000, but the fair values are $840,000 because land has a fair value above its book value. Goodwill from the combination is computed as:
a. $130,000.
b. $90,000.
c. $40,000.
d. $0.

23. Under SFAS 141R, what value of the assets and liabilities are reflected in the financial statements on the acquisition date of a business combination?
a. Carrying value
b. Fair value
c. Book value
d. Average value

Use the following information to answer questions 24 & 25.

Pratt Company issued 24,000 shares of its $20 par value common stock for the net assets of Sele Company in business combination under which Sele Company will be merged into Pratt Company. On the date of the combination, Pratt Company common stock had a fair value of $30 per share. Balance sheets for Pratt Company and Sele Company immediately prior to the combination were as follows:

Pratt Sele

Current Assets $1,314,000 $192,000
Plant and Equipment (net) 1,725,000 408,000
Total $3,039,000 $600,000

Liabilities $ 900,000 $150,000
Common Stock, $20 par value 1,650,000 240,000
Other Contributed Capital 218,000 60,000
Retained Earnings 271,000 150,000
Total $3,039,000 $600,000

24. If the business combination is treated as an acquisition and Sele Company’s net assets have a fair value of $686,400, Pratt Company’s balance sheet immediately after the combination will include goodwill of
a. $30,600.
b. $38,400.
c. $33,600.
d. $56,400.

25. If the business combination is treated as an acquisition and the fair value of Sele Company’s current assets is $270,000, its plant and equipment is $726,000, and its liabilities are $168,000, Pratt Company’s financial statements immediately after the combination will include
a. Negative goodwill of $108,000.
b. Plant and equipment of $2,133,000.
c. Plant and equipment of $2,343,000.
d. An ordinary gain of $108,000.

26. On May 1, 2011, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2011, follow:

Cash $100,000
Inventory 200,000
Property & equipment (Net of accumulated depreciation) 800,000
Liabilities (160,000)

On May 1, 2011, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000. What is the amount of goodwill resulting from the business combination?
a. $0.
b. $112,000.
c. $140,000.
d. $28,000.

Use the following information to answer questions 27 & 28.

Posch Company issued 12,000 shares of its $20 par value common stock for the net assets of Sato Company in a business combination under which Sato Company will be merged into Posch Company. On the date of the combination, Posch Company common stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato Company immediately prior to the combination were as follows:

Posch Sato

Current Assets $ 657,000 $ 96,000
Plant and Equipment (net) 863,000 204,000
Total $1,520,000 $300,000

Liabilities $ 450,000 $ 75,000
Common Stock, $20 par value 825,000 120,000
Other Contributed Capital 109,000 30,000
Retained Earnings 136,000 75,000
Total $1,520,000 $300,000

27. If the business combination is treated as an acquisition and Sato Company’s net assets have a fair value of $343,200, Posch Company’s balance sheet immediately after the combination will include goodwill of
a. $15,300.
b. $19,200.
c. $16,800.
d. $28,200.

28. If the business combination is treated as an acquisition and the fair value of Sato Company’s current assets is $135,000, its plant and equipment is $363,000, and its liabilities are $84,000, Posch Company’s financial statements immediately after the combination will include
a. Negative goodwill of $54,000.
b. Plant and equipment of $1,226,000.
c. Plant and equipment of $1,172,000.
d. An extraordinary gain of $54,000.

29. Following its acquisition of the net assets of Sandy Company, Potter Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows:

Carrying Amount Fair Value
Cash $ 20,000 $20,000
Inventory 35,000 40,000
Equipment 125,000 160,000
Goodwill 60,000
Accounts Payable 30,000 30,000

Based on the preceding information, what amount of goodwill will be reported for this division if its fair value is determined to be $200,000?
a. $0
b. $60,000
c. $30,000
d. $10,000

30. The fair value of net identifiable assets exclusive of goodwill of a reporting unit of X Company is $300,000. On X Company’s books, the carrying value of this reporting unit’s net assets is $350,000, including $60,000 goodwill. If the fair value of the reporting unit is $335,000, what amount of goodwill impairment will be recognized for this unit?
a. $0
b. $10,000
c. $25,000
d. $35,000

31. The fair value of net identifiable assets of a reporting unit exclusive of goodwill of Y Company is $270,000. The carrying value of the reporting unit’s net assets on Y Company’s books is $320,000, including $50,000 goodwill. If the reported goodwill impairment for the unit is $10,000, what would be the fair value of the reporting unit?
a. $320,000
b. $310,000
c. $270,000
d. $290,000

32. Potter Corporation acquired Sims Company through an exchange of common shares. All of Sims’ assets and liabilities were immediately transferred to Potter. Potter Company’s common stock was trading at $20 per share at the time of exchange. The following selected information is also available:
Potter Company
Before Acquisition After Acquisition
Par value of shares outstanding $200,000 $250,000
Additional Paid in Capital 350,000 550,000

What number of shares was issued at the time of the exchange?
a. 5,000
b. 17,500
c. 12,500
d. 10,000

Problems

2-1 Balance sheet information for Seitz Corporation at January 1, 2011, is summarized as follows:
Current assets $ 920,000 Liabilities $ 1,200,000
Plant assets 1,800,000 Capital stock $10 par 800,000
Retained earnings 720,000
$2,720,000 $ 2,720,000

Seitz’s assets and liabilities are fairly valued except for plant assets that are undervalued by $200,000. On January 2, 2011, Pell Corporation issues 80,000 shares of its $10 par value common stock for all of Seitz’s net assets and Seitz is dissolved. Market quotations for the two stocks on this date are:

Pell common: $28
Seitz common: $19

Pell pays the following fees and costs in connection with the combination:

Finder’s fee $10,000
Costs of registering and issuing stock 5,000
Legal and accounting fees 6,000

Required:
A. Calculate Pell’s investment cost of Seitz Corporation.

B. Calculate any goodwill from the business combination.

2-2 Peterson Corporation purchased the net assets of Scarberry Corporation on January 2, 2011 for $560,000 and also paid $20,000 in direct acquisition costs. Scarberry’s balance sheet on January
1, 2011 was as follows:

Accounts receivable-net $ 180,000 Current liabilities $ 70,000
Inventory 360,000 Long term debt 160,000
Land 40,000 Common stock ($1 par) 20,000
Building-net 60,000 Paid-in capital 430,000
Equipment-net 80,000 Retained earnings 40,000
Total assets $ 720,000 Total liab. & equity $ 720,000

Fair values agree with book values except for inventory, land, and equipment, which have fair values of $400,000, $50,000 and $70,000, respectively. Scarberry has patent rights valued at $20,000.

Required:
A. Prepare Peterson’s general journal entry for the cash purchase of Scarberry’s net assets.

B. Assume Peterson Corporation purchased the net assets of Scarberry Corporation for $500,000 rather than $560,000, prepare the general journal entry.

2-3 Pyle Company acquired the assets (except cash) and assumed the liabilities of Sand Company on January 1, 2011, paying $2,600,000 cash. Immediately prior to the acquisition, Sand Company’s balance sheet was as follows:

BOOK VALUE FAIR VALUE
Accounts receivable (net) $ 240,000 $ 220,000
Inventory 290,000 320,000
Land 960,000 1,508,000
Buildings (net) 1,020,000 1,392,000
Total $2,510,000 $3,440,000

Accounts payable $ 270,000 $ 270,000
Note payable 600,000 600,000
Common stock, $5 par 420,000
Other contributed capital 640,000
Retained earnings 580,000
Total $2,510,000

Pyle Company agreed to pay Sand Company’s former stockholders $200,000 cash in 2012 if post- combination earnings of the combined company reached $1,000,000 during 2011.

Required:
A. Prepare the journal entry necessary for Pyle Company to record the acquisition on January 1, 2011. It is expected that the earnings target is likely to be met.

B. Prepare the journal entry necessary for Pyle Company in 2012 assuming the earnings contingency was not met.

2-4 Condensed balance sheets for Payne Company and Sigle Company on January 1, 2011 are as follows:

Payne Sigle
Current Assets $ 440,000 $200,000
Plant and Equipment (net) 1,080,000 340,000
Total Assets $1,520,000 $540,000

Total Liabilities $ 230,000 $ 80,000
Common Stock, $10 par value 840,000 240,000
Other Contributed Capital 300,000 130,000
Retained Earnings 150,000 90,000
Total Equities $1,520,000 $540,000

On January 1, 2011 the stockholders of Payne and Sigle agreed to a consolidation whereby a new corporation, Lawson Company, would be formed to consolidate Payne and Sigle. Lawson Company issued 70,000 shares of its $20 par value common stock for the net assets of Payne and Sigle. On the date of consolidation, the fair values of Payne’s and Sigle’s current assets and liabilities were equal to their book values. The fair value of plant and equipment for each company was: Payne, $1,270,000; Sigle, $360,000.
An investment banking house estimated that the fair value of Lawson Company’s common stock was $35 per share. Payne will incur $45,000 of direct acquisition costs and $15,000 in stock issue costs.

Required:
Prepare the journal entries to record the consolidation on the books of Lawson Company assuming that the consolidation is accounted for as an acquisition.

2-5 The stockholders’ equities of P Corporation and S Corporation were as follows on January 1, 2011:

P Corp. S Corp.
Common Stock, $1 par $1,000,000 $ 600,000
Other Contributed Capital 2,800,000 1,100,000
Retained Earnings 600,000 340,000
Total Stockholders’ Equity $4,400,000 $2,040,000

On January 2, 2011 P Corp. issued 100,000 of its shares with a market value of $14 per share in exchange for all of S’s shares, and S Corp. was dissolved. P Corp. paid $10,000 to register and issue the new common shares.

Required:
Prepare the stockholders’ equity section of P Corp. balance sheet after the business combination on January 2, 2011.

2-6 The managers of Petty Company own 10,000 of its 100,000 outstanding common shares. Swann Company is formed by the managers of Petty Company to take over Petty Company in a leveraged buyout. The managers contribute their shares in Petty Company and Swann Company then borrows $675,000 to purchase the remaining 90,000 shares of Petty Company for $600,000; the remaining $75,000 is used for working capital. Petty Company is then merged into Swann Company effective January 1, 2011. Data relevant to Petty Company immediately prior to the leveraged buyout follow:

Book Value Fair Value
Current Assets $ 90,000 $ 90,000
Plant Assets 255,000 525,000
Liabilities (45,000) (45,000)
Stockholders’ Equity $300,000 $570,000

Required:
A. Prepare journal entries on Swann Company’s books to reflect the effects of the leveraged buyout.
B. Determine the balance of each of the following immediately after the merger:
1. Current Assets
2. Plant Assets
3. Note Payable
4. Common Stock

2-7 On January 1, 2010, Presley Company acquired the net assets of Sill Company for $1,580,000 cash. The fair value of Sill’s identifiable net assets was $1,310,000 on his date. Presley Company decided to measure goodwill impairment using the present value of future cash flows to estimate the fair value of the reporting unit (Sill). The information for these subsequent years is as follows:

Carrying value of Fair Value
Present value Sill’s Identifiable Sill’s Identifiable
Year of Future Cash Flows Net Assets* Net Assets
2011 $1,400,000 $1,160,000 $1,190,000
2012 $1,400,000 $1,120,000 $1,210,000
* Identifiable net assets do not include goodwill.
Required:
A: For each year determine the amount of goodwill impairment, if any.
B: Prepare the journal entries needed each year to record the goodwill impairment (if any) on Presley’s books.

2-8 The following balance sheets were reported on January 1, 2011, for Piper Company and Sieler Company:

Piper Sieler
Cash $ 150,000 $ 30,000
Inventory 450,000 150,000
Equipment (net) 1,320,000 570,000
Total $1,920,000 $750,000

Total liabilities $ 450,000 $150,000
Common stock, $20 par value 600,000 300,000
Other contributed capital 375,000 105,000
Retained earnings 495,000 195,000
Total $1,920,000 $750,000

Required:
Appraisals reveal that the inventory has a fair value $180,000, and the equipment has a current value of $615,000. The book value and fair value of liabilities are the same. Assuming that Piper Company wishes to acquire Sieler for cash in an asset acquisition, determine the following cutoff amounts:
A. The purchase price above which Piper would record goodwill.
B. The purchase price at which Piper would record a $50,000 gain.
C. The purchase price below which Piper would obtain a “bargain.”
D. The purchase price at which Piper would record $75,000 of goodwill.

Short Answer

1. SFAS No. 142 requires that goodwill impairment be tested annually for each reporting unit. Discuss the necessary steps of the goodwill impairment test.

2. Briefly describe the different treatment under SFAS 141 vs. SFAS 141R for the following issues:
a. Business definition
b. Acquisitions costs
c. In-process R&D
d. Contingent consideration

Short Answer Questions from the Textbook

1. When contingent consideration in an acquisition is based on security prices, how should this contingency be reflected on the acquisition date? If the estimate changes during the measurement period, how is this handled? If the estimate changes after the end of the measurement period, how is this adjustment handled? Why?

2. What are pro forma financial statements? What is their purpose?

3. How would a company determine whether goodwill has been impaired?

4. AOL announced that because of an accounting change (FASB Statements Nos. 141R [ASC 805] and142 [ASC 350]), earnings would be increasing 2002, Veritas Software Corporation’s CFO resigned after claiming to have an MBA from Stanford University. On the other hand, Bausch & Lomb Inc.’s board re-fused the CEO’s offer to resign following a questionable claim to have an MBA. Suppose you have been retained by the board of a company where the CEO has ‘overstated’ credentials. This company has a code of ethics and conduct which over the next 25 years by $5.9 billion a year. What change(s) required by FASB (in SFAS Nos. 141Rand 142) resulted in an increase in AOL’s in-come? Would you expect this increase in earnings to have a positive impact on AOL’s stock price? Why or why not?

Business Ethics Question from Textbook
There have been several recent cases of a CEO or CFO resigning or being ousted for misrepresenting academic credentials. For instance, during February 2006,the CEO of RadioShack resigned by ‘mutual agreement’ for inflating his educational background. During states that the employee should always do “the right thing.”(a) What is the board of directors’ responsibility in such matters?(b) What arguments would you make to ask the CEO to resign? What damage might be caused if the decision is made to retain the current CEO?

ACC 206 Week 2 Quiz 1 Chapter 10 – Strayer

ACC 206 Accounting Principles II Week 2 Quiz – Strayer (All Possible Questions With Answers)

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CHAPTER 10

PLANTASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS

CHAPTERSTUDY OBJECTIVES

1. Describe how the cost principle applies to plant assets.

2. Explain the concept of depreciation..

3. Compute periodic depreciation using different methods.

4. Describe the procedure for revising periodic depreciation.

5. Distinguish between revenue and capital expenditures, and explain the entries for each.

6. Explain how to account for the disposal of a plant asset.

7. Compute periodic depletion of natural resources.

8. Explain the basic issues related to accounting for intangible assets.

9. Indicate how plant assets, natural resources, and intangible assets are reported.

10. Explain how to account for the exchange of plant assets.

TRUE-FALSESTATEMENTS

1. All plant assets (fixed assets) must be depreciated for accounting purposes.

2. When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.

3. When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

4. Land improvementsare generally charged to the Land account.

5. Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.

6. The book value of a plant asset is always equal to its fair market value.

7. Recording depreciation on plant assets affects the balance sheet and the income statement.

8. The depreciable cost of a plant asset is its original cost minus obsolescence.

9. Recording depreciationeach period is an application of the matching principle.

10. The Accumulated Depreciation account represents a cash fund available to replace plant assets.

11. In calculating depreciation, both plant asset cost and useful life are based on estimates.

12. Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

13. Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

14. The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset’s useful life.

15. Under the double-declining-balance method, the depreciation rate used each year remains constant.

16. The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

17. A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.

18. A change in the estimated salvage value of a plant asset requires a restatement of prior years’ depreciation.

19. To determine a new depreciation amount after a change in estimate of a plant asset’s useful life, the asset’s remaining depreciable cost is divided by its remaining useful life.

20. Additions and improvements to a plant asset that increase the asset’s operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

21. Capital expenditures are expenditures that increase the company’s investment in productive facilities.

22. Ordinary repairs should be recognized when incurred as revenue expenditures.

23. A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.

24. Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.

25. The fair market value of a plant asset is always the same as its book value.

26. If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.

27. A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale is less than the asset’s book value.

28. The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.

29. A loss on disposal of a plant asset as a result of a sale or a retirement is calculated in the same way.

30. A plant asset must be fully depreciated before it can be removed from the books.

31. If a plant asset is sold at a gain, the gain on disposal should reduce the cost of goods sold section of the income statement.

32. Depletion cost per unit is computed by dividing the total cost of a natural resource by the estimated number of units in the resource.

33. The Accumulated Depletion account is deducted from the cost of the natural resource in the balance sheet.

34. Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.

35. Natural resources are long-lived productive assets that are extracted in operations and are replaceable only by an act of nature.

36. The cost of natural resources is not allocated to expense because the natural resources are replaceable only by an act of nature.

37. Conceptually, the cost allocation procedures for natural resources parallels that of plant assets.

38. Natural resources include standing timber and underground deposits of oil, gas, and minerals.

39. If an acquired franchise or license has an indefinite life, the cost of the asset is not amortized.

40. When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired.

41. Research and development costs which result in a successful product which is patentable are charged to the Patent account.

42. The cost of a patent must be amortized over a 20-year period.

43. The cost of a patent should be amortized over its legal life or useful life, whichever is shorter.

44. The balances of the major classes of plant assets and accumulated depreciation by major classes should be disclosed in the balance sheet or notes.

45. The asset turnover ratio is calculated as total sales divided by ending total assets.

46. Research and development costs can be classified as a property, plant, and equipment item or as an intangible asset.

a47. An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange.

a48. Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance.

a49. When plant assets are exchanged, the cost of the new asset is the book value of the old asset plus any cash paid.

Additional True-False Questions

50. When constructing a building, a company is permitted to include the acquisition cost and certain interest costs incurred in financing the project.

51. Recognition of depreciation permits the accumulation of cash for the replacement of the asset.

52. When an asset is purchased during the year, it is not necessary to record depreciation expense in the first year under the declining-balance depreciation method.

53. Depletion expense is reported in the income statement as an operating expense.

54. Goodwill is not recognized in accounting unless it is acquired from another business enterprise.

55. Research and development costs should be charged to expense when incurred.

56. A loss on the exchange of plant assets occurs when the fair market value of the old asset is less than its book value.

MULTIPLECHOICE QUESTIONS

57. The cost of a purchasedbuilding includes all of the following except a. closing costs.
b. real estate broker’s commission. c. remodeling costs.
d. All of these are included.

58. A company purchased land for $90,000 cash. Real estate brokers’ commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at
a. $97,000. b. $90,000. c. $95,000. d. $102,000.

59. Which one of the following items is not considered a part of the cost of a truck purchased for business use?
a. Sales tax
b. Truck license c. Freight charges
d. Cost of lettering on side of truck

60. Which of the following assets does not decline in service potential over the course of its useful life?
a. Equipment b. Furnishings c. Land
d. Fixtures

61. The four subdivisions for plant assets are
a. land, land improvements, buildings, and equipment. b. intangibles, land, buildings, and equipment.
c. furnishings and fixtures, land, buildings, and equipment. d. property, plant, equipment, and land.

62. The cost of land does not include
a. real estate brokers’ commission. b. annual property taxes.
c. accrued property taxes assumed by the purchaser. d. title fees.

63. Feeney Clinic purchases land for $130,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Feeney Clinic record as the cost for the land?
a. $132,200 b. $130,000 c. $134,700 d. $132,500

64. Belle Company buys land for $50,000 on 12/31/07. As of 3/31/08, the land has appreciated in value to $50,700. On 12/31/08, the land has an appraised value of $51,800.By what amount should the Land account be increased in 2008?
a. $0 b. $700
c. $1,100 d. $1,800

65. Pine Company acquires land for $86,000 cash. Additional costs are as follows:

Removal of shed $ 300 Filling and grading 1,500 Salvage value of lumber of shed 120 Broker commission 1,130 Paving of parking lot 10,000 Closing costs 560

Pine will record the acquisition cost of the land as a. $86,000.
b. $87,690. c. $89,610. d. $89,370.

66. Shawnee Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions?
a. $30,000 should be debited to the Land account.
b. $15,000 should be debited to Land Improvements. c. $45,000 should be debited to the Land account. d. $45,000 should be debited to Land Improvements.
10 – 10

67. Land improvementsshould be depreciated over the useful life of the a. land.
b. buildings on the land.
c. land or land improvements, whichever is longer. d. land improvements.

68. General Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?
a. Excavation fees are capitalized but building permit fees are not. b. Architect fees are capitalized but building permit fees are not.
c. Interest is capitalized during the construction as part of the cost of the building.
d. The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

69. A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?
a. The cost of the building will not include the repainting and recarpeting costs. b. The cost of the building will include the cost of replacing the roof.
c. The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.
d. The wiring is part of the computer costs, not the building cost.

70. Carley Company purchases a new delivery truck for $45,000. The sales taxes are $3,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Carley record as the cost of the new truck?
a. $49,540 b. $49,420 c. $48,000 d. $47,420

71. All of the following factors in computing depreciation are estimates except a. cost.
b. residual value. c. salvage value. d. useful life.

72. Stories Company purchased equipment and these costs were incurred:

Cash price Sales taxes
Insuranceduring transit Installationand testing Total costs
$22,500 1,800 320
430 $25,050
Plant Assets, Natural Resources, and Intangible Assets 10 – 11

Stories will record the acquisition cost of the equipment as a. $22,500.
b. $24,300. c. $24,620. d. $25,050.

73. Becky’s Blooms purchased a delivery van for $20,000. The company was given a $2,000 cash discount by the dealer, and paid $1,000 sales tax. Annual insurance on the van is $500. As a result of the purchase, by how much will Becky’s Blooms increase its van account?
a. $20,000 b. $18,000 c. $19,500 d. $19,000

74. Upton Company purchased equipment on January 1 at a list price of $50,000, with credit terms 2/10, n/30. Payment was made within the discount period and Upton was given a $1,000 cash discount. Upton paid $2,500 sales tax on the equipment, and paid installation charges of $880. Prior to installation, Upton paid $2,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?
a. $52,380 b. $54,380 c. $55,380 d. $50,500

75. Interest may be included in the acquisition cost of a plant asset a. during the construction period of a self-constructed asset. b. if the asset is purchased on credit.
c. if the asset acquisition is financed by a long-term note payable. d. if it is a part of a lump-sum purchase.

76. The balance in the Accumulated Depreciationaccount represents the a. cash fund to be used to replace plant assets.
b. amount to be deducted from the cost of the plant asset to arrive at its fair market value.
c. amount charged to expense in the current period.
d. amount charged to expense since the acquisition of the plant asset.

77. Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?
a. Salvage value
b. Estimated useful life
c. Cash needed to replace the plant asset d. Cost

78. Depreciation is the process of allocating the cost of a plant asset over its service life in a. an equal and equitable manner.
b. an accelerated and accurate manner. c. a systematic and rational manner.
d. a conservative market-based manner.
10 – 12

79. The book value of an asset is equal to the
a. asset’s market value less its historical cost.
b. blue book value relied on by secondarymarkets. c. replacement cost of the asset.
d. asset’s cost less accumulated depreciation.

80. Accountants do not attempt to measure the change in a plant asset’s market value during ownership because
a. the assets are not held for resale. b. plant assets cannot be sold.
c. losses would have to be recognized.
d. it is management’s responsibilityto determine fair values.

81. Depreciation is a process of a. asset devaluation.
b. cost accumulation. c. cost allocation.
d. asset valuation.

82. Recording depreciationeach period is necessary in accordance with the a. going concern principle.
b. cost principle.
c. matching principle.
d. asset valuation principle.

83. In computing depreciation, salvage value is
a. the fair market value of a plant asset on the date of acquisition.
b. subtracted from accumulated depreciation to determine the plant asset’s depreciable cost.
c. an estimate of a plant asset’s value at the end of its useful life. d. ignored in all the depreciation methods.

84. When estimating the useful life of an asset, accountants do not consider a. the cost to replace the asset at the end of its useful life.
b. obsolescence factors.
c. expected repairs and maintenance. d. the intended use of the asset.

85. Useful life is expressed in terms of use expected from the asset under the a. declining-balance method.
b. straight-line method.
c. units-of-activitymethod. d. none of these.

86. Equipment was purchased for $75,000. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
a. $17,700. b. $14,700. c. $12,300. d. $12,000.
Plant Assets, Natural Resources, and Intangible Assets 10 – 13

87. A truck was purchased for $120,000 and it was estimated to have a $24,000 salvage value at the end of its useful life. Monthly depreciation expense of $2,000 was recorded using the straight-line method. The annual depreciation rate is
a. 20%. b. 2%. c. 8%. d. 25%.

88. A company purchased factory equipment on April 1, 2008 for $64,000. It is estimated that the equipment will have an $8,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2008 is
a. $6,400. b. $5,600. c. $4,200. d. $4,800.

89. A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is
a. 20%. b. 25%. c. 40%. d. 4%.

90. The declining-balance method of depreciation produces a. a decreasing depreciation expense each period.
b. an increasing depreciation expense each period. c. a declining percentage rate each period.
d. a constant amount of depreciation expense each period.

91. A company purchased factory equipment for $250,000. It is estimated that the equipment will have a $25,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
a. $100,000. b. $60,000. c. $90,000. d. $43,200.

92. The units-of-activity method is generally not suitable for a. airplanes.
b. buildings.
c. delivery equipment. d. factory machinery.

93. A plant asset cost $144,000 and is estimated to have an $18,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be
a. $12,060. b. $20,250. c. $17,718. d. $13,785.
10 – 14

94. A factory machine was purchased for $75,000 on January 1, 2008. It was estimated that it would have a $15,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2008. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2008 would be
a. $7,500. b. $12,000. c. $15,000. d. $6,000.

95. The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method which
a. is used for tax purposes.
b. must be used for financial statement purposes. c. is required by the SEC.
d. expenses an asset over a single year because capital acquisitions must be expensed in the year purchased.

96. Which of the following methods of computing depreciation is production based? a. Straight-line
b. Declining-balance c. Units-of-activity d. None of these

97. Management should select the depreciation method that a. is easiest to apply.
b. best measures the plant asset’s market value over its useful life.
c. best measures the plant asset’s contribution to revenue over its useful life. d. has been used most often in the past by the company.

98. The depreciation method that applies a constant percentage to depreciable cost in calculating depreciation is
a. straight-line.
b. units-of-activity.
c. declining-balance. d. none of these.

Use the following information for questions 99–100.

On October 1, 2008, Dole Company places a new asset into service. The cost of the asset is $60,000with an estimated 5-year life and $15,000 salvage value at the end of its useful life.

99. What is the depreciation expense for 2008 if Dole Company uses the straight-line method of depreciation?
a. $2,250 b. $12,000 c. $3,000 d. $6,000
Plant Assets, Natural Resources, and Intangible Assets 10 – 15

100. What is the book value of the plant asset on the December 31, 2008, balance sheet assuming that Dole Company uses the double-declining-balance method of depreciation? a. $39,000
b. $45,000 c. $54,000 d. $57,000

101. Which depreciation method is most frequently used in businesses today? a. Straight-line
b. Declining-balance c. Units-of-activity
d. Double-declining-balance

102. Wine Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $24,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $2,000. What is the depreciation cost per unit?
a. $2.20 b. $2.40 c. $.22 d. $.24

103. Units-of-activityis an appropriate depreciation method to use when a. it is impossible to determine the productivity of the asset.
b. the asset’s use will be constant over its useful life.
c. the productivity of the asset varies significantly from one period to another. d. the company is a manufacturingcompany.

104. The calculation of depreciation using the declining balance method,
a. ignores salvage value in determining the amount to which a constant rate is applied. b. multiplies a constant percentage times the previous year’s depreciationexpense.
c. yields an increasing depreciation expense each period.
d. multiplies a declining percentage times a constant book value.

Use the following information for questions 105–106.

Grey Company purchased a new van for floral deliveries on January 1, 2008. The van cost $36,000 with an estimated life of 5 years and $9,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used.

105. What is the depreciationexpense for 2008? a. $7,200
b. $5,400 c. $10,800 d. $14,400

106. What is the balance of the AccumulatedDepreciation account at the end of 2009? a. $5,760
b. $17,280 c. $23,040 d. $8,640
10 – 16

107. Porter Company purchased equipment for $450,000 on January 1, 2007, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $20,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2009 will be
a. $50,000. b. $30,000. c. $54,440. d. $34,440.

108. A plant asset was purchased on January 1 for $50,000 with an estimated salvage value of $10,000 at the end of its useful life. The current year’s Depreciation Expense is $5,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $25,000. The remaining useful life of the plant asset is
a. 10 years. b. 8 years. c. 5 years. d. 3 years.

109. Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
a. $14,160. b. $11,760. c. $9,840. d. $9,600.

110. Equipment was purchased for $17,000 on January 1, 2008. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2009, if the straight-line method of depreciation is used?
a. $6,680 b. $3,340 c. $2,860 d. $5,720

111. A company purchased factory equipment on June 1, 2008, for $48,000. It is estimated that the equipment will have a $3,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2008, is
a. $4,500. b. $2,625. c. $2,250. d. $1,875.

112. A plant asset was purchased on January 1 for $40,000 with an estimated salvage value of $8,000 at the end of its useful life. The current year’s Depreciation Expense is $4,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $20,000. The remaining useful life of the plant asset is
Plant Assets, Natural Resources, and Intangible Assets 10 – 17

a. 10 years. b. 8 years. c. 5 years. d. 3 years.

Use the following information for questions 113–115.

Brinkman Corporation bought equipment on January 1, 2008. The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years.

113. The depreciable cost of the equipment is a. $90,000.
b. $75,000. c. $50,000. d. $12,500.

114. The depreciation expense using the straight-line method of depreciation is a. $17,500.
b. $18,000. c. $12,500.
d. none of the above.

115. The book value of the equipment at the beginning of the third year would be a. $90,000.
b. $75,000. c. $65,000. d. $25,000.

116. Baden Company purchased machinery with a list price of $32,000. They were given a 10% discount by the manufacturer. They paid $200 for shipping and sales tax of $1,500. Baden estimates that the machinery will have a useful life of 10 years and a residual value of $10,000. If Baden uses straight-line depreciation, annual depreciationwill be
a. $2,050. b. $2,036. d. $3,050. d. $1,880.

117. Bates Company purchased equipment on January 1, 2008, at a total invoice cost of $600,000. The equipment has an estimated salvage value of $15,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2009, if the straight-line method of depreciation is used?
a. $120,000 b. $240,000 c. $117,000 d. $234,000
10 – 18

118. On January 1, a machine with a useful life of five years and a residual value of $15,000 was purchased for $45,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?
a. $10,800 b. $18,000 c. $14,400 d. $8,640

119. A machine with a cost of $160,000 has an estimated salvage value of $10,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?
a. $50,000 b. $30,000 c. $43,333 d. $53,333

120. Equipment with a cost of $240,000 has an estimated salvage value of $15,000 and an estimated life of 4 years or 15,000 hours. It is to be depreciated using the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
a. $60,000 b. $67,800 c. $49,500 d. $56,250

121. Larime Company purchased equipment for $40,000 on January 1, 2007, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 5-year life and a $2,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2009 will be
a. $5,760. b. $9,120. c. $9,600. d. $5,472.

122. Interline Trucking purchased a tractor trailer for $98,000. Interline uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $14,000. If the truck is driven 90,000 miles in its first year, how much depreciation expense should Interline record?
a. $7,000 b. $8,820 c. $7,560 d. $8,167

123. An asset was purchased for $150,000. It had an estimated salvage value of $30,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $24,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in year 6 would be
a. $18,000. b. $13,200. c. $9,000. d. $12,600.
Plant Assets, Natural Resources, and Intangible Assets 10 – 19

124. Equipment costing $30,000 with a salvage value of $6,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for year 3 would be
a. $3,600. b. $8,000. c. $6,000. d. $4,800.

125. Joe’s Quik Shop bought machinery for $25,000 on January 1, 2008. Joe estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2009, Joe decides that the business will use the machinery for a total of 6 years. What is the revised depreciation expense for 2009?
a. $4,000 b. $2,000 c. $3,333 d $5,000

126. Each of the following is used in computing revised annual depreciation for a change in estimate except
a. book value. b. cost.
c. depreciable cost.
d. remaining useful life.

127. A change in the estimated useful life of equipment requires
a. a retroactive change in the amount of periodic depreciation recognized in previous years.
b. that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and in future years.
d. that income for the current year be increased.

128. Hunt Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?
a. Revisions in useful life are permitted if approved by the IRS.
b. Retroactive changes must be made to correct previously recorded depreciation. c. Only future years will be affected by the revision.
d. Both current and future years will be affected by the revision.

129. Jim’s Copy Shop bought equipment for $90,000 on January 1, 2007. Jim estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2008, Jim decides that the business will use the equipment for 5 years. What is the revised depreciation expense for 2008?
a. $30,000 b. $12,000 c. $15,000 d. $22,500
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130. Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as
a. capital expenditures. b. expense expenditures. c. ordinary repairs.
d. revenue expenditures.

131. Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally
a. expensed when incurred.
b. capitalized as a part of the cost of the asset.
c. debited to the Accumulated Depreciation account. d. not recorded until they become material in amount.

132. Which of the following is not true of ordinary repairs?
a. They primarily benefit the current accounting period. b. They can be referred to as revenue expenditures.
c. They maintain the expected productive life of the asset. d. They increase the productive capacity of the asset.

133. The paneling of the body of an open pickup truck would be classified as a(n) a. revenue expenditure.
b. addition.
c. improvement. d. ordinary repair.

134. Additions and improvements
a. occur frequently during the ownership of a plant asset. b. normally involve immaterial expenditures.
c. increase the book value of plant assets when incurred. d. typically only benefit the current accounting period.

135. If a plant asset is retired before it is fully depreciated and no salvage value is received, a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. either a gain or a loss can occur. d. neither a gain nor a loss occurs.

136. A gain or loss on disposal of a plant asset is determined by comparing the a. replacement cost of the asset with the asset’s original cost.
b. book value of the asset with the asset’s original cost.
c. original cost of the asset with the proceeds received from its sale. d. book value of the asset with the proceeds received from its sale.

137. The book value of a plant asset is the difference between the a. replacement cost of the asset and its historical cost.
b. cost of the asset and the amount of depreciation expense for the year. c. cost of the asset and the accumulated depreciation to date.
d. proceeds received from the sale of the asset and its original cost.
Plant Assets, Natural Resources, and Intangible Assets 10 – 21

138. If a plant asset is sold before it is fully depreciated, a. only a gain on disposal can occur.
b. only a loss on disposal can occur. c. either a gain or a loss can occur. d. neither a gain nor a loss can occur.

139. If a plant asset is retired before it is fully depreciated, and the salvage value received is less than the asset’s book value,
a. a gain on disposal occurs. b. a loss on disposal occurs.
c. there is no gain or loss on disposal.
d. additional depreciation expense must be recorded.

140 A company sells a plant asset which originally cost $180,000 for $60,000 on December 31, 2008. The Accumulated Depreciation account had a balance of $72,000 after the current year’s depreciation of $18,000 had been recorded. The company should recognize a
a. $120,000 loss on disposal. b. $48,000 gain on disposal. c. $48,000 loss on disposal. d. $30,000 loss on disposal.

141. If disposal of a plant asset occurs during the year, depreciation is a. not recorded for the year.
b. recorded for the whole year.
c. recorded for the fraction of the year to the date of the disposal. d. not recorded if the asset is scrapped.

142. If a fully depreciated plant asset is still used by a company, the
a. estimated remaining useful life must be revised to calculate the correct revised depreciation.
b. asset is removed from the books.
c. accumulated depreciation account is removed from the books but the asset account remains.
d. asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired.

143. Which of the following statements is not true when a fully depreciated plant asset is retired?
a. The plant asset’s book value is equal to its estimated salvage value. b. The accumulated depreciation account is debited.
c. The asset account is credited.
d. The plant asset’s original cost equals its book value.

144. If a plant asset is retired before it is fully depreciated, and no salvage or scrap value is received,
a. a gain on disposal will be recorded.
b. phantom depreciation must be taken as though the asset were still on the books. c. a loss on disposal will be recorded.
d. no gain or loss on disposal will be recorded.
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145. The book value of an asset will equal its fair market value at the date of sale if a. a gain on disposal is recorded.
b. no gain or loss on disposal is recorded. c. the plant asset is fully depreciated.
d. a loss on disposal is recorded.

146. A truck costing $110,000 was destroyed when its engine caught fire. At the date of the fire, the accumulated depreciation on the truck was $50,000. An insurance check for $125,000 was received based on the replacement cost of the truck. The entry to record the insurance proceeds and the disposition of the truck will include a
a. Gain on Disposal of $15,000.
b. credit to the Truck account of $60,000.
c. credit to the Accumulated Depreciation account for $50,000. d. Gain on Disposal of $65,000.

147. On July 1, 2008, Meed Kennels sells equipment for $66,000. The equipment originally cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000. The accumulated depreciation account had a balance of $105,000 on January 1, 2008, using the straight-line method. The gain or loss on disposal is
a. $9,000 gain. b. $6,000 loss. c. $9,000 loss. d. $6,000 gain.

148. A loss on disposal of a plant asset is reported in the financial statements a. in the Other Revenues and Gains section of the income statement. b. in the Other Expenses and Losses section of the income statement. c. as a direct increase to the capital account on the balance sheet.
d. as a direct decrease to the capital account on the balance sheet.

149. Wells Company’s delivery truck, which originally cost $70,000, was destroyed by fire. At the time of the fire, the balance of the Accumulated Depreciation account amounted to $47,500.The company received $40,000 reimbursementfrom its insurance company. The gain or loss as a result of the fire was
a. $30,000 loss. b. $17,500 loss. c. $30,000 gain. d. $17,500 gain.

150. A truck that cost $21,000 and on which $10,000 of accumulated depreciation has been recorded was disposed of for $9,000 cash. The entry to record this event would include a a. gain of $2,000.
b. loss of $2,000.
c. credit to the Truck account for $11,000.
d. credit to AccumulatedDepreciationfor $10,000.

151. A truck that cost $36,000 and on which $30,000 of accumulated depreciation has been recorded was disposed of for $9,000 cash. The entry to record this event would include a a. gain of $3,000.
b. loss of $3,000.
c. credit to the Truck account for $6,000.
d. credit to AccumulatedDepreciationfor $30,000.
Plant Assets, Natural Resources, and Intangible Assets 10 – 23

152. Ace Corporation sold equipment for $12,000. The equipment had an original cost of $36,000and accumulated depreciation of $18,000. As a result of the sale,
a. net income will increase $12,000. b. net income will increase $6,000. c. net income will decrease $6,000. d. net income will decrease $12,000.

153. Jarman’s Courier Service recorded a loss of $3,000 when it sold a van that originally cost $28,000for $5,000. Accumulated depreciation on the van must have been
a. $26,000. b. $8,000. c. $25,000. d. $20,000.

154. On a balance sheet, natural resources may be described more specifically as all of the following except
a. land improvements. b. mineral deposits.
c. oil reserves. d. timberlands.

155. Natural resources are
a. depreciated using the units-of-activity method.
b. physically extracted in operations and are replaceable only by an act of nature. c. reported at their market value.
d. amortized over a period no longer than 40 years.

156. Depletion is
a. a decrease in market value of natural resources.
b. the amount of spoilage that occurs when natural resources are extracted. c. the allocation of the cost of natural resources to expense.
d. the method used to record unsuccessful patents.

157. To qualify as natural resources in the accounting sense, assets must be a. underground.
b. replaceable.
c. of a mineral nature.
d. physically extracted in operations.

158. The method most commonly used to compute depletion is the a. straight-linemethod.
b. double-declining-balancemethod. c. units-of-activity method.
d. effective interest method.

159. In computing depletion, salvage value is a. always immaterial.
b. ignored.
c. impossible to estimate.
d. included in the calculation.
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160. If a mining company extracts 1,500,000 tons in a period but only sells 1,200,000 tons, a. total depletion on the mine is based on the 1,200,000 tons.
b. depletion expense is recognized on the 1,500,000 tons extracted.
c. depletion expense is recognized on the 1,200,000 tons extracted and sold.
d. a separate accumulated depletion account is set up to record depletion on the 300,000tons extracted but not sold.

161. A coal company invests $16 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year?
a. $800,000 b. $320,000 c. $80,000
d. Cannot be determined from the information provided.

162. AccumulatedDepletion
a. is used by all companies with natural resources. b. has a normal debit balance.
c. is a contra-asset account.
d. is never shown on the balance sheet.

163. On July 4, 2008, Montana Mining Company purchased the mineral rights to a granite deposit for $800,000. It is estimated that the recoverable granite will be 400,000 tons. During 2008, 100,000 tons of granite was extracted and 60,000 tons were sold. The amount of the Depletion Expense recognized for 2008 would be
a. $100,000. b. $60,000. c. $120,000. d. $200,000.

164. Depletion expense is computed by multiplying the depletion cost per unit by the a. total estimated units.
b. total actual units.
c. number of units extracted. d. number of units sold.

165. Intangible assets are the rights and privileges that result from ownership of long-lived assets that
a. must be generated internally.
b. are depletable natural resources. c. have been exchanged at a gain. d. do not have physical substance.

166. Identify the item below where the terms are not related. a. Equipment—depreciation
b. Franchise—depreciation c. Copyright—amortization d. Oil well—depletion
Plant Assets, Natural Resources, and Intangible Assets 10 – 25

167. A patent should
a. be amortized over a period of 20 years. b. not be amortized if it has an indefinite life.
c. be amortized over its useful life or 20 years, whichever is longer. d. be amortized over its useful life or 20 years, whichever is shorter.

168. The entry to record patent amortization usually includes a credit to a. Amortization Expense.
b. Accumulated Amortization. c. Accumulated Depreciation. d. Patents.

169. The cost of successfully defending a patent in an infringement suit should be a. charged to Legal Expenses.
b. deducted from the book value of the patent. c. added to the cost of the patent.
d. recognized as a loss in the current period.

170. An asset that cannot be sold individually in the market place is a. a patent.
b. goodwill.
c. a copyright. d. a trade name.

171. Goodwill can be recorded
a. when customers keep returning because they are satisfied with the company’s products.
b. when the company acquires a good location for its business. c. when the company has exceptional management.
d. only when there is an exchange transaction involving the purchase of an entire business.

172. On July 1, 2008, Marsh Company purchased the copyright to Parsons Computer tutorials for $162,000. It is estimated that the copyright will have a useful life of 5 years with an estimated salvage value of $12,000. The amount of Amortization Expense recognized for the year 2008 would be
a. $32,400. b. $15,000. c. $30,000. d. $16,200.

173. All of the following intangible assets are amortized except a. copyrights.
b. limited-life franchises. c. patents.
d. trademarks.

174. Which of the following is not an intangible asset arising from a government grant? a. Goodwill
b. Patent
c. Trademark d. Trade name
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175. The amortization period for a patent cannot exceed a. 50 years.
b. 40 years. c. 20 years. d. 10 years.

176. Cost allocation of an intangible asset is referred to as a. amortization.
b. depletion. c. accretion.
d. capitalization.

177. A patent
a. has a legal life of 40 years. b. is nonrenewable.
c. can be renewed indefinitely.
d. is rarely subject to litigation because it is an exclusive right.

178. If a company incurs legal costs in successfully defending its patent, these costs are recorded by debiting
a. Legal Expense.
b. an Intangible Loss account. c. the Patent account.
d. a revenue expenditure account.

179. Copyrights are granted by the federal government
a. for the life of the creator or 70 years, whichever is longer. b. for the life of the creator plus 70 years.
c. for the life of the creator or 70 years, whichever is shorter. d. and therefore cannot be amortized.

180. Goodwill
a. is only recorded when generated internally. b. can be subdivided and sold in parts.
c. can only be identified with the business as a whole.
d. can be defined as normal earnings less accumulated amortization.

181. In recording the acquisition cost of an entire business,
a. goodwill is recorded as the excess of cost over the fair value of identifiable net assets. b. assets are recorded at the seller’s book values.
c. goodwill, if it exists, is never recorded.
d. goodwill is recorded as the excess of cost over the book value of identifiable net assets.

182. Research and development costs
a. are classified as intangible assets.
b. must be expensed when incurred under generally accepted accounting principles. c. should be included in the cost of the patent they relate to.
d. are capitalized and then amortized over a period not to exceed 40 years.
Plant Assets, Natural Resources, and Intangible Assets 10 – 27

183. A computer company has $2,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $1,600,000. What is the amount of net income or loss after these R & D costs are accounted for?
a. $400,000 loss
b. $1,600,000 net income c. $0
d. Cannot be determined from the information provided.

184. Denton Company incurred $300,000 of research and development costs in its laboratory to develop a new product. It spent $40,000 in legal fees for a patent granted on January 2, 2008. On July 31, 2008, Denton paid $30,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2008? a. $300,000
b. $70,000 c. $370,000
d. Some other amount

185. Given the following account balances at year end, compute the total intangible assets on the balance sheet of Anisha Enterprises.

Cash AccountsReceivable Trademarks Goodwill
Research& Development Costs

a. $11,500,000 b. $7,500,000 c. $5,500,000 d. $9,500,000
$1,500,000 4,000,000 1,000,000 4,500,000 2,000,000

186. During 2008, Sitter Corporation reported net sales of $2,000,000, net income of $1,200,000, and depreciation expense of $100,000. Sitter also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. Sitter’s asset turnover ratio is
a. 2 times. b. 1.6 times. c. 1.3 times. d. .96 times.

187. During 2008, Tyler Corporation reported net sales of $3,000,000 and net income of $1,800,000. Tyler also reported beginning total assets of $1,000,000 and ending total assets of $1,500,000. Tyler’s asset turnover ratio is
a. 3.0 times. b. 2.4 times. c. 2.0 times. d. 1.4 times.

188. Natural resources are generally shown on the balance sheet under a. Intangibles.
b. Investments.
c. Property, Plant, and Equipment. d. Owner’s Equity.
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189. Which of the following statements concerning financial statement presentation is not a true statement?
a. Intangibles are reported separately under Intangible Assets.
b. The balances of major classes of assets may be disclosed in the footnotes.
c. The balances of the accumulated depreciation of major classes of assets may be disclosed in the footnotes.
d. The balances of all individual assets, as they appear in the subsidiary plant ledger, should be disclosed in the footnotes.

190. Intangible assets
a. should be reported under the heading Property, Plant, and Equipment.
b. are not reported on the balance sheet because they lack physical substance. c. should be reported as Current Assets on the balance sheet.
d. should be reported as a separate classification on the balance sheet.

191. A company has the following assets:

Buildingsand Equipment, less accumulated depreciation of $2,000,000 Copyrights
Patents
Timberlands,less accumulated depletion of $2,800,000

The total amount reported under Property, Plant, and Equipment would be a. $19,360,000.
b. $14,400,000. c. $18,400,000. d. $15,360,000.
$9,600,000 960,000 4,000,000 4,800,000

a192. A company decides to exchange its old machine and $77,000 cash for a new machine. The old machine has a book value of $63,000 and a fair market value of $70,000 on the date of the exchange. The cost of the new machine would be recorded at
a. $140,000. b. $147,000. c. $133,000.
d. cannot be determined.

a193. A company exchanges its old office equipment and $40,000 for new office equipment. The old office equipment has a book value of $28,000 and a fair market value of $20,000 on the date of the exchange. The cost of the new office equipment would be recorded at
a. $68,000. b. $60,000. c. $48,000.
d. cannot be determined.

a194. In an exchange of plant assets that has commercial substance, any difference between the fair market value and the book value of the old plant asset is
a. recorded as a gain or loss.
b. recorded if a gain but is deferred if a loss. c. recorded if a loss but is deferred if a gain. d. deferred if either a gain or loss.
Plant Assets, Natural Resources, and Intangible Assets 10 – 29

a195. Gains on an exchange of plant assets that has commercial substance are a. deducted from the cost of the new asset acquired.
b. deferred.
c. not possible.
d. recognized immediately.

a196. Losses on an exchange of plant assets that has commercial substance are a. not possible.
b. deferred.
c. recognized immediately.
d. deducted from the cost of the new asset acquired.

a197. The cost of a new asset acquired in an exchange that has commercial substance is the cash paid plus the
a. book value of the old asset.
b. fair market value of the old asset. c. book value of the asset acquired. d. fair market value of the new asset.

Additional Multiple Choice Questions

198. The cost of land includes all of the following except a. real estate brokers’ commissions.
b. closing costs.
c. accrued property taxes. d. parking lots.

199. A term that is not synonymous with property, plant, and equipment is a. plant assets.
b. fixed assets.
c. intangible assets.
d. long-lived tangible assets.

200. The factor that is not relevant in computing depreciation is a. replacement value.
b. cost.
c. salvage value. d. useful life.

201. Depreciable cost is the
a. book value of an asset less its salvage value. b. cost of an asset less its salvage value.
c. cost of an asset less accumulated depreciation. d. book value of an asset.

202. Santayana Company purchased a machine on January 1, 2006, for $12,000 with an estimated salvage value of $3,000 and an estimated useful life of 8 years. On January 1, 2008, Santayana decides the machine will last 12 years from the date of purchase. The salvage value is still estimated at $3,000. Using the straight-line method, the new annual depreciation will be
10 – 30

a. $675. b. $750. c. $900. d. $1,000.

203. Ordinary repairs are expendituresto maintain the operating efficiency of a plant asset and are referred to as
a. capital expenditures. b. expense expenditures. c. improvements.
d. revenue expenditures.

204. Improvements are
a. revenue expenditures.
b. debited to an appropriate asset account when they increase useful life.
c. debited to accumulated depreciation when they do not increase useful life.
d. debited to an appropriate asset account when they do not increase useful life.

205. A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the a. salvage value of the asset sold.
b. market value of the asset sold. c. book value of the asset sold.
d. accumulated depreciation on the asset sold.

206. The entry to record depletion expense
a. decreases owner’s equity and assets.
b. decreases net income and increases liabilities. c. decreases assets and liabilities.
d. decreases assets and increases liabilities.

207. All of the following are intangible assets except a. copyrights.
b. goodwill. c. patents.
d. research and development costs.

208. A purchased patent has a legal life of 20 years. It should be a. expensed in the year of acquisition.
b. amortized over 20 years regardless of its useful life. c. amortized over its useful life if less than 20 years. d. not amortized.

209. The asset turnover ratio is computed by dividing a. net income by average total assets.
b. net sales by average total assets. c. net income by ending total assets. d. net sales by ending total assets.
Plant Assets, Natural Resources, and Intangible Assets 10 – 31

a210. In an exchange of plant assets that has commercial substance a. neither gains nor losses are recognized immediately.
b. gains, but not losses, are recognized immediately. c. losses, but not gains, are recognized immediately. d. both gains and losses are recognized immediately.

BRIEFEXERCISES
BE 211
Indicate whether each of the following expenditures should be classified as land (L), land improvements (LI), buildings (B), equipment (E), or none of these (X).

1. Parking lots

2. Electricity used by a machine

3. Excavation costs

4. Interest on building construction loan

5. Cost of trial runs for machinery

6. Drainage costs

7. Cost to install a machine

8. Fences

9. Unpaid (past) property taxes assumed

10. Cost of tearing down a building when land and a building on it are purchased

BE 212

Seller Corporation purchased land adjacent to its plant to improve access for trucks making deliveries. Expenditures incurred in purchasing the land were as follows: purchase price, $50,000; broker’s fees, $6,000; title search and other fees, $5,000; demolition of an old building on the property, $5,700; grading, $1,200; digging foundation for the road, $3,000; laying and paving driveway, $25,000; lighting $7,500; signs, $1,500. List the items and amounts that should be included in the Land account.

BE 213

Eastman Company purchased a delivery truck for $35,000 on January 1, 2008. The truck was assigned an estimated useful life of 5 years and has a residual value of $10,000. Compute depreciation expense using the double-declining-balance method for the years 2008 and 2009.

BE 214

Eastman Company purchased a delivery truck for $35,000 on January 1, 2008. The truck was assigned an estimated useful life of 100,000 miles and has a residual value of $10,000. The truck was driven 18,000 miles in 2008 and 22,000 miles in 2009. Compute depreciation expense using the units-of-activity method for the years 2008 and 2009.

BE 215

Porika Company purchased a truck for $57,000. The company expected the truck to last four years or 100,000 miles, with an estimated residual value of $6,000 at the end of that time. During the second year the truck was driven 27,000 miles. Compute the depreciation for the second year under each of the methods below and place your answers in the blanks provided.

Units-of-activity $

Double-declining-balance $

BE 216

On January 1, 2006, Ecker Company purchased a computer system for $20,500. The system had an estimated useful life of 5 years and no salvage value. At January 1, 2008, the company revised the remaining useful life to two years. What amount of depreciation will be recorded for 2008 and 2009?

BE 217

Robot Enterprises sold equipment on January 1, 2008 for $5,000. The equipment had cost $24,000. The balance in Accumulated Depreciation at January 1 is $20,000. What entry would Robot make to record the sale of the equipment?

BE 218

On January 1, 2008, Freeport Enterprises purchased natural resources for $1,200,000. The company expects the resources to produce 12,000,000 units of product. (1) What is the depletion cost per unit? (2) If the company mined and sold 20,000 units in January, what is depletion expense for the month?

BE 219

On January 2, 2008, Elneer Company purchased a patent for $38,000. The patent has an estimated useful life of 25 years and a 20-year legal life. What entry would the company make at December 31, 2008 to record amortization expense on the patent?

BE 220

Using the following data for Rocky, Inc., compute its asset turnover ratio.

Rocky, Inc. Net Income 2008
Total Assets 12/31/08 Total Assets 12/31/07 Net Sales 2008

$ 123,000 2,443,000 1,880,000 2,135,000

$2,135,000

EXERCISES
Ex. 221
Hunt Company purchased factory equipment with an invoice price of $80,000. Other costs incurred were freight costs, $1,100; installation wiring and foundation, $2,200; material and labor costs in testing equipment, $700; oil lubricants and supplies to be used with equipment, $500; fire insurance policy covering equipment, $1,400. The equipment is estimated to have a $5,000 salvage value at the end of its 5-year useful service life.

Instructions

(a) Compute the acquisitioncost of the equipment. Clearly identify each element of cost.

(b) If the double-declining-balance method of depreciation was used, the constant percentage applied to a declining book value would be .

Ex. 222

For each entry below make a correcting entry if necessary. If the entry given is correct, then state “No entry required.”

(a) The $60 cost of repairing a printer was charged to Computer Equipment.

(b) The $5,000 cost of a major engine overhaul was debited to Repair Expense. The overhaul is expected to increase the operating efficiency of the truck.

(c) The $6,000 closing costs associated with the acquisition of land were debited to Legal Expense.

(d) A $500 charge for transportation expenses on new equipment purchased was debited to Freight-In.

Ex. 223

Benedict Company was organized on January 1. During the first year of operations, the following expenditures and receipts were recorded in random order in the account, Land.

Debits
1. Cost of real estate purchased as a plant site (land and building).
2. Accruedreal estate taxes paid at the time of the purchase of the real estate. 3. Cost of demolishing building to make land suitable for construction of a new
building.
4. Architect’sfees on building plans. 5. Excavationcosts for new building. 6. Cost of filling and grading the land.
7. Insuranceand taxes during construction of building.
8. Cost of repairs to building under construction caused by a small fire.
9. Interest paid during the year, of which $54,000 pertains to the construction period.
10. Full payment to building contractor. 11. Cost of parking lots and driveways.
12. Real estate taxes paid for the current year on the land. Total Debits

Credits 13. Insuranceproceeds for fire damage.
14. Proceedsfrom salvage of demolished building Total Credits

$ 220,000 4,000

15,000 14,000 24,000 5,000 6,000 7,000

64,000 760,000 36,000
4,000 $1,159,000

$3,000
3,500 $6,500

Instructions

Analyze the foregoing transactions using the following tabular arrangement. Insert the number of each transaction in the Item space and insert the amounts in the appropriate columns.

Item Land Building Other Account Title

Ex. 224

Duncan Company purchased a machine at a cost of $90,000. The machine is expected to have a $5,000 salvage value at the end of its 5-year useful life.

Instructions
Computeannual depreciationfor the first and second years using the (a) straight-line method.
(b) double-declining-balancemethod.

Ex. 225

Reynolds Company purchased a new machine for $300,000. It is estimated that the machine will have a $30,000 salvage value at the end of its 5-year useful service life. The double-declining-balance method of depreciation will be used.

Instructions
Preparea depreciation schedule which shows the annual depreciation expense on the machine for its 5-year life.

Ex. 226

Tanner Company purchased equipment on January 1, 2007 for $70,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life.

Instructions

Answer the following independent questions.

1. Compute the amount of depreciation expense for the year ended December 31, 2007, using the straight-line method of depreciation.

2. If 16,000 units of product are produced in 2007 and 24,000 units are produced in 2008, what is the book value of the equipment at December 31, 2008? The company uses the units-of-activity depreciation method.

3. If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciation—Equipment account at December 31, 2009?

Ex. 227

A plant asset acquired on October 1, 2008, at a cost of $300,000 has an estimated useful life of 10 years. The salvage value is estimated to be $30,000 at the end of the asset’s useful life.

Instructions
Determinethe depreciation expense for the first two years using: (a) the straight-line method.
(b) the double-declining-balance method.
50,000 miles
60,000 miles
70,000 miles

Ex. 228

Tony’s, a popular pizza hang-out, has a thriving delivery business. Tony’s has a fleet of three delivery automobiles. Prior to making the entry for this year’s depreciation expense, the subsidiary ledger for the fleet is as follows:
Accumulated
Estimated Depr.—Beg. Miles Operated Car Cost Salvage Value Life in Miles of the Year During Year
1 $21,000 $3,000 50,000 $2,520 20,000 2 18,000 2,400 60,000 2,340 22,000 3 20,000 2,500 70,000 2,000 19,000

Instructions
(a) Determine the depreciation rates per mile for each car.
(b) Determine the Depreciation Expense for each car for the current year.
(c) Make one compound journal entry to record the annual Depreciation Expense for the fleet.

$21,000– $3,000

Ex. 229

The Barnett Clinic purchased a new surgical laser for $80,000. The estimated salvage value is $5,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,200 hours in year 2; 2,400 hours in year 3; 1,800 hours in year 4; 2,000 hours in year 5.

Instructions
(a) Compute the annual depreciation for each of the five years under each of the following methods:
(1) straight-line. (2) units-of-activity.

(b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer.

(c) Which method would result in the lowest reported income in the first year? Which method would result in the lowest total reported income over the five-year period?

Ex. 230

The December 31, 2007 balance sheet of Ritter Company showed Equipment of $64,000 and Accumulated Depreciation of $18,000. On January 1, 2008, the company decided that the equipment has a remaining useful life of 6 years with a $4,000 salvage value.

Instructions
Computethe (a) depreciable cost of the equipment and (b) revised annual depreciation.

Ex. 231

Southeast Airlines purchased a 747 aircraft on January 1, 2007, at a cost of $35,000,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $5,000,000. On January 1, 2010 the airline revises the total estimated useful life to 15 years with a revised salvage value of $3,500,000.

Instructions

(a) Compute the depreciation and book value at December 31, 2009 using the straight-line method and the double-declining-balance method.

(b) Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2010.

Ex. 232

Seymor Company purchased a machine on January 1, 2008, at a cost of $80,000. It is expected to have an estimated salvage value of $5,000 at the end of its 5-year life. The company capitalized the machine and depreciated it in 2008 using the double-declining-balance method of depreciation. The company has a policy of using the straight-line method to depreciate equipment but the company accountant neglected to follow company policy when he used the double-declining-balance method. Net income for the year ended December 31, 2008 was $55,000 as the result of depreciatingthe machine incorrectly.

Instructions

Using the method of depreciation which the company normally follows, prepare the correcting entry and determine the corrected net income. (Show computations.)

Ex. 233

Equipment was acquired on January 1, 2005, at a cost of $80,000. The equipment was originally estimated to have a salvage value of $5,000 and an estimated life of 10 years. Depreciation has been recorded through December 31, 2008, using the straight-line method. On January 1, 2009, the estimated salvage value was revised to $6,000 and the useful life was revised to a total of 8 years.

Instructions
Determinethe Depreciation Expense for 2009.

Ex. 234

Gantner Company purchased a machine on January 1, 2008. In addition to the purchase price paid, the following additional costs were incurred: (a) sales tax paid on the purchase price, (b) transportation and insurance costs while the machinery was in transit from the seller, (c) personnel training costs for initial operation of the machinery, (d) annual city operating license, (e) major overhaul to extend the life of the machinery, (f) lubrication of the machinery gearing before the machinery was placed into service, (g) lubrication of the machinery gearing after the machinery was placed into service, and (h) installation costs necessary to secure the machinery to the building flooring.

Instructions
Indicate whether the items (a) through (h) are capital or revenue expenditures in the spaces provided: C = Capital, R = Revenue.

(a) (b) (c) (d)

(e) (f) (g) (h)

Ex. 235

Carey Word Processing Service uses the straight-line method of depreciation. The company’s fiscal year end is December 31. The following transactions and events occurred during the first three years.

2007 July 1

Nov. 3 Dec. 31

2008 Dec. 31
Purchased a computer from the Computer Center for $2,300 cash plus sales tax of $150, and shipping costs of $50.
Incurredordinary repairs on computer of $140.
Recorded 2007 depreciation on the basis of a four year life and estimated salvage value of $500.

Recorded2008 depreciation.

2009 Jan. 1 Paid $400 for an upgrade of the computer. This expenditure is expected to increase the operating efficiency and capacity of the computer.

Instructions
Preparethe necessary entries. (Show computations.)

Ex. 236

Identifythe following expenditures as capital expenditures or revenue expenditures. (a) Replacement of worn out gears on factory machinery.
(b) Construction of a new wing on an office building. (c) Painting the exterior of a building.
(d) Oil change on a company truck.

(e) Replacing a Pentium II computer chip with a Pentium IV chip, which increases productive capacity. No extension of useful life expected.

(f) Overhaul of a truck motor. One year extension in useful life is expected. (g) Purchased a wastebasket at a cost of $10.
(h) Painting and lettering of a used truck upon acquisition of the truck.

Ex. 237

On January 1, 2006 Rosen Company purchased and installed a telephone system at a cost of $20,000. The equipment was expected to last five years with a salvage value of $3,000. On January 1, 2007 more telephone equipment was purchased to tie-in with the current system for $10,000. The new equipment is expected to have a useful life of four years. Through an error, the new equipment was debited to Telephone Expense. Rosen Company uses the straight-line method of depreciation.

Instructions
Prepare a schedule showing the effects of the error on Telephone Expense, Depreciation Expense, and Net Income for each year and in total beginning in 2007 through the useful life of the new equipment.

Telephone Expense Overstated
Year (Understated)
Depreciation Expense Overstated
(Understated)
Net Income Overstated
(Understated)

2007

2008

2009

2010

Ex. 238

Berman Company sold equipment on July 31, 2008 for $50,000. The equipment had cost $140,000 and had $80,000 of accumulated depreciation as of January 1, 2008. Depreciation for the first 6 months of 2008 was $8,000.

Instructions
Preparethe journal entry to record the sale of the equipment.

Ex. 239

(a) Watts Company purchased equipment in 2001 for $90,000 and estimated a $6,000 salvage value at the end of the equipment’s 10-year useful life. At December 31, 2007, there was $58,800 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2008, the equipment was sold for $24,000.

Prepare the appropriate journal entries to remove the equipment from the books of Watts Company on March 31, 2008.

(b) Gorman Company sold a machine for $15,000. The machine originally cost $35,000 in 2005 and $8,000 was spent on a major overhaul in 2008 (charged to Machine account). Accumulated Depreciation on the machine to the date of disposal was $28,000.

Preparethe appropriate journal entry to record the disposition of the machine.

(c) Klinger Company sold office equipment that had a book value of $6,000 for $8,000. The office equipment originally cost $20,000 and it is estimated that it would cost $25,000 to replace the office equipment.

Preparethe appropriate journal entry to record the disposition of the office equipment.

Ex. 240

Fleming’s Lumber Mill sold two machines in 2009. The following information pertains to the two machines:
Purchase Useful Salvage Depreciation Sales
Machine Cost Date Life Value Method Date Sold Price
#1 $66,000 7/1/05 5 yrs. $6,000 Straight-line 7/1/09 $15,000 #2 $40,000 7/1/08 5 yrs. $5,000 Double-declining- 12/31/09 $24,000
balance

Instructions
(a) Compute the depreciation on each machine to the date of disposal.

(b) Prepare the journal entries in 2009 to record 2009 depreciation and the sale of each machine.

Ex. 241

Presentedbelow are selected transactions for Milton Companyfor 2008.

Jan. 1 Received $9,000 scrap value on retirement of machinery that was purchased on January 1, 1998. The machine cost $90,000 on that date, and had a useful life of 10 years with no salvage value.

April 30

Dec. 31
Sold a machine for $28,000 that was purchased on January 1, 2005. The machine cost $75,000, and had a useful life of 5 years with no salvage value.

Discarded a business automobile that was purchased on October 1, 2003. The car cost $32,000 and was depreciated on a 5-year useful life with a salvage value of $2,000.

Instructions
Journalize all entries required as a result of the above transactions. Milton Company uses the straight-line method of depreciation and has recorded depreciationthrough December 31, 2007.

Ex. 242

WatsonCompany sold the following two machines in 2008:

Cost Purchasedate Useful life Salvage value
Depreciation method Date sold
Sales Price
Machine A
$68,000 7/1/04 8 years $4,000
Straight-line 7/1/08 $30,000
Machine B $80,000 1/1/05 5 years $4,000
Double-declining-balance 8/1/08 $16,000

Instructions
Journalize all entries required to update depreciation and record the sales of the two assets in 2008. The company has recorded depreciation on the machine through December 31, 2007.

Ex. 243

Girard Mining invested $960,000 in a mine estimated to have 1,200,000 tons of ore with no salvage value. During the first year, 200,000 tons of ore were mined and sold.

Instructions

Preparethe journal entry to record depletion expense.

Ex. 244

Eddy Mining Company purchased a mine for $70 million which is estimated to have 250,000 tons of ore and a salvage value of $10 million.

(a) In the first year, 50,000 tons of ore are extracted and sold. Prepare the journal entry to record depletion expense for the first year.

(b) In the second year, 150,000 tons of ore are extracted but only 125,000 tons are sold. Preparethe journal entry to record depletion expense for the second year.

(c) What amount and in what account are the tons of ore not sold reported?

Ex. 245

Harper Mining Company purchased land containing an estimated 15 million tons of ore at a cost of $4,500,000. The land without the ore is estimated to be worth $600,000. The company expects to operate the mine for 10 years. Buildings costing $600,000 are erected on the site and are expected to last for 25 years. Equipment costing $300,000 with an estimated life of 12 years is installed. The buildings and the equipment possess no salvage value after the mine is closed. During the first year of operations, the mining company mined and sold 2 million tons of ore.

Instructions
(a) Compute the depletion charge per ton.
(b) Compute the depletion expense for the first year.
(c) Compute the appropriate first year’s depreciation expense for the buildings. (d) Compute the appropriate first year’s depreciation expense for the equipment.
(e) Prepare journal entries to record depletion and depreciation expenses for the year.

Ex. 246

(a) A company purchased a patent on January 1, 2008, for $2,000,000. The patent’s legal life is 20 years but the company estimates that the patent’s useful life will only be 5 years from the date of acquisition. On June 30, 2008, the company paid legal costs of $135,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2008.

(b) Foley Company purchased a franchise from Yummie Food Company for $400,000 on January 1, 2008. The franchise is for an indefinite time period and gives Foley Company the exclusive rights to sell Yummie Wings in a particular territory. Prepare the journal entry to record the acquisition of the franchise and any necessary adjusting entry at year end on December 31, 2008.

(c) Dryer Company incurred research and development costs of $500,000 in 2008 in developing a new product. Prepare the necessary journal entries during 2008 to record these events and any adjustmentsat year end on December 31, 2008.

Ex. 247

On January 2, 2008, Holmes Company purchased a patent for $200,000. The patent has an 8-year estimated useful life and a legal life of 20 years.

Instructions
Preparethe journal entry to record patent amortization.

Ex. 248

For each item listed below, enter a code letter in the blank space to indicate the allocation terminology for the item. Use the following codes for your answer:

A—Amortization

D—Depreciation
P—Depletion

N—None of these

1. Goodwill

2. Land

3. Buildings

4. Patents

5. Copyrights

6. Researchand development costs
7. Timberlands

8. Franchises(indefinite life)

9. Licenses(limited life)

10. Land Improvements

11. Oil Deposits

12. Equipment

Ex. 249

For each of the following unrelated transactions, (a) determine the amount of the amortization or depletion expense for the current year, and (b) present the adjusting entries required to record each expense at year end.

(1) Timber rights were purchased on a tract of land for $360,000. The timber is estimated at 1,200,000 board feet. During the current year, 75,000 board feet of timber were cut and sold.

(2) Costs of $8,000 were incurred on January 1 to obtain a patent. Shortly thereafter, $22,000 was spent in legal costs to successfully defend the patent against competitors. The patent has an estimated legal life of 12 years.

Ex. 250

During the current year, Lymon Company incurred several expenditures. Briefly explain whether the expenditures listed below should be recorded as an operating expense or as an intangible asset. If you view the expenditure as an intangible asset, indicate the number of years over which the asset should be amortized. Explain your answer.

(a) Spent $30,000 in legal costs in a patent defense suit. The patent was unsuccessfully defended.

(b) Purchased a trademark from another company. The trademark can be renewed indefinitely. Lymon Company expects the trademark to contribute to revenue indefinitely.

(c) Lymon Company acquires a patent for $2,000,000. The company selling the patent has spent $1,000,000 on the research and development of it. The patent has a remaining life of 15 years.

(d) Lymon Company is spending considerable time and money in developing a different patent for another product. So far $3,000,000 has been spent this year on research and development. Lymon Company is very confident they will obtain this patent in the next few years.

Ex. 251

Presented below is information related to plant assets, natural resources, and intangibles at year end on December 31, 2008, for Norten Company:

Buildings Goodwill Patents Coal Mine
AccumulatedDepreciation AccumulatedDepletion
$1,080,000 350,000 480,000 440,000 670,000 275,000

Instructions

Preparea partial balance sheet for Norten Company that shows how the above listed items would be presented.

Ex. 252

Computethe asset turnover ratio based on the following:

Beginningtotal assets Ending total assets Net income
Net sales
$ 800,000 1,200,000 300,000 2,200,000

Ex. 253

Indicatein the blank spaces below, the section of the balance sheet where the following items are reported. Use the following code to identify your answer:

PPE Property, Plant, and Equipment I Intangibles
O Other
N/A Not on the balance sheet

1. Goodwill

2. Land Improvements 3. Buildings
4. AccumulatedDepreciation 5. Trademarks
6. Researchand development costs
7. Timberlands 8. Franchises 9. Licenses
10. Equipment 11. Oil Deposits
12. Land

*Ex. 254

Presentedbelow are two independent situations:

(a) Riley Company exchanged an old machine (cost $100,000 less $60,000 accumulated depreciation) plus $7,000 cash for a new machine. The old machine had a fair market value of $36,000. Prepare the entry to record the exchange of assets by Riley Company.

(b) Carlin Company trades old equipment (cost $90,000 less $54,000 accumulated deprecia-tion) for new equipment. Carlin paid $36,000 cash in the trade. The old equipment that was traded had a fair market value of $54,000. Prepare the entry to record the exchange of assets by Carlin Company.

*Ex. 255

Agler Company exchanges equipment with Eaton Company and Peters Company exchanges equipment with Fiero Company. The following information pertains to the exchanges:

Equipment(cost) Accumulateddepreciation
Fair market value of the equipment Cash paid
Agler Company $114,000
50,000 75,000 45,000
Peters Company $96,000
45,000 42,000
-0-

Instructions
Prepare the journal entries to record the exchanges on the books of Agler Company and Peters Company.

Ex. 256

Farr Delivery Company and Bell Delivery Company exchanged delivery trucks on January 1, 2008. Farr’s truck cost $84,000, had accumulated depreciation of $69,000, and has a fair market value of $9,000. Bell’s truck cost $63,000, had accumulated depreciation of $54,000, and has a fair market value of $9,000.

Instructions
(a) Journalize the exchange for Farr Delivery Company. (b) Journalize the exchange for Bell Delivery Company.

Ex. 257

Prepare the journal entries to record the following transactions for Bryant Company which has a calendar year end and uses the straight-line method of depreciation.

a) On September 30, 2008, the company exchanged old delivery equipment and $24,000 for new delivery equipment. The old delivery equipment was purchased on January 1, 2006, for $84,000 and was estimated to have a $12,000 salvage value at the end of its 5-year life. Depreciation on the delivery equipment has been recorded through December 31, 2007. It is estimated that the fair market value of the old delivery equipment is $36,000 on September 30, 2008.

(b) On June 30, 2008, the company exchanged old office equipment and $40,000 for new office equipment. The old office equipment originally cost $80,000 and had accumulated depreciation to the date of disposal of $35,000. It is estimated that the fair market value of the old office equipment on June 30 was $60,000.

COMPLETIONSTATEMENTS

258. With the exception of land, plant assets experience a in service potentialover their useful lives.

259. When vacant land is acquired, expenditures for clearing, draining, filling, and grading should be charged to the account.

260. The cost of demolishing an old building on land that has been acquired so that a new building can be constructed should be charged to the account.

261. The cost of paving, fencing, and lighting a new company parking lot is charged to a

account.

262. Equipment with an invoice price of $20,000 was purchased and freight costs were $900. The cost of the equipment would be $ .

263. is the process of allocating the cost of a plant asset to expense over its service life in a rational and systematic manner.

264. The book value of a plant asset is obtained by subtracting from the

of the plant asset.

265. Three factors that affect the computation of periodic depreciation expense are (1)

, (2) , and (3) .

266. The method of computing depreciation expense results in an equal amount of periodic depreciation throughout the service life of the plant asset.

267. The declining-balance method of computing depreciation expense involves multiplying a

book value by a percentage.

268. The declining-balance method of computing depreciation is known as an

depreciationmethod.

269. Ordinary repairs which maintain operating efficiency and expected productive life are called .

270. Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life and are referred to as .

271. If disposal of a plant asset occurs at any time during the year, for the fraction of the year to the date of disposal must be recorded.

272. If fully depreciated equipment that cost $10,000 with no salvage value is retired, the entry to record the retirement requires a debit to the account and a credit to the account.

273. If the proceeds from the sale of a plant asset exceed its , a gain on disposal will occur.

274. A plant asset originally cost $48,000 and was estimated to have a $3,000 salvage value at the end of its 5-year useful life. If at the end of three years, the asset was sold for $9,000, and had accumulated depreciation recorded of $27,000, the company should recognize a
on disposal in the amount of $ .

275. Natural resources have two distinguishing characteristics (1) they are physically

in operations, and (2) they are only by an act of nature.

276. In recording the purchase of a business, goodwill should be recorded for the excess of

over the of the net assets acquired.

277. The allocation of the cost of an asset to expense over its useful life is called

for tangible plant assets, for natural resources, and for intangible assets.

278. The cost of a patent should be amortized over its life or its

life, whichever is shorter.

279. The ratio is calculated by dividing net sales by average total assets.

a280. In the case of an exchange of plant assets resulting in a loss on disposal, the cost of the new asset acquired is equal to the of the asset given up plus any cash paid by the purchaser.

a281. A company exchanged an old machine, which originally cost $22,000 and has accumulated depreciation to date of $12,000, for a new machine. The old machine had a fair market value of $14,000. The cost of the new machine should be recorded at $ .

10 – 63

MATCHING

Set 1

282. Match the items below by entering the appropriate code letter in the space provided.

A. Plant assets B. Depreciation C. Book value
D. Salvage value
E. Straight-linemethod
F. Units-of-activitymethod
G. Double-declining-balance method H. MACRS
I. Revenueexpenditure J. Capital expenditure

1. Small expenditures which primarily benefit the current period.

2. Cost less accumulated depreciation.

3. An accelerated depreciation method used for financial statement purposes.

4. Tangibleresources that are used in operations and are not intended for resale.

5. Equal amount of depreciation each period.

6. Expectedcash value of the asset at the end of its useful life.

7. Allocationof the cost of a plant asset to expense over its useful life.

8. Material expenditures which increase an asset’s operating efficiency, productive capacity, or useful life.

9. An accelerated depreciation method used for tax purposes.

10. Useful life is expressed in terms of units of production or expected use.

Set 2

283. Match the items below by entering the appropriate code letter in the space provided.

A. Gain on disposal B. Loss on disposal C. Trademark
D. Depletion E. Useful life
F. Asset turnover ratio G. Goodwill
H. Amortization
I. Intangibleasset
J. Researchand development costs

1. Processof allocating the cost of an intangible asset to expense over its useful life.

2. Is only recorded when an exchange has commercial substance.

3. Examples are franchises and licenses.

4. The allocation of the cost of a natural resource to expense over its useful life.

5. Can be identified only with a business as a whole.

6. A symbol that identifies a particular enterprise or product.

7. When book value of asset is greater than the proceeds received from its sale.

8. Must be expensed when incurred.

9. Indicateshow efficiently a company is able to generate sales with its assets.

10. An estimate of the expected productive life of an asset.

SHORT-ANSWERESSAY QUESTIONS

S-AE 284

The declining-balance method is an accelerated method of depreciation. Briefly explain what is meant by an accelerated method of depreciation and justify the choosing of an accelerated method.

S-AE 285

Identify the factors that are considered in classifying an expenditure as a capital or a revenue expenditure. Are there instances where it may be difficult to classify an expenditure as one or the other (e.g., the purchase of a wastebasket that has a useful life of 5 years and cost $10)? What basis would be used in a decision?

S-AE 286

In general, how does one determine whether or not an expenditure should be included in the acquisition cost of property, plant, and equipment?

S-AE 287

Comment on the validity of the following statements: ―As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal.‖

S-AE 288

Goodwill is an unusual asset in that it cannot be sold individually apart from a business as a whole. If goodwill is an intangible asset, why can’t it be sold like other intangible assets such as copyrights and patents? Briefly explain what makes goodwill different.

S-AE 289 (Ethics)

Physician Reference Service (PRS) provides services to physicians including research assistance, diagnosis coding and medical practice software including an advanced medical record cross-referencing system. PRS is aggressive in monitoring other firms’ offerings and ensuring that its services are comparable to all others.

Because of its need to stay abreast of new product offerings, PRS spends a lot of money sending professionals to trade shows. In addition, PRS has agreements with several clients whereby the client requests a presentation of a competitor’s services. A PRS employee poses as an employee of the client’s office and attends the presentation, obtaining as much data and sample information as possible. The cost of the travel and attending presentations is charged to Product Development and expensed during the current year.

S-AE 289 (cont.)

In April of this year, PRS began selling a software product substitute before the competitor’s software was released. The competitor, Compu-Med, sued for copyright infringement and won. PRS had to withdraw its product from the market and pay $1.5 million in damages. PRS immediately negotiated an agreement with Compu-Med to sell Compu-Med’s product (since it was prohibited from offering its own version for five years.) This agreement cost an additional $1.3 million, but it allowed PRS to continue to offer a full line of services.

PRS’s accountant, June Bianco, initially recorded the cash payments as “Loss from Lawsuit” and “Product Development,” respectively. However, Fred Nance, the controller, instructed June to create an intangible asset, named “Goodwill” and charge both costs to this account. “We’re protected from another lawsuit as long as this agreement is in effect,” he says. “It’s about as close to goodwill as we’ll ever get from our competitors. We might as well amortize the cost rather than take the full hit to income, anyway.”

Required:

1. What are the ethical issues? 2. What should June do?

S-AE 290 (Communication)

The Restor-It is a company specializing in the restoration of old homes. To showcase its work, the company purchased an old Victorian home in downtown Pittsburg, Kansas. The original home was purchased for $125,000. A new heating and air-conditioning system was added for $30,000. The house was completely rewired and re-plumbed at a cost of $50,000. Custom cabinets were added, and the floors and trim were refurbishedto their original condition, at a cost of $75,000.

The project was such a success, that Restor-It decided to purchase another very large home, this time in nearby Joplin, Missouri. A realtor offered to purchase the home in Pittsburg for $175,000. He plans to lease it as luxury short-term apartments for visiting dignitaries. Restor-It decided that a modest return was all that was required, and so they agreed to sell. Only afterward did they learn that they had a $10,000 loss on the sale. The president of the company, Jim Herman, does not believe that a loss is possible. “We sold that house for more than we paid for it,” he said. “I know we put some money in it, but we had depreciated it for three years. How in the world can we have a loss?”

S-AE 290 (cont.)

Required:

Write a short memo to Mr. Herman explaining how it would be possible to have a loss. Do not try to use specific numbers for cost or depreciation.

BUS 365 Week 2 Quiz – Strayer

BUS/365 Week 2 Quiz – Strayer

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Chapter 1 Information Systems in the 2010s

Multiple Choice

1. The importance of being an agile enterprise has increased significantly because of _________ and _________.
a) competition; slowed population growth
b) social networks; rapid economic recovery
c) slow economic recovery; advances in mobile technology
d) rapid population growth; corporate strategy

2. _________ are valuable to businesses because they can connect, communicate, collaborate, and do commerce on-demand, in real-time, and at a distance.
a) Multimedia networks
b) Interactivity applications
c) Broadband infrastructures
d) Podcasts

3. Which of the following is not an impact of the mass migration of users from PCs to mobile devices?
a) It has improved the privacy of users and security of corporate networks.
b) It has expanded the scope of information systems beyond traditional organizational boundaries.
c) It has torn down the walls between business, professional, and personal lives.
d) It has made location irrelevant to a large extent.

4. Which of the following is a characteristic of competitive advantage?
a) It is a long lasting edge over competitors if based on IT.
b) It is short-lived if competitors quickly duplicate it.
c) It requires the use of social media and networks.
d) It provides a big strategic payoff.

5. While of the following statements about mobile market opportunities is false?
a) Mobiles are replacing computers as the primary way to connect with public and private networks and to get work done.
b) Mobile gadgets are starting to look and feel like handheld computers, able to run all sorts of software.
c) Desktop and laptop computers are taking on more and more nontraditional duties, like streaming media to TV sets, stereos, and other household appliances.
d) Touch-navigate devices running on 3G and 4G networks create business opportunities and eliminate business threats.

6. According to Pew Research, newspapers have seen ad revenue __________ during the time between 2007 to 2010.
a) rise 10%
b) remain constant
c) fall 43%
d) fall 75%

7. Facebook’s rapid growth and its ranking as number one is an interesting and informative business case because:
a) it shows the power of IT to disrupt the status quo and transform industries.
b) it is a public company with an immensely-profitable business model.
c) it has positioned itself solely as a social network.
d) all of the above

8. In March 2010, __________ pulled in more Internet traffic in North America than Google.
a) eBay
b) Facebook
c) Microsoft
d) Apple

9. Innovation leads to profitable growth if that innovation:
a) generates new profit pools.
b) increases demand for products and services.
c) attracts new competitors.
d) Both a and b

10. How a company generates revenue from its assets is referred to as its __________.
a) asset infrastructure
b) business model
c) corporate culture
d) organizational structure

11. Nokia makes and sells cell phones and generates profit from these sales. This statement defines Nokia’s business __________.
a) model
b) processes
c) supply chain
d) value proposition

12. According to McKay and Marshall, a comprehensive business model is composed includes each of the following elements except:
a) A description of all products and services the business will offer.
b) A description of the business process required to make and deliver the products and services.
c) A description of the customers to be served.
d) A description of competitive forces in the industry.

13. Basic functions of an IS are:
a) input, processing, and output.
b) input, processing, output, and feedback.
c) user interfaces, data sources, processing, and reporting.
d) hardware, software, data, and procedures.

14. Which of the following is not a component of an information system?
a) input
b) hardware
c) network
d) people

15. A company believes that superb customer service and on-time delivery are valuable and critical to their success. Their beliefs and values form the __________ that influences the company’s IT investments.
a) feedback
b) business functions
c) social context
d) inputs

16. __________ are shaking-up or disrupting the ways companies do business, the jobs of managers and workers, the design of business processes, and the structure of markets.
a) IT innovations
b) Wireless networks
c) Social media
d) Social networks

17. Performance improved significantly at 1-800-Contacts after the company invested in __________ that enabled call center operators to monitor their performance as often as every 15 minutes.
a) semiautomatic business processes
b) dashboard reporting tools
c) private networks
d) social networks

18. IS capabilities support all of the following business objectives except:
a) improving productivity.
b) reducing waste.
c) facilitating collaboration.
d) automating decision making.

19. The value of an information system is determined by the relationships among ISs, people, and business processes—which are influenced strongly by:
a) fast, accurate communication and collaboration.
b) huge amounts of information that is accessible via networks.
c) organizational culture..
d) automation of decision making

20. Widespread adoption of new technology is going to __________ the usual way business is done.
a) disrupt
b) cause minor changes in
c) destroy
d) have little effect on

21. What has made location practically irrelevant to doing business?
a) social media
b) social networks
c) widespread use of mobile devices
d) Google

22. The 1-800-CONTACTS case study showed the importance of __________ on performance.
a) daily reports
b) feedback
c) IT departments
d) training

23. Information bottleneck can create __________ that keep managers from knowing what is going on as it is going on.
a) information overload
b) blindspots
c) windows
d) dashboards

24. A negative ethical impact of mobile marketing efforts is that they can be __________.
a) invasive
b) expensive
c) innovative
d) pervasive

25. Critical business processes are those that improve employee performance and __________.
a) strategic planning
b) commodities
c) profit margins
d) business models

26. Business models include a __________, which is an analysis of the benefits of using the specific model.
a) revenue model
b) supply chain
c) value proposition
d) profit margin

27. Managers decide to increase the number of new accounts by 4.0% within the next quarter. This is an example of:
a) an objective.
b) a strategy.
c) customer loyalty.
d) qualitative metric.

28. A company’s goals are increased sales and improved customer loyalty. Which of the following is correct?
a) Sales revenue is a rather easy-to-calculate quantitative metric.
b) Customer loyalty is a quantitative metric with a longer time dimension.
c) Sales revenue is a quantitative metric with a longer time dimension.
d) Customer loyalty is a qualitative metric with a shorter time dimension.

29. In order to manage performance, a fundamental requirement is __________.
a) using real-time dashboards and reporting tools
b) being able to measure
c) knowing that the indicator is measuring the right thing
d) b and c

30. Measuring performance requires each of the following except:
a) comparing results to competitors.
b) identifying the most meaningful measures of performance.
c) being able to measure them correctly.
d) selecting the set of measures that provides a holistic indicator of performance.

31. Concern about environmental damage and reducing a company’s carbon and energy footprints on the planet has triggered efforts for __________.
a) data centers
b) EPA
c) green IT
d) RFID

32. __________ are a measure of the impact a business’ activities have on the environment, and in particular climate change.
a) Carbon footprints
b) Hydrogen footprints
c) Toxic wastes
d) Greenhouse emissions

33. Why are companies, such as Monsanto and Wells Fargo, willing to invest in the building of new data centers?
a) To stop wasting capital maintaining outdated energy-inefficient data centers.
b) To comply with government energy regulations.
c) To develop new computing capabilities.
d) To improve business process performance.

34. Ethical issues can be challenging because:
a) there are no standards of right and wrong.
b) security is more important than privacy.
c) all countries agree on what is ethical.
d) what is considered ethical by one person may seem unethical to another.

35. KD Company is looking to expand its business operations into a developing country. As part of SWOT analysis, KD needs to investigate that country’s:
a) political stability
b) economic stability
c) critical infrastructure
d) All of the above

36. __________ is a series of processes in which an organization selects and arranges its businesses or services to keep the organization viable even when unexpected events disrupt its businesses, markets, products, or services.
a) Strategic planning
b) SWOT
c) Value proposition
d) Threat analysis

37. An organization’s __________ addresses questions such as, “What is the long-term direction of our business?”
a) operations
b) critical infrastructure
c) strategy
d) opportunities

38. __________ is the scanning and review of the political, social, economic and technical environment of the organization.
a) Strategic analysis
b) Business performance
c) Operational planning
d) Value analysis

39. __________ involves the evaluation of strengths and weaknesses, which are internal factors; and opportunities and threats, which are external factors.
a) Strategic analysis
b) Business performance
c) Operational planning
d) SWOT analysis

40. Price wars or other fierce reactions by competitors are examples of:
a) strengths.
b) weaknesses.
c) opportunities.
d) threats.

41. According to Porter’s competitive forces model, there are five major forces in an industry that affect the degree of competition. Those five forces impact:
a) sales.
b) profit margins.
c) marketing.
d) expenses.

42. FedEx and UPS have ISs that are difficult to duplicate and very expensive. Those ISs:
a) create barriers that reduce the threat of entry.
b) increase the threat of substitute services.
c) decrease bargaining power of customers.
d) increase bargaining power of suppliers.

43. __________ involve the purchase of materials, the processing of materials into products, and delivery of products to customers.
a) Supply chains
b) Logistics
c) Primary activities
d) Support activities

44. For most organizations, if their computer networks go down, __________.
a) social networks are used
b) data centers are used to store data
c) so does the business
d) business continues as usual

45. According to Occupational Outlook Handbook, 2010-11 Edition published by the U.S. Bureau of Labor Statistics, what is the outlook for Computer and Information Systems Manager?
a) Employment is expected to grow faster than the average for all occupations.
b) A master’s degree in a computer-related field is required for entry-level positions.
c) Employment is expected to grow slower than the average for all occupations.
d) Job prospects are uncertain.

True/False

46. During the last decade, Facebook, LinkedIn, YouTube, Twitter and blogs became extensions of businesses to reach customers, prospects, and business partners.

47. The massive adoption of smart devices has created a huge base of multi-tasking users, and a market for companies to tap and target.

48. Facebook created an entirely new market and changed the game for industries who were not its usual competitors–namely, music, media, and consumer electronics companies.

49. Some types of IT, such as databases and network services, are commodities, which do not provide a special advantage.

50. A SWOT model spells out how a company creates or adds value in terms of the goods or services it produces.

51. An IS can be as small as a smartphone with a software app that can snap tags to load a Web site. Or it may include several thousand computers of various types, scanners, printers, and other devices connected to databases via wired and wireless telecommunication networks.

52. ISs have a purpose and a social or organizational context.

53. Discarded PCs and other computer equipment are waste disposal problems.

54. IT no longer creates challenging ethical issues because practices such as employee e-mail monitoring and unrestricted use of customer data are accepted as necessary or legal.

55. Strategy planning is critical for all organizations, including government agencies, healthcare, education, military, and other nonprofit and not-for-profit ones.

56. During SWOT analysis, there is usually agreement among managers because SWOT analysis is objective, forward-looking, and data-driven.

57. According to Porter’s competitive forces model, Apple, Microsoft, and auto manufacturers have strong bargaining power as suppliers because their brands are powerful.

58. Rivalry among existing firms in the industry is a competitive force that is most likely to be weak when entry barriers are low; threat of substitute products is high, and suppliers and buyers in the market attempt to control.

59. Sabermetrics is the mathematical analysis of baseball player batting and pitching performances.

60. A batch system is an IS that provides fast enough access to information or data so that an appropriate decision can be made, usually before data or situation changes.

Short Answer

61. In March 2010, Facebook pulled in more traffic in North America than __________.

62. Basic types of IT are __________ because companies need to function, but they do not provide a special advantage.

63. How a company generates revenue from its assets is referred to as its __________.

64. A(n) __________ collects, processes, stores, analyzes, and distributes information for a specific purpose or objective.

65. __________ is a set of applications or programs that instruct the hardware to process data or other inputs such as voice commands.

66. Energy and __________ footprints are a measure of the impact a business’ activities have on the environment, and in particular climate change.

67. __________ relates to standards of right and wrong,

68. __________ analysis involves the evaluation of strengths and weaknesses, which are internal factors; and opportunities and threats, which are external factors.

69. __________ activities are those business activities through which a company produces goods. Examples of those activities are purchasing materials, processing materials, and delivery of products to customers.

70. Innovation and adaptability are __________ because they are examples of things that must go right for a company to achieve its mission.

Essay

71. Identify three interactivities that have potential business value and that can occur by snapping a 2D tag.

72. List and describe the four basic functions of an information system.

73. There are two fundamental requirements for managing business performance: being able to measure and knowing that your indicator is measuring the right thing. Explain each of these requirements and why they are challenging.

74. List and explain the four major steps in business performance management (BPM).

75. List and explain the five industry (market) forces in Michael Porter’s competitive forces model.

Chapter 2 Infrastructure and Support Systems

Multiple Choice

1. __________ is the collection of hardware, software, processes, networks, and users.
a) IT infrastructure
b) IT function
c) Transaction processing system
d) MIS

2. A transaction processing system (TPS):
a) processes raw data.
b) does reporting.
c) extracts, transforms, and loads data.
d) does advanced data analysis.

3. The number of hours an employee worked in a certain week is an example of:
a) information.
b) a transaction.
c) knowledge.
d) data.

4. __________ is data that has been processed, organized, or put into context so that it has meaning and value to the person receiving it.
a) Information
b) A transaction
c) Knowledge
d) A report

5. __________ consists of data that have been processed, organized, and put into context to be meaningful, and to convey understanding, experience, accumulated learning, and expertise.
a) Information
b) A transaction
c) Knowledge
d) Wisdom

6. Managing a product recall in a way that minimizes negative impacts on sales of other products and profits is an example of:
a) data.
b) information.
c) knowledge.
d) decision.

7. A __________ consists of stored data organized for access, search, retrieval, and update.
a) file
b) database
c) TPS
d) system

8. Why are TPSs critical systems?
a) Data need to be analyzed and reported to managers to support their decision making processes.
b) Manual systems are subject to too much human error.
c) Transactions that do not get captured can result in lost sales, dissatisfied customers, and other types of data errors.
d) They are essential components of process control systems.

9. Processing of transactions is done in one of two modes:
a) batch and real-time.
b) online and offline.
c) manual and computerized.
d) online and real-time.

10. Which of the following is an advantage of batch processing over online transaction processing?
a) higher data quality
b) costs less
c) more up-to-date data
d) a and b

11. If a customer sets up an account with REI.com to purchase from their Web site, the __________ will validate that the address, city, and postal code are consistent and valid in order to improve __________.
a) OLTP; data storage
b) OLTP: data visibility
c) TPS; data quality
d) TPS; data transfer

12. Data errors:
a) are difficult to correct the later they are detected.
b) expose the company to legal action.
c) may never be detected and corrected.
d) all of the above

13. Victims of identity theft face enormous challenges and frustration because:
a) data errors detected later are difficult to correct.
b) data processing does not improve data quality.
c) data processing is done in real-time.
d) data processing cannot detect obvious data errors.

14. Which of the following is not an example of a routine business transaction for a manufacturing company?
a) purchase orders
b) payroll
c) consolidation
d) billing

15. General purpose reporting systems are referred to as __________ systems.
a) management information
b) decision support
c) operational
d) transactional

16. Which of the following is not an objective of MIS?
a) to provide reports to managers for tracking operations
b) to provide reports to managers for monitoring
c) to provide reports to managers for control
d) to provide reports to managers for strategic planning

17. __________ reports are created or run according to a pre-set schedule, such as daily, weekly, or quarterly.
a) Periodic
b) Exception
c) Ad hoc
d) Functional

18. Sales of fresh produce drop during an E. coli food contamination crisis. What type of reports would be generated in this unique situation?
a) Periodic
b) Exception
c) Ad hoc
d) Functional

19. Sony’s managers notice a significant change in demand for the company’s eReaders. They request that reports be generated so they can learn more about this situation. What is this type of report?
a) Periodic
b) Exception
c) Ad hoc
d) Functional

20. Decision support systems are __________ that support unstructured and semi-structured decision making.
a) interactive applications
b) reporting applications
c) operations support systems
d) process control systems

21. Deciding which new products to develop or which new markets to enter are examples of __________ decisions because they depend on human intelligence, knowledge, and/or experience.
a) structured
b) semistructured
c) unstructured
d) routine

22. Decision makers manipulate models in a DSS to perform __________ analysis, which refers to changing assumptions or data in the model to see the impacts of those changes on the outcome.
a) goal seeking
b) experimental
c) structured
d) what-if

23. A __________ is a visual presentation of critical data, such as the results of a report or analysis, to more quickly understand data.
a) dashboard
b) GUI
c) touch screen
d) KPI

24. __________ is a computerized process for conducting searches in large amounts of data and information in order to discover unknown valuable relationships in the data.
a) Drill down
b) Data mining
c) Business mining
d) Data analytics

25. __________ is the science concerned with managing material and information flows to optimize supply chain operations.
a) Database management
b) Process control
c) Logistics
d) Sourcing

26. A company’s competitive advantage, such as low cost, quality, and/or speed to market, depends on:
a) how well its supply chain is aligned and managed.
b) minimizing the physical flows of its products.
c) how well it maximizes its global sourcing.
d) its ability to recycle.

27. Because Wal-Mart has thousands of suppliers to manage and is constantly looking for new ones worldwide, they invested in a new __________ strategy.
a) mobile networking
b) global sourcing
c) global support
d) mobile support

28. Wal-Mart’s global sourcing strategy is designed:
a) to reduce costs of goods, increase speed to market, and improve the quality of products.
b) to identify and evaluate marketing opportunities.
c) to increase production efficiency.
d) to process transactions in real-time.

29. By linking a company with its suppliers, vendors, and customers, the supply chain creates __________.
a) logistics inefficiencies
b) automated distribution centers
c) an extended enterprise
d) a warehouse control system

30. RFID is a technology that uses __________ instead of __________ to identify products or pallets.
a) electronic tags; bar codes
b) electronic tags; chips
c) bar codes; PINs
d) PINs; EPC tags

31. Which of the following best describes RFID implementation?
a) RFID systems are frequently implemented as stand-alone systems.
b) RFID implementation has been slow due to costs, privacy, and security concerns.
c) RFID implementations are used only to track products and pallets.
d) RFID implementation has been rapid and widespread for security reasons.

32. When employees log into the company network or e-mail accounts, or access data or documents to perform their jobs, two critical factors impacting their productivity are:
a) password strength and availability of mobile networks.
b) cloud computing and software applications.
c) virtualization and private clouds.
d) speed of the response and the reliability of the hardware.

33. A company’s __________ determines the workload that its ISs, apps, and mobile computing devices can handle and their speed.
a) TPS
b) network access point
c) IT infrastructure
d) firewall

34. IT infrastructure is the collection of:
a) hardware and software.
b) hardware, software, and networks.
c) hardware, software, networks, and mobile devices.
d) hardware, software, processes, networks, and users.

35. To improve the performance and ability to store, protect, and manage data at lower up-front costs, companies are turning to __________ options.
a) cloud computing
b) mainframe
c) visualization
d) data center

36. __________ is the term used to refer to the Internet.
a) Shadow
b) Cloud
c) Tag
d) Chain

37. The general name for Internet-based infrastructures is __________.
a) social networking
b) cloud computing
c) Web 1.0
d) Web 2.0

38. The U.S. Department of Defense implemented __________ to service many military agencies in order to reduce IT infrastructure costs while protecting its sensitive data.
a) RFID
b) cloud computing
c) a private cloud
d) virtualization

39. Which of the following represents the evolution to Internet-based infrastructure?
a) public cloud computing; private cloud computing; virtualization
b) wired; wireless; mobile computing
c) virtualization; cloud computing; enterprise computing
d) virtualization; private cloud computing; cloud computing

40. Which of the following statements about virtualization is false?
a) Virtualization is primarily about cost-cutting.
b) Virtualization is often a key part of an enterprise’s disaster recovery plan.
c) Virtualization separates business applications and data from hardware resources to pool hardware resources.
d) Virtualization increases the flexibility of IT assets, allowing companies to consolidate IT infrastructure.

41. Large companies and government agencies with multiple locations may set up __________ on servers that they own if data confidentiality is a key requirement.
a) public clouds
b) private clouds
c) encrypted clouds
d) social clouds

42. Cloud computing is Internet-based computing in which shared resources, such as hard drives and software apps, are provided to computers and other devices __________, like a public utility.
a) in batch
b) via mobile networks
c) on-demand
d) via SaaS

43. All of the following are characteristics of software-as-a-service (SaaS) except:
a) SaaS is an increasingly popular IT model for large but not small companies in which software is available to users as needed.
b) The SaaS model was developed to overcome the challenge to an enterprise of being able to meet fluctuating demands on IT resources efficiently.
c) Other terms for SaaS are on-demand computing, utility computing, and hosted services.
d) Usually there is no hardware and software to buy since the apps are used over the Internet and paid for through a fixed subscription fee, or payable per an actual usage fee.

44. What is a disadvantage of cloud computing?
a) It may be more difficult to get to the root of IT infrastructure performance problems.
b) It is higher cost than company-owned IT infrastructures.
c) There is more control than with company-owned IT infrastructures.
d) Service-level agreements (SLAs) with vendors are not necessary.

45. Which of the following is a major cloud computing vendor?
a) Amazon’s EC2
b) Google’s AppEngine
c) Microsoft’s Azure
d) All of the above

True/False

46. Business software applications are hardware devices that support a specific task or business process.

47. Multiple business apps form a system that supports a functional area–marketing, finance, human resources, production, operations, accounting, and IT.

48. To track attendance at basketball games, the Dallas Mavericks put RFID codes on tickets, which enabled them to assess the effectiveness of their marketing efforts.

49. The U.S. Army enlists video games and virtual worlds to teach soldiers interpersonal skills, cultural awareness, and negotiation skills that are heavily dependent on culture for combat in foreign environments.

50. Knowing how to manage a vehicle recall to minimize negative impacts on new vehicle sales is an example of information.

51. Data is the raw material from which information is produced; and the quality, reliability and integrity of the data must be maintained for the information to be useful.

52. The quarterly sales of new Toyota vehicles from 2008 through 2010 is knowledge because it would give some insight into how the vehicle recalls during 2009 and 2010 impacted sales.

53. Transaction processing systems (TPSs) process specific types of data input from ongoing transactions. TPSs can be manual or automated.

54. Decision support systems are critical systems because transactions that do not get captured can result in lost sales, dissatisfied customers, and many other types of data errors.

55. Transaction data that are captured by a TPS are always processed in real-time, stored in a database, and then are available for use by other information systems.

56. Payroll processing is typically done in batch mode; while e-commerce transactions are processed in real-time.

57. When a customer sets up an account with Newegg.com to purchase from their Web site, the TPS validates that the address, city, and postal code are correct and consistent to insure data quality.

58. DSSs support unstructured and semi-structured decisions, such as whether to make or buy products, or what new products to develop and introduce into existing markets.

59. Supply chains can be grossly inefficient unless the companies in the supply chain can share data, collaborate, and respond to changes in demand and do so efficiently and quickly.

60. Business intelligence (BI) increases the flexibility of IT assets, allowing companies to consolidate IT infrastructure, reduce maintenance and administration costs, and prepare for strategic IT initiatives.

Short Answer

61. In order for __________ or real-time processing to occur, the input device or Web site must be directly linked via a network to the TPS.

62. Processing improves _________, which is important because reports and decisions are only as good as the data they are based upon.

63. _________ is a computerized process for conducting searches in large amounts of data and information in an attempt to discover unknown valuable relationships in the data.

64. __________ involves identifying sellers that could provide a retailer, such as Wal-Mart, with products or services to sell in their stores and online.

65. __________ is the collection of hardware, software, processes, networks, and users.

66. The __________, which is the term used to refer to the Internet, has greatly expanded the options for enterprise IT infrastructures.

67. Cloud computing evolved from __________, which is an approach based on IT consolidation that enables more flexible IT infrastructures and lower IT costs.

68. With __________, instead of buying and installing expensive packaged enterprise applications, users can access software apps over a network, with an Internet browser being the only absolute necessity.

69. Large companies or government agencies with multiple locations can set up their own __________ on servers that they own if data confidentiality is a key requirement and they want to reduce IT infrastructure costs.

70. __________ is the pooling of physical storage from multiple network storage devices into what appears to be a single storage device that is managed from a central console.

Essay

71. Define data, information, and knowledge. Give an example of each.

72. What are the three defining characteristics of DSSs?

73. What is an advantage of virtualization? List and explain one type of virtualization.

74. Why would organizations use cloud computing during tough economic times?

75. When making decisions about how to acquire IT infrastructure components, what are two IT infrastructure characteristics that need to be considered? Explain each characteristic.