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BUS 365 Week 4 Quiz 3 Chapter 4 and 5 – Strayer

BUS 365 E-Business Security and Controls Week 4 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 4 Network Management and Mobility

Multiple Choice

1. Connectivity and mobility are __________ issues.
a) 4G
b) network
c) Wi-Fi
d) social media

2. 4G networks are __________.
a) owned by Sprint
b) based on satellite transmission
c) hybrid analog networks
d) purely digital networks

3. Why did the New Mexico Department of Transportation start offering passengers free public 4G WiMAX Internet to make public transportation more attractive to commuters?
a) To assist with New Mexico’s goal to become a high-tech state.
b) To improve traffic congestion conditions.
c) To reduce pollution and smog conditions along the main traffic corridor in the state.
d) To reduce the population’s dependence on gasoline.

4. What are the basic functions or needs supported by business networks?
a) competitive advantage, decision support, and communication
b) analog and digital
c) mobility, collaboration, relationships, search
d) circuit and packet switching

5. Networks transmit __________, which carry voice or data between a sender and a receiver.
a) nodes
b) routers
c) signals
d) switches

6. Plain old telephone service (POTS) and most wired telephone calls are transmitted, at least in part, over a __________.
a) dedicated circuit that is only used for that call
b) dedicated circuit that is shared by many calls
c) packet circuit that is only used for that call
d) packet circuit that is shared by many calls

7. When you send a file or e-mail message over a network, it is broken into smaller blocks called __________ that follow different paths from the source to the destination.
a) circuits
b) nodes
c) packets
d) switches

8. __________ is the throughput capacity of a network, which is a measure of the speed at which data is transmitted.
a) Bandwidth
b) Protocol
c) TCP/IP
d) Broadband

9. A __________ is a set of rules that govern how devices on a network exchange information and function in order to “talk to each other.”
a) bandwidth
b) protocol
c) TCP/IP
d) broadband

10. __________ was created by the U.S. Department of Defense to ensure data integrity and maintain communications in the event of catastrophic war.
a) Bandwidth
b) Protocol
c) TCP/IP
d) Broadband

11. __________ is a general term that means fast transmission speed.
a) Bandwidth
b) Protocol
c) TCP/IP
d) Broadband

12. 4G technologies represent the latest stage in the evolution of __________ technologies.
a) computer hardware
b) software
c) satellite
d) wireless data

13. What is significant about 4G networks is that they do not have a __________, which both 2G and 3G networks do have.
a) packet-switched IP system
b) circuit-switched subsystem
c) WiMAX standard
d) GSM-based LTE subsystem

14. High performance __________ provide fantastic opportunities for mobility, mobile commerce, collaboration, supply chain management, remote work, and other productivity gains.
a) IP networks
b) Bluetooth devices
c) W-Fi hot spots
d) mobile handsets

15. When evaluating mobile network solutions, the factors to consider include all of the following except:
a) easy to deploy, manage and use.
b) always makes the best connection possible.
c) works separately from other systems.
d) enables secure and reliable communications.

16. All are factors contributing to mobility except:
a) more robust mobile OSs and applications.
b) vendor competition.
c) multitasking mobile devices.
d) overall increased speed of business.

17. __________ is a technology that allows computers to share a network or internet connection wirelessly without the need to connect to a commercial network.
a) RFID
b) LTE
c) WiMAX
d) Wi-Fi

18. All of the following describe WiMAX except:
a) an 802.16-based broadband wireless metropolitan area network (MAN) access standard.
b) can deliver voice and data services without the expense of cable.
c) has shorter distance limitations than DSL and cable.
d) does not require a clear line of sight to function.

19. Which is not one of the general types of mobile networks?
a) Bluetooth
b) wide area networks (WANs)
c) WiMAX
d) local area networks (LANs)

20. __________ are built by attaching a wireless access point (WAP) to the edge of the wired network.
a) WLANs
b) WiMAX
c) Wi-Fi hot spots
d) Base stations

21. __________ is key to success in everything from business partnerships to personal and professional relationships.
a) Access to mobile networks
b) Effective communication
c) Real-time decision making capability
d) The Internet

22. An enterprise’s network capability depends on all of the following except:
a) proper planning.
b) upgrades.
c) open culture.
d) bandwidth.

23. An enterprise’s collaboration capability depends on:
a) proper planning.
b) upgrades.
c) open culture.
d) bandwidth.

24. The __________ is critical because it provides the infrastructure for collaborative work within the company and with external partners and customers, regardless of their location.
a) network architecture
b) enterprise portal
c) social network
d) wireless access point

25. Within an enterprise, the capability and willingness to collaborate depends on:
a) a corporate culture that people trust.
b) information and tools.
c) authority to plan and make decisions.
d) all of the above

26. What was a cause of the U.S. Customs’ network crash at Los Angeles Airport (LAX) that stranded passengers for up to 11 hours?
a) A new cutting edge network that had not been tested sufficiently
b) A hacker attack
c) Equipment breakdown and human error
d) Power failure

27. Why had various information services—namely documents, voice, and video—functioned independently of each other?
a) They were transmitted using different protocols.
b) For information privacy and security reasons.
c) They were transmitted on circuit-switched networks.
d) To minimize network traffic congestion.

28. Multiple networks were needed to transmit documents, voice, and video because:
a) of limited bandwidth.
b) of the lack of interoperability between devices.
c) they used the same transmission protocol.
d) outdated IP networks.

29. __________ refers to the ability to provide services to and accept services from other systems or devices.
a) Protocol
b) Broadband
c) Interoperability
d) Multimedia

30. The Internet protocol suite consisting of __________ is the standard used with almost any network service.
a) HTTP
b) WAP
c) HTML
d) TCP/IP

31. _______ is the single most popular network protocol in the world, and provides the architecture that made convergence possible.
a) HTTP
b) IP
c) TCP
d) FTP

32. In preparation for transmission, data and documents are digitized into __________ based on the Internet Protocol.
a) bytes
b) packets
c) blocks
d) routers

33. __________ are networks that are capable of transmitting data at very fast rates, but operate in a limited area, such as an office building, campus, or home.
a) MANs
b) Hot spots
c) LANs
d) WANs

34. TCP performs error checking, which can cause packet delivery delays. Because of the error-checking process, TCP is not well-suited for what type of transmissions?
a) digital voice or video
b) data
c) documents
d) e-mail

35. __________ transmits voice and data in packets and has become one of the most cost effective ways to communicate.
a) TCP
b) UDP
c) VoIP
d) UM

36. __________ brings together all messaging media such as e-mail, voice, mobile text, SMS, and fax into a combined communications medium.
a) Unified messaging (UM)
b) TCP/IP
c) IP telephony
d) PBX

37. Which of the following is not a characteristic of wireless device software development?
a) Developing software for wireless devices had been challenging because there was no widely accepted standard for wireless devices.
b) Software applications have to be customized for each type of device with which the application communicates.
c) Different CPUs, operating systems, storage media, and mobile platform environments create time-consuming porting and testing issues.
d) Supporting different displays is simple because of the convergence of applications.

38. The Internet functions as the __________, and the Web (WWW) is __________ that runs on the Internet.
a) transport mechanism; an application
b) information architecture; a browser
c); protocol; a search engine
d) hardware; software

39. Which of the following is not a characteristic of intranets?
a) Portals (gateways) that provide easy and inexpensive browsing and search capabilities.
b) Company-owned networks that use IP technology to securely share part of a business’s information or operations with suppliers, vendors, partners, customers, or other businesses.
c) With screen sharing and other groupware tools, intranets can be used to facilitate collaboration.
d) Companies deliver policies, pay stub information for direct deposits, benefits, training materials, and news to their employers via their intranets.

40. Virtual private networks (VPN) are private tunnels in the Internet that are created by __________.
a) content indexing
b) usernames and passwords
c) biometrics
d) encryption

41. Several factors are driving the need for messaging and collaboration. All of the following are driving factors except:
a) people need to work together and share documents.
b) groups make most of the routine and easy decisions in organizations.
c) organizational decision making is difficult when team members are geographically spread out and working in different time zones.
d) nearly 87 percent of employees around the world work in remote offices.

42. Which of the following is a dysfunction of the group process?
a) Social pressures of conformity can lead to groupthink.
b) A group may produce synergy during problem solving.
c) Group members may have their egos embedded in the decision, and so they may be committed to the solution.
d) Groups are better than individuals at understanding problems.

43. According to the Cellular Telecommunications Industry Association, __________ is “a way of measuring the quantity of radio frequency energy that is absorbed by the body.”
a) RF rate
b) carbon footprint
c) radiation rate
d) specific absorption rate (SAR)

44. __________ enable(s) anyone to call or share files for free, increases the connections in our lives, and create forces whose impacts are not yet known.
a) VoIP
b) Wikis
c) WiMAX
d) All of the above

45. __________ shows the power of the individual in the connected age—a better research tool than major corporations had in the 1990s.
a) Facebook
b) Google
c) Microsoft
d) eBay

True/False

46. Transmission of a signal over a series of networks is made possible by switches and routers, which are hardware devices, and nodes on the network.

47. The distinguishing characteristic of packet switching is that once a connection is made between the source and destination, the path of the signal along the nodes is dedicated and exclusive.

48. Wireless networks use packet switching and wireless routers to forward packets from one network to another network.

49. Bandwidth is the throughput capacity, or speed, of a network, which depends on what protocol is used.

50. TCP/IP was created by the U.S. Department of Defense to ensure and preserve data security and control communications in the event of catastrophic war.

51. Users can get 4G wireless connectivity through one of two standards: WiMAX or LTE.

52. IP networks form the backbone of worldwide digital networking and enable the convergence of voice, data, and video.

53. Network performance is measured by its data transfer capacity.

54. Apple’s first 4G phone, the HTC EVO 4G was released in summer 2010 with speeds 10 times greater than 3G phones.

55. Pressures to deliver secure service to customers and business partners at reduced costs, to be environmentally responsible, and to support the 24/7 data needs of mobile and remote workers have all increased the demands on corporate networks.

56. The 802.11b standard improves upon other 802.11 Wi-Fi standards by adding multiple-input multiple-output (MIMO) and many other newer features.

57. An enterprise’s network capability will be unreliable or deteriorate without proper planning, maintenance, management, upgrades, and bandwidth of the network to insure that it has sufficient capacity and connectivity to link people, locations, and data.

58. A centralized organization is more responsive to opportunities and problems than a decentralized organization where senior managers, who are less involved in daily operations than lower-level managers, make decisions.

59. Messaging and collaboration tools include older communications media such as e-mail, videoconferencing, fax, and IM—and Web 2.0 media such as blogs, podcasts, RSS, wikis, and VoIP.

60. Businesses have learned effective strategies to cope with a world that is far more competitive, dynamic, and connected; to counteract the influence of Web 2.0 technologies; and to maintain traditional business models.

Short Answer

61. __________ lose energy as they travel along a network from source to destination, and need to be strengthened with repeaters.

62. Wireless routers are actually wired routers with __________ built-in that provide both wired and wireless at the same time.

63. __________ are standards or a set of rules that govern how devices on a network communicate and how they need to function in order to “talk to each other.”

64. What is significant about 4G networks is that they do not have a __________ subsystem, as do current 2G and 3G networks.

65. Mobile and other devices must be able to communicate with a network and they do so based on __________.

66. __________ is an 802.16-based broadband wireless metropolitan area network access standard that can deliver voice and data services at distances of up to 30 miles, without the expense of cable or the distance limitations of DSL.

67. Often overlooked is the fact that the capability and willingness to collaborate depends on a __________ that people trust.

68. __________ refers to the ability to provide services to and accept services from other systems or devices.

69. With __________, voice and data transmissions travel over telephone wires, but the content is sent as data packets.

70. __________ refers to team members yielding to pressures to conform to a certain way of thinking even if they conflict with one’s beliefs, or being intolerant of new or differing ideas.

Essay

71. List and explain the four factors to consider when evaluating a mobile network.

72. List three factors that impact the quality of an enterprise’s network and ultimately business performance. List two factors that influence the quality of collaboration in an enterprise and ultimately business performance.

73. Explain how data and documents are transferred over a packet-switched network. In your explanation, identify the format, protocol and transfer method. Compare and contrast how data/documents are transferred to how voice is transferred over a circuit-switched network.

74. Identify three benefits or process gains from working in groups. Then identify three dysfunctions of the group process that can lead to process losses.

75. Major companies face small but powerful challenges and competitors that are undermining traditional business models. Explain those challenges and competitors.

Chapter 5 IT Security, Crime, Compliance, and Continuity

Multiple Choice

1. IT risk management includes all of the following except:
a) keeping information security convenient for users and inexpensive.
b) securing corporate systems while ensuring their availability.
c) planning for disaster recovery and business continuity.
d) complying with government regulations and license agreements.

2. Managers have a legal and ethical obligation, which is called __________, to protect the confidential data of the people and partners that they collect, store, and share.
a) security duty
b) fiduciary responsibility
c) confidentiality contract
d) secrecy function

3. Which of the following is a characteristic of information security in organizations?
a) losses due to IT security breaches can destroy a company financially
b) disruptions due to IT security breaches can seriously harm a company operationally
c) to comply with international, federal, state, and foreign laws, companies must invest in IT security to protect their data, other assets, the ability to operate, and net income
d) All of the above

4. Who stole account data from HSBC’s Private Bank in Switzerland and how did HSBC learn about the data theft?
a) Account data was stolen by a former HSBC IT specialist; HSBC learned about the theft from French Authorities several years after the theft.
b) Account data was stolen by a group of hackers who cracked passwords; HSBC detected the data theft from their IT staff within a few days.
c) Malware was used to steal the account data; network intrusion detection systems detected the theft as it was happening.
d) Competitors stole the account data; HSBC learned about the theft months later when customers complained about identity theft.

5. Protecting data and business operations involves all of the following efforts except:
a) making data and documents available and accessible 24×7 while also restricting access.
b) implementing and enforcing procedures and acceptable use policies for company-owned data, hardware, software, and networks.
c) storing and archiving all databases and data warehouses on-site protected by firewalls.
d) recovering from business disasters and disruptions quickly.

6. Prior to 2002, what was the common perspective on infosec?
a) Infosec was mostly a financial issue assigned to the accounting department.
b) The focus was on preemptive approaches to protect ahead of the threats.
c) The biggest concerns were risks from employees and malware.
d) Infosec was viewed as a cost rather than as a resource for preventing business disruptions.

7. A majority of data breaches involve:
a) insider error or action that is either intentional or unintentional.
b) insider action that is intentional.
c) former employees and IT staff.
d) hackers.

8. Which of the following is not a characteristic of IT security?
a) IT security is so integral to business objectives that it cannot be treated as a stand-alone function.
b) Internal threats are not a major challenge because firewalls prevent employee malicious activity.
c) Infosec failures have a direct impact on business performance, customers, business partners, and stakeholders.
d) Infosec failures can lead to fines, legal action, and steep declines in stock prices as investors react to the crisis.

9. A(n) __________ is something or someone that may result in harm to an asset.
a) threat
b) risk
c) vulnerability
d) exploit

10. A(n) __________ is the probability of a threat exploiting a vulnerability.
a) threat
b) risk
c) vulnerability
d) exploit

11. __________ is the ability of an IS to continue to operate when a failure occurs, usually operating for a limited time or at a reduced level.
a) Botnet
b) Exposure
c) Fault tolerance
d) Spoofing

12. Facebook, YouTube, Twitter, LinkedIn, and other social networks are making IT security dangers worse. Why?
a) Users invite in and build relationships with others. Cybercriminals hack into these trusted relationships using stolen log-ins.
b) E-mail viruses and malware have been increasing for years even though e-mail security has improved.
c) Communication has shifted from social networks to smartphones.
d) Web filtering, user education, and strict policies cannot help prevent IT security dangers on Facebook and other social networks.

13. __________ is the elapsed time between when vulnerability is discovered and when it’s exploited and has shrunk from months to __________.
a) Time-to-exploitation; weeks
b) Time-to-exploitation; minutes
c) Denial of service; days
d) Denial of service; seconds

14. When new vulnerabilities are found in operating systems, applications, or wired and wireless networks, vendors of those products release __________ or __________ to fix the vulnerabilities.
a) patches; service packs
b) patches; downloads
c) firewalls; spyware
d) service packs; firewalls

15. Which of the following is not a characteristic of money laundering and terrorist financing?
a) Transnational organized crime groups use money laundering to fund their operations, which creates international and national security threats.
b) Cybercrime is safer and easier than selling drugs, dealing in black market diamonds, or robbing banks.
c) Funds used to finance terrorist operations are easy to track, which provides evidence to identify and locate leaders of terrorist organizations and cells.
d) Online gambling offers easy fronts for international money-laundering operations.

16. Hackers involve unsuspecting insiders in their crimes using tactics called __________ that trick insiders into revealing access codes that outsiders should not have.
a) social engineering
b) phishing
c) spoofing
d) botnets

17. A(n) __________ occurs when a server or Web site receives a flood of traffic—much more traffic or requests for service than it can handle, causing it to crash.
a) advanced persistent threat (APT)
b) spoofing attack
c) malware intrusion
d) denial of service (DoS) attack

18. Which of the following is not one of the essential defenses against botnets and malware?
a) Anti-malware tools and anti-virus software
b) Intrusion detection systems (IDS)
c) Spyware and warez software
d) Intrusion prevention systems (IPS)

19. Internal fraud prevention and detection measures are based on __________ and __________.
a) a detailed recovery plan; containment, including a fault-tolerant system
b) perimeter defense technologies, such as e-mail scanners; human resource procedures, such as recruitment screening
c) general controls; application controls
d) physical controls, including authorization; authentication systems

20. Crime can be divided into two categories depending on the tactics used to carry out the crime. What are those two categories?
a) personal and non-personal
b) felonies and misdemeanors
c) insider and outsider
d) violent and nonviolent

21. Fraud is nonviolent crime that is carried out using __________.
a) a gun, knife, or other small weapon
b) deception, confidence, and trickery
c) embezzlement and electronic transfers of money
d) bribery and threats

22. __________ refers to the deliberate misuse of the assets of one’s employer for personal gain.
a) Corruption
b) Conflict of interest
c) Occupational fraud
d) Earnings management

23. Bernard Madoff is in jail after pleading guilty in 2009 to the biggest fraud in Wall Street history. Madoff carried out his fraud over four decades by relying on __________.
a) financial expertise and human error
b) social engineering and the predictability of human nature
c) red flags and accounting loopholes
d) unbelievable returns that defied the market

24. What is the most cost-effective approach to managing fraud?
a) prevention
b) detection
c) prosecution
d) compliance

25. Fraud management starts with corporate governance culture and ethics __________.
a) in the accounting department
b) in the IT department
c) at the top levels of the organization
d) at the lowest levels of the organization

26. One of the worst and most prevalent crimes is __________.
a) stolen computers
b) identity theft
c) network intrusion
d) malware

27. The objective of IT security management practices is to defend __________.
a) data and data processing capabilities
b) hardware and software applications and wireless devices
c) data and networks
d) data, hardware, software applications, and networks

28. Before the people who are responsible for security make any decisions about infosec defenses, they must understand __________.
a) the requirements and operations of the business
b) how firewalls, anti-virus software, and other technology function
c) tactics of hackers, fraudsters, botnets, and identity thieves
d) how much to invest in risk management

29. Fingerprints, retinal scans, and voice scans for user identification are examples of __________ controls.
a) access
b) biometric
c) application
d) physical

30. Physical security includes several controls. Which of the following is not a type of physical control?
a) Security bonds or malfeasance insurance for key employees
b) Emergency power shutoff and backup batteries
c) Shielding against electromagnetic fields
d) Properly designed and maintained air-conditioning systems

31. Which of the following is not a type of administrative control for information assurance and risk management?
a) Fostering company loyalty
b) Immediately revoking access privileges of dismissed, resigned, or transferred employees
c) Instituting separation of duties by dividing sensitive computer duties among as many employees as economically feasible
d) Performing authorization and authentication

32. Locking a Blackberry does not provide strong data protection. Why?

a) Security company IronKey reported that password cracking software can quickly copy the contents of a BlackBerry’s SD card and crack a 4-digit PIN in 30 seconds.
b) Password cracking software can crack security on a handheld device without alerting the owner that the device’s security has been compromised.
c) password cracking software can store log-in information for the cracked handheld, allowing a hacker to access the hacked device again, unless the user changes the password.
d) All of the above.

33. Network security involves three types of defenses, which are referred to as layers. Those layers consist of each of the following except:
a) perimeter security layer to control access to the network.
b) authentication layer to verify the identity of the person requesting access to the network.
c) biometrics layer to monitor network usage.
d) authorization layer to control what authenticated users can do once they are given access to the network.

34. A __________ is a system, or group of systems, that enforces an access-control policy between two networks.
a) firewall
b) switch
c) router
d) gateway

35. The major objective of __________ is proof of identity to identify the legitimate user and determine the action he or she is allowed to perform.
a) authorization
b) authentication
c) endpoint security
d) information assurance

36. When dealing with consumer-facing applications, such as online banking and e-commerce, strong authentication must be balanced with __________.
a) convenience
b) encryption
c) authorization
d) all of the above

37. Sensitive data that are encrypted with wired equivalent privacy (WEP) and transmitted between two wireless devices __________.
a) is fully secured
b) cannot be authenticated
c) has a moderate level of security
d) may be intercepted and disclosed

38. All of the following are characteristics of firewalls except:
a) Firewalls are a barrier between a corporate intranet or other internal networks and the Internet.
b) Firewalls function by deciding what traffic to allow into and out of the network and what traffic to block.
c) Firewalls must be configured to enforce the company’s security procedures and policies.
d) Network firewalls stop all viruses and most other types of malware.

39. __________, such as AirSnort and WEPcrack, are readily available tools that can be used to gain unauthorized access to networks putting them at great risk.
a) Wireless packet analyzers
b) Password crackers
c) Firewall sniffers
d) Intrusion detectors

40. __________ is a security technology for wireless networks that improves on the authentication and encryption features of WEP.
a) Network access control (NAC)
b) Security exchange commission (SEC)
c) Wi-Fi protected access (WPA)
d) Intrusion detection system (IDS)

41. The Sarbanes-Oxley Act (SOX):
a) is an antifraud law.
b) forces more accurate business reporting and disclosure of GAAP (generally accepted accounting principles) violations.
c) makes it necessary to find and root out fraud.
d) All of the above

42. Symptoms of fraud that can be detected by internal controls include all of the following except:
a) missing documents.
b) delayed bank deposits.
c) employees who do not take vacations or go out of their way to work overtime.
d) large increase in network traffic.

43. An estimated __________ of companies that suffer a significant data loss often go out of business within five years.
a) 23%
b) 43%
c) 73%
d) 93%

44. __________ is the chain of events linking the business continuity plan to protection and to recovery.
a) Disaster recovery
b) Auditing
c) Date recovery
d) Internal control

45. According to a Workplace E-Mail and Instant Messaging Survey of 840 U.S. companies, approximately__________ have had employee e-mail or text messages subpoenaed as part of a lawsuit or regulatory investigation.
a) 5%
b) 10%
c) 20%
d) 33%

True/False

46. A fiduciary responsibility is both a legal and an ethical obligation.

47. In general, risk management is expensive to the organization, but convenient for users.

48. The theft of confidential account data from HSBC Private Bank in Switzerland in 2007 had been done by hackers because of inadequate security controls.

49. Firewalls and intrusion detection systems are placed throughout networks to monitor and control traffic into and out of a network.

50. Today, infosec is mostly a technology issue assigned to the IT department. Incidents are handled on a case-by-case “cleanup” basis rather than by taking a preemptive approach to protect ahead of the threats.

51. There has been a steep increase in malware because of the availability of free, easy to use, powerful toolkits that even novice cyber criminals can use to develop malware.

52. A majority of data breaches involve some sort of insider error or action either intentional or unintentional. That is, the greatest infosec risks are employees and managers.

53. IT security is so integral to business objectives that it needs to be treated as a stand-alone function.

54. Despite the challenges organizations face trying to protect against threats from employees, insider incidents can be minimized with a layered defense strategy consisting of security procedures, acceptable use policies, and technology controls.

55. Types of unintentional threats that organizations must defend against as part of their IT security measures are human errors, sabotage, environmental hazards, and computer system failures.

56. Corporate and government secrets are currently being stolen by a serious threat called advanced persistent threat (APT), which are designed for long-term espionage. Once installed on a network, ATPs transmit copies of documents, such as Microsoft Office files and PDFs, in stealth mode.

57. Financial institutions, data processing firms, and retail businesses do not have to notify potential victims or reveal data breaches in which customers’ personal financial information may have been stolen, lost, or compromised.

58. The infosec defense strategies and controls depend on what needs to be protected and the cost-benefit analysis. That is, companies should neither under-invest nor over-invest.

59. Newly released viruses with unidentified signatures or that are hidden in an e-mail attachment are blocked by firewalls and antivirus software from entering a company’s network.

60. Sarbanes-Oxley Act is an antifraud law. It forces more accurate business reporting and disclosure of GAAP (generally accepted accounting principles) violations, thus making it necessary to find and root out fraud.

Short Answer

61. __________ is the word that refers to viruses, worms, trojan horses, spyware, and all other types of disruptive, destructive, or unwanted programs.

62. __________ is the supervision, monitoring, and control of the organization’s IT assets. COBIT is a guide to best practices in this area.

63. The purpose of the PCI DSS is to improve customers’__________ in e-commerce, especially when it comes to online payments, and to increase the Web security of online merchants.

64. From an infosec perspective, __________ has been used by criminals or corporate spies to trick insiders into revealing information or access codes that outsiders should not have

65. A __________ attack occurs when a server or Web site receives a flood of traffic—much more traffic or requests for service than it can handle, causing it to crash.

66. A __________ control is an automated method of verifying the identity of a person, based on physical or behavioral characteristics, such as a fingerprint or voice scan.

67. All Internet traffic, which travels as packets, should have to pass through a(n) __________ , but that is rarely the case for instant messages and wireless traffic.

68. The __________ environment is the work atmosphere that a company sets for its employees in order to achieve reliable financial reporting and compliance with laws, regulations, and policies.

69. An important element in any security system is the __________ plan, also known as the disaster recovery plan, which outlines the process by which businesses should recover from a major disaster.

70. Under the doctrine of __________ , senior managers and directors have a fiduciary obligation to use reasonable care to protect the company’s business operations. When they fail to meet the company’s legal and regulatory duties, they can face lawsuits or other legal action.

Essay

71. Why are internal threats a major challenge for organizations? How can internal threats be minimized?

72. Why do social networks and cloud computing increase IT security risks? How can those risks be reduced?

73. Identify and explain four of the major objectives of IT security defense strategies:

74. Why do fraud prevention and detection require an effective monitoring system?

75. Implementing security programs raises many ethical issues. Identify two of these ethical issues.

BUS 335 Week 4 Quiz 3 Chapter 4 – Strayer

BUS 335 Staffing Organizations Week 4 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 4
Student: ___________________________________________________________________________
1. In most modern organizations, jobs are largely well established and change little over time. 
True False

2. Job analysis is the process of studying jobs in order to gather, analyze, synthesize, and report information about job requirements. 
True False

3. Competency based job analysis seeks to identify and describe the specific tasks, KSAOs, and job context for a particular job. 
True False

4. The traditional way of designing a job is to identify and define its elements and tasks precisely and then incorporate them into a job description. 
True False

5. Traditional job design is marked by formal organization charts, clear and precise job descriptions and specifications, and well-defined relationships between jobs. 
True False

6. Changes to jobs have become so radical that the concept of “jobs” is no longer a useful concept in most organizations. 
True False

7. Advances in technology are one of the major reasons for changes in jobs. 
True False

8. A job family is a grouping of positions that are similar in their tasks and task dimensions. 
True False

9. The smallest unit into which work can be divided without analyzing separate motions, movements, and mental processes is called an element. 
True False

10. Many small-business owners, general managers of start-up strategic business units, and top management members perform flexible jobs that are difficult to classify in traditional job analysis. 
True False

11. Measures of engagement reflect specific skills sets that are readily measured through job analysis. 
True False

12. Competency analysis is one way to incorporate engagement into job analysis. 
True False

13. A job description is best defined as _____. 
A. the organization’s framework for AA compliance
B. the organization’s indicator of tasks required for each job
C. the organizations principle job training tool
D. the organization’s performance appraisal instrument

14. Which of the following are elements of traditional job design? 
A. formal organization charts
B. clear and precise job descriptions
C. well-defined mobility (promotion and transfer) paths
D. all of the above

15. Which of the following is a good definition of a job family? 
A. A grouping of elements to form an identifiable work activity that is a logical and necessary step in the performance of a job
B. A grouping of jobs, usually according to function
C. A grouping of jobs according to generic job title or occupation
D. A grouping of positions that are similar in their tasks and task dimension

16. Which of the following is a good definition of a job category? 
A. A grouping of elements to form an identifiable work activity that is a logical and necessary step in the performance of a job
B. A grouping of jobs, usually according to function
C. A grouping of jobs according to generic job title or occupation
D. A grouping of positions that are similar in their tasks and task dimensions

17. Which of the following is a good definition of a job? 
A. A grouping of elements to form an identifiable work activity that is a logical and necessary step in the performance of a job
B. A grouping of jobs, usually according to function
C. A grouping of jobs according to generic job title or occupation
D. A grouping of positions that are similar in their tasks and task dimensions

18. Which of the following is a good definition of a task? 
A. A grouping of elements to form an identifiable work activity that is a logical and necessary step in the performance of a job
B. A grouping of jobs, usually according to function
C. A grouping of jobs according to generic job title or occupation
D. A grouping of positions that are similar in their tasks and task dimensions

19. Measures of engagement reflect _________. 
A. task characteristics that are readily accommodated by job analysis
B. the degree to which an employee helps co-workers voluntarily
C. the degree to which an employee identifies with and has enthusiasm for his or her work
D. the employee’s tendency to reject alternative employment offers when given

20. Job requirements job analysis begins by identifying the specific tasks and the job context for a particular job. 
True False

21. Job analysis is a primary input and support activity for most functional staffing activities. 
True False

22. Team-based jobs lend themselves particularly well to job requirements job analysis. 
True False

23. The job requirements matrix is composed of two components: tasks and KSAOs. 
True False

24. Task statements are objectively written descriptions of the behaviors or work activities engaged in by employees in order to perform the job. 
True False

25. Task statements should reflect what the employee does, to whom or what the employee does what he or she does, what is produced, and what is used. 
True False

26. The KSAO portion of a job requirements matrix is often converted to a job description. 
True False

27. The term “task dimension” has the same basic meaning as “duties” or “areas of responsibility.” 
True False

28. Sentence analysis is used to develop competencies. 
True False

29. Tasks should be constructed using broadly applicable verbs, such as “supports,” “assists,” and “handles.” 
True False

30. It is possible to weight task dimensions using either relative time spent, percentage of time spent, or importance to overall job performance. 
True False

31. Knowledge is a body of information that can be directly applied to the performance of tasks. 
True False

32. Skills are underlying, enduring traits of a person that are useful for performing a range of tasks. 
True False

33. The work setting, attire, environmental conditions, and job hazards are associated with a job’s “context.” 
True False

34. Having two or more people independently develop task statements for a given job is a way to enhance content validity and assess reliability. 
True False

35. It is not really necessary, or even advisable, to have an incumbent or supervisor serve as job analysts. 
True False

36. Little research has been done to identify particular job-related skills. 
True False

37. In general, there are few, if any, sources of job information external to the organization where the job is performed. 
True False

38. Direct observation is a source for job information that is well suited for jobs with physical components, and relatively short cycle times for job tasks. 
True False

39. Using managers in a job analysis lends both expertise and neutrality to the process. 
True False

40. When a job analysis is likely to be legally, technically or politically scrutinized, it is best to use an internal person to do the analysis, rather than an external consultant. 
True False

41. In general, when rational or narrative job analysis methods are desired, it is advisable to rely on external consultants rather than internal staff. 
True False

42. A valuable use of O*NET is that it serves as a starting point in preparing knowledge statements. 
True False

43. Subject matter experts should not include previous jobholders, private consultants, and customers/clients. 
True False

44. The O*Net contains work context factors pertaining to interpersonal relationships and to structural job characteristics. 
True False

45. The term essential functions refers to the fundamental job duties of the employment position the individual with a disability holds or desires. 
True False

46. The Position Analysis Questionnaire measures extrinsic rewards such as pay, recognition, and promotional opportunities. 
True False

47. The best approach to job analysis for traditional or evolving jobs is _____. 
A. job requirements job analysis
B. competency based job analysis
C. team-based job analysis
D. functional job analysis

48. Which of the following is NOT shown by an ideal task statement? 
A. what the employee does
B. to whom or what the employee does what he or she does
C. what is produced
D. how each behavior is rewarded

49. Which of the following is a component of a job requirements matrix? 
A. Job tenure
B. Job pay
C. Job context
D. Job appraisal

50. Sentence analysis technique is an aid to __________. 
A. writing the job summary
B. describing the KSAOs
C. drafting precise task statements
D. describing the job context

51. It can be accurately said of the “task dimension” component of a job description that it ___________. 
A. provides a rating of task importance
B. is a grouping of similar tasks
C. indicates appropriate KSAOs
D. indicates the nature of KSAOs

52. The job context component of a job description does not __________. 
A. encompass both tasks and KSAOs
B. describe physical demands
C. describe environmental characteristics
D. address pay scales

53. The KSAO portion of a job requirements matrix may be _________. 
A. converted to a job specification
B. converted to a job description
C. converted to a job evaluation
D. converted into a job pay scale

54. A body of information that can be directly applied to the performance of tasks is _______. 
A. knowledge
B. skills
C. abilities
D. none of the above

55. An underlying, enduring trait of the person that is useful for performing a range of tasks is _______. 
A. knowledge
B. skills
C. abilities
D. none of the above

56. An observable competence for working with or applying information to perform a particular task is _______. 
A. knowledge
B. skills
C. abilities
D. none of the above

57. If tasks/dimensions are not weighted formally, then ________. 
A. the job description has no value
B. AA non-compliance will result
C. all tasks/dimensions are assessed as equally important by default
D. pay scales cannot be developed

58. The reason for having the manager participate as a job analyst is to ______. 
A. provide acceptance of job statements to guide performance on the job
B. verify statements are inclusive and accurate
C. control incumbent responses on job analysis questionnaires
D. establish pay scales

59. A limitation of observation as a means of gathering job information would be ______________. 
A. access to job context
B. short job cycle
C. access to KSAOs
D. mental processes are difficult to measure

60. Which of the following is an advantage of using job task questionnaires? 
A. Use with large numbers of people
B. Highly diverse job content and formats
C. Working with top management positions
D. Working with newly created jobs

61. Which of the following is not a good reason for using an outside consultant for job analysis? 
A. Technical innovativeness is critical
B. Legal scrutiny of project output/processes is high
C. Knowledge of organization culture is critical
D. Data collection involves specialized statistical methods

62. Skills contained in O*Net include _____________. 
A. basic skills
B. cross-functional skills
C. sensory abilities
D. all of the above

63. Competency-based job analysis begins by identifying the specific tasks and the job context for a particular job. 
True False

64. Competencies are more specific than KSAOs. 
True False

65. Competency-based job analysis attempts to identify and describe job requirements in the form of general KSAOs that are required across a range of jobs. 
True False

66. Competencies contribute to job performance, but not to organizational success. 
True False

67. Competency based job analysis is a way to facilitate increased staffing flexibility. 
True False

68. A key strategic HR reason for performing competency modeling is to create awareness and understanding of the need for change in business. 
True False

69. Competency modeling is useful for improving workforce skills, but is generally of little use for replacement or succession planning. 
True False

70. Although competency modeling has its advantages relative to job requirements job analysis, it does require considerable time and effort to establish competency models in an organization. 
True False

71. The “Great Eight” competencies include leading, supporting, presenting, analyzing, creating, organizing, adapting, and performing. 
True False

72. The legal implications of analyzing competencies beyond job specific ones are well-known. 
True False

73. The best approach to job analysis for flexible jobs with changing requirements is _____. 
A. job requirements job analysis
B. competency based job analysis
C. team-based job analysis
D. functional job analysis

74. A competency is _____. 
A. a type of behavior that is observed on the job
B. an underlying characteristic of an individual that contributes to job or role performance
C. a latent component of the job characteristics matrix
D. a compilation of the tasks, duties, and responsibilities that make up a job

75. Unlike KSAOs, competencies usually describe characteristics ________. 
A. of individuals that contribute to job performance
B. that are used for selecting individuals
C. that contribute to success across multiple jobs
D. of organizational reward systems

76. Competency modeling is useful for which of the following applications? 
A. Identifying needs for replacement and succession planning
B. Internal promotion processes
C. Facilitating the HR planning process
D. All of the above

77. Competency modeling is strategically used to _________. 
A. create awareness of the need for stability in business
B. enhance the skill level of the workforce
C. encourage employees to focus on their own jobs as much as possible
D. none of the above

78. Which of the following is not one of the “great eight” competencies? 
A. Mechanical knowledge
B. Creating
C. Organizing
D. Performing

79. Pay, benefits, and promotions are typical intrinsic job rewards. 
True False

80. Intrinsic rewards are best characterized as “inherent in the nature of the job and experienced by the employee as an outgrowth of actually doing the job.” 
True False

81. The employee value proposition is the bundle or package of KSAOs that the employee provides to the organization. 
True False

82. Surveys and interviews with employees are a key way to gather information on job rewards preferences. 
True False

83. One advantage of intrinsic rewards is that they are basically costless. 
True False

84. Interviews and surveys of current employees on job rewards, no matter how comprehensive, miss several relevant groups of individuals. 
True False

85. Surveys of employees clearly suggest that intrinsic rewards are seen as more important for job satisfaction than extrinsic rewards. 
True False

86. Interviews are more personal than surveys, but the summary and analysis of interview data is more time consuming and difficult. 
True False

87. One way to assess the importance of rewards to employees is to examine the rewards that other organizations provide to their employees. 
True False

88. Which of the following is not an example of an extrinsic reward? 
A. Pay
B. Promotion
C. Autonomy
D. Fringe benefits

89. It is critical than when employees are interviewed about their reward preferences, the content of the interviews is ____________. 
A. made public so managers can match employee preferences immediately
B. kept confidential so employees can report honestly
C. developed through an informal process so employees feel comfortable
D. generally less important than the process used in asking questions

90. Which of the following HR outcomes arise from providing and using rewards? 
A. applicant attraction
B. employee performance
C. employee retention
D. all of the above

91. What is the “employee value proposition?” 
A. the total worth of an employee’s KSAOs
B. the organization’s package of rewards provided to employees
C. the net worth of an organization’s employees
D. none of the above

92. Which of the following best represents the order of aspects important for job satisfaction identified in surveys, from most valued to least valued? 
A. variety of work, relationship with supervisor, compensation, and networking
B. relationship with supervisor, networking, variety of work, and compensation
C. job security, benefits, opportunities to use skills and abilities, and financial stability
D. networking, variety of work, relationship with supervisor, and compensation

93. When assessing appropriate rewards, organizations can use information from _____________. 
A. surveys conducted by the Department of Labor
B. surveys conducted by the Society for Human Resources Management
C. internal organizational sources
D. all of the above

94. A work team is an interdependent collection of employees who share responsibility for achieving a specific goal. 
True False

95. Teams are seldom designed to absorb management functions that allow for self-management because they inherently produce excess groupthink. 
True False

96. The greater the task interdependence in a team, the greater the importance of KSAOs pertaining to interpersonal qualities and team self-management qualities. 
True False

97. Job specific KSAOs become largely irrelevant in team-based work. 
True False

98. An interdependent collection of employees who share responsibility for achieving a specific goal is called a _____. 
A. project unit
B. department
C. work team
D. goal circle

99. Which of the following are unique properties of teams, from a staffing point of view? 
A. Competencies are not generally useful for selection in teams because of the division of responsibility in teams
B. KSAOs for teams involve job-spanning skills because members perform multiple roles
C. Most research shows intelligence is unrelated to team success
D. Both A and C

100. The sample size used in job analysis is not relevant to legal defensibility. 
True False

101. Details regarding knowledge, skills, and abilities in a job description are important components of a legally defensible selection system. 
True False

102. If an employment discrimination case involves an organization’s defense of its selection procedures, the UGESP require the conduct of job analysis. 
True False

103. Although some have advocated for greater use of job analysis in legal cases, the courts currently recognize job titles as sufficiently detailed indicators of required characteristics of applicants. 
True False

104. Employment regulations give several specific techniques for using job analysis to identify essential job functions. 
True False

105. The EEOC has provided assistance to organizations for dealing with the issue of identifying essential job functions for the purpose of ADA compliance. 
True False

106. The ADA requires the performance of a job analysis to identify the essential functions of a job. 
True False

107. Which of the following could harm an organization’s legal defense in an EEO/AA case? 
A. Written job descriptions
B. Large sample sizes employed in job analysis
C. Emphasis mostly on primary tasks
D. Emphasis mostly on secondary tasks

108. In defining essential job functions for the purposes of complying with ADA regulations, which of the following does not convey the meaning “essential?” 
A. Compensation for the function is above average
B. Position exists to perform the function
C. Incumbent expertise required to perform the function
D. There are limited numbers of employees among whom performance of the function can be distributed

109. When using job analysis to comply with the ADA, which of the following is considered most helpful by the EEOC? 
A. Focusing on the way the work is usually done
B. Focusing on the results of a function
C. Focusing on the average qualifications of job holders
D. Focusing on managerial assessments of skill relevance

BUS 325 Week 4 Quiz 3 Chapter 3 – Strayer

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CHAPTER 3: The Organizational Context

TRUE/FALSE

1. An export manager is typically the first international HR position in a new international company.

2. Purchasing an international company automatically creates a separate international division of a company.

3. The Inpatriate manager performs a major role in identifying employees who can direct operations in a foreign subsidiary.

4. International division acting as an independent separate unit cannot be tolerated as the firm’s international activities become strategically more important.

5. The matrix structure area managers are responsible for the performances of all products within the various countries that comprise their regions.

6. Less human resources planning and management development are in the matrix structure of operations than traditional organization.

7. Mixed structures are more complex and harder to explain and implement/control than a matrix structure.

8. Intra-organizational networks comprise the organization’s headquarters and the numerous subsidiaries.

9. The metanational form is described as a global tournament.

10. Centralized HR companies are operated within a matrix structure.

11. Training, performance, appraisals and staff movements are not impacted by the HR structural form.

12. Europeans tend to take a different structural path than the US.

13. Chinese firms have many international operations.

14. European multinational firms are mainly from Germany.

15. Japanese based multinational firms are the only firms to successfully balance operations in all the regional blocks.

16. Formal structure controls are an international firm’s primary source of control.

17. Training and development, program reward systems and promotion are activities that reinforce company value systems.

18. Half of the US firms reported that HR functions were unrelated to the nature of the firm’s international operations.

19. HR departments are emerged in policies and procedures in the early international or export stage.

20. Centralized HR companies are characterized by devolving the HR responsibilities to a small group who reports to corporate headquarters.

MULTIPLE CHOICE

1. “Born globals” are:
a. Company formed with the international market in mind
b. International firm formed by acquisition
c. Company grown into an international company by market demands
d. Company owned by people of different nationalities

2. Typically the initial stage of a firm entering international operations is:
a. Export c. Investment
b. Licensing d. Employment

3. Which category of employee is typically used in key sales subsidiary position in a new developing international company:
a. Parent Country National c. Third Country National
b. Host Country National d. Multi Country National

4. The second stage of a new international company typically involves which department:
a. Sales c. Employment
b. Export d. Human resources

5. Which stage of international operations tend to create a separate international division in a company:
a. Foreign production/service operations c. Physical location
b. Exporting d. Sales

6. “Miniature replicas” are:
a. Subsidiaries structured to mirror that of domestic organizations
b. Small scale reproduction of each firm to show at office meetings
c. Company created to make miniature building
d. Foreign company purchased to create a multinational company

7. Many companies in the developmental stage of internationalization will maintain control by:
a. Placing PCN in all key positions
b. Placing a human resource division on location
c. Going to governmental sources for support
d. Hiring locals in all aspects of the organization

8. The “think global, act local” paradox:
a. Purchase vegetables at farmers markets grown in another country
b. Push for local responsiveness toward global integration
c. Results in a foreign subsidiary hiring local employees
d. Reflects the hierarchy of needs for a multinational company

9. A matrix structure:
a. Keeps profit centers but adds worldwide product managers
b. Integrated its operations across more than one dimension
c. Relies heavily on social networking
d. Creates a worldwide product division

10. One advantage of a matrix structure is:
a. Allows all departments to network efficient
b. Brings conflicts of interest out into the open
c. Provides the company with uniform corporate values
d. Allows each locations to have its own self-contained division

11. A major contributing factor of an unmanageable matrix structure is:
a. Confused human resource department c. Clear responsibilities
b. Standard reporting procedures d. Dual reporting requirements

12. The complex network of interrelated activities in a MNE can be described in the following structure:
a. Functional c. Heterarchy
b. Product division d. Bureaucratic

13. Transnational strategies of globalization are characterized by:
a. Ability of the multinational to formulate and implement the required human resource element
b. A company doing business in more than one country
c. Organization form that is characterized by an interdependence of resources and responsibilities across all business units
d. Network of independent companies in different countries

14. A common theme between heterarchy, matrix and transnational is:
a. Networks of communication is imperative
b. Staff transfers play a critical role in integrations and coordination
c. Legal forms are very different
d. The reduced role of communications requirements

15. The management of a multi-centered networked organization is:
a. Simple c. Organized
b. Inconsequential d. Complex

16. The following types of units are regarded in a metanational firm EXCEPT:
a. Sensing unit, financial unit and performing unit
b. Magnet unit and entrepreneurial unit
c. Sensing unit, magnet unit and marketing unit
d. Marketing unit, magnet unit, financial unit

17. HR functions are described in the following structural forms EXCEPT for:
a. Centralized HR c. Matrix HR
b. Decentralized HR d. Transition HR

18. The European path approach to a global matrix tends to emphases:
a. Worldwide product division approach c. Functional approach
b. Area/geographic division approach d. Corporate subsidiary approach

19. Korean conglomerates have a strong preference for:
a. Greenfield building approach c. Grow within approach
b. Bamboo network/family approach d. Growth-through-acquisition approach

20. Clan control is defined as:
a. Hiring family relations to maintain control
b. Hiring people from similar backgrounds to ease cooperation
c. Social control to supplement or replace traditional structures
d. Control by personal influence

21. Multinational firms are divided into the following regional block EXCEPT:
a. North America c. Europe
b. Asia d. Australia

22. An important forum for the development of personal networks is:
a. Relocating staff on a regular basis c. Training programs held in regional centers
b. Luncheon meeting d. Weekly department meetings

23. Social Capital emphasizes the need for:
a. Recycling facilities for community
b. A customer list in an organization
c. Employees with poor social skills
d. Contacts and ties that facilitate knowledge sharing

24. The process of socializing people so that they come to share a common set of values and beliefs that shapes their behavior is:
a. Networking c. Matrix structure
b. Corporate culture d. Social investment

25. Transition companies are characterized by:
a. Large well-resourced HR departments
b. Devolving HR responsibilities to a small group
c. HR relocations to a subsidiary company
d. Medium sized corporate HR department

26. The matrix structure:
a. Is rather simple to control
b. Is characterized by a manager who belongs to two units at the same time
c. Is one of the first structures used by newly-formed international firms
d. Is difficult to set up, but once in place it is easy to maintain

27. Matrix structures:
a. Can be managed by anyone with basic skills
b. Requires a manager with some experience, but who insist on no ambiguities
c. Requires managers who know the business in general, who has good interpersonal skills and who can deal with ambiguities in responsibilities
d. Requires a manager who has worked at least five years in a previous matrix organization

28. Network multinational structures:
a. Are the most popular form of multinational organization
b. Are tightly coupled bureaucracies, linked by formal explicit policies
c. Are culturally homogeneous and hierarchically controlled
d. Are loosely coupled political systems

29. The host-country effect:
a. Implies that multinationals are shaped by institutions existing in their country origins
b. Refers to the extent to which HRM practice in subsidiaries are impacted by the host country context
c. Refers to the transfer of practices from foreign locations to the headquarters
d. Relies heavily on knowledge from the parent or peer subsidiaries

30. The subsidiary as an integrated player:
a. Develops HRM policies and practice which are transferred to overseas affiliates
b. Creates knowledge but at the same time is recipient of knowledge flows
c. Engages in the creation of country/region specific knowledge in all key functional areas
d. Moves managers in a way to break down barriers and produces corporate champions of information

SHORT ANSWER

1. What are the advantages and disadvantages of the global matrix structure?

2. What are the characteristics of a centralized decentralized and transition HR company?

3. Discuss a formal, structural form of control utilized by traditional multinational firms.

4. What would be considered an informal control mechanism?

5. How can a social relationship be considered a control?

BUS 309 Week 4 Quiz 3 Chapter 3 – Strayer

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Chapter 3—Justice and Economic Distribution

MULTIPLE CHOICE

1. Talk of justice and injustice appeals to the related notions of
a. fairness, equality, desert c. feeling, sentiment, happiness
b. reason, reflection, deliberation d. fairness, impartiality, duty

2. Aristotle’s formal principle of justice states,
a. from each according to his or her ability, to each according to his or her need.
b. similar cases must be treated alike except where there is some relevant difference.
c. all people are to be treated the same in every situation.
d. from each according to his or her ability, to each according to his or her merit.

3. According to Mill’s utilitarianism,
a. rights are certain moral rules whose observance is of the utmost importance for the long-run, overall maximization of happiness.
b. there are no rights.
c. the rights possessed by human beings remain unchanged for all times and places.
d. rights are those rules that a majority of the society would agree to behind the “veil of ignorance.”

4. According to libertarianism,
a. there are no natural, Lockean rights.
b. we have a basic right to assistance from others.
c. it would be unjust to coerce people to give food or money to the starving.
d. happiness takes priority over other moral concerns.

5. According to John Rawls, people in “the original position” choose the principles of justice on the basis of
a. social utility.
b. their religion.
c. self-interest.
d. their intuitive knowledge of the natural rights of all human beings.

6. From John Stuart Mill’s viewpoint,
a. philosophical concern with justice began in the 19th century.
b. questions of morality form a subset of questions of justice.
c. for utilitarians, justice is a moral standard independent of the principle of utility.
d. not every issue of social utility was a matter of justice.

7. Mill justified utilitarianism from rival perspectives when he argued
a. that without utilitarianism to provide a determinate standard of justice, one is always left with a plethora of competing principles of justice, all of which seem to have plausibility but are mutually incompatible.
b. that social utility is irrelevant to issues of justice.
c. against worker participation.
d. that only utilitarianism itself, as a normative theory, can provide an answer to the question: What economic system will bring more good to society than any other system?

8. In Anarchy, State and Utopia, Robert Nozick advocates
a. Libertarianism. b. Kantianism. c. Utilitarianism. d. Egoism.

9. If libertarianism is true, which of these statements is true?
a. We should endorse utilitarianism’s concern for total social well-being.
b. Pleasure takes priority over any other moral concern.
c. We should have a “night-watchman” state.
d. If a person comes into possession of a holding through a legitimate transfer, then, morally speaking, she or he deserves that holding.

10. According to Locke,
a. individuals are morally entitled to take other people’s property.
b. property is a moral right.
c. individuals are not morally entitled to the products of their labor.
d. property acquisition is a duty.

11. According to John Rawls,
a. people in the original position choose the principles on the basis of self-interest.
b. in the original position, people must have full and complete knowledge.
c. justice forbids any social or economic inequalities.
d. liberty is of little or no importance compared to equality.

12. The veil of ignorance proposes that
a. those in the original position are supposed to choose principles on the basis of self-interest, agreement seems unlikely.
b. one group would be supportive of another group benefiting even though the rules are different.
c. people are fully knowledgeable about themselves or situation allowing them to have a partial or biased point of view.
d. agreement is difficult to attain.

13. The veil of ignorance assures us that people in the original position will be
a. difficult to come to agreement. c. biased.
b. impartial. d. forgiving.

14. Primary social goods include
a. poverty. c. status.
b. freedom of religion. d. leisure time activities.

15. John Rawls’ Theory of Justice lays within which type of tradition?
a. All for one and one for all. c. Feudal society.
b. Principled living. d. Social contract.

16. The difference principle of Rawls states
a. we are all created equal.
b. inequalities are only justified if they benefit the least advantaged.
c. we all deserve the same.
d. some do deserve more than others.

17. In association with labor and capital, Mill had contrasting views of
a. freedom of speech. c. welfare.
b. farmers’ markets profit. d. profit sharing.

18. Who is more likely to be sympathetic with the idea of reducing the disparities of income in society?
a. Utilitarians b. Libertarians c. Robert Nozick d. Milton Friedman

19. The first principle of Nozick’s entitlement theory concerns the original acquisition of
a. morals. c. case law.
b. goods, money, and property. d. the crown.

20. In Nozick’s example of Wilt Chamberlain, he argues that other theories of economic justice inevitably fail to respect people’s
a. liberty. b. power of choice. c. skills. d. height.

21. To the libertarians, their concept of liberty includes a commitment to
a. hedonism. b. charity. c. private property. d. happiness.

22. Rawls rejects utilitarianism because
a. he saw it as a threat.
b. it might permit an unfair distribution of burdens and benefits.
c. governments wanted it.
d. it values moral purity.

23. Eminent domain is the ancient right of government to take what from an individual?
a. food b. clothing c. liberties d. property

24. The Supreme Court gave decision making power for Eminent domain to the
a. feds. c. townships.
b. states and local communities d. parents.

25. What philosopher believes the maximin rule is relevant to justice?
a. John Rawls b. John Stuart Mill c. Robert Nozick d. Aristotle

TRUE/FALSE

1. According to Robert Nozick, the basic moral rights possessed by all human beings are both negative and natural.

2. Libertarians reject inheritance as a legitimate means of acquiring wealth.

3. Utilitarians are likely to be sympathetic to the argument that steps should be taken to reduce the great disparities of income that characterize our society.

4. The phrase “the declining marginal utility of money” means that successive additions to one’s income produce, on average, less happiness or welfare than did earlier additions.

5. Robert Nozick uses the Wilt Chamberlain story to show the importance of economic re-distribution.

6. Rawls’s theory of distributive justice is a form of utilitarianism.

7. According to Robert Nozick, property rights exist prior to any social arrangements and are morally antecedent to any legislative decisions that a society might make.

8. The United States leads the world in executive pay.

9. According to John Rawls, people in the original position do not know what social position or status they hold in society.

10. According to the “maximin” rule, you should select the alternative under which the worst that could happen to you is better than the worst that could happen to you under any other alternative.

11. Thanks to changes in the tax system, in recent years income in the United States has become more equal.

12. The distribution of income in Germany and Japan is far more unequal than that in the United States.

13. Many philosophers believe (as Aristotle did) that we are required, as a formal principle of justice, to treat similar cases alike except where there is some relevant difference.

14. Justice is frequently held to require that our treatment of people reflect their fundamental moral equality.

15. Distributive justice concerns the morally proper distribution of social benefits and burdens.

16. For utilitarians, justice is an independent moral standard distinct from their general principle.

17. According to Case 3.2, “Battling Over Bottled Water”, water is the lifeblood of the earth.

18. According to Mill, to say that I have a right to something is to say that I have a valid claim on society to protect me in the possession of that thing, either by force of law or through education and opinion.

19. In his Principles of Political Economy, J.S. Mill argued for the desirability of breaking down the sharp and hostile division between the producers or workers, on the one hand, and the capitalists or owners, on the other hand.

20. According to libertarianism, liberty is the prime value, and justice consists in being free from the interference of others.

21. Libertarianism involves a commitment to leaving market relations – buying, selling, and other exchanges – totally unrestricted.

22. Libertarians would find it immoral and unjust to coerce people to give food or money to the starving.

23. John Rawls’s second principle of justice states that insofar as inequalities are permitted — that is, insofar as it is compatible with justice for some jobs or positions to bring greater rewards than others — these positions must be open to all.

SHORT ANSWER

1. Talk of justice and injustice typically focuses on four related moral ideas. Explain what two of them are.

2. According to John Stuart Mill, what does it mean to say that a person has a right to something?

3. What do economists mean by “the declining marginal utility of money” and how does Brandt use the concept to argue for greater economic equality?

4. Briefly explain the basic principles of Nozick’s entitlement theory.

5. According to Smith, if the market is left without regulation, will it eventually reward those that deserve it?

6. What does Rawls mean by the original position and the veil of ignorance?

7. What is the “maximin” rule for making decisions and what role does it play in Rawls’s argument?

8. Define “Lockean rights” in your own words.

9. Explain the relationship between justice and fairness.

ESSAY

1. Compare and contrast how Mill and Nozick would explain why stealing is wrong.

2. Would Nozick’s theory of justice find the poverty in America to be just or unjust?

3. Is Bill Gates’s accumulation of wealth just or unjust, according to John Stuart Mill’s theory of justice?

4. How would Rawls view an inheritance from a family member?

5. Can wealth legitimately be spread equally among the people of a nation according to any theory of justice we have discussed?

BUS 230 Week 4 Quiz Chapter 4 – Strayer

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CHAPTER 4

Supply Processes and Technology

23. The greatest opportunity to affect value in the purchasing process is when:

a. the supplier(s) is selected.
b. price and terms are determined.
c. potential suppliers are analyzed.
d. needs are recognized and described.
e. the buyer follows-up and expedites the order.

24. If the buyer does not have a clear and unambiguous description or specification and wants to find out which suppliers can deliver the best value when and where needed, he or she will typically issue a:

a. request for quotation (RFQ).
b. request for proposal (RFP).
c. request for information (RFI).
d. request for bid (RFB).
e. request for suggestions (RFS).

25. The benefit(s) of participation in an e-marketplace include:

a. the ability to aggregate spend
b. the advantages from economies of scale.
c. visibility up- and downstream in the supply chain.
d. the ability to automate and facilitate transactions.
e. all of the above.

26. One purpose of a requisition is:

a. to give users a way to authorize buyers to acquire goods and services.
b. to solicit price quotes for goods or services from suppliers.
c. to give finance a way to have the final say in any decision to spend money.
d. to clarify the description of need before communicating with potential suppliers.
e. to request or requisition supplies from external suppliers.

27. Radio frequency identification (RFID) will:

a. eliminate bar coding and manual counting.
b. eliminate further investment in information technology.
c. supplement bar coding to reduce theft.
d. be more cost effective to implement than bar coding.
e. improve data capture but slow down inventory picking

28. Efficient and effective supply processes are needed because of:

a. the need for an audit trail.
b. the large volume of items and dollar value.
c. severe consequences of poor performance.
d. the potential contribution to organizational objectives.
e. all of the above.

29. Online auctions have been most effective when:

a. the good or service is unique or highly customized.
b. technological, logistical, and commercial specifications are ambiguous.
c. the market conditions favor buyers.
d. the organization owns the technology to run the auction.
e. there are a limited number of suppliers available.

29. Electronic data interchange (EDI) provides:

a. secure transmission of large amounts of data, but with slow turnaround.
b. secure transmission, greater accuracy and shorter process cycle time for all data.
c. slow processing of large amounts of data, but with greater accuracy.
d. longer process cycle time, but with greater accuracy.
e. secure and rapid transmission of small amounts of data.

30. Application software for the procurement process is available:

a. only through an enterprise resource planning (ERP) system.
b. only from a systems developer.
c. only from an application software provider (ASP).
d. from an ERP system or systems developer, but not from an ASP.
e. from an ERP system, a systems developer, or an ASP.

31. Effectively and efficiently applying technology to the supply management process will result in:

a. increased clerical effort because there is more data entry than in a manual system.
b. damaged buyer-supplier relationships because of the impersonal nature of electronic communication.
c. an ability to reduce the total cost of doing business by enabling just-in-time systems, bar-coding applications, integrated manufacturing, and electronic funds transfers.
d. poorer negotiation planning and preparation because of the time spent accessing and analyzing data.
e. a decline in operating performance because of the volume of information to be analyzed and considered before making a decision.

True and False

1. A process is a set of activities that has a beginning and an end, occurs in a specific sequence, and has inputs and outputs.

2. Poor internal compliance with supply processes may indicate that internal customers do not trust the supply process or the suppliers to live up to promises.

3. A maverick buyer is a talented member of the supply department whose creativity and innovations have saved the organization large sums of money.

4. A bill of material (BOM) includes a list of potential suppliers for each item needed to make one month’s scheduled production.

5. The terms and conditions included in a purchase order vary depending on the nature of the purchase and may relate to price, quality, and service.

6. An online catalog is a digitized version of a supplier’s catalog that cannot be customized to include the specific items, prices, and other terms and conditions negotiated by the buyer and seller.

7. A reverse auction is an online, real time, increasing price auction between multiple pre-qualified suppliers and a buying organization.

8. Before embarking on an e-commerce path, the supply leadership should decide what should be acquired through e-commerce and what tools should be used.
9. It is relatively difficult to develop a global database to consolidate volumes and sourcing strategy because common technical standards and government regulations do not exist across countries.

10. Information flows into the supply group from (1) other internal functions and (2) external sources; and information flows out from supply to (1) other internal functions and (2) suppliers.

ACC 410 Week 4 Quiz 3 Chapter 4 – Strayer

ACC 410 Government and Not-for-Profit Accounting Week 4 Quiz – Strayer

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Chapter 4

Governmental Activities – Recognizing Revenues

TRUE/FALSE (CHAPTER 4)

1. If an entity elects to focus on all economic resources (both current and long-term assets and liabilities), then it should adopt a modified accrual basis of accounting.

2. The budgetary measurement focus of governments is determined by applicable state or local laws.

3. The revenue-recognition issues facing governments are simpler to resolve than those of businesses.

4. Governmental activities tend to derive the majority of their revenues from exchange transactions.

5. In accounting for property taxes, under the modified accrual basis, existing standards provide that, except in unusual circumstances, revenues should be recognized only if cash is expected to be collected within sixty days of year-end.

6. Ad valorem taxes are taxes that are based on value.

7. Income taxes are classified as ad valorem taxes.

8. Sales taxes are taxpayer assessed, that is, parties other than the beneficiary government determine the tax base.

9. All intergovernmental grants are accounted for in exactly the same way.

10. Revenues that cannot be classified as general revenues are by default considered program revenues.

11. Taxes that are imposed on the reporting government’s citizens are considered general revenues, even if they are restricted to specific programs.

MULTIPLE CHOICE (CHAPTER 4)

1. As used in governmental accounting, interperiod equity refers to a concept of
a) providing the same level of services to citizens each year.
b) measuring whether current year revenues are sufficient to pay for current year services.
c) levying property taxes at the same rate each year.
d) requiring that general fund budgets be balanced each year.

2. For fund financial statements, the measurement focus and basis of accounting used by governmental fund types are
a) current financial resources and modified accrual accounting.
b) economic resources and modified accrual accounting.
c) financial resources and full accrual accounting.
d) economic resources and full accrual accounting.

3. The modified accrual basis of accounting is used in presenting the fund financial statements of the governmental funds because
a) it is the superior method of accounting for the economic resources of any entity.
b) it provides information as to the extent the entity achieved interperiod equity.
c) it is budget oriented while facilitating comparisons among entities.
d) it results in accounting measurements based on the substance of transactions.

4. As used in defining the term ‘modified accrual basis of accounting’, available means
a) received in cash.
b) will be received in cash within 60 days of year-end.
c) collection in cash is reasonably assured.
d) collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period.

5. Under the accrual basis of accounting, property tax revenues are recognized
a) when they are received in cash.
b) in the year for which they were levied.
c) in the year for which they were levied and when collection in cash is reasonably assured.
d) when they are available to finance expenditures of the fiscal period.

6. Under the modified accrual basis of accounting, the amount of property tax revenues that should be recognized by a governmental entity in the current year related to the current year levy will be
a) the total amount of the levy.
b) the expected collectible portion of the levy.
c) the portion of the levy collected.
d) the portion of the levy collected in the current year or within sixty days of the fiscal period.

7. Under the modified accrual basis of accounting used by a governmental entity, investment revenues for the current period should include
a) only interest and dividends received.
b) all interest and dividends received during the period plus all accruals of interest and dividends earned.
c) all interest and dividends received plus gains and losses on securities that were sold during the period.
d) all interest and dividends received, all gains and losses on securities sold and all changes in market values on securities held in the portfolio at year-end.

8. Under the accrual basis of accounting used by a governmental entity, investment revenues for the current period should include
a) only interest and dividends received.
b) all interest and dividends received during the period plus all accruals of interest and dividends earned.
c) all interest and dividends received plus gains and losses on securities that were sold during the period.
d) all interest and dividends received, all gains and losses on securities sold and all changes in market values on securities held in the portfolio at year-end.

9. Under the modified accrual basis of accounting, derived nonexchange revenues are recognized by a governmental entity as revenue
a) when the underlying exchange transaction occurs.
b) when available.
c) when the underlying event occurs and the revenue is available.
d) when earned.

10. Under the accrual basis of accounting, derived nonexchange revenues are recognized by a governmental entity as revenue
a) when the underlying exchange transaction occurs.
b) when available.
c) when the underlying event occurs and the revenue is available.
d) when earned.

11. Under the modified accrual basis of accounting, gains and losses on disposal of fixed assets
a) are not recognized.
b) are recognized when the proceeds (cash) of the sale are received (on the installment basis).
c) are recognized only if there is a gain.
d) are recognized when the sale occurs, regardless of when the cash is collected.

12. Under the accrual basis of accounting, gains and losses on disposal of fixed assets
a) are not recognized.
b) are recognized when the proceeds (cash) of the sale are received (on the installment basis).
c) are recognized only if there is a gain.
d) are recognized when the sale occurs, regardless of when the cash is collected.

13. Under the modified accrual basis of accounting, fines, license fees, permits, and other miscellaneous revenue are generally recognized
a) when cash is received.
b) when assessed.
c) when an enforceable legal claim exists.
d) when an enforceable legal claim exists and the revenue is available.

14. Under the accrual basis of accounting, fines, license fees, permits, and other miscellaneous revenue are generally recognized
a) when cash is received.
b) when assessed.
c) when an enforceable legal claim exists.
d) when an enforceable legal claim exists and the revenue is available.

15. A city which has a 12/31 fiscal year end has adopted a policy of recognizing the maximum amount of property tax revenue allowable under GAAP. Property taxes of $600,000 (of which 10% are estimated to be uncollectible) are levied in October 1999 to finance the activities of the fiscal year 2000. During 2000, cash collections related to property taxes levied in October 1999 were $500,000. In 2001 the following amounts related to the property taxes levied in October 1999 were collected: January $25,000; March, $5,000. For the fiscal year ended 12/31/00, what amount should be recognized as property tax revenues related to the 1999 levy on the fund financial statements?
a) $600,000.
b) $540,000.
c) $525,000.
d) $500,000.

16. A city that has adopted a 12/31 fiscal year end has adopted a policy of recognizing property tax revenue consistent with the 60-day rule allowable period under GAAP. Property taxes of $600,000 (of which none are estimated to be uncollectible) are levied in October 2000 to finance the activities of fiscal year 2001. Property taxes are due in two installments June 20 and December 20. Cash collections related to property taxes are as follows:
1/15/01 for property taxes levied in 1999, due in 2000 $ 25,000
2/15/01 for property taxes levied in 1999, due in 2000 $ 15,000
3/15/01 for property taxes levied in 1999, due in 2000 $ 10,000
6/20/01 First installment of taxes levied in 2000, due 6/20/01 $350,000
12/20/01 Second installment of taxes levied in 2000, due 12/20/01 $150,000
1/15/02 for property taxes levied in 2000, due in 2001 $ 15,000
2/15/02 for property taxes levied in 2000, due in 2001 $ 10,000
3/15/02 for property taxes levied in 2000, due in 2001 $ 5,000
The total amount of property tax revenue that will be recognized in the government-wide financial statements in 2001 is:
a) $600,000.
b) $575,000.
c) $535,000.
d) $525,000.

17. Under GAAP, property taxes levied in one fiscal period to finance the activities of the following fiscal period are recognized as revenue in the fund financial statements
a) in the year levied.
b) in the year for which they are intended to finance the activities.
c) when collected, regardless of when levied.
d) in the year for which they are intended to finance the activities, if collected within that period or within a period no greater than 60 days after the close of the fiscal year.

18. Under GAAP, property taxes levied in one fiscal period to finance the activities of the following fiscal period are recognized as revenue in the government-wide financial statements
a) in the year levied.
b) in the year for which they are intended to finance the activities.
c) when collected, regardless of when levied.
d) in the year for which they are intended to finance the activities, if collected within that period or within a period no greater than 60 days after the close of the fiscal year.

19. A City levies a 2% sales tax. Sales tax must be remitted by the merchants to the City by the 20th day of the month following the month in which the sale occurred. Cash received by the City related to sales tax is as follows:
Amount received 1/20/00, applicable to December 1999 sales $ 50
Amount received 2/20/00, applicable to January 2000 sales $ 15
Amount received during 2000 related to February-November 2000 sales $200
Amount received 1/20/01 for December 2000 sales $ 55
Amount received 2/20/01 for January 2001 $ 20
Assuming the City uses the same period to define “available” as the maximum period allowable for property taxes, what amount should it recognize in the fund financial statement as sales tax revenue for the fiscal year ended 12/31/00.
a) $215.
b) $265.
c) $270.
d) $275.

20. A City levies a 2% sales tax. Sales tax must be remitted by the merchants to the City by the 20th day of the month following the month in which the sale occurred. Cash received by the City related to sales tax is as follows:
Amount received 1/20/00, applicable to December 1998 sales $ 50
Amount received 2/20/00, applicable to January 2000 sales $ 15
Amount received during 2000 related to February-November 2000 sales $200
Amount received 1/20/01 for December 2000 sales $ 55
Amount received 2/20/01 for January 2001 $ 20
Assuming the City uses the same period to define “available” as the maximum period allowable for property taxes, what amount should it recognize in the government-wide financial statement as sales tax revenue for the fiscal year ended 12/31/00.
a) $215.
b) $265.
c) $270.
d) $275.

21. A City levies a 2% sales tax that is collected for them by the State. Sales tax must be remitted by the merchants to the State by the 20th day of the month following the month in which the sale occurred. The State has a policy of remitting sales taxes to the City within 30 days of collection by the State. Cash received by the State related to sales tax is as follows:
Amount received 1/20/00, applicable to December 1999 sales $ 50
Amount received 2/20/00, applicable to January 2000 sales $ 15
Amount received 3/20/00, applicable to February 2000 sales $ 10
Amount received during 2000 related to March-November 2000 sales $190
Amount received 1/20/01 for December 2000 sales $ 55
Amount received 2/20/01 for January 2001 $ 20
Amount received 3/20/01 for February 2001 $ 5
Assuming the City uses the same period to define “available” as the maximum period allowable for property taxes, what amount should it recognize as sales tax revenue in its fund financial statements for the fiscal year ended 12/31/00.
a) $215.
b) $265.
c) $270.
d) $275.

22. A City levies a 2% sales tax that is collected for them by the State. Sales tax must be remitted by the merchants to the State by the 20th day of the month following the month in which the sale occurred. The State has a policy of remitting sales taxes to the City within 30 days of collection by the State. Cash received by the State related to sales tax is as follows:
Amount received 1/20/00, applicable to December 1999 sales $ 50
Amount received 2/20/00, applicable to January 2000 sales $ 15
Amount received 3/20/00, applicable to February 2000 sales $ 10
Amount received during 2000 related to March-November 2000 sales $190
Amount received 1/20/01 for December 2000 sales $ 55
Amount received 2/20/01 for January 2001 $ 20
Amount received 3/20/01 for February 2001 $ 5
Assuming the City uses the same period to define “available” as the maximum period allowable for property taxes, what amount should it recognize as sales tax revenue in its government-wide financial statements for the fiscal year ended 12/31/00.
a) $215.
b) $265.
c) $270.
d) $275.

23. Under GAAP, income tax revenues should be recognized in the fund financial statements in the accounting period
a) when collected in cash by the taxing authority.
b) in which the underlying income was earned, regardless of when collected.
c) in which the underlying income was earned, if collected in time to satisfy the budgetary obligations of the preceding year.
d) when earned.

24. Under GAAP, income tax revenues should be recognized in the government-wide financial statements in the accounting period
a) when collected in cash by the taxing authority.
b) in which the underlying income was earned, regardless of when collected.
c) in which the underlying income was earned, if collected in time to satisfy the budgetary obligations of the preceding year.
d) when earned.

25. During 2000, the city issued $300 in fines for failure to keep real property in ‘acceptable’ condition. During that period the city spent $200 to mow and clean up the unoccupied properties for which the fines were assessed. The city estimates that $30 of the fines issued in 2000 will be uncollectible. During 1999 the city collected $230 related to 2000 fines and $20 related to 1999 fines. The amount of revenue that the city should recognize in its 2000 fund financial statements related to fines is
a) $230.
b) $250.
c) $270.
d) $300.

26. Under GAAP, license and permit fees should be recognized in the fund financial statements in the accounting period
a) when collected.
b) when collected, plus proceeds collected within 60 days of fiscal year-end.
c) when earned.
d) when earned, if collected within 60 days of fiscal year end.

27. A city receives a $200,000 grant from the state to purchase vans to transport physically challenged individuals. During the current year the city receives the entire $200,000 and purchases one bus for $85,000 and issues a purchase order for another van for $80,000. The grant revenue that the city should recognize on the government-wide financial statements in the current year is
a) $-0-.
b) $ 85,000.
c) $165,000.
d) $200,000.

28. A city receives notice of a $200,000 grant from the state to purchase vans to transport physically challenged individuals. Although the city did not receive any of the grant funds during the current year, the city purchased one bus for $85,000 and issues a purchase order for another van for $80,000. The grant revenue that the city should recognize in the government-wide financial statements in the current year is
a) $-0-.
b) $ 85,000.
c) $165,000.
d) $200,000.

29. Payments made to a state pension plan by the state government on behalf of a local government should
a) not be displayed or disclosed in the local government financial statements.
b) be displayed as a revenue in the local government financial statements.
c) be displayed as both a revenue and an expenditure in the local government financial statements.
d) should be disclosed, but not displayed, in the local government financial statements.

30. Unrestricted grant revenues with a time requirement should be recognized in the accounting period in which
a) the award is announced.
b) the cash is received.
c) the grant may be used.
d) expenditures are recorded on grant-related activities.

31. Reimbursement-type grant revenues are recognized in the accounting period in which
a) the award is made.
b) the cash is received.
c) cash is disbursed on grant-related activities.
d) expenditures are recorded on grant-related activities.

32. A local governmental entity began the year with a security with an historical cost of $85 and a fair value at the beginning of the year of $95. During the year, dividends of $2 were received. At the end of the year the security had a fair value of $100. The amount that should be recognized on the fund financial statements for the year as investment income is
a) $-0-.
b) Gain $7.
c) Gain $15.
d) Gain $17.

33. A local governmental entity began the year with a portfolio of securities with an historical cost of $600 and a fair value of $620. During the year the government acquired an additional security at a cost of $130 and sold for $100 a security that had an historical cost of $86 and a fair value at the beginning of the year of $95. At the end of the year the securities portfolio had a fair value of $665. The amount that should be recognized on the financial statements for the year as investment income is
a) Gain $5.
b) Gain $10.
c) Gain $14.
d) Gain $15.

34. Under GAAP, investment income for governmental entities must include
a) only dividends and interest received during the period.
b) only dividends and interest earned during the period.
c) only realized gains and losses.
d) dividends and interest received during the period and both realized and unrealized gains and losses.

PROBLEMS (CHAPTER 4)

1. Property Taxes
Assuming that the City maintains the books and record in a manner that facilitates the preparation of the fund financial statements, prepare all necessary 2000 journal entries to record the following 2000 events related to the revenues of a city. The City has a 12/31 fiscal year-end. The city has adopted the 60-day rule for all revenue recognition for which it is appropriate.

a) On January 3, the City Council levied property taxes of $1 million to support general government operations, due in two equal installments with due dates of June 20 and December 20. The property taxes were levied to finance the 2000 budget which had been adopted on November 3, 1999. Historically 2% of property taxes are uncollectible.

b) The City collected the following amounts related to property taxes
Delinquent 1999 taxes collected in January, 2000 $ 11,000
Delinquent 1999 taxes collected in March, 2000 $ 12,500
2000 taxes collected in June, 2000 $ 540,000
2000 taxes collected in December, 2000 $ 400,000
Delinquent 2000 taxes collected in January, 2001 $ 10,000
Delinquent 2000 taxes collected in March, 2001 $ 15,000

c) Delinquent 2000 property taxes were reclassified as delinquent.

d) $2,000 of 1998 taxes was written off.

2. Sales Tax Revenues
Assuming that the City maintains the books and records in a manner that facilitates the preparation of the fund financial statements, prepare all necessary 2000 journal entries to record the following 2000 events related to the revenues of a city. The City has a 12/31 fiscal year-end. The city has adopted the 60-day rule for all revenue recognition for which it is appropriate. The City levies a local sales tax which is collected by the merchants and remitted to the City by the 20th day of the month following the month of sale.

a) On January 20, the City receives sales tax returns and related payments of $7,000 from the merchants of the City for the month of December 1999.

b) On February 20, the City receives sales tax returns and related payments of $3,000 from the merchants of the City for the month of January 2000.

c) During 2000 the City receives sales tax returns and related payments of $40,000 from the merchants for the months of February-November 2000

d) On January 20, 2001 the City receives sales tax returns and related payments of $7,500 from the merchants of the City for the month of December 2000.

3. Assuming that the City maintains the books and records in a manner that facilitates the preparation of the fund financial statements, prepare all necessary 2000 journal entries to record the following 2000 events related to the revenues of a city. The City has a 12/31 fiscal year-end. The city has adopted the 60-day rule for all revenue recognition for which it is appropriate.

a) On January 15, the City received notification that it was the recipient of a $200,000 federal grant to assist in the operation of a “Meals on Wheels’ program. The federal government expects to send the cash in about 3 months.

b) In February the City spent $21,000 on ‘Meals on Wheels.’

c) In March, fines of $1,200 were issued for parking tickets. Payment may be made by the citizens by mail within a specified period of time or they may be protested and a court date will be set. Approximately 10% will be abated by the Courts.

d) In April the City received the $200,000 from the federal government.

e) Payments of $800 were received in April in payment of March parking tickets.

f) Restaurant licenses are issued for a one-year period. The licenses are valid for one year from July 1 to June 30. The license fees are used to pay restaurant inspectors. In June, $7,500 in restaurant license fees was received.

ESSAY (CHAPTER 4)

1. Governmental entities use modified accrual accounting to determine when transactions and events will be recognized in the financial statements of the governmental fund types.
Required:
a) What is modified accrual accounting and how does it affect revenue recognition for the following types of revenue: property taxes; sales and income taxes; licenses, permits and fines; grants of all types; investment income; and donations.
b) In your opinion is modified accrual accounting the best basis of accounting for governmental entities? Why or why not? Defend your answer.

2. Answer the following questions with regard to preparation of the fund financial statements. At fiscal year-end, a city holds an investment portfolio in it general fund that has a fair market value of $15 million and a historical cost of $28 million. The portfolio had a fair value of $18 million at the beginning of the current fiscal year. The portfolio is composed of a variety of bonds with a face value of $29 million and a due date five years in the future. The bonds were acquired to meet a $29 million debt due five years in the future. Although the bonds have the usual market risk, the credit risk is minimal.
Required:
a) At what amount should the portfolio be valued on the balance sheet?
b) What amount, if any, should appear on the operating statement?
c) Defend the valuation method required by GAAP.
d) Argue against the valuation method required by GAAP.
e) At what amount would the City want to record the investments on their financial statements? Why?

3. Answer the following questions with regard to preparation of the fund financial statements. A local government receives three grants from the State. One grant is received in cash but must be used only for the acquisition of two vans specifically equipped to transport physically challenged citizens who use wheelchairs as a means of mobility. The second grant provides for reimbursement of costs incurred in operating a public transit system. The third grant is a distribution of State general fund revenues allocated to each City in the State based on the population of the City. This last grant is to be used in general government operations. The City also receives a federal grant which must be passed through by the City to smaller units of government who meet the eligibility requirements. The City must monitor these smaller units of government for compliance with grant requirements.
Required:
a) Discuss the various methods of revenue recognition for grants and other similar revenues.
b) Discuss the appropriate basis for revenue recognition for each of these grants.
c) Discuss the rationale for each of these methods of revenue recognition.

ACC 401 Week 4 Quiz 3 Chapter 4 – Strayer

ACC 401 Advanced Accounting Week 4 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 4

Consolidated Financial Statements after Acquisition

1. An investor adjusts the investment account for the amortization of any difference between cost and book value under the
a. cost method.
b. complete equity method.
c. partial equity method.
d. complete and partial equity methods.

2. Under the partial equity method, the entry to eliminate subsidiary income and dividends includes a debit to
a. Dividend Income.
b. Dividends Declared – S Company.
c. Equity in Subsidiary Income.
d. Retained Earnings – S Company.

3. On the consolidated statement of cash flows, the parent’s acquisition of additional shares of the subsidiary’s stock directly from the subsidiary is reported as
a. an investing activity.
b. a financing activity.
c. an operating activity.
d. none of these.

4. Under the cost method, the workpaper entry to establish reciprocity
a. debits Retained Earnings – S Company.
b. credits Retained Earnings – S Company.
c. debits Retained Earnings – P Company.
d. credits Retained Earnings – P Company.

5. Under the cost method, the investment account is reduced when
a. there is a liquidating dividend.
b. the subsidiary declares a cash dividend.
c. the subsidiary incurs a net loss.
d. none of these.

6. The parent company records its share of a subsidiary’s income by
a. crediting Investment in S Company under the partial equity method.
b. crediting Equity in Subsidiary Income under both the cost and partial equity methods.
c. debiting Equity in Subsidiary Income under the cost method.
d. none of these.

7. In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the
a. complete equity method.
b. cost method.
c. partial equity method.
d. complete and partial equity methods.

8. A parent company received dividends in excess of the parent company’s share of the subsidiary’s earnings subsequent to the date of the investment. How will the parent company’s investment account be affected by those dividends under each of the following accounting methods?

Cost Method Partial Equity Method
a. No effect No effect
b. Decrease No effect
c. No effect Decrease
d. Decrease Decrease

9. P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $1,272,000. S Company’s December 31, 2010 balance sheet reported common stock of $800,000 and retained earnings of $540,000. During the calendar year 2011, S Company earned $840,000 evenly throughout the year and declared a dividend of $300,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2012?
a. $208,000
b. $260,000
c. $248,000
d. $432,000

10. P Company purchased 90% of the outstanding common stock of S Company on January 1, 1997. S Company’s stockholders’ equity at various dates was:
1/1/97 1/1/11 12/31/11
Common stock $400,000 $400,000 $400,000
Retained earnings 120,000 380,000 460,000
Total $520,000 $780,000 $860,000

The workpaper entry to establish reciprocity under the cost method in the preparation of a consolidated statements workpaper on December 31, 2011 should include a credit to P Company’s retained earnings of
a. $80,000.
b. $234,000.
c. $260,000.
d. $306,000.

11. Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company’s
a. recorded net income.
b. recorded net income plus the subsidiary’s recorded net income.
c. recorded net income plus the its share of the subsidiary’s recorded net income.
d. income from independent operations plus subsidiary’s income resulting from transactions with outside parties.

12. In the preparation of a consolidated statements workpaper, dividend income recognized by a parent company for dividends distributed by its subsidiary is
a. included with parent company income from other sources to constitute consolidated net income.
b. assigned as a component of the noncontrolling interest.
c. allocated proportionately to consolidated net income and the noncontrolling interest.
d. eliminated.

13. In the preparation of a consolidated statement of cash flows using the indirect method of presenting cash flows from operating activities, the amount of the noncontrolling interest in consolidated income is
a. combined with the controlling interest in consolidated net income.
b. deducted from the controlling interest in consolidated net income.
c. reported as a significant noncash investing and financing activity in the notes.
d. reported as a component of cash flows from financing activities.

14. On October 1, 2011, Parr Company acquired for cash all of the voting common stock of Stein Company. The purchase price of Stein’s stock equaled the book value and fair value of Stein’s net assets. The separate net income for each company, excluding Parr’s share of income from Stein was as follows:
Parr Stein
Twelve months ended 12/31/11 $4,500,000 $2,700,000
Three months ended 12/31/11 495,000 450,000

During September, Stein paid $150,000 in dividends to its stockholders. For the year ended December 31, 2011, Parr issued parent company only financial statements. These statements are not considered those of the primary reporting entity. Under the partial equity method, what is the amount of net income reported in Parr’s income statement?
a. $7,200,000.
b. $4,650,000.
c. $4,950,000.
d. $1,800,000.

15. A parent company uses the partial equity method to account for an investment in common stock of its subsidiary. A portion of the dividends received this year were in excess of the parent company’s share of the subsidiary’s earnings subsequent to the date of the investment. The amount of dividend income that should be reported in the parent company’s separate income statement should be
a. zero.
b. the total amount of dividends received this year.
c. the portion of the dividends received this year that were in excess of the parent’s share of subsidiary’s earnings subsequent to the date of investment.
d. the portion of the dividends received this year that were NOT in excess of the parent’s share of subsidiary’s earnings subsequent to the date of investment.

16. Masters, Inc. owns 40% of Fields Corporation. During the year, Fields had net earnings of $200,000 and paid dividends of $50,000. Masters used the cost method of accounting. What effect would this have on the investment account, net earnings, and retained earnings, respectively?
a. understate, overstate, overstate.
b. overstate, understate, understate
c. overstate, overstate, overstate
d. understate, understate, understate

Use the following information in answering questions 17 and 18.

17. Prior Industries acquired a 70 percent interest in Stevenson Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1, 2010. Stevenson reported net income in 2010 of $90,000 and in 2011 of $120,000 earned evenly throughout the respective years. Prior received $24,000 dividends from Stevenson in 2010 and $36,000 in 2011. Prior uses the equity method to record its investment.

Prior should record investment income from Stevenson during 2011 of:
a. $36,000
b. $120,000
c. $84,000
d. $48,000

18. The balance of Prior’s Investment in Stevenson account at December 31, 2011 is:
a. $210,000
b. $285,000
c. $297,000
d. $315,000

19. Parkview Company acquired a 90% interest in Sutherland Company on December 31, 2010, for $320,000. During 2011 Sutherland had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Sutherland Company account at the end of 2011 of:
a. $335,000
b. $333,500
c. $313,700
d. $320,000

20. Hall, Inc., owns 40% of the outstanding stock of Gloom Company. During 2011, Hall received a $4,000 cash dividend from Gloom. What effect did this dividend have on Hall’s 2011 financial statements?
a. Increased total assets.
b. Decreased total assets.
c. Increased income.
d. Decreased investment account.

21. P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $318,000. S Company’s December 31, 2010 balance sheet reported common stock of $200,000 and retained earnings of $180,000. During the calendar year 2011, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2011?
a. $52,000
b. $65,000
c. $62,000
d. $108,000

22. P Company purchased 90% of the outstanding common stock of S Company on January 1, 1997. S Company’s stockholders’ equity at various dates was:
1/1/97 1/1/11 12/31/11
Common stock $200,000 $200,000 $200,000
Retained earnings 60,000 190,000 230,000
Total $260,000 $390,000 $430,000

The workpaper entry to establish reciprocity under the cost method in the preparation of a consolidated statements workpaper on December 31, 2011 should include a credit to P Company’s retained earnings of
a. $40,000.
b. $117,000.
c. $130,000.
d. $153,000.

Use the following information in answering questions 23 and 24.

23. Prior Industries acquired an 80 percent interest in Sanderson Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2010. Sanderson reported net income in 2010 of $45,000 and in 2011 of $60,000 earned evenly throughout the respective years. Prior received $12,000 dividends from Sanderson in 2010 and $18,000 in 2011. Prior uses the equity method to record its investment.

Prior should record investment income from Sanderson during 2011 of:
a. $18,000.
b. $60,000.
c. $48,000.
d. $33,600.

24. The balance of Prior’s Investment in Sanderson account at December 31, 2011 is:
a. $105,000.
b. $138,600.
c. $159,000.
d. $165,000.

25. Pendleton Company acquired a 70% interest in Sunflower Company on December 31, 2010, for $380,000. During 2011 Sunflower had a net income of $30,000 and paid a cash dividend of $10,000. Applying the cost method would give a debit balance in the Investment in Stock of Sunflower Company account at the end of 2011 of:
a. $400,000.
b. $394,000.
c. $373,000.
d. $380,000.

Use the following information to answer questions 26 and 27

On January 1, 2011, Rotor Corporation acquired 30 percent of Stator Company’s stock for $150,000. On the acquisition date, Stator reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2011 Stator reported net income of $25,000 and paid dividends of $10,000. Rotor uses the equity method.

26. What will be the balance in the Investment account as of Dec 31, 2011?
a. $150,000
b. $157,500
c. $154,500
d. $153,000

27. What amount of investment income will be reported by Rotor for the year 2011?
a. $7,500
b. $6,000
c. $4,500
d. $25,000

28. On January 1, 2011, Potter Company purchased 25 % of Smith Company’s common stock; no goodwill resulted from the acquisition. Potter Company appropriately carries the investment using the equity method of accounting and the balance in Potter’s investment account was $190,000 on December 31, 2011. Smith reported net income of $120,000 for the year ended December 31, 2011 and paid dividends on its common stock totaling $48,000 during 2011. How much did Potter pay for its 25% interest in Smith?
a. $172,000
b. $202,000
c. $208,000
d. $232,000

Use the following information to answer questions 29 and 30.

29. On January 1, 2011, Paterson Company purchased 40% of Stratton Company’s 30,000 shares of voting common stock for a cash payment of $1,800,000 when 40% of the net book value of Stratton Company was $1,740,000. The payment in excess of the net book value was attributed to depreciable assets with a remaining useful life of six years. As a result of this transaction Paterson has the ability to exercise significant influence over Stratton Company’s operating and financial policies. Stratton’s net income for the ended December 31, 2011 was $600,000. During 2011, Stratton paid $325,000 in dividends to its shareholders. The income reported by Paterson for its investment in Stratton should be:
a. $120,000
b. $130,000
c. $230,000
d. $240,000

30. What is the ending balance in Paterson’s investment account as of December 31, 2011?
a. $1,800,000
b. $1,900,000
c. $1,910,000
d. $2,030,000
Problems

4-1 On January 1, 2011, Price Company purchased an 80% interest in the common stock of Stahl Company for $1,040,000, which was $60,000 greater than the book value of equity acquired. The difference between implied and book value relates to the subsidiary’s land.

The following information is from the consolidated retained earnings section of the consolidated statements workpaper for the year ended December 31, 2011:

STAHL CONSOLIDATED
COMPANY BALANCES
1/01/11 retained earnings $300,000 $1,400,000
Net income 220,000 680,000
Dividends declared (80,000) (140,000)
12/31/11 retained earnings $440,000 $1,940,000

Stahl’s stockholders’ equity includes only common stock and retained earnings.

Required:

A. Prepare the workpaper eliminating entries for a consolidated statements workpaper on December 31, 2011. Price uses the cost method.

B. Compute the total noncontrolling interest to be reported on the consolidated balance sheet on December 31, 2011.

4-2 On October 1, 2011, Packer Company purchased 90% of the common stock of Shipley Company for $290,000. Additional information for both companies for 2011 follows:

PACKER SHIPLEY
Common stock $300,000 $90,000
Other contributed capital 120,000 40,000
Retained Earnings, 1/1 240,000 50,000
Net Income 260,000 160,000
Dividends declared (10/31) 40,000 8,000

Any difference between implied and book value relates to Shipley’s land. Packer uses the cost method to record its investment in Shipley. Shipley Company’s income was earned evenly throughout the year.

Required:

A. Prepare the workpaper entries that would be made on a consolidated statements workpaper on December 31, 2011. Use the full year reporting alternative.

B. Calculate the controlling interest in consolidated net income for 2011.

4-3 On January 1, 2011, Pierce Company purchased 80% of the common stock of Stanley Company for $600,000. At that time, Stanley’s stockholders’ equity consisted of the following:

Common stock $220,000
Other contributed capital 90,000
Retained earnings 320,000

During 2011, Stanley distributed a dividend in the amount of $120,000 and at year-end reported a $320,000 net income. Any difference between implied and book value relates to subsidiary goodwill. Pierce Company uses the equity method to record its investment. No impairment of goodwill is observed in the first year.

Required:

A. Prepare on Pierce Company’s books journal entries to record the investment related activities for 2011.

B. Prepare the workpaper eliminating entries for a workpaper on December 31, 2011.

4-4 Pratt Company purchased 80% of the outstanding common stock of Selby Company on January 2, 2004, for $680,000. The composition of Selby Company’s stockholders’ equity on January 2, 2004, and December 31, 2011, was:
1/2/04 12/31/11
Common stock $540,000 $540,000
Other contributed capital 325,000 325,000
Retained earnings (deficit) (60,000) 295,000
Total stockholders’ equity $805,000 $1,160,000

During 2011, Selby Company earned $210,000 net income and declared a $60,000 dividend. Any difference between implied and book value relates to land. Pratt Company uses the cost method to record its investment in Selby Company.

Required:

A. Prepare any journal entries that Pratt Company would make on its books during 2011 to record the effects of its investment in Selby Company.

B. Prepare, in general journal form, all workpaper entries needed for the preparation of a consolidated statements workpaper on December 31, 2011.

4-5 P Company purchased 90% of the common stock of S Company on January 2, 2011 for $900,000. On that date, S Company’s stockholders’ equity was as follows:

Common stock, $20 par value $400,000
Other contributed capital 100,000
Retained earnings 450,000

During 2011, S Company earned $200,000 and declared a $100,000 dividend. P Company uses the partial equity method to record its investment in S Company. The difference between implied and book value relates to land.

Required:

Prepared, in general journal form, all eliminating entries for the preparation of a consolidated statements workpaper on December 31, 2011.

4-6 Pair Company acquired 80% of the outstanding common stock of Sax Company on January 2, 2010 for $675,000. At that time, Sax’s total stockholders’ equity amounted to $1,000,000. Sax Company reported net income and dividends for the last two years as follows:

2010 2011
Reported net income $45,000 $60,000
Dividends distributed 35,000 75,000

Required:

Prepare journal entries for Pair Company for 2010 and 2011 assuming Pair uses:
A. The cost method to record its investment
B. The complete equity method to record its investment. The difference between implied value and the book value of equity acquired was attributed solely to a building, with a 20-year expected life.

4-7 Pell Company purchased 90% of the stock of Silk Company on January 1, 2007, for $1,860,000, an amount equal to $60,000 in excess of the book value of equity acquired. All book values were equal to fair values at the time of purchase (i.e., any excess payment relates to subsidiary goodwill). On the date of purchase, Silk Company’s retained earnings balance was $200,000. The remainder of the stockholders’ equity consists of no-par common stock. During 2011, Silk Company declared dividends in the amount of $40,000, and reported net income of $160,000. The retained earnings balance of Silk Company on December 31, 2010 was $640,000. Pell Company uses the cost method to record its investment. No impairment of goodwill was recognized between the date of acquisition and December 31, 2011.

Required:

Prepare in general journal form the workpaper entries that would be made in the preparation of a consolidated statements workpaper on December 31, 2011.

4-8 On January 1, 2011, Pitt Company purchased 85% of the outstanding common stock of Small Company for $525,000. On that date, Small Company’s stockholders’ equity consisted of common stock, $150,000; other contributed capital, $60,000; and retained earnings, $210,000. Pitt Company paid more than the book value of net assets acquired because the recorded cost of Small Company’s land was significantly less than its fair value.

During 2011 Small Company earned $222,000 and declared and paid a $75,000 dividend. Pitt Company used the partial equity method to record its investment in Small Company.

Required:

A. Prepare the investment related entries on Pitt Company’s books for 2011.

B. Prepare the workpaper eliminating entries for a workpaper on December 31, 2011.

4-9

Picture Company purchased 40% of Stuffy Corporation on January 1, 2011 for $150,000. Stuffy Corporation’s balance sheet at the time of acquisition was as follows:

Cash $30,000 Current Liabilities $40,000
Accounts Receivable 120,000 Bonds Payable 200,000
Inventory 80,000 Common Stock 200,000
Land 150,000 Additional Paid in Capital 40,000
Buildings & Equipment 300,000 Retained Earnings 80,000
Less: Acc. Depreciation (120,000)

Total Assets $560,000
Total Liabilities and Equities $560,000

During 2011, Stuffy Corporation reported net income of $30,000 and paid dividends of $9,000. The fair values of Stuffy’s assets and liabilities were equal to their book values at the date of acquisition, with the exception of Building and Equipment, which had a fair value of $35,000 above book value. All buildings and equipment had a remaining useful life of five years at the time of the acquisition. The amount attributed to goodwill as a result of the acquisition in not impaired.

Required:

A. What amount of investment income will Picture record during 2011 under the equity method of accounting?

B. What amount of income will Picture record during 2011 under the cost method of accounting?

C. What will be the balance in the investment account on December 31, 2011 under the cost and equity method of accounting?

Short Answer

1. There are three levels of influence or control by an investor over an investee, which determine the appropriate accounting treatment. Identify and briefly describe the three levels and their accounting treatment.

2. Two methods are available to account for interim acquisitions of a subsidiary’s stock at the end of the first year. Describe the two methods of accounting for interim acquisitions.

Short Answer Questions from the Textbook

1. How should nonconsolidated subsidiaries be re-ported in consolidated financial statements?

2. How are liquidating dividends treated on the books of an investor, assuming the investor uses the cost method? Assuming the investor uses the equity method?

3. How are dividends declared and paid by a subsidiary during the year eliminated in the consolidated work papers under each method of ac-counting for investments?

4. How is the income reported by the subsidiary reflected on the books of the investor under each of the methods of accounting for investments?

5. Define: Consolidated net income; consolidated retained earnings.

6. At the date of an 80% acquisition, a subsidiary had common stock of $100,000 and retained earnings of $16,250. Seven years later, at December 31, 2010, the subsidiary’s retained earnings had increased to $461,430. What adjustment will be made on the consolidated work paper at December 31, 2011, to recognize the parent’s share of the cumulative undistributed profits (losses)of its subsidiary? Under which method(s) is this adjustment needed? Why?

7. On a consolidated work paper for a parent and its partially owned subsidiary, the noncontrolling interest column accumulates the non controlling interests’ share of several account balances. What are these accounts?

8. If a parent company elects to use the partial equity method rather than the cost method to record its investments in subsidiaries, what effect will this choice have on the consolidated financial statements? If the parent company elects the complete equity method?

9. Describe two methods for treating the preacquisition revenue and expense items of a subsidiary purchased during a fiscal period.

10. A principal limitation of consolidated financial statements is their lack of separate financial in-formation about the assets, liabilities, revenues, and expenses of the individual companies included in the consolidation. Identify some problems that the reader of consolidated financial statements would encounter as a result of this limitation.

11. In the preparation of a consolidated statement of cash flows, what adjustments are necessary because of the existence of a noncontrolling interest? (AICPA adapted)

12. What do potential voting rights refer to, and how do they affect the application of the equity method for investments under IFRS? Under U.S.GAAP? What is the term generally used for equity method investments under IFRS?

13B. Is the recognition of a deferred tax asset or deferred tax liability when allocating the difference between book value and the value implied by the purchase price affected by whether or not the affiliates file a consolidated income tax re-turn?

14B. What assumptions must be made about the realization of undistributed subsidiary income when the affiliates file separate income tax returns? Why? (Appendix)

15B. The FASB elected to require that deferred tax effects relating to unrealized intercompany profits be calculated based on the income tax paid by the selling affiliate rather than on the future tax benefit to the purchasing affiliate. Describe circumstances where the amounts calculated under these approaches would be different. (Appendix)

16B. Identify two types of temporary differences that may arise in the consolidated financial statements when the affiliates file separate income tax returns.

Business Ethics Question from the Textbook
On April 5, 2006, the New York State Attorney sued a New York online advertising firm for surreptitiously installing spyware advertising programs on consumers’ computers. The Attorney General claimed that con-sumers believed they were downloading free games or ‘browser’ enhancements. The company claimed that the spyware was identified as ‘advertising-supported’ and that the software is easy to remove and doesn’t collect personal data. Is there an ethical issue for the company? Comment on and justify your position.

ACC 350 Week 4 Quiz 3 Chapter 3 – Strayer

ACC 350 Week 4 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 3

Cost-Volume-Profit Analysis

1)

To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components.

2)

Cost-volume-profit analysis may be used for multi-product analysis when the proportion of different products remains constant.

3)

It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant.

4)

In CVP analysis, the number of output units is the only revenue driver.

5)

Many companies find even the simplest CVP analysis helps with strategic and long-range planning.

6)

In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level.

7)

In CVP analysis, variable costs include direct variable costs, but do not include indirect variable costs.

8)

In CVP analysis, an assumption is made that the total revenues are linear with respect to output units, but that total costs are non-linear with respect to output units.

9)

A revenue driver is defined as a variable that causes changes in prices.

10)

If the selling price per unit is $20 and the contribution margin percentage is 30%, then the variable cost per unit must be $6.

11)

Total revenues less total fixed costs equal the contribution margin.

12)

Gross margin is reported on the contribution income statement.

13)

If the selling price per unit of a product is $30, variable costs per unit are $20, and total fixed costs are $10,000 and a company sells 5,000 units, operating income would be $40,000.

14)

The selling price per unit is $30, variable cost per unit $20, and fixed cost per unit is $3. When this company operates above the breakeven point, the sale of one more unit will increase net income by $7.

15)

A company with sales of $100,000, variable costs of $70,000, and fixed costs of $50,000 will reach its breakeven point if sales are increased by $20,000.

16)

Breakeven point is not a good planning tool since the goal of business is to make a profit.

17)

Breakeven point is that quantity of output where total revenues equal total costs.

18)

In the graph method of CVP analysis, the breakeven point is the (X-axis) quantity of units sold for which the total revenues line crosses the total costs line.

19)

In the graph method of CVP analysis, the total revenue line can be calculated by determining the total revenue at only one real output level because the starting point of the line is always the intersection of the X and Y axes.

20)

A profit-volume graph shows the impact on operating income from changes in the output level.

21)

If the selling price per unit of a product is $50, variable costs per unit are $40, and total fixed costs are $50,000, a company must sell 6,000 units to make a target operating income of $10,000.

22)

An increase in the tax rate will increase the breakeven point.

23)

When making net income evaluations, CVP calculations for target income must be stated in terms of target operating income instead of target net income.

24)

If operating income is $70,000 and the income tax rate is 30%, then net income will be $49,000.

25)

If planned net income is $21,000 and the tax rate is 30%, then planned operating income would be $27,300.

26)

Sensitivity analysis is a “what-if” technique that managers use to examine how a result will change if the originally predicted data are not achieved or if an underlying assumption changes.

27)

Margin of safety measures the difference between budgeted revenues and breakeven revenues.

28)

If a company’s breakeven revenue is $100 and its budgeted revenue is $125, then its margin of safety percentage is 25%.

29)

Sensitivity analysis helps to evaluate the risk associated with decisions.

30)

If contribution margin decreases by $1 per unit, then operating profits will increase by $1 per unit.

31)

If variable costs per unit increase, then the breakeven point will decrease.

32)

A planned increase in advertising would be considered an increase in fixed costs in CVP analysis.

33)

A planned decrease in selling price would be expected to cause an increase in the quantity sold.

34)

Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.

35)

The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income.

36)

If a company increases fixed costs, then the breakeven point will be lower.

37)

Companies that are substituting fixed costs for variable costs receive a greater per unit return above the breakeven point.

38)

A company with a high degree of operating leverage is at lesser risk during downturns in the economy.

39)

Whether the purchase cost of a machine is treated as fixed or variable depends heavily on the time horizon being considered.

40)

If a company has a degree of operating leverage of 2.0, that means a 20% increase in sales will result in a 40% increase in variable costs.

41)

When a company has at least some fixed costs, the degree of operating leverage is different at different levels of sales.

42)

Passenger-miles are a potential measure of output for the airline industry.

43)

Pounds of yeast used by a bake shop is a potential measure of output for the bakery industry.

44)

In multiproduct situations when sales mix shifts toward the product with the lowest contribution margin, the breakeven quantity will decrease.

45)

In multiproduct situations when sales mix shifts toward the product with the highest contribution margin, operating income will be higher.

46)

To calculate the breakeven point in a multi-product situation, one must assume that the sales mix of the various products remains constant.

47)

If a company’s sales mix is 2 units of product A for every 3 units of product B, and the company sells 1,000 units in total of both products, only 200 units of product A will be sold.

48)

Barbies Beer Emporium sells beer and ale in both pint and quart sizes. If Barbies sells twice as many pints as it sells quarts, and sells 1,200 items total, it will sell 400 quarts of ale.

49)

There is no unique breakeven point when there are multiple cost drivers.

50)

When there are multiple cost drivers the simple CVP formula of Q = (FC + OI)/CMU can still be used.

51)

Service sector companies will never report gross margin on an income statement.

52)

For merchandising firms, contribution margin will always be a lesser amount than gross margin.

53)

Contribution margin and gross margin are terms that can be used interchangeably.

54)

Gross Margin will always be greater than contribution margin.

55)

If Johnson’s Manufacturing presented a Financial Accounting Income Statement emphasizing gross margin showing operating income of $18,000, a Contribution Income Statement emphasizing contribution margin would show a different operating income.

56)

An expected value is the weighted average of the outcomes, with the probability of each outcome serving as the weight.

57)

Cost-volume-profit analysis is used PRIMARILY by management:
A)

as a planning tool
B)

for control purposes
C)

to prepare external financial statements
D)

to attain accurate financial results

58)

One of the first steps to take when using CVP analysis to help make decisions is:
A)

finding out where the total costs line intersects with the total revenues line on a graph.
B)

identifying which costs are variable and which costs are fixed.
C)

calculation of the degree of operating leverage for the company.
D)

estimating how many products will have to be sold to make a decent profit.

59)

Cost-volume-profit analysis assumes all of the following EXCEPT:
A)

all costs are variable or fixed
B)

units manufactured equal units sold
C)

total variable costs remain the same over the relevant range
D)

total fixed costs remain the same over the relevant range

60)

Which of the following items is NOT an assumption of CVP analysis?
A)

Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B)

When graphed, total costs curve upward.
C)

The unit-selling price is known and constant.
D)

All revenues and costs can be added and compared without taking into account the time value of money.

61)

Which of the following items is NOT an assumption of CVP analysis?
A)

Costs may be separated into separate fixed and variable components.
B)

Total revenues and total costs are linear in relation to output units.
C)

Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
D)

Proportion of different products will remain constant when multiple products are sold.

62)

A revenue driver is defined as:
A)

any factor that affects costs and revenues
B)

any factor that affects revenues
C)

only factors that can influence a change in selling price
D)

only factors that can influence a change in demand

63)

Operating income calculations use:
A)

net income
B)

income tax expense
C)

cost of goods sold and operating costs
D)

nonoperating revenues and nonoperating expenses

64)

Which of the following statements about net income (NI) is TRUE?
A)

NI = operating income plus nonoperating revenue.
B)

NI = operating income plus operating costs.
C)

NI = operating income less income taxes.
D)

NI = operating income less cost of goods sold.

65)

Which of the following is true about the assumptions underlying basic CVP analysis?
A)

Only selling price is known and constant.
B)

Only selling price and variable cost per unit are known and constant.
C)

Only selling price, variable cost per unit, and total fixed costs are known and constant.
D)

Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.

66)

The contribution income statement:
A)

reports gross margin
B)

is allowed for external reporting to shareholders
C)

categorizes costs as either direct or indirect
D)

can be used to predict future profits at different levels of activity

67)

Contribution margin equals:
A)

revenues minus period costs
B)

revenues minus product costs
C)

revenues minus variable costs
D)

revenues minus fixed costs

68)

The selling price per unit less the variable cost per unit is the:
A)

fixed cost per unit
B)

gross margin
C)

margin of safety
D)

contribution margin per unit

Answer the following questions using the information below:

Kaiser’s Kraft Korner sells a single product. 7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs.

69)

Contribution margin per unit is:
A)

$4.00
B)

$4.29
C)

$6.00
D)

None of these answers are correct.

70)

Breakeven point in units is:
A)

2,000 units
B)

3,000 units
C)

5,000 units
D)

None of these answers are correct.

71)

The number of units that must be sold to achieve $60,000 of operating income is:
A)

10,000 units
B)

11,666 units
C)

12,000 units
D)

None of these answers are correct.

72)

If sales increase by $25,000, operating income will increase by:
A)

$10,000
B)

$15,000
C)

$22,200
D)

None of these answers are correct.

Answer the following questions using the information below:

Holly’s Ham, Inc. sells hams during the major holiday seasons. During the current year 11,000 hams were sold resulting in $220,000 of sales revenue, $55,000 of variable costs, and $24,000 of fixed costs.

73)

Contribution margin per ham is:
A)

$5.00
B)

$15.00
C)

$20.00
D)

None of these answers are correct.

74)

Breakeven point in units is:
A)

1,000 hams
B)

1,200 hams
C)

1,600 hams
D)

None of these answers are correct.

75)

The number of hams that must be sold to achieve $75,000 of operating income is:
A)

6,600 hams
B)

7,500 hams
C)

8,400 hams
D)

None of these answers are correct.

76)

If sales increase by $40,000, operating income will increase by:
A)

$10,000
B)

$20,000
C)

$30,000
D)

None of these answers are correct.

77)

Schuppener Company sells its only product for $18 per unit, variable production costs are $6 per unit, and selling and administrative costs are $3 per unit. Fixed costs for 10,000 units are $10,000. The contribution margin is:
A)

$12 per unit
B)

$9 per unit
C)

$11 per unit
D)

$8 per unit

78)

The contribution income statement highlights:
A)

gross margin
B)

products costs and period costs
C)

different product lines
D)

variable and fixed costs

79)

Fixed costs equal $12,000, unit contribution margin equals $20, and the number of units sold equal 1,600. Operating income is:
A)

$12,000
B)

$20,000
C)

$32,000
D)

$40,000

80)

If selling price per unit is $30, variable costs per unit are $20, total fixed costs are $10,000, the tax rate is 30%, and the company sells 5,000 units, net income is:
A)

$12,000
B)

$14,000
C)

$28,000
D)

$40,000

81)

At the breakeven point of 200 units, variable costs total $400 and fixed costs total $600. The 201st unit sold will contribute ________ to profits.
A)

$1
B)

$2
C)

$3
D)

$5

82)

The breakeven point is the activity level where:
A)

revenues equal fixed costs
B)

revenues equal variable costs
C)

contribution margin equals variable costs
D)

revenues equal the sum of variable and fixed costs

83)

Breakeven point is:
A)

total costs divided by variable costs per unit
B)

contribution margin per unit divided by revenue per unit
C)

fixed costs divided by contribution margin per unit
D)

the sum of fixed and variable costs divided by contribution margin per unit

84)

Sales total $200,000 when variable costs total $150,000 and fixed costs total $30,000. The breakeven point in sales dollars is:
A)

$200,000
B)

$120,000
C)

$ 40,000
D)

$ 30,000

85)

The breakeven point in CVP analysis is defined as:
A)

when fixed costs equal total revenues
B)

fixed costs divided by the contribution margin per unit
C)

revenues less variable costs equal operating income
D)

when the contribution margin percentage equals total revenues divided by variable costs

86)

Which of the following statements about determining the breakeven point is FALSE?
A)

Operating income is equal to zero.
B)

Contribution margin – fixed costs is equal to zero.
C)

Revenues equal fixed costs plus variable costs.
D)

Breakeven revenues equal fixed costs divided by the variable cost per unit.

87)

What is the breakeven point in units, assuming a product’s selling price is $100, fixed costs are $8,000, unit variable costs are $20, and operating income is $32,000?
A)

100 units
B)

300 units
C)

400 units
D)

500 units

88)

If unit outputs exceed the breakeven point:
A)

there is a loss
B)

total sales revenue exceeds total costs
C)

there is a profit
D)

Both total sales revenue exceeds total costs and there is a profit.

89)

How many units would have to be sold to yield a target operating income of $22,000, assuming variable costs are $15 per unit, total fixed costs are $2,000, and the unit selling price is $20?
A)

4,800 units
B)

4,400 units
C)

4,000 units
D)

3,600 units

90)

If the breakeven point is 100 units and each unit sells for $50, then:
A)

selling 125 units will result in a profit
B)

sales of $4,000 will result in a loss
C)

sales of $5,000 will result in zero profit
D)

All of these answers are correct.

91)

If breakeven point is 100 units, each unit sells for $30, and fixed costs are $1,000, then on a graph the:
A)

total revenue line and the total cost line will intersect at $3,000 of revenue
B)

total cost line will be zero at zero units sold
C)

revenue line will start at $1,000
D)

All of these answers are correct.

92)

When fixed costs are $100,000 and variable costs are 20% of the selling price, then breakeven sales are:
A)

$100,000
B)

$125,000
C)

$500,000
D)

indeterminable

Answer the following questions using the information below:

Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs.

93)

What is the contribution margin per ticket package?
A)

$50
B)

$100
C)

$150
D)

$200

94)

How many ticket packages will Ruben need to sell to break even?
A)

34 packages
B)

50 packages
C)

100 packages
D)

150 packages

95)

How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?
A)

367 packages
B)

434 packages
C)

1,100 packages
D)

1,300 packages

96)

For every $25,000 of ticket packages sold, operating income will increase by:
A)

$6,250
B)

$12,500
C)

$18,750
D)

an indeterminable amount

Answer the following questions using the information below:

Northenscold Company sells several products. Information of average revenue and costs is as follows:

Selling price per unit $20.00
Variable costs per unit:
Direct material $4.00
Direct manufacturing labor $1.60
Manufacturing overhead $0.40
Selling costs $2.00
Annual fixed costs $96,000

97)

The contribution margin per unit is:
A)

$6
B)

$8
C)

$12
D)

$14

98)

The number of units that Northenscold’s must sell each year to break even is:
A)

8,000 units
B)

12,000 units
C)

16,000 units
D)

indeterminable

99)

The number of units that Northenscold’s must sell annually to make a profit of $144,000 is:
A)

12,000 units
B)

18,000 units
C)

20,000 units
D)

30,000 units

100)

All of the following are assumed in the above analysis EXCEPT:
A)

a constant product mix
B)

fixed costs increase when activity increases
C)

cost and revenue relationships are reflected accurately
D)

all costs can be classified as either fixed or variable

Answer the following questions using the information below:

Franscioso Company sells several products. Information of average revenue and costs is as follows:

Selling price per unit $28.50
Variable costs per unit:
Direct material $5.25
Direct manufacturing labor $1.15
Manufacturing overhead $0.25
Selling costs $1.85
Annual fixed costs $110,000

101)

The contribution margin per unit is:
A)

$15
B)

$20
C)

$22
D)

$125

102)

The number of units that Franscioso must sell each year to break even is:
A)

1,000 units
B)

4,000 units
C)

5,500 units
D)

indeterminable

103)

The number of units that Franscioso must sell annually to make a profit of $90,000 is:
A)

10,000 units
B)

12,000 units
C)

15,000 units
D)

20,000 units

104)

All of the following are assumed in the above analysis EXCEPT:
A)

a constant product mix
B)

all costs can be classified as either fixed or variable
C)

cost and revenue relationships are reflected accurately
D)

per unit variable costs increase when activity increases

Answer the following questions using the information below:

The following information is for Nichols Company:

Selling price $150 per unit
Variable costs $90 per unit
Total fixed costs $300,000

105)

The number of units that Nichols Company must sell to reach targeted operating income of $90,000 is:
A)

5,000 units
B)

6,500 units
C)

3,334 units
D)

4,334 units

106)

If targeted operating income is $120,000, then targeted sales revenue is:
A)

$1,050,000
B)

$700,000
C)

$500,000
D)

$750,000

Answer the following questions using the information below:

Stephanie’s Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000.

107)

What is the Bridal Shoppe’s operating income when 200 dresses are sold?
A)

$30,000
B)

$80,000
C)

$200,000
D)

$100,000

108)

How many dresses are sold when operating income is zero?
A)

225 dresses
B)

150 dresses
C)

100 dresses
D)

90 dresses

109)

How many dresses must the Bridal Shoppe sell to yield after-tax net income of $18,000, assuming the tax rate is 40%?
A)

200 dresses
B)

170 dresses
C)

150 dresses
D)

145 dresses

Answer the following questions using the information below:

Assume the following cost information for Fernandez Company:

Selling price $120 per unit
Variable costs $80 per unit
Total fixed costs $80,000
Tax rate 40%

110)

What minimum volume of sales dollars is required to earn an aftertax net income of $30,000?
A)

$465,000
B)

$330,000
C)

$390,000
D)

$165,000

111)

What is the number of units that must be sold to earn an after-tax net income of $42,000?
A)

3,750 units
B)

4,625 units
C)

3,050 units
D)

1,875 units

112)

In CVP analysis, focusing on target net income rather than operating income:
A)

will increase the breakeven point
B)

will decrease the breakeven point
C)

will not change the breakeven point
D)

does not allow calculation of breakeven point

113)

To determine the effect of income tax on a decision, managers should evaluate:
A)

target operating income
B)

contribution margin
C)

target net income
D)

selling price

114)

If the tax rate is t, it is possible to calculate planned operating income by:
A)

dividing net operating income by t
B)

dividing net operating income by 1- t
C)

multiplying net operating income by t
D)

multiplying net operating income by 1- t

115)

If Springfield Realtor plans an operating income of $105,000 and the tax rate is 30%, then Springfield’s planned net income should be:
A)

$31,500
B)

$73,500
C)

$136,500
D)

$178,500

116)

Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $2 per unit, then operating profits will:
A)

also increase by $2 per unit
B)

increase by less than $2 per unit
C)

decrease by $2 per unit
D)

be indeterminable

117)

The Tessmer Company has fixed costs of $400,000 and variable costs are 75% of the selling price. To realize profits of $100,000 from sales of 500,000 units, the selling price per unit:
A)

must be $1.00
B)

must be $1.33
C)

must be $4.00
D)

is indeterminable

118)

The breakeven point decreases if:
A)

the variable cost per unit increases
B)

total fixed costs decrease
C)

the contribution margin per unit decreases
D)

the selling price per unit decreases

119)

(CPA adapted, November 1992) The strategy MOST likely to reduce the breakeven point would be to:
A)

increase both the fixed costs and the contribution margin
B)

decrease both the fixed costs and the contribution margin
C)

decrease the fixed costs and increase the contribution margin
D)

increase the fixed costs and decrease the contribution margin

120)

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.
A)

The graph method
B)

A sensitivity analysis
C)

The degree of operating leverage
D)

Sales mix

121)

Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when:
A)

total fixed costs increase
B)

total fixed costs decrease
C)

variable costs per unit increase
D)

variable costs per unit decrease

122)

Which of the following will increase a company’s breakeven point?
A)

increasing variable cost per unit
B)

increasing contribution margin per unit
C)

reducing its total fixed costs
D)

increasing the selling price per unit

123)

Assume there is a reduction in the selling price and all other CVP parameters remain constant. This change will:
A)

increase contribution margin
B)

reduce fixed costs
C)

increase variable costs
D)

reduce operating income

124)

Assume there is an increase in advertising expenditures and all other CVP parameters remain constant. This change will:
A)

reduce operating income
B)

reduce contribution margin
C)

increase variable costs
D)

increase selling price

125)

The margin of safety is the difference between:
A)

budgeted expenses and breakeven expenses
B)

budgeted revenues and breakeven revenues
C)

actual operating income and budgeted operating income
D)

actual contribution margin and budgeted contribution margin

126)

Trailhound Company operates on a contribution margin of 30% and currently has fixed costs of $200,000. Next year, sales are projected to be $1,000,000. An advertising campaign is being evaluated that costs an additional $30,000. How much would sales have to increase to justify the additional expenditure?
A)

$60,000
B)

$90,000
C)

$100,000
D)

$300,000

Answer the following questions using the information below:

Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,000. His fixed costs are $20,000, while his variable costs are $500 per procedure. Dr. Hunter currently plans to perform 200 procedures this month.

127)

What is the budgeted revenue for the month assuming that Dr. Hunter plans to perform this procedure 200 times?
A)

$100,000
B)

$200,000
C)

$300,000
D)

$400,000

128)

What is the budgeted operating income for the month assuming that Dr. Hunter plans to perform the procedure 200 times?
A)

$200,000
B)

$100,000
C)

$80,000
D)

$40,000

129)

What is the breakeven point for the month assuming that Dr. Hunter plans to perform the procedure 200 times?
A)

40 times
B)

30 times
C)

20 times
D)

10 times

130)

What is the margin of safety assuming 100 procedures are budgeted?
A)

$40,000 or 40 times
B)

$50,000 or 50 times
C)

$60,000 or 60 times
D)

$100,000 or 100 times

Answer the following questions using the information below:

Nancy’s Niche sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs.

131)

The contribution margin percentage is:
A)

12.5%
B)

25.0%
C)

37.5%
D)

75.0%

132)

The breakeven point in total sales dollars is:
A)

$40,000
B)

$13,334
C)

$100,000
D)

None of these answers are correct.

133)

To achieve $100,000 in operating income, sales must total:
A)

$440,000
B)

$160,000
C)

$130,000
D)

None of these answers are correct.

134)

If variable costs decrease by $1 per unit, the new breakeven point is:
A)

1,539 units.
B)

492 units.
C)

$11,765 in total sales dollars.
D)

None of these answers are correct.

135)

If a change is made in one parameter of CVP analysis, it is an example of:
A)

sensitivity analysis
B)

incremental budgeting
C)

operating leverage
D)

multiple cost drivers

Answer the following questions using the information below:

Martha Manufacturing produces a single product that sells for $80. Variable costs per unit equal $32. The company expects total fixed costs to be $72,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.

136)

What is the current breakeven point in terms of number of units?
A)

1,500 units
B)

2,250 units
C)

3,333 units
D)

None of these answers are correct.

137)

Suppose management believes that a $16,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?
A)

200 units
B)

334 units
C)

500 units
D)

None of these answers are correct.

138)

Suppose that management believes that a 10% reduction in the selling price will result in a 10% increase in sales. If this proposed reduction in selling price is implemented:
A)

operating income will decrease by $8,000
B)

operating income will increase by $8,000
C)

operating income will decrease by $16,000
D)

operating income will increase by $16,000

Answer the following questions using the information below:

Cheaney Manufacturing produces a single product that sells for $200. Variable costs per unit equal $50. The company expects total fixed costs to be $120,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.

139)

What is the current breakeven point in terms of number of units?
A)

800 units
B)

900 units
C)

2,400 units
D)

None of these answers are correct.

140)

Suppose that management believes that a $24,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?
A)

320 units
B)

480 units
C)

160 units
D)

None of these answers are correct.

141)

Suppose that management believes that a 20% reduction in the selling price will result in a 20% increase in sales. If this proposed reduction in selling price is implemented:
A)

operating income will decrease by $36,000
B)

operating income will increase by $36,000
C)

operating income will decrease by $80,000
D)

operating income will increase by $44,000

Answer the following questions using the information below:

Southwestern College is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet:

OPTION 1: Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food

OPTION 2: Tallgrass Country Club
a. Fixed rental cost of $3,000
b. A caterer who charges $8.00 per person for food

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

142)

Which option provides the least amount of risk?
A)

Option one
B)

Option two
C)

Both options provide the same amount of risk.
D)

Neither option has risks.

143)

Which option has the lowest breakeven point?
A)

Option one
B)

Option two
C)

Both options have the same breakeven point.
D)

The lowest breakeven point cannot be determined.

144)

Which option provides the greatest operating income if 600 people attend?
A)

Option one
B)

Option two
C)

Operating incomes are identical.
D)

Operating income is indeterminable.
145)

Which option provides the greatest degree of operating leverage if 600 people attend?
A)

Option one
B)

Option two
C)

Both options provide equal degrees of operating leverage.
D)

Operating leverage is indeterminable.

146)

Option 1: Fixed costs of $10,000 and a breakeven point of 500 units.
Option 2: Fixed costs of $20,000 and a breakeven point of 700 units.
Which option should you choose if you are expecting to produce 600 units?
A)

Option one
B)

Option two
C)

Both options are equally desirable.
D)

The best option is indeterminable.

147)

Mrs. Granberry is going to sell Christmas tree lights for $20 a box. The lights cost Marsha $5 a unit and any unsold lights can be returned for a full refund. She is planning to rent a booth at the upcoming Happy Holidays Convention, which offers three options:
1. paying a fixed fee of $1,500, or
2. paying a $500 fee plus 10% of revenues made at the convention, or
3. paying 25% of revenues made at the convention.

Which of the following statements is FALSE?
A)

Her decision will determine the risk she faces.
B)

Contribution margin will vary depending upon the option chosen.
C)

One of the options will allow Marsha to break even, even if she doesn’t sell any lights.
D)

Operating income will be the greatest for Option 3.

148)

In a company with low operating leverage:
A)

fixed costs are high and variable costs are low
B)

large changes in sales volume result in small changes in net income
C)

there is a higher possibility of net loss than a higher-leveraged firm
D)

less risk is assumed than in a highly leveraged firm

149)

If the contribution margin ratio is 0.30, targeted net income is $76,800, and targeted sales volume in dollars is $480,000, then total fixed costs are:
A)

$23,000
B)

$44,160
C)

$67,200
D)

$144,000

150)

If the contribution margin ratio is 0.40, targeted net income is $50,000, and fixed costs are $75,000, then sales volume in dollars is:
A)

$250,000
B)

$312,500
C)

$275,000
D)

$350,000

151)

If the contribution margin ratio is 0.25, targeted net income is $25,000, and targeted sales volume in dollars is $200,000, then total fixed costs are:
A)

$50.000
B)

$100,000
C)

$75,000
D)

$25,000

152)

Fixed costs:
A)

are considered variable costs over the long run
B)

provide less operating leverage
C)

reduce the risk of loss
D)

are graphed as a steeply sloped line

153)

When a greater proportion of costs are fixed costs, then:
A)

a small increase in sales results in a small decrease in operating income
B)

when demand is low the risk of loss is high
C)

when demand is high the breakeven point is increased
D)

a decrease in sales reduces the cost per unit

Answer the following questions using the information below:

The following information is for Barnett Corporation:

Product X: Revenue $10.00
Variable Cost $2.50

Product Y: Revenue $15.00
Variable Cost $5.00

Total fixed costs $50,000

154)

What is the breakeven point assuming the sales mix consists of two units of Product X and one unit of Product Y?
A)

1,000 units of Y and 2,000 units of X
B)

1012.5 units of Y and 2,025 units of X
C)

2012.5 units of Y and 4,025 units of X
D)

2,000 units of Y and 4,000 units of X

155)

What is the operating income, assuming actual sales total 150,000 units, and the sales mix is two units of Product X and one unit of Product Y?
A)

$1,200,000
B)

$1,250,000
C)

$1,750,000
D)

None of these answers are correct.

156)

If the sales mix shifts to one unit of Product X and two units of Product Y, then the weighted-average contribution margin will:
A)

increase per unit
B)

stay the same
C)

decrease per unit
D)

be indeterminable

157)

If the sales mix shifts to one unit of Product X and two units of Product Y, then the breakeven point will:
A)

increase
B)

stay the same
C)

decrease
D)

be indeterminable

Answer the following questions using the information below:

The following information is for the Jeffries Corporation:

Product A: Revenue $16.00
Variable Cost $12.00

Product B: Revenue $24.00
Variable Cost $16.00

Total fixed costs $75,000

158)

What is the breakeven point, assuming the sales mix consists of three units of Product A and one unit of Product B?
A)

10,000 units of A and 5,000 units of B
B)

11,250 units of A and 3,750 units of B
C)

12,000 units of A and 4,000 units of B
D)

4,000 units of A and 12,000 units of B

159)

What is the operating income, assuming actual sales total 25,000 units, and the sales mix is three units of Product A and one unit of Product B?
A)

$50,000
B)

$60,000
C)

$75,000
D)

None of these answers are correct.

160)

If the sales mix shifts to four units of Product A and one unit of Product B, then the weighted-average contribution margin will:
A)

increase per unit
B)

stay the same
C)

decrease per unit
D)

be indeterminable

161)

If the sales mix shifts to four units of Product A and one unit of Product B, then the breakeven point will:
A)

increase
B)

stay the same
C)

decrease
D)

be indeterminable

162)

Assuming a constant mix of 3 units of Small for every 1 unit of Large.
Small Large Total
Sales $20 $30
VC 14 18
Total fixed costs $48,000

The breakeven point in units would be:
A)

4,800 units of Small and 1,600 units of Large
B)

1,200 units of Small and 400 units of Large
C)

1,600 units of Small and 4,800 units of Large
D)

400 units of Small and 1,200 units of Large

163)

In multiproduct situations, when sales mix shifts toward the product with the highest contribution margin then:
A)

total revenues will decrease
B)

breakeven quantity will increase
C)

total contribution margin will decrease
D)

operating income will increase

164)

If a company has a degree of operating leverage of 2.0 and sales increase by 25%, then:
A)

total variable costs will increase by 50%
B)

total variable costs will not change
C)

profit will increase by 20%
D)

profit will increase by 50%

165)

If a company would like to increase its degree of operating leverage it should:
A)

increase its inventories relative to its receivables
B)

increase its receivables relative to its inventories
C)

increase its variable costs relative to its fixed costs
D)

increase its fixed costs relative to its variable costs

166)

Multiple cost drivers:
A)

have only one revenue driver
B)

can utilize the simple CVP formula
C)

have no unique breakeven point
D)

are the result of multiple products

167)

A nonprofit organization aids the unemployed by supplementing their incomes by $3,200 annually, while they seek new employment skills. The organization has fixed costs of $240,000 and the budgeted appropriation for the year totals $800,000. How many individuals can receive financial assistance this year?
A)

175 people
B)

130 people
C)

100 people
D)

75 people

168)

Helping Hands is a nonprofit organization that supplies electric fans during the summer for individuals in need. Fixed costs are $200,000. The fans cost $20.00 each. The organization has a budgeted appropriation of $480,000. How many people can receive a fan during the summer?
A)

12,000 people
B)

14,000 people
C)

24,000 people
D)

34,000 people

169)

Mount Carmel Company sells only two products, Product A and Product B.

Product A Product B Total
Selling price $40 $50
Variable cost per unit $24 $40
Total fixed costs $840,000

Mount Carmel sells two units of Product A for each unit it sells of Product B. Mount Carmel faces a tax rate of 30%. Mount Carmel desires a net after-tax income of $73,500. The breakeven point in units would be:
A)

21,750 units of Product A and 43,500 units of Product B
B)

22,500 units of Product A and 45,000 units of product B
C)

43,500 units of Product A and 21,750 units of Product B
D)

45,000 units of Product A and 22,500 units of Product B

170)

Gross margin is:
A)

sales revenue less variable costs
B)

sales revenue less cost of goods sold
C)

contribution margin less fixed costs
D)

contribution margin less variable costs

171)

In the merchandising sector:
A)

only variable costs are subtracted to determine gross margin
B)

fixed overhead costs are subtracted to determine gross margin
C)

fixed overhead costs are subtracted to determine contribution margin
D)

all operating costs are subtracted to determine contribution margin

172)

In the manufacturing sector:
A)

only variable costs are subtracted to determine gross margin
B)

fixed overhead costs are subtracted to determine gross margin
C)

fixed overhead costs are subtracted to determine contribution margin
D)

all operating costs are subtracted to determine contribution margin

173)

To determine contribution margin use:
A)

only variable manufacturing costs
B)

only fixed manufacturing costs
C)

both variable and fixed manufacturing costs
D)

both variable manufacturing costs and variable nonmanufacturing costs

174)

“Uncertainty” may be defined as:
A)

the possibility that an actual amount will be the same as an expected amount
B)

the possibility that an actual amount will be either higher or lower than the expected amount
C)

the possibility that a budgeted amount will be higher than the estimated amount
D)

the possibility that the budgeted amount will be lower than the estimated amount

175)

Events, as distinguished from actions, would include:
A)

personnel policy options
B)

decisions on time schedules
C)

decisions on direct material vendors
D)

a financial recession

176)

Expected monetary value may be defined as:
A)

the probability that each outcome will occur
B)

the probability that each outcome will not occur
C)

the weighted average of the outcomes with the probability of each outcome serving as the weight
D)

the average of all possible outcomes

177)

What would be the expected monetary value for the following data using the probability method?
Probability Cash Inflows
0.20 $100,000
0.30 $80,000
0.15 $60,000
0.35 $0

A)

$20,000
B)

$94,000
C)

$53,000
D)

$30,000

178)

Lobster Liquidators will make $500,000 if the fishing season weather is good, $200,000 if the weather is fair, and would actually lose $50,000 if the weather is poor during the season. If the weather service gives a 40% probability of good weather, a 25% probability of fair weather, and a 35% probability of poor weather, what is the expected monetary value for Lobster Liquidators?
A)

$500,000
B)

$232,500
C)

$267,500
D)

$200,000

Answer the following questions using the information below:

Patrick Ross has three booth rental options at the county fair where he plans to sell his new product. The booth rental options are:

Option 1: $1,000 fixed fee, or
Option 2: $750 fixed fee + 5% of all revenues generated at the fair, or
Option 3: 20% of all revenues generated at the fair.

The product sells for $37.50 per unit. He is able to purchase the units for $12.50 each.

179)

How many actions and events will a decision table contain?
A)

1 action and 3 events
B)

1 action and 6 events
C)

2 actions and 3 events
D)

3 actions and 6 events

180)

Which option should Patrick choose to maximize income assuming there is a 40% probability that 70 units will be sold and a 60% probability that 40 units will be sold?
A)

Option one
B)

Option two
C)

Option three
D)

All options maximize income equally.

181)

Gilley, Inc., sells a single product. The company’s most recent income statement is given below.

Sales (4,000 units) $120,000
Less variable expenses (68,000)
Contribution margin 52,000
Less fixed expenses (40,000)
Net income $ 12,000

Required:

a. Contribution margin per unit is $ ________ per unit

b. If sales are doubled to $240,000,
total variable costs will equal $ ________

c. If sales are doubled to $240,000,
total fixed costs will equal $ ________

d. If 10 more units are sold, profits will increase by $ ________

e. Compute how many units must be sold to break even. # ________

f. Compute how many units must be sold
to achieve profits of $20,000. # ________

182)

Blankinship, Inc., sells a single product. The company’s most recent income statement is given below.

Sales $200,000
Less variable expenses (120,000)
Contribution margin 80,000
Less fixed expenses (50,000)
Net income $ 30,000

Required:

a. Contribution margin ratio is ________ %

b. Breakeven point in total sales dollars is $ ________

c. To achieve $40,000 in net income, sales must total $ ________

d. If sales increase by $50,000, net income will increase by $ ________

183)

In 2004, Grant Company has sales of $800,000, variable costs of $200,000, and fixed costs of $300,000. In 2005, the company expects annual property taxes to decrease by $15,000.

Required:
a. Calculate operating income and the breakeven point for 2004.
b. Calculate the breakeven point for 2005.

184)

Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,5000.

Required:
a. What is the contribution margin per phone?
b. What is the breakeven point in phones?
c. How many phones must be sold to earn pretax income of $7,500?

185)

The Holiday Card Company, a producer of specialty cards, has asked you to complete several calculations based upon the following information:

Income tax rate 30%
Selling price per unit $6.60
Variable cost per unit $5.28
Total fixed costs $46,200.00

Required:

a. What is the breakeven point in cards?
b. What sales volume is needed to earn an after-tax net income of $13,028.40?
c. How many cards must be sold to earn an after-tax net income of $18,480?

186)

Royer Corporation gathered the following information:

Variable costs $945,000
Income tax rate 40%
Contribution-margin ratio 30%

Required:

a. Compute total fixed costs assuming a breakeven volume in dollars of $1,350,000.
b. Compute sales volume in dollars to produce an after-tax net income of $108,000.

187)

Alex Miller, Inc., sells car batteries to service stations for an average of $30 each. The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.

Required:

a. What is the breakeven point in batteries?
b. What is the margin of safety, assuming sales total $60,000?
c. What is the breakeven level in batteries, assuming variable costs increase by 20%?
d. What is the breakeven level in batteries, assuming the selling price goes up by 10%, fixed manufacturing costs decline by 10%, and other fixed costs decline by $100?

188)

Furniture, Inc., sells lamps for $30. The unit variable cost per lamp is $22. Fixed costs total $9,600.

Required:

a. What is the contribution margin per lamp?
b. What is the breakeven point in lamps?
c. How many lamps must be sold to earn a pretax income of $8,000?
d. What is the margin of safety, assuming 1,500 lamps are sold?

189)

Tom’s Tire Tower, Inc., sells tires for $110. The unit variable cost per tire is $85. Fixed costs total $475,000.

Required:

a. What is the contribution margin per tire?
b. What is the breakeven point in tires?
c. How many tires must be sold to earn a pretax income of $450,000?
d. What is the margin of safety, assuming 33,000 tires are sold?

190)

Query Company sells pillows for $25.00 each. The manufacturing cost, all variable, is $10 per pillow. The company is planning on renting an exhibition booth for both display and selling purposes at the annual crafts and art convention. The convention coordinator allows three options for each participating company. They are:
1. paying a fixed booth fee of $5,010, or
2. paying an $4,000 fee plus 10% of revenue made at the convention, or
3. paying 20% of revenue made at the convention.

Required:
a. Compute the breakeven sales in pillows of each option.
b. Which option should Query Company choose, assuming sales are expected to be 800 pillows?

191)

Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals:
1. paying a fixed rent of $15,000 a month, or
2. paying a base rent of $9,000 plus 10% of revenue received, or
3. paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000.

Required:
a. For each option, compute the breakeven sales and the monthly rent paid at break-even.
b. Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000 units.

192)

Yurus Manufacturing Company produces two products, X and Y. The following information is presented for both products:
X Y
Selling price per unit $36 $24
Variable cost per unit 28 12

Total fixed costs are $234,000.

Required:

a. Calculate the contribution margin for each product.
b. Calculate breakeven point in units of both X and Y if the sales mix is 3 units of X for every unit of Y.
c. Calculate breakeven volume in total dollars if the sales mix is 2 units of X for every 3 units of Y.

193)

Bob’s Textile Company sells shirts for men and boys. The average selling price and variable cost for each product are as follows:

Men’s Boys’
Selling Price $28.80 Selling Price $24.00
Variable Cost $20.40 Variable Cost $16.80

Fixed costs are $38,400.

Required:

a. What is the breakeven point in units for each type of shirt, assuming the sales mix is 2:1 in favor of men’s shirts?
b. What is the operating income, assuming the sales mix is 2:1 in favor of men’s shirts, and sales total 9,000 shirts?

194)

Mount Carmel Company sells only two products, Product A and Product B.

Product A Product B Total
Selling price $40 $50
Variable cost per unit $24 $40
Total fixed costs $840,000

Mount Carmel sells two units of Product A for each unit it sells of Product B. Mount Carmel faces a tax rate of 30%.

Required:

a. What is the breakeven point in units for each product assuming the sales mix is 2 units of Product A for each unit of Product B?
b. What is the breakeven point if Mount Carmel’s tax rate is reduced to 25%, assuming the sales mix is 2 units of Product A for each unit of Product B?
c. How many units of each product would be sold if Mount Carmel desired an after-tax net income of $73,500, facing a tax rate of 30%?

195)

Atlanta Radio Supply sells only two products, Product X and Product Y.

Product X Product Y Total
Selling price $25 $45
Variable cost per unit $20 $35
Total fixed costs $350,000

Atlanta Radio Supply sells three units of Product X for each two units it sells of Product Y. Atlanta Radio Supply has a tax rate of 25%.

Required:

a. What is the breakeven point in units for each product, assuming the sales mix is 3 units of Product X for each two units of Product Y?
b. How many units of each product would be sold if Atlanta Radio Supply desired an after-tax net income of $210,000, using its tax rate of 25%?

196)

Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports a profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per hot dog.

Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units. Most of the nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly sales of hot dogs are expected to decline to $20,000.

After the first year of nacho sales, the company president believes that hot dog sales will increase to $33,750 a month and nacho sales will increase to 7,500 units a month.

Required:

a. Determine the monthly breakeven sales in dollars before adding nachos.
b. Determine the monthly breakeven sales during the first year of nachos sales, assuming a constant sales mix of 1 hotdog and 2 units of nachos.

197)

Stephanie’s Stuffed Animals reported the following:

Revenues $1,000
Variable manufacturing costs $ 200
Variable nonmanufacturing costs $ 230
Fixed manufacturing costs $ 150
Fixed nonmanufacturing costs $ 140

Required:
a. Compute contribution margin.
b. Compute gross margin.
c. Compute operating income.

198)

Arthur’s Plumbing reported the following:

Revenues $4,500
Variable manufacturing costs $ 900
Variable nonmanufacturing costs $ 810
Fixed manufacturing costs $ 630
Fixed nonmanufacturing costs $ 545

Required:
a. Compute contribution margin.
b. Compute contribution margin percentage.
c. Compute gross margin.
d. Compute gross margin percentage.
e. Compute operating income.

199)

Produce Company needs to know the pounds of apples to have on hand each day. Each pound of apples costs $0.50 and can be sold for $0.80. Unsold apples are worthless at the end of the day. The following demands were found after studying the last six months’ sales:

200 pounds of apples 30% of the time
300 pounds of apples 40% of the time
400 pounds of apples 30% of the time

Required:
Determine whether Produce Company should order 200, 300, or 400 pounds of apples.

200)

Explain when a manager would use cost-volume-profit analysis and sensitivity analysis.

201)

What is meant by the term breakeven point? Why should a manager be concerned about the breakeven point?

202)

Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April-June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season.

Selling prices per tire average $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60.

The president of Auto Tires is somewhat displeased with the company’s management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months’ charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point.

Required:
a. What is wrong with the accountant’s computations?
b. How can the information be presented in a better format for the president?

203)

Dolph and Evan started the DE Restaurant in 20X3. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month.

During the past two years, the business has grown with average sales increasing 1% a month. This situation pleases both Dolph and Evan, but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits.

Required:
Explain why the profits have increased at a faster rate than sales. Use the terms variable costs and fixed costs in your response.

204)

What effect, and why, would a decrease in the tax rate have on a company’s breakeven point?

205)

Freddie’s company has mostly fixed costs and Valerie’s company has mostly variable costs. Which company has the greatest risk of a net loss? Explain why

206)

Suppose a company decided to automate a production line. Explain what effects this would have on a company’s cost structure using CVP terminology. Could these changes have any possible negative effect on the firm?

207)

Pennsylvania Valve Company makes three types of valves: Speedy Flow, Sure Flow, and Fine Flow. Each of the three products has a different contribution margin, and the proportions of the three products sold have remained steady over the years. How could Pennsylvania valve compute a breakeven point given this situation?

208)

Lauren had been a manager of a major hotel chain for 15 years. Due to a hotel owner’s illness, Lauren was offered the opportunity to purchase a hotel near a vacation area she had often visited. After obtaining a lawyer and an accountant to assist her, Lauren did an analysis of the business and evaluated several contingencies relating to various scenarios that might occur based on economic and weather season circumstances. Since the expected monetary value of the various scenarios was much higher than the price of the hotel, she decided to purchase the hotel. She resigned her position, obtained a loan, and purchased the hotel. The following year, there was a severe economic downturn and also a very bad weather season that reduced the number of guests and also caused a resulting mold situation in the hotel building that required expensive repair work. Lauren ran short of cash, became emotionally distraught, and eventually had to sell the hotel at a significant loss. Was it a bad decision for her to purchase the hotel instead of keeping her other managerial position? Explain.

ACC 206 Week 4 Quiz 3 Chapter 12 – Strayer

ACC 206 Accounting Principles II Week 4 Quiz – Strayer (All Possible Questions With Answers)

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CHAPTER 12

ACCOUNTING FOR PARTNERSHIPS

CHAPTER STUDY OBJECTIVES

1. Identify the characteristics of the partnership form of business organization.

2. Explain the accounting entries for the formation of a partnership.

3. Identify the bases for dividing net income or net loss.

4. Describe the form and content of partnership financial statements.

5. Explain the effects of the entries to record the liquidation of a partnership.

6. Explain the effects of the entries when a new partner is admitted.

7. Describe the effects of the entries when a partner withdraws from the firm.

TRUE-FALSE STATEMENTS

1. The personal assets, liabilities, and personal transactions of partners are excluded from the accounting records of the partnership.

2. The act of any partner is binding on all other partners if the act appears to be appropriate for the partnership.

3. A major advantage of the partnership form of organization is that the partners have unlimited liability.

4. Partnership creditors may have a claim on the personal assets of any of the partners if the partnership assets are not sufficient to settle claims.

5. The partnership agreement between partners must be in writing.

6. If a partner invests noncash assets in a partnership, they should be recorded by the partnership at their fair market value.

7. L. Hill invests the following assets in a new partnership: $15,000 in cash, and equipment that cost $30,000 but has a book value of $17,000 and fair market value of $20,000. Hill, Capital will be credited for $32,000.

8. Two proprietorships cannot combine and form a partnership.

9. If a partner’s investment in a partnership consists of equipment that has accumulated depreciation of $8,000, it would not be appropriate for the partnership to record the accumulated depreciation.

10. If a partner’s investment in a partnership consists of Accounts Receivable of $25,000 and an Allowance for Doubtful Accounts of $7,000, it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts.

11. Unless stated otherwise in the partnership contract, profits and losses are shared among the partners in the ratio of their capital equity balances.

12. If salary allowances and interest on capital are stipulated in the partnership profit and loss sharing agreement, they are implemented only if income is sufficient to cover the amounts required by these features.

13. Unless the partnership agreement specifically indicates an income ratio, partnership net income or loss is not allocated to the partners.
Accounting for Partnerships 12 – 5

14. Partnership income or loss need not be closed to partners’ capital accounts each period because of the unlimited life characteristic of partnerships.

15. If a partnership has a loss for the period, the closing entry to transfer the loss to the partners will require a credit to the Income Summary account.

16. The partners’ drawing accounts are closed each period into the Income Summary account.

17. Salary allowances to partners are a major expense on most partnership income statements.

18. An interest allowance in sharing partnership net income (or net loss) is related to the amount of partners’ invested capital during the period.

19. The financial statements of a partnership are similar to those of a proprietorship.

20. The income earned by a partnership will always be greater than the income earned by a proprietorship because in a partnership there is more than one owner contributing to the success of the business.

21. The function of the Partners’ Capital Statement is to explain the changes in partners’ capital account balances during a period.

22. A detailed listing of all the assets invested by a partner in a partnership appears on the Partners’ Capital Statement.

23. Total partners’ equity of a partnership is equal to the sum of all partners’ capital account balances.

24. The distribution of cash to partners in a partnership liquidation is always made based on the partners’ income sharing ratio.

25. The liquidation of a partnership means that a new partner has been admitted to the partnership.

a26. The admission of a new partner results in the legal dissolution of the existing partnership and the beginning of a new partnership.

a27. If a new partner is admitted into a partnership by investment, the total assets and total capital will change.

a28. A bonus to old partners results when the new partner’s capital credit on the date of admittance is greater than his or her investment in the firm.

a29. If a new partner invests in a partnership at book value and acquires a 1/4 interest in total partnership capital, it indicates that a bonus was paid to the original partners.

a30. A bonus to the remaining partners results when a retiring partner receives partnership assets which are less than his or her capital balance on the date of withdrawal.

Additional True-False Questions

31. A partnership is an association of no more than two persons to carry on as co-owners of a business for profit.

32. Once assets have been invested in the partnership, they are owned jointly by all partners.

33. Each partner’s initial investment in a partnership should be recorded at book value.

34. Partnership income is shared in proportion to each partner’s capital equity interest unless the partnership contract specifically indicates the manner in which net income or net loss is to be divided.

35. In a liquidation, the final distribution of cash to partners should be on the basis of their income ratios.

a36. In an admission of a partner by investment of assets, the total net assets and total capital of the partnership do not change.

a37. The withdrawal of a partner legally dissolves the partnership.

MULTIPLE CHOICE QUESTIONS

38. A hybrid form of business organization with certain features like a corporation is a(n) a. limited liability partnership.
b. limited liability company. c. “S” corporation.
d. sub-chapter “S” corporation.

39. A partnership

a. has only one owner.

b. pays taxes on partnership income. c. must file an information tax return.
d. is not an accounting entity for financial reporting purposes.

40. A general partner in a partnership

a. has unlimited liability for all partnership debts. b. is always the general manager of the firm.
c. is the partner who lacks a specialization.

d. is liable for partnership liabilities only to the extent of that partner’s capital equity.
Accounting for Partnerships 12 – 7

41. The individual assets invested by a partner in a partnership a. revert back to that partner if the partnership liquidates.
b. determine that partner’s share of net income or loss for the year. c. are jointly owned by all partners.
d. determine the scope of authority of that partner.

42. Which one of the following would not be considered a disadvantage of the partnership form of organization?
a. Limited life

b. Unlimited liability c. Mutual agency
d. Ease of formation

43. The partnership form of business is

a. restricted to law and medical practices.

b. restricted to firms having fewer than 10 partners. c. not restricted to any particular type of business. d. most often used in relatively large companies.

44. Which of the following is not a principal characteristic of the partnership form of business organization?
a. Mutual agency

b. Association of individuals c. Limited liability
d. Limited life

45. The partnership agreement should include each of the following except the a. date of the partnership inception.
b. principal location of the firm.

c. surviving family members in the event of a partner’s death. d. Each of these should be included.

46. Which of the following statements is true regarding the form of a legally binding partnership contract?
a. The partnership contract must be in writing.

b. The partnership contract may be based on a handshake. c. The partnership contract may be implied.
d. The partnership contract cannot be oral.

47. Which of the following statements about a partnership is correct?

a. The personal assets of a partner are included in the partnership accounting records. b. A partnership is not required to file an information tax return.
c. Each partner’s share of income is taxable to the partnership.

d. A partnership represents an accounting entity for financial reporting purposes.

48. In a partnership, mutual agency means

a. each partner acts on his own behalf when engaging in partnership business.

b. the act of any partner is binding on all other partners, only if partners act within their cope of authority.
c. an act by a partner is judged as binding on other partners depending on whether the act appears to be appropriate for the partnership.
d. that partners must pay taxes on a mutual or combined basis.
12 – 8 Test Bank for Accounting Principles, Eighth Edition

49. A partnership

a. is dissolved only by the withdrawal of a partner.

b. is dissolved upon the acceptance of a new partner. c. dissolution means the business must liquidate.
d. has unlimited life.

50. The partner in a limited partnership that has unlimited liability is referred to as the a. lead partner.
b. head partner.

c. general partner. d. unlimited partner.

51. Limited partnerships

a. must have at least one general partner.

b. guarantee that a partner will receive a return.

c. guarantee that a partner will get back his original investment. d. are limited to only three partners.

52. The Maris-Crane partnership is terminated when creditor claims exceed partnership assets by $40,000. Crane is a millionaire and Maris has no personal assets. Maris’ partnership interest is 75% and Crane’s is 25%. Creditors
a. must collect their claims equally from Maris and Crane. b. may collect the entire $40,000 from Crane.
c. must collect their claims 75% from Maris and 25% from Crane.

d. may not require Crane to use his personal assets to satisfy the $40,000 in claims.

53. Which of the following statements about partnerships is incorrect? a. Partnership assets are co-owned by partners.
b. If a partnership is terminated, the assets do not legally revert to the original contributor. c. If the partnership agreement does not specify the manner in which net income is to be
shared, it is distributed according to capital contributions.

d. Each partner has a claim on assets equal to the balance in the partner’s capital account.

54. Which of the following is not an advantage of the partnership form of business? a. Mutual agency
b. Ease of formation

c. Ease of decision making

d. Freedom from governmental regulations and restrictions

55. The largest companies in the United States are primarily organized as a. limited partnerships.
b. partnerships. c. corporations.
d. proprietorships.

56. The basis for dividing partnership net income or net loss is referred to as any of the following except the
a. income ratio.

b. income and loss ratio. c. profit and loss ratio. d. income sharing ratio.
Accounting for Partnerships 12 – 9

57. Which of the following statements is incorrect regarding partnership agreements? a. It may be referred to as the “articles of co-partnership.”
b. Oral agreements are preferable to written articles.

c. It should specify the different relationships that are to exist among the partners. d. It should state procedures for submitting disputes to arbitration.

58. Norton invests personally owned equipment, which originally cost $110,000 and has accumulated depreciation of $30,000 in the Norton and Kennett partnership. Both partners agree that the fair market value of the equipment was $60,000. The entry made by the partnership to record Norton’s investment should be
a. Equipment…………………………………………………………………. 110,000 Accumulated Depreciation—Equipment…………………. 30,000 Norton, Capital……………………………………………………. 80,000
b. Equipment…………………………………………………………………. 80,000

Norton, Capital……………………………………………………. 80,000 c. Equipment…………………………………………………………………. 60,000
Loss on Purchase of Equipment …………………………………… 20,000 Accumulated Depreciation—Equipment…………………………. 30,000
Norton, Capital……………………………………………………. 110,000 d. Equipment…………………………………………………………………. 60,000
Norton, Capital……………………………………………………. 60,000

59. Partner B is investing in a partnership with Partner A. B contributes as part of his initial investment, Accounts Receivable of $80,000; an Allowance for Doubtful Accounts of $12,000; and $8,000 cash. The entry that the partnership makes to record B’s initial contribution includes a
a. credit to B, Capital for $88,000.

b. debit to Accounts Receivable for $68,000. c. credit to B, Capital for $76,000.
d. debit to Allowance for Doubtful Accounts for $12,000.

60. Which of the following would not be recorded in the entry for the formation of a partnership?
a. Accumulated depreciation

b. Allowance for doubtful accounts c. Accounts receivable
d. All of these would be recorded.

61. Bob is investing in a partnership with Jerry. Bob contributes equipment that originally cost $63,000, has a book value of $30,000, and a fair market value of $39,000. The entry that the partnership makes to record Bob’s initial contribution includes a
a. debit to Equipment for $33,000. b. debit to Equipment for $63,000. c. debit to Equipment for $39,000.
d. credit to Accumulated Depreciation for $33,000.

62. A partner contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment?
12 – 10 Test Bank for Accounting Principles, Eighth Edition

a. The balance of the accounts receivable account should be recorded on the books of the partnership at its net realizable value.
b. The allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed.
c. The allowance account should not be carried onto the books of the partnership.

d. The accounts receivable and allowance should not be recorded on the books of the partnership because a partner must invest cash in the business.

63. Which one of the following would not be considered an expense of a partnership in determining income for the period?
a. Expired insurance

b. Salary allowance to partners c. Supplies used
d. Freight-out

64. A partner invests into a partnership a building with an original cost of $90,000 and accumulated depreciation of $40,000. This building has a $70,000 fair market value. As a result of the investment, the partner’s capital account will be credited for
a. $70,000. b. $50,000. c. $90,000. d. $120,000.

Use the following information for questions 65–67.

James and Laura are forming a partnership. James will invest a truck with a book value of $10,000 and a fair market value of $14,000. Laura will invest a building with a book value of $30,000 and a fair market value of $42,000 with a mortgage of $15,000.

65. At what amount should the building be recorded? a. $30,000
b. $27,000 c. $42,000 d. $45,000

66. What amount should be recorded in Laura’s capital account? a. $30,000
b. $27,000 c. $42,000 d. $14,000

67. What amount should be recorded in James’ capital account? a. $30,000
b. $27,000 c. $42,000 d. $14,000

68. Speir and Pablo decide to organize a partnership. Speir invests $15,000 cash, and Pablo contributes $12,000 cash and equipment having a book value of $6,000. Choose the entry to record Pablo’s investment in the partnership assuming the equipment has a fair market value of $9,000.
Accounting for Partnerships 12 – 11

a. Cash…………………………………………………………………………. 12,000 Equipment ………………………………………………………………… 6,000
Pablo, Capital ……………………………………………………. 18,000 b. Equipment ………………………………………………………………… 6,000
Pablo, Capital ……………………………………………………. 6,000 c. Cash…………………………………………………………………………. 12,000
Pablo, Capital ……………………………………………………. 12,000 d. Cash…………………………………………………………………………. 12,000
Equipment ………………………………………………………………… 9,000

Pablo, Capital ……………………………………………………. 21,000

Use the following information for questions 69–71.

Partners Abel and Cain have capital balances in a partnership of $40,000 and $60,000, respectively. They agree to share profits and losses as follows:
Abel Cain

As salaries $10,000 $12,000 As interest on capital at the beginning of the year 10% 10% Remaining profits or losses 50% 50%

69. If income for the year was $50,000, what will be the distribution of income to Cain? a. $23,000
b. $27,000 c. $20,000 d. $10,000

70. If income for the year was $30,000, what will be the distribution of income to Abel? a. $13,000
b. $77,000 c. $10,000 d. $14,000

71. If net loss for the year was $2,000, what will be the distribution to Cain? a. $12,000 income
b. $1,000 income c. $1,000 loss
d. $2,000 loss

72. Partners Jim and Joe have agreed to share profits and losses in an 80:20 ratio respectively, after Jim is allowed a salary allowance of $140,000 and Joe is allowed a salary allowance of $70,000. If the partnership had net income of $140,000 for 2008, Joe’s share of the income would be
a. $70,000. b. $56,000. c. $84,000. d. $14,000.
12 – 12 Test Bank for Accounting Principles, Eighth Edition

73. The most appropriate basis for dividing partnership net income when the partners do not plan to take an active role in daily operations is
a. on a fixed ratio.

b. interest on capital balances and salaries to the partners. c. on a ratio based average capital balances.
d. salaries to the partners and the remainder on a fixed ratio.

74. The Smith and Jones partnership agreement stipulates that profits and losses will be shared equally after salary allowances of $160,000 for Smith and $80,000 for Jones. At the beginning of the year, Smith’s Capital account had a balance of $320,000, while Jones’ Capital account had a balance of $280,000. Net income for the year was $200,000. The balance of Jones’ Capital account at the end of the year after closing is
a. $380,000. b. $80,000. c. $340,000. d. $360,000.

75. A partner’s share of net income is recognized in the accounts through a. adjusting entries.
b. closing entries.

c. correcting entries. d. accrual entries.

76. The partnership of Nott and Reese reports net income of $60,000. The partners share equally in income and losses. The entry to record the partners’ share of net income will include a
a. credit to Income Summary for $60,000. b. credit to Nott, Capital for $30,000.
c. debit to Reese, Capital for $30,000. d. credit to Reese, Drawing for $30,000.

77. Partner A receives $210,000 and Partner B receives $140,000 in a split of $350,000 net income. Which expression does not reflect the income splitting arrangement?
a. 3:2

b. 3/5 & 2/5 c. 6:4
d. 2:1

78. An income ratio based on capital balances might be appropriate when a. service is a primary consideration.
b. some, but not all, partners plan to work in the business.

c. funds invested in the partnership are considered the critical factor. d. little net income is expected.

79. If the partnership agreement specifies salaries to partners, interest on partners’ capital, and the remainder on a fixed ratio, and partnership net income is not sufficient to cover both salaries and interest,
a. only salaries are allocated to the partners. b. only interest is allocated to the partners.
c. the entire net income is shared on a fixed ratio.

d. both salaries and interest are allocated to the partners.
Accounting for Partnerships 12 – 13

80. Which of the following would not be considered an expense of a partnership in determining income for the period?
a. Expired insurance b. Income tax expense c. Rent expense
d. Utilities expense

Use the following information for questions 81–82.

The net income of the Pine and Miles partnership is $180,000. The partnership agreement specifies that Pine and Miles have a salary allowance of $48,000 and $72,000, respectively. The partnership agreement also specifies an interest allowance of 10% on capital balances at the beginning of the year. Each partner had a beginning capital balance of $120,000. Any remaining net income or net loss is shared equally.

81. What is Pine’s share of the $180,000 net income? a. $48,000
b. $60,000 c. $66,000 d. $78,000

82. What is the balance of Miles’ Capital account at the end of the year after net income has been distributed?
a. $204,000 b. $192,000 c. $222,000 d. $210,000

83. The net income of the Torrey and Gore partnership is $250,000. The partnership agreement specifies that profits and losses will be shared equally after salary allowances of $200,000 (Torrey) and $150,000 (Gore) have been allocated. At the beginning of the year, Torrey’s Capital account had a balance of $500,000 and Gore’s Capital account had a balance of $650,000. What is the balance of Gore’s Capital account at the end of the year after profits and losses have been distributed?
a. $650,000 b. $100,000 c. $750,000 d. $775,000

84. A partners’ capital statement explains

a. the amount of legal liability of each of the partners.

b. the types of assets invested in the business by each partner.

c. how the partnership will be capitalized if a new partner is admitted to the partnership. d. the changes in each partner’s capital account and in total partnership capital during a
period.

85. Each of the following is used in preparing the partners’ capital statement except the a. balance sheet.
b. income statement.

c. partners’ capital accounts. d. partners’ drawing accounts.
12 – 14 Test Bank for Accounting Principles, Eighth Edition

86. The owners’ equity statement for a partnership is called the a. partners’ proportional statement.
b. partners’ capital statement.

c. statement of shareholders’ equity. d. capital and drawing statement.

87. Which of the following would not cause an increase in partnership capital? a. Drawings
b. Net income

c. Additional capital investment by the partners d. Initial capital investment by the partners

88. Jill Grier’s capital statement reveals that her drawings during the year were $50,000. She made an additional capital investment of $25,000 and her share of the net loss for the year was $10,000. Her ending capital balance was $200,000. What was Jill Grier’s beginning capital balance?
a. $225,000 b. $185,000 c. $235,000 d. $260,000

89. Bill Wren started the year with a capital balance of $180,000. During the year, his share of partnership net income was $160,000 and he withdrew $30,000 from the partnership for personal use. He made an additional capital contribution of $50,000 during the year. The amount of Bill Wren’s capital balance that will be reported on the year-end balance sheet will be
a. $160,000. b. $390,000. c. $300,000. d. $360,000.

90. The Partners’ Capital Statement for the United Center reported the following information in total:
Capital, January 1………………………………………….. $120,000 Additional investment……………………………………… 40,000 Drawings………………………………………………………. 80,000 Net income……………………………………………………. 100,000

The partnership has three partners: Moon, Garr, and Rice with ending capital balances in a ratio 40:20:40. What are the respective ending balances of the three partners?
a. Moon, $80,000; Garr, $40,000; Rice, $80,000. b. Moon, $72,000: Garr, $36,000; Rice, $72,000.
c. Moon, $136,000; Garr, $68,000; Rice, $136,000. d. Moon, $90,000; Garr, $48,000; Rice, $90,000.
Accounting for Partnerships 12 – 15

91. The total column of the Partners’ Capital Statement for North Company is as follows:

Capital, January 1 …………………………………………. Additional investment…………………………………….. Drawings ……………………………………………………… Net income……………………………………………………
$150,000 60,000 90,000 180,000

The partnership has three partners. The first two partners have ending capital balances that are equal. The ending balance of the third partner is half of the ending balance of the first partner. What is the ending capital balance of the third partner?
a. $72,000 b. $48,000 c. $60,000 d. $66,000

92. The partners’ drawing accounts are

a. reported on the income statement. b. reported on the balance sheet.
c. closed to Income Summary.

d. closed to the partners’ capital accounts.

93. The Uniform Partnership Act provides that

a. a purchaser of a partnership interest is not a partner until he or she is accepted into the firm by the continuing partners.
b. a partner must obtain the approval of other partners before selling his or her interest. c. the price paid in a purchase of partner’s interest must be equal to the capital equity
acquired.

d. the price paid in a purchase of partner’s interest must be greater than the capital equity acquired.

94. The balance sheet of a partnership will

a. report retained earnings below the partnership capital accounts. b. show a separate capital account for each partner.
c. show a separate drawing account for each partner.

d. show the amount of income that was distributed to each partner.

95. The liquidation of a partnership may result from each of the following except the a. bankruptcy of the partnership.
b. death of a partner.

c. retirement of a partner.

d. sale of the business by the partners.

96. In the liquidation of a partnership, any gain or loss on the realization of noncash assets should be allocated
a. first to creditors and the remainder to partners.

b. to the partners on the basis of their capital balances.

c. to the partners on the basis of their income-sharing ratio. d. only after all creditors have been paid.

97. In the liquidation of a partnership, any partner who has a capital deficiency a. has a personal debt to the partnership for the amount of the deficiency. b. is automatically terminated as a partner.
c. will receive a cash distribution only on the basis of his or her income-sharing ratio. d. is not obligated to make up the capital deficiency.
12 – 16 Test Bank for Accounting Principles, Eighth Edition

98. Partners A, B, and C have capital account balances of $120,000 each. The income and loss ratio is 5:2:3, respectively. In the process of liquidating the partnership, noncash assets with a book value of $100,000 are sold for $40,000. The balance of Partner B’s Capital account after the sale is
a. $90,000. b. $102,000. c. $108,000. d. $132,000.

Use the following information for questions 99–101.

The partners’ income and loss sharing ratio is 2:3:5, respectively.

D, E, AND F PARTNERSHIP Balance Sheet December 31, 2008

Assets Liabilities and Owners’ Equity

Cash

Noncash assets

Total
$ 90,000 570,000

$660,000
Liabilities D, Capital E, Capital F, Capital
Total
$300,000 120,000 180,000
60,000 $660,000

99. If the D, E, and F Partnership is liquidated by selling the noncash assets for $390,000 and creditors are paid in full, what is the amount of cash that can be safely distributed to each partner?
a. D, $72,000; E, $108,000; F, $0.

b. D, $84,000; E, $126,000; F, $30,000. c. D, $69,000; E, $111,000; F, $0.
d. D, $66,000; E, $114,000; F, $0.

100. If the D, E, and F Partnership is liquidated by selling the noncash assets for $750,000, and creditors are paid in full, what is the total amount of cash that Partner D will receive in the distribution of cash to partners?
a. $36,000 b. $234,000 c. $156,000 d. $150,000

101. If the D, E, and F Partnership is liquidated and the noncash assets are worthless, the creditors will look to what partner’s personal assets for settlement of the creditors’ claims? a. The personal assets of Partner E.
b. The personal assets of Partners D and F.

c. The personal assets of Partners D, E, and F.

d. The personal assets of the partners are not available for partnership debts.
Accounting for Partnerships 12 – 17

102. If a partner has a capital deficiency and does not have the personal resources to eliminate it,
a. the creditors will have to absorb the capital deficiency.

b. the other partners will absorb the capital deficiency on the basis of their respective capital balances.
c. the other partners will have to absorb the capital deficiency on the basis of their respective income sharing ratios.
d. neither the creditors nor the other partners will have to absorb the capital deficiency.

103. When a partnership terminates business, the sale of noncash assets is called a. liquidation.
b. realization. c. recognition. d. disposition.

104. The liquidation of a partnership

a. cannot be a voluntary act of the partners. b. terminates the business.
c. eliminates those partners with a capital deficiency. d. cannot occur unless all partners approve.

105. The liquidation of a partnership is a process containing the following steps:

1. Pay partnership liabilities in cash.

2. Allocate the gain or loss on realization to the partners on their income ratios. 3. Sell noncash assets for cash and recognize a gain or loss on realization.
4. Distribute remaining cash to partners on the basis of their remaining capital balances.

Identify the proper sequencing of the steps in the liquidation process. a. 3, 2, 4, 1.
b. 3, 2, 1, 4. c. 1, 3, 2, 4. d. 1, 4, 3, 2.

106. In the final step of the liquidation process, remaining cash is distributed to partners a. on an equal basis.
b. on the basis of the income ratios.

c. on the basis of the remaining capital balances. d. regardless of capital deficiencies.

107. In the liquidation process, if a capital account shows a deficiency

a. the partner with a deficiency has an obligation to the partnership for the amount of the deficiency.
b. it may be written off to a “Loss” account.

c. it is disregarded until after the partnership books are closed. d. it can be written off to a “Gain” account.

108. Before distributing any remaining cash to partners in a partnership liquidation, it is necessary to do each of the following except
a. sell noncash assets for cash.

b. recognize a gain or loss on realization.

c. allocate the gain or loss to the partners based on their capital balances. d. pay partnership liabilities in cash.
12 – 18 Test Bank for Accounting Principles, Eighth Edition

109. Kate, Sue, and Tina formed a partnership with income-sharing ratios of 50%, 30%, and 20%, respectively. Cash of $180,000 was available after the partnership’s assets were liquidated. Prior to the final distribution of cash, Kate’s capital balance was $200,000, Sue’s capital balance was $150,000, and Tina had a capital deficiency of $50,000. Based upon a cash payments schedule, Kate should receive
a. $175,000. b. $168,750. c. $131,250. d. $200,000.

110. A, B and C are partners, sharing income 2:1:2. After selling all of the assets for cash, dividing gains and losses on realization, and paying liabilities, the balances in the capital accounts are as follows: A, $10,000 Cr; B, $10,000 Cr; and C, $30,000 Cr. How much cash should be distributed to A?
a. $6,000 b. $20,000 c. $10,000 d. $16,667

111. In liquidation, balances prior to the distribution of cash to the partners are: Cash $300,000; Moorman, Capital $140,000; Simpson, Capital $130,000, and Kelton, Capital $30,000. The income ratio is 6:2:2, respectively. How much cash should be distributed to Moorman?
a. $125,000 b. $136,250 c. $140,000 d. $150,000

112. Assume the same facts in question 111 above, except that there is only $255,000 in cash and Kelton has a capital deficiency of $15,000. How much cash should be distributed to Simpson if Kelton does not pay his deficiency?
a. $122,500 b. $126,250 c. $118,750 d. $130,000

a113. D. Givens purchases a 25% interest for $30,000 when the Suppan, Porter, James partnership has total capital of $270,000. Prior to the admission of Givens, each partner has a capital balance of $90,000. Each partner relinquishes an equal amount of his capital balance to Givens. The amount to be relinquished by James is
a. $15,000. b. $19,000. c. $22,500. d. $37,500.

a114. Bryant is admitted to a partnership with a 25% capital interest by a cash investment of $90,000. If total capital of the partnership is $390,000 before admitting Bryant, the bonus to Bryant is
a. $30,000. b. $15,000. c. $45,000. d. $60,000.
Accounting for Partnerships 12 – 19

Use the following information for questions 115–116.

Carley and Kingman are partners who share income and losses in the ratio of 3:2, respectively. On August 31, their capital balances were: Carley, $175,000 and Kingman, $150,000. On that date, they agree to admit Lerner as a partner with a one-third capital interest.

a115. If Lerner invests $125,000 in the partnership, what is Carley’s capital balance after Lerner’s admittance?
a. $150,000 b. $158,333 c. $160,000 d. $175,000

a116. If Lerner invests $200,000 in the partnership, what is Kingman’s capital balance after Lerner’s admittance?
a. $175,000 b. $160,000 c. $157,500 d. $150,000

a117. King and Nott are partners who share profits and losses equally and have capital balances of $560,000 and $490,000, respectively. Starr is admitted into the partnership by investing $490,000 for 30% capital interest. The account balance of Nott, Capital after the admission of Starr would be
a. $462,000. b. $476,000. c. $504,000. d. $490,000.

a118. Stine and Watson have partnership capital balances of $320,000 and $240,000, respectively. Watson negotiates to sell his partnership interest to Leary for $280,000. Stine agrees to accept Leary as a new partner. The partnership entry to record this transaction is
a. Cash…………………………………………………………………………. 280,000

Leary, Capital …………………………………………………….. 280,000 b. Watson, Capital………………………………………………………….. 280,000
Leary, Capital …………………………………………………….. 280,000 c. Cash…………………………………………………………………………. 40,000
Watson, Capital………………………………………………………….. 240,000

Leary, Capital …………………………………………………….. 280,000 d. Watson, Capital………………………………………………………….. 240,000
Leary, Capital …………………………………………………….. 240,000

a119. Hill and Eddy share partnership profits and losses in the ratio of 6:4. Hill’s Capital account balance is $320,000 and Eddy’s Capital account balance is $200,000. Porter is admitted to the partnership by investing $360,000 and is to receive a one-fourth ownership interest. Hill, Eddy and Porter’s capital balances after Porter’s investment will be
Hill Eddy Porter

a. $320,000 $200,000 $360,000 b. $404,000 $256,000 $220,000 c. $396,000 $264,000 $220,000 d. $390,000 $270,000 $220,000
12 – 20 Test Bank for Accounting Principles, Eighth Edition

a120. Judy and Deb have partnership capital account balances of $600,000 and $450,000, respectively and share profits and losses equally. Anne is admitted to the partnership by investing $250,000 for a one-fourth ownership interest. The balance of Deb’s Capital account after Anne is admitted is
a. $412,500. b. $450,000. c. $487,500. d. $325,000.

a121. The admission of a new partner to an existing partnership

a. may be accomplished only by investing assets in the partnership. b. requires purchasing the interest of one or more existing partners. c. causes a legal dissolution of the existing partnership.
d. is almost always accompanied by the liquidation of the business.

a122. When a partnership interest is purchased

a. every partner’s capital account is affected.

b. the transaction is a personal transaction between the purchaser and the selling partner(s).
c. the buyer receives equity equal to the amount of cash paid. d. all partners will receive some part of the purchase price.

a123. Adler and Lynn each sell 1/3 of their partnership interest to Sele, receiving $140,000 each. At the time of the admission, each partner has a $420,000 capital balance. The entry to record the admission of Sele will show a
a. debit to Cash for $280,000.

b. credit to Sele, Capital for $420,000. c. debit to Lynn, Capital for $420,000. d. debit to Adler, Capital for $140,000.

a124. Ball and Gant sell 1/4 of their partnership interest to Ives receiving $200,000 each. At the time of admission, Ball and Gant each had a $350,000 capital balance. The admission of Ives will cause the net partnership assets to
a. increase by $400,000. b. remain at $700,000.
c. decrease by $400,000. d. remain at $1,100,000.

a125. Cole and Glenn sell to Nabb a 1/3 interest in the Cole-Glenn partnership. Nabb will pay Cole and Glenn each $70,000 for admission into the organization. Before this transaction, Cole and Glenn show capital balances of $105,000 each. The journal entry to record the admission of Nabb will
a. show a debit to Cash for $140,000. b. not show a debit to Cash.
c. show a debit to Glenn, Capital for $70,000. d. show a credit to Nabb, Capital for $140,000.
Accounting for Partnerships 12 – 21

a126. Foxx invests $20,000 in cash (admission by investment) in the Massey-Dix partnership to acquire a 1/4 interest. In this case
a. the accounting will be the same as a purchase of an interest.

b. the total net assets of the new partnership are unchanged from the previous partnership. c. the total capital of the new partnership is greater than the total capital of the old
partnership.

d. Foxx’s income ratio will automatically be 1/4.

a127. Which of the following is correct when admitting a new partner into an existing partnership?
Purchase of an Interest Admission by Investment a. Total net assets unchanged unchanged
b. Total capital increased unchanged c. Total net assets unchanged increased d. Total capital unchanged unchanged

a128. When admitting a new partner by investment, a bonus to old partners

a. is usually unjustified because book values clearly reflect partnership net worth.

b. is sometimes justified because goodwill may exist and it is not reflected in the accounts. c. results if the debit to cash is less than the new partner’s capital credit.
d. results if the debit to cash is equal to the new partner’s capital credit.

a129. When admitting a new partner by investment, a bonus to old partners is allocated on a. the basis of capital balances.
b. the basis of the original investment of the old partners.

c. the basis of income ratios before the admission of the new partner. d. a seniority basis.

a130. A bonus to a new partner a. is prohibited by GAAP.
b. results when the new partner’s capital credit is less than his or her investment of assets in the firm.
c. may occur when recorded book values are lower than market values.

d. results when the new partner’s capital credit is greater than his or her investment of assets in the firm.

a131. A bonus to a new partner will

a. increase the capital balances of existing partners based on their income ratios before the admission of the new partner.
b. increase the capital balances of existing partners based on their income ratios after the admission of the new partner.
c. decrease the capital balances of existing partners based on their income ratios before the admission of the new partner.
d. decrease the capital balances of existing partners based on their capital balances before the admission of the new partner.

a132. Jane, Ken, and Mark have partnership capital account balances of $225,000, $450,000 and $105,000, respectively. The income sharing ratio is Jane, 50%; Ken, 40%; and Mark, 10%. Jane desires to withdraw from the partnership and it is agreed that partnership assets of $195,000 will be used to pay Jane for her partnership interest. The balances of Ken’s and Mark’s Capital accounts after Jane’s withdrawal would be
12 – 22 Test Bank for Accounting Principles, Eighth Edition

a. Ken, $450,000; Mark, $105,000. b. Ken, $474,000; Mark, $111,000. c. Ken, $426,000; Mark, $99,000. d. Ken, $435,000; Mark, $90,000.

a133. Ace, Bell, and Cole have partnership capital account balances of $400,000 each. Income and losses are shared equally. Cole agrees to sell three-fourths of his ownership interest to Ace for $350,000 and one-fourth to Bell for $125,000. Ace and Bell will use personal assets to purchase Cole’s interest. The partnership’s entry to record Cole’s withdrawal from the partnership would be
a. Cole, Capital …………………………………………………………….. 475,000

Cash ……………………………………………………………….. 475,000 b. Cole, Capital …………………………………………………………….. 475,000
Ace, Capital ……………………………………………………… 350,000 Bell, Capital ………………………………………………………. 125,000
c. Cole, Capital …………………………………………………………….. 400,000

Ace, Capital ……………………………………………………… 300,000 Bell, Capital ………………………………………………………. 100,000
d. Ace, Capital ……………………………………………………………… 356,250 Bell, Capital ………………………………………………………………. 118,750
Cole, Capital ……………………………………………………. 475,000

a134. When a partner withdraws from the firm, which of the following reflects the correct partnership effects?
Payment from Payment from Partners’ Personal Assets Partnership Assets
a. Total net assets decreased decreased b. Total capital decreased decreased c. Total net assets unchanged decreased d. Total capital unchanged unchanged

a135. Which of the following is not a necessary action that the partnership must take upon the death of a partner?
a. Determine the net income or net loss for the year to date. b. Discontinue business operations.
c. Close the books.

d. Prepare financial statements.

Use the following information for questions 136–138.

On November 30, capital balances are Gray $90,000, Carr $75,000 and Melton $75,000. The income ratios are 20%, 20% and 60%, respectively. Gray decides to retire from the partnership.

a136. The partnership pays Gray $105,000 cash for her partnership interest. After Gray’s retirement, what is the balance of Carr’s capital account?
a. $71,250 b. $72,000 c. $75,000 d. $97,500
Accounting for Partnerships 12 – 23

a137. The partnership pays Gray $75,000 cash for her partnership interest. After Gray’s retirement, what is the balance of Melton’s capital account?
a. $66,000 b. $75,000 c. $84,000 d. $86,250

a138. In order for Carr and Melton to have equal capital interests after the retirement of Gray, how much partnership cash would have to be paid to Gray for her partnership interest?
a. $0

b. $80,000 c. $90,000
d. Any amount paid to Gray will cause Carr and Melton to still have equal capital balances.

Additional Multiple Choice Questions

139. All of the following are characteristics of partnerships except a. co-ownership of property.
b. mutual agency. c. unlimited life.
d. association of individuals.

140. The Butkus, Sayers, and Halas partnership is terminated when the claims of company creditors exceed partnership assets by $50,000. The capital balances for Butkus, Sayers, and Halas are $35,000, $5,000, and $0, respectively. The original claims of the creditors were negotiated by Sayers and Halas. Which partner(s) is(are) personally and individually liable for all partnership liabilities?
a. Butkus b. Sayers
c. Sayers and Halas

d. Butkus, Sayers, and Halas

141. When a partner invests noncash assets in a partnership, the assets should be recorded at their
a. book value.

b. carrying value.

c. fair market value. d. original cost.

142. The partnership agreement of Rossi and Petry provides for salary allowances of $45,000 to Rossi and $35,000 to Petry, with the remaining income or loss to be divided equally. During the year, Rossi and Petry each withdraw cash equal to 80% of their salary allowances. If partnership net income is $100,000, Rossi’s equity in the partnership would a. increase more than Petry’s.
b. decrease more than Petry’s. c. increase the same as Petry’s. d. decrease the same as Petry’s.
12 – 24 Test Bank for Accounting Principles, Eighth Edition

143. Which of the following statements is correct?

a. Salaries to partners and interest on partners’ capital are expenses of the partnership. b. Salaries to partners are expenses of the partnership but not interest on partners’
capital.

c. Interest on partners’ capital is an expense of the partnership but not salaries to partners.
d. Neither salaries to partners nor interest on partners’ capital are expenses of the partnership.

144. In the liquidation of a partnership, the gains and losses from assets sold are a. divided equally among the partners.
b. divided among the partners in the stated income ratio.

c. divided among the partners in proportion to their capital equity interests. d. ignored.

145. If a partner with a capital deficiency is unable to pay the amount owed to the partnership, the deficiency is allocated to the partners with credit balances
a. equally.

b. on the basis of their income ratios.

c. on the basis of their capital balances.

d. on the basis of their original investments.

146. An entry is not required in the liquidation of a partnership to record the a. payment of cash to creditors.
b. distribution of cash to the partners. c. sale of noncash assets.
d. allocation of a capital deficiency to partners with credit balances when the deficient partner is expected to pay the deficiency.

147. The first step in the liquidation of a partnership is to

a. allocate a gain or loss on realization to the partners. b. distribute remaining cash to the partners.
c. pay partnership liabilities.

d. sell noncash assets and recognize a gain or loss on realization.

148. Baker joins the partnership of Kubek and Musial by paying $30,000 in cash. If the net assets of the partnership are still the same amount after Baker has been admitted as a partner, then Baker
a. must have been admitted by investment of assets.

b. must have been admitted by purchase of a partner’s interest. c. must have received a bonus upon being admitted.
d. could have been admitted by an investment of assets or by a purchase of a partner’s interest.

149. Lowe is admitted to a partnership with a 25% capital interest by a cash investment of $120,000. If total capital of the partnership is $520,000 before admitting Lowe, the bonus to Lowe is
a. $40,000. b. $20,000. c. $60,000. d. $80,000.

BRIEF EXERCISES
BE 150
Brandy and Johnson decide to organize a partnership. Brandy invests $25,000 cash, and Johnson contributes $5,000 and equipment having a book value of $3,500 and a fair market value of $10,000.

Instructions

Prepare the entry to record each partner’s investment.

BE 151

Tonto Company and Ranger Company decide to merge their proprietorships into a partnership called Westward Ho Company. The balance sheet of Ranger Company shows:

Accounts Receivable

Less: Allowance for doubtful accounts

Equipment
Less: Accumulated depreciation
$15,000

1,500

$20,000
10,000

$13,500

$10,000

The partners agree that the net realizable value of the receivables is $12,500 and that the fair market value of the equipment is $15,000.

Instructions

Indicate how the four accounts should appear in the opening balance sheet of the partnership.

BE 152

The Jill & Frill Co. reports net income of $28,000. Interest allowances are Jill $3,000 and Frill $5,000; partner salary allowances are Jill $18,000 and Frill $10,000 and the remainder is shared equally.

Instructions

Indicate the division of net income to each partner, and prepare the entry to distribute the net income.

BE 153

Debauge Co. had beginning capital balances on January 1, 2008, as follows: Nick Foley $30,000 and Tom Wenger $25,000. During the year, drawings were Foley $15,000 and Wenger $8,000. Net income was $50,000, and the partners share income equally.

Instructions

Prepare the partners’ capital statement for the year.

BE 154

After liquidating noncash assets and paying creditors, account balances in the Main Co. are Cash $29,000, A Capital (Cr.) $11,000, B Capital (Cr,) $8,000 and C Capital (Cr.) $10,000. The partners share income equally.

Instructions

Journalize the final distribution of cash to the partners.

BE 155

Barnes Company at December 31 has cash $40,000, noncash assets $200,000, liabilities $110,000, and the following capital balances: Carpenter $90,000 and Pendleton $40,000. The firm is liquidated, and $240,000 in cash is received for the noncash assets. Carpenter and Pendleton income ratios are 60% and 40%, respectively.

Instructions

Prepare a cash distribution schedule.

BE 156

In Nelson Co., capital balances are Ozzie $60,000 and Harriet $75,000. The partners share income equally. Denny is admitted to the firm with a 40% interest by an investment of cash of $65,000. Journalize the admission of Denny.

BE 157

Bob and Kathy are partners who share profits 60% and 40%. Their capital balances were both $90,000 before Betty was admitted to the partnership. Betty contributed $120,000 in cash to the partnership for a 30% interest.

Instructions

Compute the capital balances of Bob and Kathy after Betty is admitted to the partnership.
Accounting for Partnerships 12 – 29

BE 158

Capital balances in Jetson Co. are George $50,000, Jane $38,000, and Frank $25,000. The partners share income equally. Frank receives $35,000 from partnership assets in withdrawing from the firm.

Instructions

Journalize the withdrawal of Frank.

BE 159

Mike, Andy, and Joe are partners who share profits 40%, 20%, and 40%. Their capital balances were $630,000, $420,000, and $210,000, respectively, before Joe’s retirement. Joe was paid $270,000 from partnership assets to buy his interest.

Instructions

Compute the capital balances of Mike and Andy after Joe has withdrawn.

EXERCISES
Ex. 160
Dick Acer and George Dooley decide to form a partnership. Acer invests $25,000 cash and accounts receivable of $30,000 less allowance for doubtful accounts of $2,000. Dooley contributes $20,000 cash and equipment having a $6,000 book value. It is agreed that the allowance account should be $3,000 and the fair market value of the equipment is $10,000.

Instructions

Prepare the necessary journal entry to record the formation of the partnership.

Ex. 161

Ken Lott and Jim Stine operate separate auto repair shops. On January 1, 2008, they decide to combine their separate businesses which were operated as proprietorships to form L & S Auto Repair, a partnership. Information from their separate balance sheets is presented below:

Cash
Accounts receivable
Allowance for doubtful accounts Accounts payable
Notes payable Salaries payable Equipment
Accumulated amortization—Equipment
Lott Auto Repair $10,000
9,000 1,000 5,000
— 1,000
12,000 2,000
Stine Auto Repair $12,000
10,000 500 6,000 3,000 1,500 24,000 4,000

It is agreed that the expected realizable value of Lott’s accounts receivable is $8,000 and Stine’s receivables is $7,000. The fair market value of Lott’s equipment is $13,000 and the value of Stine’s equipment is $20,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the notes payable on Stine’s balance sheet which he will pay himself.

Instructions

Prepare the journal entries necessary to record the formation of the partnership.
Accounting for Partnerships 12 – 31

Ex. 162

The Smith and Wilson partnership reports net income of $45,000. Partner salary allowances are Smith $18,000 and Wilson $12,000. Any remaining income is shared 60:40.

Instructions

Determine the amount of net income allocated to each partner.

Ex. 163

Bass, Ellis, and Goren formed a partnership on January 1, 2008. Bass invested $60,000, Ellis $60,000 and Goren $140,000. Bass will manage the store and work 40 hours per week in the store. Ellis will work 20 hours per week in the store, and Goren will not work. Each partner withdrew 30 percent of his income distribution during 2008. If there was no income distribution to a partner, there were no withdrawals of cash.

Instructions

Compute the partners’ capital balances at the end of 2008 under the following independent conditions: (Hint: use T accounts to determine each partner’s capital balances.)

Ex. 163 (cont.)

(1) Net income is $120,000 and the income ratio is Bass 40%, Ellis 35%, and Goren 25%.

(2) Net income is $140,000 and the partnership agreement only specifies a salary of $50,000 to Bass and $30,000 to Ellis.
(3) Net income is $86,000 and the partnership agreement provides for (a) a salary of $40,000 to Bass and $40,000 to Ellis, (b) interest on beginning capital balances at the rate of 10%, and (c) any remaining income or loss is to be shared by Bass 40%, Ellis 35%, and Goren 25%.

Ex. 164

Carlin and Larve have a partnership agreement which includes the following provisions regarding sharing net income or net loss:

1. A salary allowance of $54,000 to Carlin and $36,000 to Larve.

2. An interest allowance of 10% on capital balances at the beginning of the year. 3. The remainder to be divided 60% to Carlin and 40% to Larve.

The capital balance on January 1, 2008, for Carlin and Larve was $90,000 and $120,000, respectively. During 2008, the Carlin and Larve Partnership had sales of $495,000, cost of goods sold of $290,000, and operating expenses of $75,000.

Instructions

Prepare an income statement for the Carlin and Larve Partnership for the year ended December 31, 2008. As a part of the income statement, include a Division of Net Income to each of the partners.

Ex. 165

Hope & Crosby Co. reports net income of $34,000. The partnership agreement provides for annual salaries of $24,000 for Hope and $15,000 for Crosby and interest allowances of $4,000 to Hope and $6,000 to Crosby. Any remaining income or loss is to be shared 70% by Hope and 30% by Crosby.

Instructions

Compute the amount of net income distributed to each partner.

Ex. 166

The adjusted trial balance of the Karris and Watts Partnership for the year ended December 31, 2008, appears below:
KARRIS AND WATTS PARTNERSHIP Adjusted Trial Balance
For the Year Ended December 31, 2008

Current Assets…………………………………………………………………………… Plant Assets ……………………………………………………………………………… Current Liabilities……………………………………………………………………….. Long-term Debt …………………………………………………………………………. Karris, Capital……………………………………………………………………………. Karris, Drawing………………………………………………………………………….. Watts, Capital……………………………………………………………………………. Watts, Drawing………………………………………………………………………….. Sales ……………………………………………………………………………………….. Cost of Goods Sold……………………………………………………………………. Operating Expenses……………………………………………………………………
Debit

19,000 80,000

4,000

7,000

62,000
23,000 195,000
Credit

7,000 50,000 20,000

18,000

100,000

195,000

The partnership agreement stipulates that a division of partnership net income or net loss is to be made as follows:
1. A salary allowance of $12,000 to Karris and $23,000 to Watts. 2. The remainder is to be divided equally.

Instructions

(a) Prepare a schedule which shows the division of net income to each partner.

(b) Prepare the closing entries for the division of net income and for the drawing accounts at December 31, 2008.

Ex. 167

Kim Carey and Mary Hall have formed the CH Partnership, and have capital balances of $130,000 and $100,000, respectively, on January 1, 2008. On June 1, 2008, Hall invested an additional $30,000. Also during the year, Carey withdrew $60,000 and Hall withdrew $48,000. Sales for the year amounted to $360,000 and expenses were $260,000. Carey and Hall share income and losses on a 3:1 basis.

Instructions

(a) Prepare the closing entries at December 31, 2008, for the CH Partnership. (b) Prepare a partners’ capital statement for 2008.

Ex. 168

Prepare a partners’ capital statement for Crestwood Company based on the following information.

Crest Wood

Beginning capital $30,000 $27,000 Drawings during year 15,000 8,000

Net income was $35,000, and the partners share income 60% to Crest and 40% to Wood.

Ex. 169

On December 31, Thompson Company has cash $30,000, noncash assets $150,000, and liabilities $80,000. Capital balances were Terry $55,000 and Nott $45,000. The firm is liquidated, and the noncash assets are sold for $125,000. Terry and Nott share income in a 60:40 ratio.

Instructions

Prepare entries to record (a) the sale of noncash assets and (b) the allocation of the gain (loss) on liquidation to the partners.
Accounting for Partnerships 12 – 37

Ex. 170

The ABC Partnership is to be liquidated and you have been hired to prepare a Schedule of Cash Payments for the partnership. Partners A, B, and C share income and losses in the ratio of 4:3:3, respectively. Assume the following:

1. The noncash assets were sold for $75,000. 2. Liabilities were paid in full.
3. The remaining cash was distributed to the partners. (If any partner has a capital deficiency, assume that the partner is unable to make up the capital deficiency.)

Instructions

Using the above information, complete the Schedule of Cash Payments below:

ABC PARTNERSHIP Schedule of Cash Payments

Item Cash + Balances before
liquidation 25,000 +
Noncash

Assets =

150,000 =

Liabilities +

50,000 +
A Capital +

25,000 +
B Capital +

35,000 +
C Capital

65,000

Ex. 171

The ODS Partnership is to be liquidated when the ledger shows the following:

Cash
Noncash Assets Liabilities
Oslo, Capital Decker, Capital Silas, Capital
$ 50,000 200,000 50,000 75,000 100,000 25,000

Oslo, Decker, and Silas’ income ratios are 6:3:1, respectively.

Instructions

Prepare separate entries to record the liquidation of the partnership assuming that the noncash assets are sold for $150,000 in cash.

Ex. 172

Prior to the distribution of cash to the partners, the accounts of ABC Company are: Cash $30,000, Alt Capital (Dr.) $10,000, Bell Capital (Cr.) $25,000, and Cole Capital (Cr.) $15,000. They share income on a 5:3:2 basis.

Instructions

Prepare entries to record (a) the absorption of Alt’s capital deficiency by the other partners and (b) the distribution of cash to the partners with credit balances.
Accounting for Partnerships 12 – 39

Ex. 173

The GF Partnership is liquidated when the ledger shows:

Cash
Noncash Assets Liabilities
Grant, Capital Fleming, Capital
$60,000 90,000 44,000 100,000 6,000

Grant and Fleming’s income ratios are 3:2, respectively.

Instructions

Prepare a schedule of cash payments, assuming that the noncash assets were sold for $70,000. Assume that any partner’s capital deficiencies cannot be paid to the partnership.

Ex. 174

The Howell and Parks Partnership has partner capital account balances as follows:

Howell, Capital Parks, Capital
$550,000 250,000

The partners share income and losses in the ratio of 60% to Howell and 40% to Parks.

Instructions

Prepare the journal entry on the books of the partnership to record the admission of Tyler as a new partner under the following three independent circumstances.

1. Tyler pays $350,000 to Howell and $150,000 to Parks for one-half of each of their ownership interest in a personal transaction.

2. Tyler invests $850,000 in the partnership for a one-third interest in partnership capital. 3. Tyler invests $175,000 in the partnership for a one-third interest in partnership capital.

Ex. 175

Key, Riser, and Stone share income on a 6:3:1 basis. They have capital balances of $80,000, $60,000, and $45,000, respectively, when Horton is admitted to the partnership.

Instructions

Prepare the journal entry to record the admission of Horton into the partnership if Horton purchases one-half of Key’s equity for $45,000; one-half of Riser’s equity for $22,000; and one-third of Stone’s equity for $18,000.

Ex. 176

Tom Rosen and Joe Finney share partnership income on a 3:2 basis. They have capital balances of $560,000 and $280,000, respectively, when Ed Vann is admitted to the partnership.

Instructions

Prepare the journal entry to record the admission of Vann under each of the following assumptions:

(a) Vann invests $340,000 for a 25% ownership interest. (b) Vann invests $200,000 for a 25% ownership interest.
(c) Vann invests an amount that gives him a 25% ownership interest.

Ex. 177

Cindy Mills and Amy Peters have capital accounts of $480,000 and $420,000, respectively. Bill Denny and Mark Morgan are to join the partnership. Denny invests $450,000 in the partnership for which he receives a capital credit of $450,000. Morgan purchases a one-half interest from Mills for $300,000 and a one-fourth interest from Peters for $90,000.

Instructions

(a) Prepare the journal entries to record the admission of Denny and Morgan to the partnership.

(b) Determine the capital balances of the partners after the admission of Denny and Morgan.
Accounting for Partnerships 12 – 43

Ex. 178

Adel, Gaines, and Yockey share income and losses in a ratio of 3:2:5, respectively. The capital account balances of the partners are as follows:

Adel, Capital Gaines, Capital Yockey, Capital
$600,000 360,000 240,000

Instructions

Prepare the journal entry on the books of the partnership to record the withdrawal of Yockey under the following independent circumstances:

1. The partners agree that Yockey should be paid $280,000 by the partnership for his interest. 2. The partners agree that Yockey should be paid $180,000 by the partnership for his interest.
3. Adel agrees to pay Yockey $180,000 for one-half of his capital interest and Gaines agrees to pay Yockey $180,000 for one-half of his capital interest in a personal transaction among the partners.

Ex. 179

Dixon, Larsen, and Polley have capital balances of $150,000, $100,000, and $75,000, respectively, and their income ratios are 4:2:4.

Instructions

Record the withdrawal of Polley from the partnership under each of the following assumptions: 1. Polley is paid $75,000 from partnership assets.
2. Polley is paid $90,000 from partnership assets. 3. Polley is paid $55,000 from partnership assets.

COMPLETION STATEMENTS

180. The ______________ Act provides the basic rules for the formation and operation of partnerships in more than 90% of the states.

181. A partnership characteristic which enables each partner to act on behalf of the partnership when engaging in partnership business is called ______________.

182. A major disadvantage of the partnership form of organization is ______________, which makes each partner personally and individually liable for all partnership liabilities.

183. The capital accounts indicate each partner’s ______________ investment, while the partner’s drawing accounts are ______________ owner’s equity accounts.

184. The ______________ ratio specifies the basis for sharing income and losses.

185. An income ratio based on ______________ balances may be appropriate when the amount of funds invested in the partnership is critical to the partnership.

186. A ______________ allowance or ______________ on partners’ capital accounts are not expenses of the partnership when they are specified as the basis for sharing income and losses.

187. In liquidating a partnership, it is necessary to convert ______________ into cash and to allocate any ______________ or ______________ to the partners based on their income ratios.

188. A debit balance in a partner’s capital account is called a _____________.

a189. A new partner may be admitted to the partnership by ______________ the interest of an existing partner, or by ______________ assets in the partnership.

a190. When a new partner’s capital interest on the date of admittance is less than his or her investment in the firm, a ______________ results for the ______________ partner(s).

a191. If a bonus is given to a new partner, the old partners’ capital accounts are decreased based on their ______________ ratio prior to the admission of the new partner.

MATCHING

192. Match the items below by entering the appropriate code letter in the space provided.

A. Mutual agency B. Unlimited liability
C. Partnership agreement D. Income ratio
E. Partners’ capital statement F. Admission by investment
G. Purchase of an interest H. Partnership liquidation
I. Capital deficiency
J. Distribution of cash to partners in liquidation of a partnership.

____ 1. Each partner is personally and individually liable for partnership debts.

____ 2. Made on basis of partners’ capital balances.

____ 3. Explains changes in individual partner’s capital accounts during a period.

____ 4. Each partner can bind the partnership so long as the action appears to be appropriate for the partnership.

____ 5. Business terminates.

____ a6. Results in an increase in total net assets and total capital of the partnership.

____ 7. Capital account with a debit balance.

____ 8. The basis for sharing income and losses.

____ a9. Total net assets and total capital of the partnership do not change.

____ 10. Written or verbal contract establishing duties and responsibilities of partners.

SHORT-ANSWER ESSAY QUESTIONS
S-A E 193
Identify and explain the principal characteristics of the partnership form of business organization.

S-A E 194

A partnership is liquidated by selling the non-cash assets, paying the creditors in full, and distributing the remaining assets to the partners. Explain why gains and losses on the realization of non-cash assets are distributed to the partners based on their income ratios, whereas cash is distributed to the partners based on their equity as shown in their capital accounts. What effects does the payment or nonpayment of a capital deficiency have on the distribution of cash to the partners?

S-A E 195 (Ethics)

Three doctors, Frank White, Mark Rosen, and Steve Jenner, opened a family medicine clinic. All three doctors had been lifelong friends. All belonged to the same religious faith. All were very active in church affairs, and tried to mold their professional behavior to their religious beliefs.

About a year ago, Dr. White announced that he was leaving the church. The others noticed that his personality also began to change. He began to dress in flamboyant styles, and he started wearing expensive-looking jewelry. His temper became unstable—one minute he was calm, and the next, he might be throwing charts down the hall and screaming. He started coming to the office late, and forgetting to see some of his patients before he left again. The other two at first were stunned at the changes. His wife asked them whether they thought he might have a drinking problem. After finally deciding to investigate, they found what looked to them like a large amount of cocaine, (hundreds of plastic sacks of white powder) tucked away in boxes of old medical equipment.

Frightened, Drs. Rosen and Jenner decided to act quickly. Their partnership agreement said nothing about dissolving the partnership—only about what to do if one of them died. They therefore secretly rented office space across town and began to move the most necessary equipment and supplies to the new office. A month later, they changed the locks on the old office and began seeing patients in the new office without any notice to Dr. White at all. Dr. White simply came in at around ten o’clock as usual, and found himself locked out of an empty office.

Required:

Did Drs. Rosen and Jenner act ethically in their ending of the partnership? Explain.

S-A E 196 (Communication)

Matt Jones and Jerry Watson began detail work on automobiles as a hobby. First, they used a mail-order kit to add “pinstriping” to their own cars, a 1968 Mustang and a 1970 GTO Judge, respectively. Then Matt added more flourishes, including his name. Jerry practiced painting flames on his Judge. Gradually, their cars became recognized around town and others began to ask them to add a flourish here or there to their cars. They were talked into attending a “muscle car” show in a nearby large city to show off their cars. They had more requests for work than they could handle. Now, they are considering quitting their other jobs and making this a permanent business. Jerry, for example, turns down more jobs than he accepts and still gets more requests every week.

S-A E 196 (cont.)

Matt and Jerry are unsure how to proceed. They like the idea of a partnership, but they only know they work well together—things like how to split payment have just been settled individually for each job, depending on which one did more work. Matt’s father suggests a written partnership agreement. Matt disagrees. He believes that it will spoil the whole arrangement by reducing it to words.

Required:

Write a brief note to Matt explaining why he needs a partnership agreement.

BUS 365 Week 4 Quiz – Strayer

BUS/365 Week 4 Quiz – Strayer

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Chapter 4 Network Management and Mobility

Multiple Choice

1. Connectivity and mobility are __________ issues.
a) 4G
b) network
c) Wi-Fi
d) social media

2. 4G networks are __________.
a) owned by Sprint
b) based on satellite transmission
c) hybrid analog networks
d) purely digital networks

3. Why did the New Mexico Department of Transportation start offering passengers free public 4G WiMAX Internet to make public transportation more attractive to commuters?
a) To assist with New Mexico’s goal to become a high-tech state.
b) To improve traffic congestion conditions.
c) To reduce pollution and smog conditions along the main traffic corridor in the state.
d) To reduce the population’s dependence on gasoline.

4. What are the basic functions or needs supported by business networks?
a) competitive advantage, decision support, and communication
b) analog and digital
c) mobility, collaboration, relationships, search
d) circuit and packet switching

5. Networks transmit __________, which carry voice or data between a sender and a receiver.
a) nodes
b) routers
c) signals
d) switches

6. Plain old telephone service (POTS) and most wired telephone calls are transmitted, at least in part, over a __________.
a) dedicated circuit that is only used for that call
b) dedicated circuit that is shared by many calls
c) packet circuit that is only used for that call
d) packet circuit that is shared by many calls

7. When you send a file or e-mail message over a network, it is broken into smaller blocks called __________ that follow different paths from the source to the destination.
a) circuits
b) nodes
c) packets
d) switches

8. __________ is the throughput capacity of a network, which is a measure of the speed at which data is transmitted.
a) Bandwidth
b) Protocol
c) TCP/IP
d) Broadband

9. A __________ is a set of rules that govern how devices on a network exchange information and function in order to “talk to each other.”
a) bandwidth
b) protocol
c) TCP/IP
d) broadband

10. __________ was created by the U.S. Department of Defense to ensure data integrity and maintain communications in the event of catastrophic war.
a) Bandwidth
b) Protocol
c) TCP/IP
d) Broadband

11. __________ is a general term that means fast transmission speed.
a) Bandwidth
b) Protocol
c) TCP/IP
d) Broadband

12. 4G technologies represent the latest stage in the evolution of __________ technologies.
a) computer hardware
b) software
c) satellite
d) wireless data

13. What is significant about 4G networks is that they do not have a __________, which both 2G and 3G networks do have.
a) packet-switched IP system
b) circuit-switched subsystem
c) WiMAX standard
d) GSM-based LTE subsystem

14. High performance __________ provide fantastic opportunities for mobility, mobile commerce, collaboration, supply chain management, remote work, and other productivity gains.
a) IP networks
b) Bluetooth devices
c) W-Fi hot spots
d) mobile handsets

15. When evaluating mobile network solutions, the factors to consider include all of the following except:
a) easy to deploy, manage and use.
b) always makes the best connection possible.
c) works separately from other systems.
d) enables secure and reliable communications.

16. All are factors contributing to mobility except:
a) more robust mobile OSs and applications.
b) vendor competition.
c) multitasking mobile devices.
d) overall increased speed of business.

17. __________ is a technology that allows computers to share a network or internet connection wirelessly without the need to connect to a commercial network.
a) RFID
b) LTE
c) WiMAX
d) Wi-Fi

18. All of the following describe WiMAX except:
a) an 802.16-based broadband wireless metropolitan area network (MAN) access standard.
b) can deliver voice and data services without the expense of cable.
c) has shorter distance limitations than DSL and cable.
d) does not require a clear line of sight to function.

19. Which is not one of the general types of mobile networks?
a) Bluetooth
b) wide area networks (WANs)
c) WiMAX
d) local area networks (LANs)

20. __________ are built by attaching a wireless access point (WAP) to the edge of the wired network.
a) WLANs
b) WiMAX
c) Wi-Fi hot spots
d) Base stations

21. __________ is key to success in everything from business partnerships to personal and professional relationships.
a) Access to mobile networks
b) Effective communication
c) Real-time decision making capability
d) The Internet

22. An enterprise’s network capability depends on all of the following except:
a) proper planning.
b) upgrades.
c) open culture.
d) bandwidth.

23. An enterprise’s collaboration capability depends on:
a) proper planning.
b) upgrades.
c) open culture.
d) bandwidth.

24. The __________ is critical because it provides the infrastructure for collaborative work within the company and with external partners and customers, regardless of their location.
a) network architecture
b) enterprise portal
c) social network
d) wireless access point

25. Within an enterprise, the capability and willingness to collaborate depends on:
a) a corporate culture that people trust.
b) information and tools.
c) authority to plan and make decisions.
d) all of the above

26. What was a cause of the U.S. Customs’ network crash at Los Angeles Airport (LAX) that stranded passengers for up to 11 hours?
a) A new cutting edge network that had not been tested sufficiently
b) A hacker attack
c) Equipment breakdown and human error
d) Power failure

27. Why had various information services—namely documents, voice, and video—functioned independently of each other?
a) They were transmitted using different protocols.
b) For information privacy and security reasons.
c) They were transmitted on circuit-switched networks.
d) To minimize network traffic congestion.

28. Multiple networks were needed to transmit documents, voice, and video because:
a) of limited bandwidth.
b) of the lack of interoperability between devices.
c) they used the same transmission protocol.
d) outdated IP networks.

29. __________ refers to the ability to provide services to and accept services from other systems or devices.
a) Protocol
b) Broadband
c) Interoperability
d) Multimedia

30. The Internet protocol suite consisting of __________ is the standard used with almost any network service.
a) HTTP
b) WAP
c) HTML
d) TCP/IP

31. _______ is the single most popular network protocol in the world, and provides the architecture that made convergence possible.
a) HTTP
b) IP
c) TCP
d) FTP

32. In preparation for transmission, data and documents are digitized into __________ based on the Internet Protocol.
a) bytes
b) packets
c) blocks
d) routers

33. __________ are networks that are capable of transmitting data at very fast rates, but operate in a limited area, such as an office building, campus, or home.
a) MANs
b) Hot spots
c) LANs
d) WANs

34. TCP performs error checking, which can cause packet delivery delays. Because of the error-checking process, TCP is not well-suited for what type of transmissions?
a) digital voice or video
b) data
c) documents
d) e-mail

35. __________ transmits voice and data in packets and has become one of the most cost effective ways to communicate.
a) TCP
b) UDP
c) VoIP
d) UM

36. __________ brings together all messaging media such as e-mail, voice, mobile text, SMS, and fax into a combined communications medium.
a) Unified messaging (UM)
b) TCP/IP
c) IP telephony
d) PBX

37. Which of the following is not a characteristic of wireless device software development?
a) Developing software for wireless devices had been challenging because there was no widely accepted standard for wireless devices.
b) Software applications have to be customized for each type of device with which the application communicates.
c) Different CPUs, operating systems, storage media, and mobile platform environments create time-consuming porting and testing issues.
d) Supporting different displays is simple because of the convergence of applications.

38. The Internet functions as the __________, and the Web (WWW) is __________ that runs on the Internet.
a) transport mechanism; an application
b) information architecture; a browser
c); protocol; a search engine
d) hardware; software

39. Which of the following is not a characteristic of intranets?
a) Portals (gateways) that provide easy and inexpensive browsing and search capabilities.
b) Company-owned networks that use IP technology to securely share part of a business’s information or operations with suppliers, vendors, partners, customers, or other businesses.
c) With screen sharing and other groupware tools, intranets can be used to facilitate collaboration.
d) Companies deliver policies, pay stub information for direct deposits, benefits, training materials, and news to their employers via their intranets.

40. Virtual private networks (VPN) are private tunnels in the Internet that are created by __________.
a) content indexing
b) usernames and passwords
c) biometrics
d) encryption

41. Several factors are driving the need for messaging and collaboration. All of the following are driving factors except:
a) people need to work together and share documents.
b) groups make most of the routine and easy decisions in organizations.
c) organizational decision making is difficult when team members are geographically spread out and working in different time zones.
d) nearly 87 percent of employees around the world work in remote offices.

42. Which of the following is a dysfunction of the group process?
a) Social pressures of conformity can lead to groupthink.
b) A group may produce synergy during problem solving.
c) Group members may have their egos embedded in the decision, and so they may be committed to the solution.
d) Groups are better than individuals at understanding problems.

43. According to the Cellular Telecommunications Industry Association, __________ is “a way of measuring the quantity of radio frequency energy that is absorbed by the body.”
a) RF rate
b) carbon footprint
c) radiation rate
d) specific absorption rate (SAR)

44. __________ enable(s) anyone to call or share files for free, increases the connections in our lives, and create forces whose impacts are not yet known.
a) VoIP
b) Wikis
c) WiMAX
d) All of the above

45. __________ shows the power of the individual in the connected age—a better research tool than major corporations had in the 1990s.
a) Facebook
b) Google
c) Microsoft
d) eBay

True/False

46. Transmission of a signal over a series of networks is made possible by switches and routers, which are hardware devices, and nodes on the network.

47. The distinguishing characteristic of packet switching is that once a connection is made between the source and destination, the path of the signal along the nodes is dedicated and exclusive.

48. Wireless networks use packet switching and wireless routers to forward packets from one network to another network.

49. Bandwidth is the throughput capacity, or speed, of a network, which depends on what protocol is used.

50. TCP/IP was created by the U.S. Department of Defense to ensure and preserve data security and control communications in the event of catastrophic war.

51. Users can get 4G wireless connectivity through one of two standards: WiMAX or LTE.

52. IP networks form the backbone of worldwide digital networking and enable the convergence of voice, data, and video.

53. Network performance is measured by its data transfer capacity.

54. Apple’s first 4G phone, the HTC EVO 4G was released in summer 2010 with speeds 10 times greater than 3G phones.

55. Pressures to deliver secure service to customers and business partners at reduced costs, to be environmentally responsible, and to support the 24/7 data needs of mobile and remote workers have all increased the demands on corporate networks.

56. The 802.11b standard improves upon other 802.11 Wi-Fi standards by adding multiple-input multiple-output (MIMO) and many other newer features.

57. An enterprise’s network capability will be unreliable or deteriorate without proper planning, maintenance, management, upgrades, and bandwidth of the network to insure that it has sufficient capacity and connectivity to link people, locations, and data.

58. A centralized organization is more responsive to opportunities and problems than a decentralized organization where senior managers, who are less involved in daily operations than lower-level managers, make decisions.

59. Messaging and collaboration tools include older communications media such as e-mail, videoconferencing, fax, and IM—and Web 2.0 media such as blogs, podcasts, RSS, wikis, and VoIP.

60. Businesses have learned effective strategies to cope with a world that is far more competitive, dynamic, and connected; to counteract the influence of Web 2.0 technologies; and to maintain traditional business models.

Short Answer

61. __________ lose energy as they travel along a network from source to destination, and need to be strengthened with repeaters.

62. Wireless routers are actually wired routers with __________ built-in that provide both wired and wireless at the same time.

63. __________ are standards or a set of rules that govern how devices on a network communicate and how they need to function in order to “talk to each other.”

64. What is significant about 4G networks is that they do not have a __________ subsystem, as do current 2G and 3G networks.

65. Mobile and other devices must be able to communicate with a network and they do so based on __________.

66. __________ is an 802.16-based broadband wireless metropolitan area network access standard that can deliver voice and data services at distances of up to 30 miles, without the expense of cable or the distance limitations of DSL.

67. Often overlooked is the fact that the capability and willingness to collaborate depends on a __________ that people trust.

68. __________ refers to the ability to provide services to and accept services from other systems or devices.

69. With __________, voice and data transmissions travel over telephone wires, but the content is sent as data packets.

70. __________ refers to team members yielding to pressures to conform to a certain way of thinking even if they conflict with one’s beliefs, or being intolerant of new or differing ideas.

Essay

71. List and explain the four factors to consider when evaluating a mobile network.

72. List three factors that impact the quality of an enterprise’s network and ultimately business performance. List two factors that influence the quality of collaboration in an enterprise and ultimately business performance.

73. Explain how data and documents are transferred over a packet-switched network. In your explanation, identify the format, protocol and transfer method. Compare and contrast how data/documents are transferred to how voice is transferred over a circuit-switched network.

74. Identify three benefits or process gains from working in groups. Then identify three dysfunctions of the group process that can lead to process losses.

75. Major companies face small but powerful challenges and competitors that are undermining traditional business models. Explain those challenges and competitors.

Chapter 5 IT Security, Crime, Compliance, and Continuity

Multiple Choice

1. IT risk management includes all of the following except:
a) keeping information security convenient for users and inexpensive.
b) securing corporate systems while ensuring their availability.
c) planning for disaster recovery and business continuity.
d) complying with government regulations and license agreements.

2. Managers have a legal and ethical obligation, which is called __________, to protect the confidential data of the people and partners that they collect, store, and share.
a) security duty
b) fiduciary responsibility
c) confidentiality contract
d) secrecy function

3. Which of the following is a characteristic of information security in organizations?
a) losses due to IT security breaches can destroy a company financially
b) disruptions due to IT security breaches can seriously harm a company operationally
c) to comply with international, federal, state, and foreign laws, companies must invest in IT security to protect their data, other assets, the ability to operate, and net income
d) All of the above

4. Who stole account data from HSBC’s Private Bank in Switzerland and how did HSBC learn about the data theft?
a) Account data was stolen by a former HSBC IT specialist; HSBC learned about the theft from French Authorities several years after the theft.
b) Account data was stolen by a group of hackers who cracked passwords; HSBC detected the data theft from their IT staff within a few days.
c) Malware was used to steal the account data; network intrusion detection systems detected the theft as it was happening.
d) Competitors stole the account data; HSBC learned about the theft months later when customers complained about identity theft.

5. Protecting data and business operations involves all of the following efforts except:
a) making data and documents available and accessible 24×7 while also restricting access.
b) implementing and enforcing procedures and acceptable use policies for company-owned data, hardware, software, and networks.
c) storing and archiving all databases and data warehouses on-site protected by firewalls.
d) recovering from business disasters and disruptions quickly.

6. Prior to 2002, what was the common perspective on infosec?
a) Infosec was mostly a financial issue assigned to the accounting department.
b) The focus was on preemptive approaches to protect ahead of the threats.
c) The biggest concerns were risks from employees and malware.
d) Infosec was viewed as a cost rather than as a resource for preventing business disruptions.

7. A majority of data breaches involve:
a) insider error or action that is either intentional or unintentional.
b) insider action that is intentional.
c) former employees and IT staff.
d) hackers.

8. Which of the following is not a characteristic of IT security?
a) IT security is so integral to business objectives that it cannot be treated as a stand-alone function.
b) Internal threats are not a major challenge because firewalls prevent employee malicious activity.
c) Infosec failures have a direct impact on business performance, customers, business partners, and stakeholders.
d) Infosec failures can lead to fines, legal action, and steep declines in stock prices as investors react to the crisis.

9. A(n) __________ is something or someone that may result in harm to an asset.
a) threat
b) risk
c) vulnerability
d) exploit

10. A(n) __________ is the probability of a threat exploiting a vulnerability.
a) threat
b) risk
c) vulnerability
d) exploit

11. __________ is the ability of an IS to continue to operate when a failure occurs, usually operating for a limited time or at a reduced level.
a) Botnet
b) Exposure
c) Fault tolerance
d) Spoofing

12. Facebook, YouTube, Twitter, LinkedIn, and other social networks are making IT security dangers worse. Why?
a) Users invite in and build relationships with others. Cybercriminals hack into these trusted relationships using stolen log-ins.
b) E-mail viruses and malware have been increasing for years even though e-mail security has improved.
c) Communication has shifted from social networks to smartphones.
d) Web filtering, user education, and strict policies cannot help prevent IT security dangers on Facebook and other social networks.

13. __________ is the elapsed time between when vulnerability is discovered and when it’s exploited and has shrunk from months to __________.
a) Time-to-exploitation; weeks
b) Time-to-exploitation; minutes
c) Denial of service; days
d) Denial of service; seconds

14. When new vulnerabilities are found in operating systems, applications, or wired and wireless networks, vendors of those products release __________ or __________ to fix the vulnerabilities.
a) patches; service packs
b) patches; downloads
c) firewalls; spyware
d) service packs; firewalls

15. Which of the following is not a characteristic of money laundering and terrorist financing?
a) Transnational organized crime groups use money laundering to fund their operations, which creates international and national security threats.
b) Cybercrime is safer and easier than selling drugs, dealing in black market diamonds, or robbing banks.
c) Funds used to finance terrorist operations are easy to track, which provides evidence to identify and locate leaders of terrorist organizations and cells.
d) Online gambling offers easy fronts for international money-laundering operations.

16. Hackers involve unsuspecting insiders in their crimes using tactics called __________ that trick insiders into revealing access codes that outsiders should not have.
a) social engineering
b) phishing
c) spoofing
d) botnets

17. A(n) __________ occurs when a server or Web site receives a flood of traffic—much more traffic or requests for service than it can handle, causing it to crash.
a) advanced persistent threat (APT)
b) spoofing attack
c) malware intrusion
d) denial of service (DoS) attack

18. Which of the following is not one of the essential defenses against botnets and malware?
a) Anti-malware tools and anti-virus software
b) Intrusion detection systems (IDS)
c) Spyware and warez software
d) Intrusion prevention systems (IPS)

19. Internal fraud prevention and detection measures are based on __________ and __________.
a) a detailed recovery plan; containment, including a fault-tolerant system
b) perimeter defense technologies, such as e-mail scanners; human resource procedures, such as recruitment screening
c) general controls; application controls
d) physical controls, including authorization; authentication systems

20. Crime can be divided into two categories depending on the tactics used to carry out the crime. What are those two categories?
a) personal and non-personal
b) felonies and misdemeanors
c) insider and outsider
d) violent and nonviolent

21. Fraud is nonviolent crime that is carried out using __________.
a) a gun, knife, or other small weapon
b) deception, confidence, and trickery
c) embezzlement and electronic transfers of money
d) bribery and threats

22. __________ refers to the deliberate misuse of the assets of one’s employer for personal gain.
a) Corruption
b) Conflict of interest
c) Occupational fraud
d) Earnings management

23. Bernard Madoff is in jail after pleading guilty in 2009 to the biggest fraud in Wall Street history. Madoff carried out his fraud over four decades by relying on __________.
a) financial expertise and human error
b) social engineering and the predictability of human nature
c) red flags and accounting loopholes
d) unbelievable returns that defied the market

24. What is the most cost-effective approach to managing fraud?
a) prevention
b) detection
c) prosecution
d) compliance

25. Fraud management starts with corporate governance culture and ethics __________.
a) in the accounting department
b) in the IT department
c) at the top levels of the organization
d) at the lowest levels of the organization

26. One of the worst and most prevalent crimes is __________.
a) stolen computers
b) identity theft
c) network intrusion
d) malware

27. The objective of IT security management practices is to defend __________.
a) data and data processing capabilities
b) hardware and software applications and wireless devices
c) data and networks
d) data, hardware, software applications, and networks

28. Before the people who are responsible for security make any decisions about infosec defenses, they must understand __________.
a) the requirements and operations of the business
b) how firewalls, anti-virus software, and other technology function
c) tactics of hackers, fraudsters, botnets, and identity thieves
d) how much to invest in risk management

29. Fingerprints, retinal scans, and voice scans for user identification are examples of __________ controls.
a) access
b) biometric
c) application
d) physical

30. Physical security includes several controls. Which of the following is not a type of physical control?
a) Security bonds or malfeasance insurance for key employees
b) Emergency power shutoff and backup batteries
c) Shielding against electromagnetic fields
d) Properly designed and maintained air-conditioning systems

31. Which of the following is not a type of administrative control for information assurance and risk management?
a) Fostering company loyalty
b) Immediately revoking access privileges of dismissed, resigned, or transferred employees
c) Instituting separation of duties by dividing sensitive computer duties among as many employees as economically feasible
d) Performing authorization and authentication

32. Locking a Blackberry does not provide strong data protection. Why?

a) Security company IronKey reported that password cracking software can quickly copy the contents of a BlackBerry’s SD card and crack a 4-digit PIN in 30 seconds.
b) Password cracking software can crack security on a handheld device without alerting the owner that the device’s security has been compromised.
c) password cracking software can store log-in information for the cracked handheld, allowing a hacker to access the hacked device again, unless the user changes the password.
d) All of the above.

33. Network security involves three types of defenses, which are referred to as layers. Those layers consist of each of the following except:
a) perimeter security layer to control access to the network.
b) authentication layer to verify the identity of the person requesting access to the network.
c) biometrics layer to monitor network usage.
d) authorization layer to control what authenticated users can do once they are given access to the network.

34. A __________ is a system, or group of systems, that enforces an access-control policy between two networks.
a) firewall
b) switch
c) router
d) gateway

35. The major objective of __________ is proof of identity to identify the legitimate user and determine the action he or she is allowed to perform.
a) authorization
b) authentication
c) endpoint security
d) information assurance

36. When dealing with consumer-facing applications, such as online banking and e-commerce, strong authentication must be balanced with __________.
a) convenience
b) encryption
c) authorization
d) all of the above

37. Sensitive data that are encrypted with wired equivalent privacy (WEP) and transmitted between two wireless devices __________.
a) is fully secured
b) cannot be authenticated
c) has a moderate level of security
d) may be intercepted and disclosed

38. All of the following are characteristics of firewalls except:
a) Firewalls are a barrier between a corporate intranet or other internal networks and the Internet.
b) Firewalls function by deciding what traffic to allow into and out of the network and what traffic to block.
c) Firewalls must be configured to enforce the company’s security procedures and policies.
d) Network firewalls stop all viruses and most other types of malware.

39. __________, such as AirSnort and WEPcrack, are readily available tools that can be used to gain unauthorized access to networks putting them at great risk.
a) Wireless packet analyzers
b) Password crackers
c) Firewall sniffers
d) Intrusion detectors

40. __________ is a security technology for wireless networks that improves on the authentication and encryption features of WEP.
a) Network access control (NAC)
b) Security exchange commission (SEC)
c) Wi-Fi protected access (WPA)
d) Intrusion detection system (IDS)

41. The Sarbanes-Oxley Act (SOX):
a) is an antifraud law.
b) forces more accurate business reporting and disclosure of GAAP (generally accepted accounting principles) violations.
c) makes it necessary to find and root out fraud.
d) All of the above

42. Symptoms of fraud that can be detected by internal controls include all of the following except:
a) missing documents.
b) delayed bank deposits.
c) employees who do not take vacations or go out of their way to work overtime.
d) large increase in network traffic.

43. An estimated __________ of companies that suffer a significant data loss often go out of business within five years.
a) 23%
b) 43%
c) 73%
d) 93%

44. __________ is the chain of events linking the business continuity plan to protection and to recovery.
a) Disaster recovery
b) Auditing
c) Date recovery
d) Internal control

45. According to a Workplace E-Mail and Instant Messaging Survey of 840 U.S. companies, approximately__________ have had employee e-mail or text messages subpoenaed as part of a lawsuit or regulatory investigation.
a) 5%
b) 10%
c) 20%
d) 33%

True/False

46. A fiduciary responsibility is both a legal and an ethical obligation.

47. In general, risk management is expensive to the organization, but convenient for users.

48. The theft of confidential account data from HSBC Private Bank in Switzerland in 2007 had been done by hackers because of inadequate security controls.

49. Firewalls and intrusion detection systems are placed throughout networks to monitor and control traffic into and out of a network.

50. Today, infosec is mostly a technology issue assigned to the IT department. Incidents are handled on a case-by-case “cleanup” basis rather than by taking a preemptive approach to protect ahead of the threats.

51. There has been a steep increase in malware because of the availability of free, easy to use, powerful toolkits that even novice cyber criminals can use to develop malware.

52. A majority of data breaches involve some sort of insider error or action either intentional or unintentional. That is, the greatest infosec risks are employees and managers.

53. IT security is so integral to business objectives that it needs to be treated as a stand-alone function.

54. Despite the challenges organizations face trying to protect against threats from employees, insider incidents can be minimized with a layered defense strategy consisting of security procedures, acceptable use policies, and technology controls.

55. Types of unintentional threats that organizations must defend against as part of their IT security measures are human errors, sabotage, environmental hazards, and computer system failures.

56. Corporate and government secrets are currently being stolen by a serious threat called advanced persistent threat (APT), which are designed for long-term espionage. Once installed on a network, ATPs transmit copies of documents, such as Microsoft Office files and PDFs, in stealth mode.

57. Financial institutions, data processing firms, and retail businesses do not have to notify potential victims or reveal data breaches in which customers’ personal financial information may have been stolen, lost, or compromised.

58. The infosec defense strategies and controls depend on what needs to be protected and the cost-benefit analysis. That is, companies should neither under-invest nor over-invest.

59. Newly released viruses with unidentified signatures or that are hidden in an e-mail attachment are blocked by firewalls and antivirus software from entering a company’s network.

60. Sarbanes-Oxley Act is an antifraud law. It forces more accurate business reporting and disclosure of GAAP (generally accepted accounting principles) violations, thus making it necessary to find and root out fraud.

Short Answer

61. __________ is the word that refers to viruses, worms, trojan horses, spyware, and all other types of disruptive, destructive, or unwanted programs.

62. __________ is the supervision, monitoring, and control of the organization’s IT assets. COBIT is a guide to best practices in this area.

63. The purpose of the PCI DSS is to improve customers’__________ in e-commerce, especially when it comes to online payments, and to increase the Web security of online merchants.

64. From an infosec perspective, __________ has been used by criminals or corporate spies to trick insiders into revealing information or access codes that outsiders should not have

65. A __________ attack occurs when a server or Web site receives a flood of traffic—much more traffic or requests for service than it can handle, causing it to crash.

66. A __________ control is an automated method of verifying the identity of a person, based on physical or behavioral characteristics, such as a fingerprint or voice scan.

67. All Internet traffic, which travels as packets, should have to pass through a(n) __________ , but that is rarely the case for instant messages and wireless traffic.

68. The __________ environment is the work atmosphere that a company sets for its employees in order to achieve reliable financial reporting and compliance with laws, regulations, and policies.

69. An important element in any security system is the __________ plan, also known as the disaster recovery plan, which outlines the process by which businesses should recover from a major disaster.

70. Under the doctrine of __________ , senior managers and directors have a fiduciary obligation to use reasonable care to protect the company’s business operations. When they fail to meet the company’s legal and regulatory duties, they can face lawsuits or other legal action.

Essay

71. Why are internal threats a major challenge for organizations? How can internal threats be minimized?

72. Why do social networks and cloud computing increase IT security risks? How can those risks be reduced?

73. Identify and explain four of the major objectives of IT security defense strategies:

74. Why do fraud prevention and detection require an effective monitoring system?

75. Implementing security programs raises many ethical issues. Identify two of these ethical issues.