Tag Archives: week 7 quiz

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ACC 206 Week 7 Quiz – Strayer

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Quiz 5 Chapter 15

 

 

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Week 7 Quiz 4: Chapter 12

 

 

ACC 350 Week 7 Quiz – Strayer

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Quiz 5 Chapter 6

 

 

ACC 401 Week 7 Quiz – Strayer

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Quiz 6 Chapter 8 and 10

 

 

ACC 410 Week 7 Quiz – Strayer

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Quiz 5 Chapter 8 and 9

 

 

ACC 557 Week 7 Homework Problems – Strayer

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Chapter 11

 

 

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Chapter 11

 

 

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Week 7 Quiz 6: Chapters 9 and 10

 

 

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Assignment 2: Cardillo Travel Systems, Inc.

 

 

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Chapter 11 and 12

 

 

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Week 7 Quiz 5: Chapters 9 and 10

 

 

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Assignment 3: Fraud in the AIS

 

 

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Assignment 3: Fraud Schemes and Fraud Investigations

 

 

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Assignment 1: Economic and Monetary Policy

 

 

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BUS 230 Week 7 Quiz – Strayer

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Chapter 9

 

 

BUS 309 Week 7 Quiz – Strayer

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Quiz 6 Chapter 7

 

 

BUS 310 Week 7 Discussion Questions – Strayer

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BUS 322 Week 7 Discussion Questions

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BUS 325 Week 7 Quiz – Strayer

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Quiz 6 Chapter 6

 

 

BUS 335 Week 7 Quiz – Strayer

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Chapter 8 and 9

 

 

BUS 365 Week 7 Quiz – Strayer

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Quiz 6 Chapter 9

 

 

BUS 402 Week 7 Discussion Questions

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BUS 430 Week 7 Discussion Questions – Strayer

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BUS 501 Week 7 Assignment 3 – Strayer NEW

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Assignment 3: Small Business Program and Source Selection Plans

 

 

BUS 508 Week 7 Discussion Question

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BUS 517 Week 7 Assignment 2 – Strayer
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Assignment 2: Project Charter

 

 

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BUS 518 Week 7 Discussion Questions – Strayer New

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BUS 521 Week 7 Assignment 2 – Strayer

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Assignment 2: Business Plan Part II – Competitive Analysis and Strategic Assessment

 

 

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CIS 499 Week 7 Discussion Questions – Strayer NEW

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Case Study 3: Mobile Devices Security

 

 

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CIS 505 Case Study 3: Carlson Companies
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CIS 505 Week 7 Discussion Questions

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Assignment 3: Creating a Domain Model Class Diagram

 

 

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Assignment 2: HD-DVD versus Blu-ray

 

 

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Case Study 2: Security in Bluetooth and other Mobile Devices

 

 

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Assignment 6: SQL Concepts and Database Design

 

 

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Assignment 3: Creating a Test Plan

 

 

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CIS 521 Week 7 Assignment 5 – Strayer New

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Assignment 5: SOA System Development Life Cycle

 

 

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Case Study 3: Security

 

 

CIS 524 Week 7 Discussion Questions – Strayer

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CIS 532 Week 7 Assignment 3 – Strayer New

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Assignment 3: Network Security Planning

 

 

CIS 539 Week 7 Assignment 4 – Strayer New

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Assignment 4: The Utility of Cloud Computing

 

 

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Assignment 3: Planning a Software Development Project

 

 

CIS 560 Week 7 Assignment 2 – Strayer New

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Assignment 2: Single Sign-On Access

 

 

CIS 562 Week 7 Case Study 2 – Strayer New

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Case Study 2: Forced Decryption Ruled Unconstitutional

 

 

ECO 302 Week 7 Quiz – Strayer

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Chapter 10 and 11

 

 

ECO 305 Week 7 Quiz – Strayer

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Quiz 6 Chapter 9

 

 

ECO 405 Week 7 Quiz – Strayer

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Quiz 6 Chapter 8 and 9

 

 

ECO 410 Week 7 Quiz – Strayer

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Quiz 6 Chapter 11 and 12

 

 

ECO 450 Week 7 Quiz – Strayer

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Quiz 5 Chapter 10

 

 

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FIN 320 Week 7 Quiz – Strayer

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Quiz 5 Chapter 12 and 13

 

 

FIN 350 Week 7 Quiz – Strayer

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Quiz 6 Chapter 11 and 13

 

 

FIN 540 Week 7 Homework Problems – Strayer NEW

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Chapter 27

 

 

HRM 500 Week 7 Discussion Questions

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Assignment 2: Human Resources Policies and Procedures

 

 

LEG 320 Week 7 Quiz – Strayer

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Quiz 7 Chapter 12 and 13

 

 

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Assignment 3: Ethics and Corporate Responsibility in the Workplace and the World

 

 

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MKT 475 Week 7 Quiz – Strayer

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Quiz 6 Chapter 10

 

 

MKT 500 Week 7 Discussion Question

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Assignment 3: Media Advertising

 

 

PAD 500 Week 7 Assignment 3 – Strayer
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Assignment 3: The Concept of Program Reengineering

 

 

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PAD 530 Week 7 Assignment 3 – Strayer
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Assignment 3: Agency’s Law and Ethics of Hiring a Diverse Workforce, Part 3

 

 

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Week 7 Exam, Quiz, Assignments, Discussion Questions, Homework Problems

BUS 365 Week 7 Quiz 6 Chapter 9 – Strayer

BUS 365 E-Business Security and Controls Week 7 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 9 Operational Planning and Control Systems

Multiple Choice

1. __________ are planning and control systems that capture and record all of the company’s data from operations, and perform the routine transactions needed to conduct business on an ongoing day-to-day basis.
a) Operational information systems
b) Strategic information systems
c) Databases
d) Inter-organizational systems

2. Why did the largest Scandinavian food retailer group, Axfood AB, invest 200 million SEK (20.4 million Euros or US$25.6 million) in an IT platform?
a) To develop multi-cultural e-commerce capabilities
b) To fully integrate its diverse IT infrastructure to coordinate and connect its operations
c) To implement advanced technologies, including tags, RFID, and social media
d) To develop order fulfillment and logistics capabilities

3. Why are the three levels of management and decision making often modeled as a pyramid? .
a) To show the importance of senior management decision making on the organization.
b) To show the importance of the decisions made at each management level.
c) To show the hierarchy of the management levels.
d) All of the above.

4. Each level of management has its own _____.
a) data needs
b) decision making responsibilities
c) time horizons
d) All of the above

5. Strategic level decisions are visionary and future-oriented. What types of data are specifically required for these decisions?
a) Real-time transactional and POS data.
b) Internal data sales about inventory levels, orders, and customer support.
c) External and internal data that has a one to three year time horizon.
d) External data about the economy, competitors, and business trends.

6. What types of data are specifically required for decisions made at the managerial or administrative level?
a) Real-time transactional and POS data.
b) Internal data sales about inventory levels, orders, and customer support.
c) External and internal data that has a one to three year time horizon.
d) External data about the economy, competitors, and business trends.

7. At the __________ level, decisions are made to control the day-to-day activities.
a) operational
b) strategic
c) administrative
d) senior

8. The data requirements of operational-level units are __________ because they depend heavily on standard operating procedures.
a) extensive, unique, and change frequently
b) extensive, routine, and rarely change
c) limited and customized
d) external, unstructured, and constant

9. Data integrity with real-time systems involves __________, which means that if all steps in a transaction are not completed, then the entire transaction is cancelled.
a) atomicity
b) consistency
c) isolation
d) durability

10. Which is not one of the key characteristics of a TPS?
a) Large volumes of data are processed
b) Involves extensive computation complexity
c) Data sources are mostly internal, and the output is intended mainly for internal users and trading partners
d) Involves a high level of detailed raw data

11. Generally speaking, why do organizations automate TPS data entry as much as possible?
a) To reduce labor costs
b) To be able to capture online data
c) For competitive advantage
d) To minimize errors and data entry time

12. A company’s payroll systems prepare and process the payroll data periodically, such as at the end of the work week. This type of processing is known as __________.
a) batch
b) real-time
c) online
d) data warehousing

13. In__________, data can be accessed directly from operational databases and all transactions are processed as soon as they occur.
a) batch processing
b) online analytic processing (OLAP)
c) online transaction processing (OLTP)
d) POS processing

14. First Choice Ski increased the number of Web site sales by 266%.and improved business performance after implementing __________, which enabled them to respond quickly to visitors’ clickstream behavior.
a) OLTP
b) order processing
c) POM systems
d) Web analytics

15. __________ deals with ordering, purchasing, receiving, and shipping activities.
a) Order fulfillment management
b) Production management
c) Logistics management
d) Vendor inventory management

16. POM departments may keep __________, which is extra inventory in case of unexpected events, such as spikes in demand or delivery delays.
a) buffer stock
b) safety stock
c) shortage stock
d) a and b

17. A company’s inventory control system seeks to minimize each of the following cost categories except:
a) cost of labor
b) cost of holding inventory
c) cost of ordering and shipping
d) cost of inventory shortage

18. Toyota implemented __________ inventory management to minimize holding costs by not taking possession of inventory until it is needed in the production process.
a) economic order quantity (EOQ)
b) just-in-time (JIT)
c) quality control (QC)
d) total quality management (TQM)

19. Characteristics of projects that make them different from operations include each of the following except:
a) are unique undertakings
b) have a high degree of certainty with respect to costs and completion times
c) may compete and conflict with other business activities
d) involve a high risk of delay and failure, but has high profit potential or benefit

20. In the August 2008 benchmark study, “Customer Analytics: Segmentation Beyond Demographics,” respondents stated that their top data-related challenge was__________.
a) poor data quality
b) inability to collect data needed to calculate key performance metrics
c) information overload
d) encrypting data for security

21. A leading sales automation software is __________, which is especially helpful to small businesses, enabling them to rapidly increase sales and growth.
a) Speedpass.com
b) SoftwarePlus
c) PriceMaster Plus
d) Salesforce.com

22. The Exxon Mobil Speedpass allows customers to fill their tanks by waving a token, embedded with an RFID device, at a gas-pump sensor. This is an example of __________.
a) data-driven marketing
b) a distribution channel
c) inventory control
d) a marketing channel

23. Marketing channel systems consist of each of the following systems except:
a) market intelligence
b) target marketing
c) sales
d) project

24. Marketing ISs consist of __________ to gather, sort, analyze, evaluate, and distribute relevant, timely, complete, and accurate data for use by marketing decision makers to improve planning, implementation, and control.
a) software and hardware
b) procedures and policies
c) people, equipment, and procedures
d) channels

25. Sales volumes of products and services are largely determined by __________, which is also a major determinant of profit.
a) price
b) advertising
c) customer service
d) e-commerce

26. Effective __________ are critical to an organization’s financial performance because fraud is easy to commit and hard to detect.
a) financial statement systems
b) auditing information systems
c) consolidated systems
d) compliance systems

27. Bernie Madoff committed a record-setting fraud scheme for many years __________ was passed to prevent financial fraud.
a) before the Foreign Corrupt Practices Act
b) before the Sarbanes-Oxley Act
c) after the Sarbanes-Oxley Act
d) after the Patriots Act

28. Inaccurate __________ is the number-one reason why many small businesses go bankrupt.
a) billing
b) credit management
c) cash flow projection
d) demand forecasting

29. __________ tells organizations what funds they need and when, and how they will acquire them.
a) Billing
b) Credit management
c) Cash flow projection
d) Demand forecasting

30. The best-known part of financial planning is the __________, which allocates the financial resources of an organization among participants, activities, and projects.
a) annual budget
b) income statement
c) balance sheet
d) owners equity

31. Which is not one of the benefits of using budgeting software?
a) Reduce the time and effort involved in the budget process.
b) Make planning an ongoing continuous process.
c) Evaluate buy-versus-lease options
d) Automatically monitor exceptions for patterns and trends.

32. __________ is the process of identifying the financing of assets, including software, that need to be acquired or developed; and comparing alternatives.
a) NPV
b) Capital budgeting
c) ROI
d) General ledger

33. __________ is a programming language and an international standard for electronic transmission of business and financial information. It helps generate cleaner data, including written explanations and supporting notes.
a) SEC
b) FDIC
c) Excel
d) XBRL

34. The major purpose of __________ is to protect and defend the accuracy and condition of the financial health of an organization.
a) auditing
b) budgeting
c) financial planning
d) ratio analysis

35. __________ is a field that deals with policies, procedures, compliance requirements, and acquiring and keeping people in organizations.
a) Accounting
b) Human resources
c) Marketing
d) Management

36. __________ at virtual worlds and social networking sites is very popular. It is done at most major sites, such as LinkedIn, MySpace, Facebook, Craigslist, and Second Life.
a) Risk management
b) Distribution
c) Recruitment
d) Forecasting

37. Hewlett-Packard’s U.S. Field Services Operations (USFO) Group has developed a paperless wage review system. The Web-based system uses __________ to manage quarterly reviews of HP’s 15,000 employees.
a) analytics
b) intelligent agents
c) portals
d) XBRL

38. Some of the most innovative HR developments are in the area of live online training (LOT) using __________ or other online meeting software.
a) CIM
b) TUN
c) VIS
d) WebEx

39. Providing flexibility in selecting benefits is viewed as a competitive advantage in large organizations. Employees can self-register for specific benefits using menus from a __________ or __________.
a) corporate portal; voice technology
b) blog; wiki
c) social network; extranet
d) All of the above

40. Improved relationships with employees result in better retention and higher productivity. Therefore, companies invest in __________, which includes self-services such as tracking personal information and online training.
a) benefits management
b) employee relationship management
c) budgeting management
d) intelligent agents

41. Training activities that are part of HRM may involve __________ issues in recruiting and selecting employees and in evaluating performance, in part because these activities make use of private confidential information.
a) strategic
b) operational
c) ethical
d) budget

42. An effective technology for e-training and e-learning is __________, which uses computer graphic displays that the user can adjust during the decision-making process to see the results of an intervention.
a) LOT
b) flash
c) WebEx
d) visual interactive simulation (VIS),

43. Second Life has a special forum on training and learning using __________ that organizations can use for employees, partners, and customers.
a) videoconferencing
b) animations
c) simulations
d) virtual worlds

44. The traveling circus Cirque du Soleil schedules and transports 20,000 performers and stage equipment and costumes, which are changing constantly. To manage HR, finance, logistics, and production scheduling applications, the company implemented __________ software, which enabled data sharing.
a) Cisco
b) IBM WebSphere Business Integration
c) SimMAGIC
d) Trovix Intelligent Search

45. Human resources information systems (HRISs), which were implemented on company networks since the late 1990s, have been moved to intranets and __________; and HR apps are leased in __________ arrangements.
a) social networks; vendor
b) proprietary databases; ERM
c) cloud computing; software as a service (SaaS)
d) virtual worlds; intelligent agent

True/False

46. Each level of management has its own data needs, decision making responsibilities, and time horizons.

47. At the strategic level, managers, supervisors, and workers need detailed data, in real-time or near real-time, and the ability to respond to what they learn from functional ISs.

48. At the operational level, middle-level managers make tactical decisions that focus on intermediate-term issues to fulfill the organization’s mission, objectives, and strategy.

49. Tracking sales, inventory levels, orders, and customer support are examples of control activities.

50. A standard operating procedure, or SOP, is a loosely defined and suggested procedure for completing a process or function, such as a quality control process or function.

51. Data validation techniques, such as validating that the zip code is consistent with the address, are used to detect and correct data entry errors.

52. Data backups by themselves provide durability to protect data integrity in case of a system crash or other failure.

53. Core operations are supported by TPSs that monitor, collect, store, process, and disseminate information for both financial and non-financial (e.g., hiring) transactions.

54. Reservation systems used by airlines and for concert tickets sales are online transaction processing (OLTP) systems because data are processed as soon as transactions occur, in real time.

55. KIA Motors introduced an intelligent QC system to analyze customer complaints so they could more quickly investigate and make corrections. The analysis was done with data mining tools.

56. There is no shortage of customer and sales data, but there is a shortage of reliable, high-quality data and insight about how to use that data for better decisions that improve performance.

57. Inaccurate cash flow projection led to the demise of the investment bank Lehman Brothers in September 2008.

58. Cash flow projection is the process of identifying the financing of assets, including software, that need to be acquired or developed. It includes comparing alternatives or evaluating buy-versus-lease options.

59. With XBRL, all of the company’s financial data are collected, consolidated, published, and consumed without the need to use Excel spreadsheets.

60. HRM applications involve ethical issues, particularly in recruiting and selecting employees and in evaluating performance.

Short Answer

61. The purpose of __________ is to identify deviations from objectives and plans as soon as possible in order to take corrective action.

62. At the __________ level, managers, supervisors, and workers need detailed data, in real-time or near real-time, and the ability to respond to what they learn from functional ISs.

63. At the managerial or administrative level, middle-level managers make __________ decisions that focus on intermediate-term issues to fulfill the organization’s mission, objectives, and strategy.

64. __________ is the analysis of data generated by visitors’ behavior on a company’s Web site.

65. Oracle, Siemens, and POM vendors offer a demand-driven __________ system, whose objective is to remove waste of any kind from production and operations.

66. A __________ is collection of tasks to achieve a non-routine result, such as implementing a new JIT inventory management system. It has a defined beginning and end; a scope, resources, and a budget.

67. __________ consist of people, equipment and procedures to gather, sort, analyze, evaluate, and distribute relevant, timely, complete, and accurate data for use by marketing decision makers to improve their marketing planning, implementation, and control.

68. __________ analysis uses standard financial models, such as net present value (NPV) and internal rate of return (IRR), to evaluate alternative investment decisions.

69. Good planning is necessary because a major reason organizations fail is their inability to forecast and/or secure sufficient __________.

70. In their effort to streamline HR processes and increase employee retention and productivity, companies are implementing Web-based __________ applications.

Essay

71. Identify the three organizational and management levels. For each level, explain the types of decisions made, the focus and time horizon of those decisions, and the types of data that are needed for their decisions.

72. What is a robot? Explain how industrial robots can be used in logistics, distribution, or materials handling.

73. Organizations distribute their products and services through a combination of electronic, mobile, and physical channels. List two examples of IT-supported distribution channels.

74. List three benefits of XBRL for organizations.

75. Sketch a diagram showing the flow of information in an online transaction processing system. Show inputs, processing, and outputs.

BUS 335 Week 7 Quiz 6 Chapter 8 and 9 – Strayer

BUS 335 Staffing Organizations Week 7 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 8
Student: ___________________________________________________________________________
1. External selection refers to the assessment and evaluation of external job applicants. 
True False

2. Cost should not be used to guide the choice of initial assessment methods. 
True False

3. Job analysis sometimes finds that seemingly unrelated jobs may have more in common than would be expected by relying just on job titles. 
True False

4. The logic of prediction indicates that a point-to-point comparison needs to be made between requirements of the job to be filled and the qualifications of the job applicants. 
True False

5. A power test is used when the speed of work is an important part of the job. 
True False

6. The first step in developing a selection plan is to list relevant KSAOs associated with a job. 
True False

7. The process of translating the results of a job analysis into actual predictors to be used for selection is known as a discriminant validity study. 
True False

8. Organizations are increasingly finding that the costs of developing a selection plan outweigh the benefits. 
True False

9. A finalist is someone who has not yet received an offer, but who possesses the minimum qualifications to be considered for further assessment. 
True False

10. Contingent methods mean that the job offer is subject to certain qualifications, such as the offer receiver passing a medical exam or a drug test. 
True False

11. Within the context of the selection process, the “logic of prediction” means that: 
A. indicators of an applicant’s future performance are predictive of likely job performance
B. indicators of a person’s degree of success in past situations should be predictive of future job success
C. predictors of job performance are correlated with KSAOs
D. indicators of job outcomes can be used to predict job performance

12. Which of the following is necessary for the logic of prediction to work in practice for selecting employees? 
A. the organization has adopted a thorough competency modeling approach
B. qualifications carry over from one job to another
C. that each candidate is assessed based on his or her unique experiences
D. anonymous periodic reviews of applicant files to ensure accuracy

13. If the correctness of a response is essential for a job, then a(n) ________ test should be used. 
A. essay
B. speed
C. power
D. objective

14. Essay tests are best used to assess ___________ skills. 
A. oral communication
B. written communication
C. interpersonal
D. none of the above

15. The most accurate description of the basic purpose of a selection plan is ______________. 
A. a selection plan determines the means for attracting qualified job applicants
B. a selection plan matches applicants to outcome criteria
C. a selection plan describes predictors to be used to assess KSAOs required to perform the job
D. a selection plan consists of interview rating criteria

16. The strength of the relationship between a predictor and performance is called ________. 
A. reliability
B. validity
C. utility
D. instrumentality

17. Most initial assessment methods have _________ validity. 
A. moderate to low
B. high to very high
C. moderately high to high
D. moderate

18. Which of the following statements regarding the development of a selection plan is false? 
A. The list of KSAOs used in the selection plan are derived from the job requirements matrix
B. The process of developing a selection plan is usually straightforward and can be done quickly
C. One reason KSAOs may be deemed unimportant for selection is because they will be learned on the job
D. Possible methods for assessing every identified job-relevant KSAO need to be developed

19. A major problem with resumes and cover letters is lying. 
True False

20. Although employers can outsource résumé collection to résumé-tracking services, in practice this type of outsourcing is too inefficient to be worth the cost. 
True False

21. Résumé scanning software tends to look for nouns more than action verbs. 
True False

22. Video résumés have become a major component of selection in most large organizations. 
True False

23. To protect an employer from charges of unfair discrimination, it is best to only include information related to KSAOs demonstrated as important to the job on an application blank. 
True False

24. Research has found that level of education is moderately related to job performance. 
True False

25. College grades are more valid predictors of job performance than high school grades. 
True False

26. Research suggests that the quality of the school a person graduates from makes a difference in the labor market. 
True False

27. Occupational certifications are nearly all regulated by the Department of Labor to ensure that they accurately reflect job knowledge. 
True False

28. Occupational certification helps guard against the misuse of job titles in human resource selection. 
True False

29. Scored evaluations of unweighted application blanks are good predictors of job performance. 
True False

30. The validity evidence for weighted application blanks is better than that for unweighted application blanks. 
True False

31. Most organizations use only weighted application blanks for initial screening decisions. 
True False

32. The principal assumption behind the use of biodata in selection processes is the axiom, “the best predictor of future behavior is past behavior.” 
True False

33. Biodata refers to medical or physiological tests of applicants prior to hiring. 
True False

34. Biodata is like a background check in many ways, but background checks tend to focus on external references rather than applicant surveys. 
True False

35. Biodata items are generally the same, regardless of the job being staffed. 
True False

36. Research suggests that biodata does not provide incremental validity over personality and cognitive ability. 
True False

37. Research on the reliability and validity of biodata has been quite positive. 
True False

38. Biographical information tends to have low reliability. 
True False

39. Research shows that applicants have a favorable attitude toward biodata inventories. 
True False

40. Letters of recommendation are an excellent way to help organizations separate highly qualified from moderately qualified applicants. 
True False

41. One study that showed there was a stronger correlation between two letters written by one person for two different applicants than between two different people writing letters for the same person. 
True False

42. The most common person to be contacted in a reference check is the applicant’s former colleagues who worked in the same position. 
True False

43. Many organizations are reluctant to give out detailed reference information regarding their former employees because they are afraid of being sued. 
True False

44. Surveys suggest that only 3 out of 10 organizations conduct reference checks. 
True False

45. The proportion of organizations that conduct pre-hire background checks to determine if employees have criminal records or inaccurate reporting on résumés, has risen dramatically in recent years. 
True False

46. Genetic screening is becoming a valuable component of many organizations’ selection systems. 
True False

47. The purpose of the initial interview is to screen out the most obvious cases of person/job mismatches. 
True False

48. The initial interview is the least expensive method of initial assessment. 
True False

49. Initial interviews can be made more useful by asking the same questions of all job applicants. 
True False

50. Most initial assessment methods have moderate to low validity. 
True False

51. The most frequently used methods of initial assessment are education level, training and experience, reference checks, and initial interview. 
True False

52. Level of education requirements have little adverse impact against minority applicants. 
True False

53. Which of the following is(are) initial assessment methods? 
A. Résumés and cover letters
B. Application blanks
C. Biographical information
D. All of the above

54. Which of the following are common sources of résumé fraud? 
A. inflated titles
B. inflated education or “purchased” degrees
C. inaccurate dates to cover up job hopping or unemployment
D. all of the above

55. Which of the following statements regarding résumés is true? 
A. Even background checks cannot reduce the problem of résumé fraud
B. Most surveys suggest that around half of all résumés have substantial inaccuracies or distortions
C. Video résumés are highly respected by most employers
D. Extensive evidence suggests that résumés are highly accurate predictors of employee job performance

56. In using educational level as an initial selection criterion, which of the following statements is false? 
A. The degree received from an institution is not sufficient as a sole indicator of an applicant’s level of education.
B. A GED is a high school equivalency degree and is about as good as a conventional high school diploma in predicting job performance.
C. Educational level is a predictor of job performance.
D. High-level degrees from non-accredited schools may be indicators of lesser accomplishment than lower-level degrees from accredited schools.

57. Which of the following statements regarding the use of grade point averages as a predictor is true? 
A. GPA may be influenced by many factors in addition to the applicant’s KSAOs and motivation.
B. GPAs in one’s major tend to be highly similar to one’s GPAs in other classes.
C. Grades do not vary widely by field.
D. GPAs from different schools mean the same thing.

58. When considering the use of extracurricular activities as a job performance predictor, one should _________. 
A. use extracurricular activities whenever possible
B. de-emphasize the use of extracurricular activities
C. use extracurricular activities mainly for selection of managerial personnel
D. use extracurricular activities when they correlate with KSAOs required by the job

59. Asking applicants to complete a supplemental application in which they describe their most significant accomplishments relative to a list of job behaviors is known as the _______. 
A. behavioral consistency method
B. experiential summary method
C. biodata approach
D. none of the above

60. The highest estimate of validity coefficients of unweighted applicant banks as predictors of job performance are _________. 
A. 1.00
B. .80
C. .20
D. .60
E. .40

61. Research on application blanks has suggested that the most common questions that are misinterpreted include _________. 
A. previous employers
B. reasons for leaving previous jobs
C. previous positions held
D. all of the above are true

62. The principal assumption behind the use of biodata is the axiom, ________. 
A. The best predictor of future behavior is motivation level
B. The best predictor of future behavior is KSAOs
C. The best predictor of future behavior is education level
D. The best predictor of future behavior is past behavior

63. Which of the following is true regarding biodata and background tests? 
A. Background information is obtained through interviews and conversations with references.
B. They are two different names for the same thing.
C. Only background tests look into an applicant’s past.
D. Biodata is used primarily when screening applicants for positions in which integrity and emotional adjustment are necessary.

64. Biographical information is like application blanks, except _______. 
A. biographical information is based on history, but application blanks are based on current events
B. application blanks are more likely to be used for substantive selection decisions
C. biographical data is more likely to be accepted by applicants
D. biographical data can be more fruitfully used for substantive selection decisions

65. Which of the following is a criterion on which biodata items can be classified? 
A. historical vs. nonverifiable
B. invasive vs. firsthand
C. objective vs. subjective
D. equal access vs. easy access

66. The problem with using _____ for hiring purposes is that only very poor applicants cannot obtain these, and the format is unstandardized. 
A. certifications
B. biodata forms
C. letters of recommendation
D. MBAs

67. The information collected for an accomplishments record includes ______. 
A. a written statement of the accomplishment
B. when the accomplishment took place
C. any recognition for the accomplishment
D. all of the above

68. Which of the following methods is the most valid predictor of performance? 
A. Initial interviews
B. Handwriting analysis
C. Biodata
D. Unweighted application blanks

69. Research has indicated that job applicants generally have a __________ view of biodata inventories. 
A. very positive
B. negative
C. positive
D. neutral

70. One major problem with letters of recommendation is that they _________. 
A. are too lengthy to be useful
B. are not structured or standardized
C. are too ambiguous to interpret
D. all of the above are correct

71. The most common person to be contacted in a reference check is the applicant’s __________. 
A. former coworkers
B. HR department at his/her former employer
C. former supervisor
D. friends

72. Background testing is concerned with the __________ of an applicant. 
A. integrity
B. reliability
C. personal adjustments
D. all of the above

73. One of the major disadvantages of using handwriting analysis as an assessment method is that it is ______. 
A. expensive
B. not related to job performance
C. easy to fake
D. inefficient

74. Which of the following is true regarding genetic screening? 
A. It helps to screen out people who will perform poorly on the job.
B. It is used widely by companies in the U.S.
C. It helps to screen out people who are susceptible to certain diseases.
D. A recent court decision has ruled that it is allowable under the Americans with Disabilities Act.

75. One guideline for improving the effectiveness of initial interviews is to ____. 
A. ask questions which assess the most basic KSAOs
B. make them long and rigorous
C. ask each applicant different questions
D. A and B are correct

76. The issue of consistency of measurement with assessment methods is called ______. 
A. validity
B. reliability
C. variability
D. central tendency

77. An example of an assessment method which has relatively low reliability is ________. 
A. biographical information
B. initial interviews
C. application blanks
D. resumes

78. _________ refers to the possibility that a disproportionate number of protected-class members may be rejected using this predictor. 
A. Low reliability
B. Adverse impact
C. Utility
D. Habeas corpus

79. Disclaimers are used as a means of protecting employer rights. 
True False

80. Employers are advised to let applicants know in advance that they reserve the right to not hire, terminate, or discipline prospective employee for providing false information during the selection process. 
True False

81. Failure to conduct a reference check opens an organization to the possibility of a negligent hiring suit. 
True False

82. The laws in most states provide employers with little protection if they provide any information in a reference check that might damage an applicant’s chances of getting a job. 
True False

83. Although arrest information may be gathered in the process of doing a background check, it cannot be used in staffing decisions. 
True False

84. It is illegal to use pre-employment inquiry information that has a disparate impact on the basis of a protected characteristic, unless such disparate impact can be shown to be job-related and consistent with business necessity. 
True False

85. Bona fide occupational qualifications are not of relevance to the initial assessment phase. 
True False

86. Bona fide occupational qualification claims made on the basis of customer preferences are typically upheld by the courts. 
True False

87. Adverse impact refers to the possibility that a disproportionate number of protect class members may be rejected using a given predictor. 
True False

88. The Americans with Disabilities Act states that employers may not ask disability-related questions and may not conduct medical examinations until after it makes a conditional job offer to a person. 
True False

89. Title VII of the Civil Rights Act explicitly permits discrimination on the basis of sex, religion, or national origin if it can be shown to be a bona fide occupational qualification. 
True False

90. The burden of proof is on employers to defend BFOQ claims. 
True False

91. A statement that identifies the rights than an employer wishes to maintain for itself that often accompanies initial employment assessments is called a ____. 
A. providential statement
B. disclaimer
C. waiver
D. requisition

92. Examples of initial assessment methods that have moderate degrees of adverse impact against women and/or minorities include ______. 
A. education level
B. quality of school
C. training and experience
D. all of the above are correct

93. Employers protect themselves in the initial stages of contact with job applicants through the use of _______. 
A. labor contracts
B. employment clauses
C. disclaimers
D. discharge policies

94. Which of the following is true regarding pre-employment inquiries (PI)? 
A. They have little potential for being used for discriminatory purposes in the assessment process.
B. Organizations rarely make inappropriate and illegal PIs.
C. It is critical for employers to understand the laws and regulations regarding PIs.
D. The emphasis in PIs is on the illegal collection of information.

95. Which of the following is the law that governs the collection of background check information for employment purposes? 
A. Americans with Disadvantaged Access Act
B. Fair Credit Reporting Act
C. Personnel Reporting Statue of 1977
D. National Labor Rights Act

96. According to ADA, it is not permissible for employers to do which of the following at the pre-offer stage of assessment process? 
A. Ask if the applicant has any disabilities.
B. Ask the applicant if he/she can perform the job, with or without reasonable accommodation.
C. Ask the applicant to demonstrate how they could perform the job.
D. None of the above are permissible.

97. Which of the following is a typical justification of a BFOQ involving sex that employers use? 
A. One sex has an inability to perform the work.
B. Personal contact with others requires same sex.
C. Customers have a preference for dealing with one sex.
D. All of the above are potential justifications.

Chapter 9
Student: ___________________________________________________________________________
1. Substantive assessment methods are used to reduce the applicant pool to candidates. 
True False

2. Personality tests and ability tests are examples of substantive assessment methods. 
True False

3. Discretionary assessment methods are used to reduce the candidate pool to finalists for a job. 
True False

4. Contingent assessment methods are used to make sure that tentative job offer recipients meet certain qualifications for the job. 
True False

5. Currently, personality tests are viewed as having no validity whatsoever as selection methods. 
True False

6. The Big Five personality test is used to describe emotional and cognitive traits that capture 20% of an individual’s personality. 
True False

7. The traits measured by Big Five personality tests are measures of factors brought about entirely by life environments, and not by genetics. 
True False

8. Surveys are the most common means of assessing personality. 
True False

9. Conscientiousness is a trait that is associated with better job performance, higher job satisfaction, better leadership performance, and higher retention. 
True False

10. Extraversion is associated with higher levels of creativity and adaptability. 
True False

11. Individuals who have higher levels of agreeableness tend to have lower levels of career success and are less able to cope with conflicts. 
True False

12. There is little controversy over the use of personality measures in personnel selection. 
True False

13. Evidence suggests that faking or enhancement almost never occurs on personality tests. 
True False

14. Socially desirable responding, or presenting oneself in a favorable light, doesn’t end once someone takes a job. 
True False

15. Evidence suggests that most applicants have relatively positive reactions towards personality testing. 
True False

16. The two major types of ability tests are aptitude and achievement. 
True False

17. 80% of organizations use some sort of ability test in selection decisions. 
True False

18. Measures of specific cognitive abilities do not reflect general intelligence. 
True False

19. The Wonderlic Personnel test is prohibitively expensive for most organizations, because it requires long face-to-face sessions with a trained psychologist. 
True False

20. Validities for cognitive ability tests appear to be culturally specific, with far lower validities in the European Union relative to the United States. 
True False

21. Cognitive ability tests are excellent predictors for executive and professional jobs, but they are of no value for entry level, clerical, or blue collar jobs. 
True False

22. The true validity of measures of general cognitive ability is roughly .50. 
True False

23. The biggest reason cognitive tests are not widely used in selection is the difficulty associated with their administration. 
True False

24. A concern regarding the use of cognitive ability tests is adverse impact against African Americans. 
True False

25. Most experts agree that cognitive ability cannot be measured accurately by standardized tests. 
True False

26. Physical ability tests are becoming increasingly common to screen out individuals susceptible to repetitive stress injuries, such as carpal tunnel syndrome. 
True False

27. Sensory/perceptual abilities tests assess the ability to detect and recognize environmental stimuli. 
True False

28. Research suggests that job knowledge tests have relatively poor validity in predicting job performance. 
True False

29. Individuals who have high emotional intelligence are self-aware (good at recognizing their own emotions), other aware (good at recognizing others’ emotions), and good at making use of or managing this aware-ness. 
True False

30. Some critics argue that because emotional intelligence (EI) is so closely related to intelligence and personality, once you control for these factors, EI has nothing unique to offer. 
True False

31. Measures of emotional intelligence are a valuable supplement to personality tests in a selection context, because they have little similarity to personality. 
True False

32. Performance tests and work samples assess applicants’ underlying capacities and dispositions. 
True False

33. A low-fidelity test uses realistic equipment and scenarios to simulate the actual tasks of the job. 
True False

34. Performance tests and work samples are readily accepted by applicants as job relevant. 
True False

35. Performance tests are a useful indicator of some job skills, but they need to be supplemented with other predictors because they do not have high content validity. 
True False

36. The major distinction between job knowledge and situational judgment tests is that the former deals with future hypothetical job situations, and the latter explicitly taps the content of the job. 
True False

37. Integrity tests are paper-and-pencil or computerized tests that attempt to assess an applicant’s honesty and moral character. 
True False

38. Interviewer evaluations of applicant integrity are usually very good, and experts like judges and psychologists can detect lying most of the time. 
True False

39. The construct of “integrity” is well understood. 
True False

40. Although applicants probably do sometimes fake their answers on integrity tests, the evidence suggests that such faking does not completely eliminate the validity of these tests in predicting job performance and deviant workplace behavior. 
True False

41. The Meyers-Briggs Type Inventory (MBTI) is an example of an interest inventory. 
True False

42. Interest inventories play a key role in organizational selection decisions. 
True False

43. Interest inventories tend to be more tied to the occupation, rather than the organization or the job. 
True False

44. A typical unstructured interview often contains highly speculative questions. 
True False

45. Applicant appearance may be a source of error or bias in an unstructured interview. 
True False

46. The starting point for the structured interview is the job rewards matrix. 
True False

47. Situational interviews assess an applicant’s ability to project what his/her behavior would be in the future. 
True False

48. Research has found that structured interviews do not add validity in predicting job performance beyond cognitive ability tests. 
True False

49. The interview is the central means through which an applicant can learn about the job and organization. 
True False

50. Applicants tend to react very negatively to the interview. 
True False

51. When developing structured interviews, one or more questions must be constructed for each KSAO targeted for assessment by the structured interview. 
True False

52. ________ assessment methods are used to reduce the candidate pool to finalists for a job. 
A. Initial
B. Substantive
C. Discretionary
D. Contingent

53. Which of the following is not one of the five-factor model personality traits __________. 
A. Conscientiousness
B. Extroversion
C. General mental ability
D. Neuroticism

54. Which of the following is true regarding the Big Five personality factors? 
A. They are reasonably valid in predicting job performance.
B. They represent emotional traits.
C. They represent cognitive abilities.
D. None of the above.

55. This personality trait is associated with better performance, higher job satisfaction, and lower adaptability on the job. 
A. Neuroticism
B. Extraversion
C. Agreeableness
D. Conscientiousness
E. Openness to experience

56. This personality trait is associated with more helping behaviors, teamwork, and difficulty in coping with conflicts. 
A. Neuroticism
B. Extraversion
C. Agreeableness
D. Conscientiousness
E. Openness to experience

57. This personality trait is associated with more creativity, effective leadership, and a lower commitment to one’s employer. 
A. Neuroticism
B. Extraversion
C. Agreeableness
D. Conscientiousness
E. Openness to experience

58. What are the most useful personality traits, in order, for selection contexts? 
A. Concientiousness, emotional stability, extraversion
B. Emotional stability, conscientiousness, openness to experience
C. Agreeableness, openness to experience, extraversion
D. Extraversion, conscientiousness, emotional stability

59. Which of the following is true regarding the use of personality tests in the selection process? 
A. Emotional stability is a much more valid predictor of job performance when it is measured narrowly.
B. The aspect of emotional stability that is more relevant to job performance is stress proneness.
C. The Core Self-Evaluations Scale has not been shown to have much validity in predicting job performance.
D. None of the above.

60. Which of the following is true regarding research on the validity of personality tests? 
A. Conscientiousness predicts performance across occupational groups.
B. Openness to experience does not predict training performance.
C. Extraversion predicts job performance for most jobs.
D. All of the above are true.

61. Which of the following statements is false? 
A. There is little evidence that people fake their scores on personality tests in the hiring contexts
B. When individuals believe their scores are being used for selection, their observed scores tend to increase
C. Faking has a negative impact on the validity of personality tests
D. None of the above statements is false

62. Measures which assess an individual’s capacity to function in a certain way are called ______. 
A. interest inventories
B. ability tests
C. personality tests
D. knowledge tests

63. Which of the following cognitive abilities appear to reflect general intelligence? 
A. verbal abilities
B. quantitative abilities
C. reasoning abilities
D. All of the above are correct

64. The most widely used test of general mental ability for selection decisions is the _____. 
A. MMPI
B. Myers-Briggs
C. Wonderlic Personnel Test
D. Job Characteristics Inventory

65. Which of the following is true regarding cognitive ability tests? 
A. Cognitive ability tests are among the least valid methods of selection.
B. Cognitive ability tests do not generalize to a wide range of organizations and jobs.
C. There is reason to believe cognitive ability tests will be associated with positive financial returns.
D. All of the above are true.

66. Research has shown that most of the effect of cognitive ability on performance is due to the fact that intelligent employees have greater _____. 
A. job knowledge
B. presentation skills
C. social networking capacity
D. diligence

67. The biggest reason why cognitive ability tests are not more widely used is _____________. 
A. they are too expensive.
B. they are too time-consuming.
C. they are difficult to administer.
D. they have an adverse impact on minorities.

68. The difference between black and white test takers on cognitive ability tests has been _____. 
A. demonstrated to be an artifact of question wording
B. decreasing over time
C. lower when tests are given in an open-ended format
D. both b and c

69. Research studies have found ___________ support for the validity of job knowledge tests? 
A. relatively strong
B. no support
C. very weak
D. some

70. The process of administering tests that place applicants in hypothetical, job-related situations and asking them to choose a course of action among several alternatives is called _____________. 
A. situational judgment tests
B. behavioral implementation tests
C. work sample tests
D. Job simulation tests

71. The assessment method which involves the use of very realistic equipment and scenarios to simulate actual tasks of a job is called a(n) ________ test. 
A. job knowledge
B. psychomotor
C. high fidelity
D. low fidelity

72. Work samples and performance tests are useful for a broad range of jobs, although they are difficult to use in __________ jobs. 
A. customer service
B. assembly
C. bank teller
D. none of the above

73. Situational judgment tests ______. 
A. have very high adverse impact
B. involve applicants’ descriptions of how they would behave in work scenarios
C. are based on applicants’ evaluations of photographs
D. have very low validity

74. Which of the following is true regarding integrity tests? 
A. Their use has declined in the past decade.
B. They are used to reduce employee accidents.
C. They are usually paper-and-pencil or computerized measures.
D. The construct of integrity is well understood.

75. Interest inventories are designed to improve person job match by assessing applicant preferences for different types of work. Research suggests that these inventories ____. 
A. are about as predictive of job performance as ability tests
B. are more predictive of job performance than ability tests
C. are not strongly predictive of job performance
D. are prohibited by law

76. Which of the following is a characteristic of a typical unstructured interview? 
A. It is usually carefully planned.
B. The interviewer makes a quick and final evaluation of the candidate
C. It consists of formal, objective questioning.
D. The interviewer is highly prepared.

77. Which of the following is a source of error or bias in unstructured interviews? 
A. Low reliability between interviewers.
B. Nonverbal cues from interviewees influence interview ratings.
C. Primacy effects.
D. All of the above are true.

78. The first step of the structured interview process is __________. 
A. selecting and training interviewers
B. developing the selection plan
C. consulting the job requirements matrix
D. developing selection goals

79. The type of structured interview that assesses an applicant’s ability to project what his/her behavior would be in the future is the ____________ interview. 
A. situational
B. experience-based
C. projective
D. KSAO-based

80. Which of the following is(are) true based on research regarding interviews? 
A. The validity of structured interviews is low.
B. Situational interviews are less valid than job-related interviews.
C. Panel interviews were less valid than individual interviews.
D. All of the above are true.

81. The correlation between structured interviews and cognitive ability tests is ____________. 
A. positive
B. zero
C. moderately negative
D. very negative

82. Applicants’ reactions to interviews tend to be _________. 
A. very favorable
B. somewhat favorable
C. neutral
D. somewhat unfavorable

83. Selection for team contexts ____. 
A. is not much different than for selection in general
B. should emphasize both interpersonal and self-management KSAOs
C. should not involve members of the team, because that only leads to resentment
D. all of the above

84. Discretionary assessment methods are typically highly subjective and rely heavily on the intuition of the decision maker. 
True False

85. Contingent assessment methods are always used in the selection process. 
True False

86. Studies suggest that drug users are no more likely to be involved in accidents or to be injured at work. 
True False

87. Individuals who use drugs have been shown to have higher levels of absenteeism and counterproductive work behaviors. 
True False

88. Federal law prohibits drug testing for a majority of jobs. 
True False

89. Drug test results can be very accurate with low error rates, if the proper procedures are followed. 
True False

90. Some organizations have begun to screen out those who smoke tobacco. 
True False

91. Drug testing methods have become so accurate that it is no longer considered necessary to use retesting to validate samples from an initial screening test. 
True False

92. Organizations may make medical inquiries or require medical exams prior to making a job offer. 
True False

93. A medical examination for employees is defined the same way as for job applicants. 
True False

94. Which of the following is true regarding drug testing? 
A. Applicants were twice as likely to be tested for alcohol use as drug use.
B. The rate of drug testing has declined slightly in recent years
C. Upper-level employees are more likely to be tested than lower-level employees.
D. All of the above are true.

95. Which of the following is a recommendation for the use of drug testing programs? 
A. Drug testing should be done with all jobs.
B. Do not inform applicants of the test results.
C. Provide rejected applicants with an opportunity to appeal.
D. All of the above

96. Drug tests are not common for many jobs because _____? 
A. drug tests do not “catch” many people
B. the law essentially bans drug tests for all jobs not involving operating a vehicle
C. drug tests are extremely expensive
D. the tests produce a massive number of false positive results

97. Organizations may not ______ prior to making a job offer? 
A. make medical inquiries
B. conduct background checks
C. discuss job responsibilities
D. none of the above

98. The UGESP addresses the need to determine if a selection procedure is causing adverse impact, and if so, the validation requirements for the procedure. 
True False

99. Any selection procedure that has an adverse impact is deemed discriminatory by the UGESP unless it has been shown to be valid. 
True False

100. There three types of validity studies considered acceptable by the UGESP include face validity, construct validity, and administrative validity. 
True False

101. It is unlawful to screen out individuals with disabilities, unless the selection procedure is job-related and consistent with business necessity. 
True False

102. An organization may not require medical exams of an applicant, nor make a job offer conditional, pending the results of a medical exam. 
True False

103. There are some jobs for which drug and alcohol testing is mandated by law. 
True False

104. Records for medical exams of established employees must be kept in relative confidence, although most jurisdictions allow for this information to be shared with supervisors and members of the work group if the employer deems it wise. 
True False

105. The best description of UGESP is that they are _____. 
A. regulations for drug testing in the workplace
B. a set of federal regulations related to selection systems as covered by the Civil Rights Act
C. a set of regulations relating only to disabled individuals
D. regulations that deal only with gender equity and job selection

106. The UGESP requires employers to ____. 
A. keep records based on religion and marital status for all employees
B. perform a local validation study for every subgroup of employees
C. consider suitable alternative selection procedures if one of the selection techniques has adverse impact
D. assess employee history of drug abuse

107. Which of the following items is a major principle pertaining to selection under the Americans with Disabilities Act? 
A. It is unlawful to screen out individuals with disabilities unless the procedure is consistent with a business necessity
B. It is unlawful to screen out individuals with disabilities for any reason
C. It is unlawful for employers to require employees to physical agility tests in a selection context
D. The employer can retain the right to refuse to hire individuals with disabilities if customers have a strong preference for not encountering disabled staff

108. Which of the following inquiries can be made prior to giving a job offer? 
A. Questions about history of illegal drug use
B. Psychological exams designed to detect mental illness
C. Oral or written questions about the existence of a disability
D. None of the above

BUS 325 Week 7 Quiz 6 Chapter 6 – Strayer

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CHAPTER 6: International Performance Management

TRUE/FALSE

1. A multinational is a single entity that faces a global environment.

2. Developments in sophisticated worldwide communications system provide an acceptable substitute for “face to face” contacts between subsidiary managers and corporate staff.

3. The way we measure workers’ productivity is exactly the same in an international setting, but the numbers come out differently because of that environmental difference.

4. If perceived financial benefits and career progression are not met during an assignment, the level of motivation and commitment will decrease thus affecting performance.

5. American work methods may be more structured than their foreign counterparts and that individuals have less discretion in how they approach tasks and problems.

6. Role expectations are likely to be less complex for the TCN than the PCN.

7. Often the country assigned to a TCN is perceived by headquarters to be culturally close.

8. Expatriate performance should be placed within its international as well as organizational context.

9. Performance management is a part of a multinational’s control system.

10. The expatriate’s commitment to the parent and to the local operations was both positively related to the intent to stay.

11. One key function of performance appraisal feedback is that it provides opportunities to improve performance by identifying gaps that might be eliminated by training and development.

12. The international business traveler can be described as an expatriate.

13. The two categories of international staff are expatriate and commuter.

14. The nature of the international monetary system and local accounting differences may preclude an accurate measurement of goal attainment results.

15. A team of evaluators should be used for performance appraisal of an expatriate.

16. The standardized performance forms in an organization are always reworked to reflect differences in the expatriates’ situation in a foreign country.

17. Regular feedback is an important aspect in terms of meeting targets and revising goals as well as assisting in motivation of work effort.

18. Virtual assignments rarely if ever have performance appraisals.

19. Formal performance appraisal is commonly on a biannual basis.

20. A Japanese manager cannot directly point out a work-related problem or error committed by a subordinate.

MULTIPLE CHOICE

1. Performance management:
a. Is a process that enables the MNE to evaluate and continuously improve individual, subsidiary unit and corporate performance against set goals and targets
b. Is the evaluation of an employee performance and a vehicle to set performance goals
c. Is the process of evaluating business opportunities and planning for new investments
d. Is the process of setting goals for future performance by MHE employees

2. The turbulence of the global environment requires that long-term goals be
a. Inflexible to major environment events
b. Realistic and in line with corporate goals
c. Ambitious to meet the growing needs of the organization
d. Flexible to respond to market contingencies

3. Market development in foreign subsidiaries is generally slower and more difficult to achieve without:
a. Supporting infrastructure of the parent c. Expatriates from the parent organization
b. Formal control mechanism d. Cross-culture training

4. The impact of the following variables and their interrelationship needs to be considered in determining the expatriate performance EXCEPT:
a. Compensation package
b. The nature of the task
c. Environment in which the performance occurs
d. Interpersonal relationship with key official

5. The employee who oversees and directs the entire foreign operations is:
a. Expatriate c. HR manager
b. Structure reproducer d. Chief executive officer

6. An operative:
a. Is a subsidiary manager
b. Reproduces a foreign subsidiary structure
c. Is an individual sent to a subsidiary to solve a particular problem
d. Is an individual whose assignment is to perform functional job task

7. What is a strategic international assignment?
a. A short-term knowledge transferor activity
b. High profile activities that focus on developing a balanced global perspective for the employee
c. Assignment that involves the two-way transfer of existing processes and practices
d. Assignment that focuses on in-country performances and the acquisition of local understanding

8. If the PCN is perceived to identify too closely with the host subsidiary concerns:
a. The employee is perceived to be “going native”
b. The employee is sent on vacation
c. The employee is removed from the subsidiary
d. The employee is considered to be doing his or her job

9. Individuals are likely to blame lack of job discretion on the following:
a. The culture, role, and organization
b. The organization, the job and the location
c. The job, location and culture differences
d. Culture, the job and the Chief Executive Officer

10. What can be described as the strongest stressors in expatriate “overseas” work environment?
a. Uncertainty regarding culture differences and language
b. Uncertainty regarding objectives, goals and role requirements
c. Uncertainty regarding job retention
d. Uncertainty of who to report to and who is in the line of command

11. A USA manager of German nationality working for a Dutch multinational company is assigned to a position in Indonesia. Which country is considered the host country?
a. USA c. Germany
b. Dutch d. Indonesia

12. The transfer of the individual and accompanying family member into a foreign environment outside of their normal cultural comfort zones is the definition of:
a. Domestic relocation c. Expatriate assignment
b. International traveler d. Commuter

13. What are the five major constraints in terms of multinational strategy and goal setting?
a. Differing societal, legal, economic, technical and physical demands
b. Differing societal, cultural, economic , technical and physical demands
c. Differing societal, legal, administrative, economic and physical demands
d. Differing legal, strategic, administrative, economic and physical demands

14. What are the five variables affecting expatriate performance?
a. Compensation package, task, HQ support, host environment and culture adjustment
b. Legal, economic, culture adjustment, physical and task
c. Technical, societal, compensations, HQ support and host environment
d. Compensation, task, cultural environment, HQ support and legal

15. All of the following are a constraint of goal attainment for the multinational enterprise EXCEPT:
a. Volatility of global environment c. Separation of time and distant
b. Cross-cultural demands d. Non-comparable data

16. Which country tends to have administrators with a high level of legal expertise?
a. Sweden c. France
b. Germany d. UK

17. Which country has a strong tradition of collective bargaining?
a. Danish c. Japan
b. USA d. Germany

18. Which country tends to focus on linking performance management result to long-term training and development activities?
a. USA c. Germany
b. France d. Australia

19. Two countries in which it is common for employees to have input into job goal setting is:
a. USA and Mexico c. Canada and Australia
b. Germany and Sweden d. Japan and Sweden

20. An appraisal system which builds upon the strengths while minimizing their disadvantages uses all of the following criteria:
a. Hard , soft and contextual goals
b. Financial, corporate and cross-cultural goals
c. Interpersonal , financial and cultural goals
d. Hard goals, cultural and corporate goals

21. What tool assists an organization in collecting accurate performance data and allows for cross-employee comparisons?
a. Local implicit norms c. Local performance diaries
b. Standardized appraisal forms d. Standardized performance goals

22. What is the normal frequency of formal performance appraisal for an expatriate?
a. 6 months c. 18 months
b. 1 year d. 2 years

23. In which country do managers find it difficult to directly point out a work-related problem or error by a subordinate?
a. USA c. Japan
b. China d. Indonesia

24. The dilemma of cultural adaptation of a performance evaluation could be overcome by:
a. The host-country national assisting in devising a suitable system for appraisal
b. Parent company not evaluating the employees
c. TCN developing the performance appraisal system
d. Offshoring the performance evaluation

25. The term “whole verses part” refers to:
a. The idea that a global performance is too complex to be captured by a single performance management system
b. The idea that less than excellent performance outcomes in a given local unit may be acceptable if that unit’s presence in a location contributes to the greater strategic good
c. The idea that you can best capture performance management by adding up the sum of all the individual performance outcomes in the various units or parts of the MNE.
d. The idea that corporate headquarters’ executive can accurately assess the parts (local units) of performance far more accurately than the whole or overall firm performance

26. Web-based platforms of human resource information system that include performance management modules:
a. Create more performance management problems than they solve
b. May be seen as eliminating the separations of time, distance and culture experienced by multinational firms
c. May be seen as a response to the separations of time, distance and culture experienced by multinational firms
d. May be seen as increasing and making more obvious the separations of time, distance and culture experienced by multinational firms

27. Performance management systems contribute:
a. Only to formal control, through feedback and appraisal aspects
b. Only to informal control through contributing to shaping corporate culture
c. To both formal control, through feedback and appraisal aspects as well as informal control, through contributing to shaping corporate culture
d. To standardized control and the communication of the local units’ contribution to global standards

28. According to Hays, the “trouble shooter” is:
a. The individual sent from a subsidiary back to headquarters because they are a performance problem
b. The individual in a local subsidiary who holds his or her employees to an impossibly high standard in performance appraisal reports
c. The individual sent to a local subsidiary to identify redundant employees and fires them
d. The individual sent to a local subsidiary to analyze and solve particular operational problems

29. A major challenge to global performance management is:
a. How to determine performance criteria and goals related to non-standard assignments especially virtual assignees
b. How to provide performance management forms to all employees
c. How to translate parent country forms into local languages
d. How to determine who is actually filling out the forms in local subsidiaries

30. One problem with an annual performance appraisal is:
a. Managers often miscommunicate how to improve the expatriate’s job performance in a timely manner.
b. Technological improvements have made the evaluation obsolete.
c. Employees do not receive consistent frequent feedback in order to improve
d. Email feedback has replaced the need for a formal employee evaluation

SHORT ANSWER

1. What are some constraints in evaluating a subsidiary’s performance against expectations?

2. MNEs control performance by what means?

3. Who conducts performance appraisals for expatiates and other international employees?

4. What are the three general types of goals used as the basis for performance criteria?

5. How do performance management systems in Germany and France differ?

BUS 309 Week 7 Quiz 6 Chapter 7 – Strayer

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Chapter 7—The Environment

MULTIPLE CHOICE

1. Which of the following is true concerning our environment today?
a. the Clean Air Act of 1970 has had no beneficial effects
b. animal waste from factory farms is good for the environment
c. the “greenhouse effect” is basically media hype
d. polluted air is a health risk

2. An ecosystem
a. should never be tampered with. c. can be upset by human behavior.
b. can survive any human intervention. d. is independent of all other ecosystems.

3. The “tragedy of the commons” is
a. the lack of a commons—a common place where people can come together.
b. the failure to appreciate what we have in common with other species.
c. that cost-benefit analysis involves value judgments that we do not share in common.
d. that individual pursuit of self-interest can sometimes make everyone worse off.

4. Some environmental regulations (like forbidding the burning of coal in cities) benefit each and every one of us because the air we all breather is cleaner. If an individual ignores the regulation and burns coal, while others obey the regulation, then he or she
a. violates our right to a livable environment. c. displays an ignorance of ecology.
b. is being a free rider. d. creates an externality.

5. The moral theorist William T. Blackstone claims that the right to a livable environment
a. would solve the problem of how to conserve resources.
b. prevents the use of government regulation to control the actions of business.
c. is a fundamental human right.
d. implies that non-human animals have no genuine moral rights.

6. Cost-benefit analysis
a. is influenced by value judgments. c. values costs over benefits.
b. considers only short-term effects. d. is a value-free social-scientific approach.

7. Which environmental statement is true?
a. Tropical forests are the earth’s richest, oldest, and most complex ecosystems.
b. Because of technological breakthroughs, people living in developed countries put less strain on the environment than do people in poorer countries.
c. There are only about 1000 species of animals left in the world.
d. The United States consumes only its proportional share of the world’s irreplaceable natural resources.

8. Concerning future generations,
a. all philosophers today reject the idea that future people have rights
b. utilitarianism dictates a radical reduction in population growth
c. future people have a right to be born
d. the social and environmental policies we adopt can affect who is born in the future

9. According to the anthropocentric (or human-oriented) ethic of Baxter and others,
a. environmental preservation is inherently valuable.
b. the Grand Canyon is valuable only because people care about it.
c. we have a strong, almost absolute obligation to preserve species from extinction.
d. future people have no interests that we need to respect now.
e. nature has value in and of itself, apart from human beings.

10. Which of the following is true of factory farms?
a. They are smaller these days than they used to be.
b. The people who run them are brutal.
c. Contrary to the critics, the animals in them rarely suffer.
d. They permit the mass production of meat at low prices.

11. According to Shaw and Barry, utilitarians
a. focus on human well-being and ignore animal welfare.
b. oppose animal experimentation in principle.
c. should include nonhuman animal pleasures and pains in the overall utilitarian calculus.
d. are likely to favor factory farming.

12. Which of the following is true of a regulatory approach to environmental problems?
a. It proceeds on a case-by-case basis, dealing with each company’s specific circumstances.
b. It gives companies an incentive to do more than the minimum required by law.
c. It requires the EPA or other body to determine the most effective, feasible pollution-control technology for each different industry.
d. It involves the use of pricing mechanisms.

13. Animal manure
a. is not available in sufficient quantities to replenish agricultural land.
b. is a large source of pollution.
c. helps counteract the “greenhouse effect”.
d. is potentially more dangerous than nuclear power.

14. “Pollution permits” are an example of which of the following methods of achieving our environmental goals?
a. pricing mechanisms c. a laissez-faire approach
b. government subsidies d. regulations

15. In consideration for the obligation to others,
a. we have no genuine moral obligations to future generations.
b. future people have a right to be born.
c. the U.S. uses more than its proportional share of the world’s resources.
d. environmental protection is always a static trade-off, with a fixed economic price to be paid for the gains we want.

16. One truth about factory farms is
a. they rarely inflict any genuine suffering on animals.
b. most animals we eat are from them.
c. they are necessary to feed the world.
d. they are run by brutal people.

17. According to the philosopher Joel Feinberg,
a. future generations of people have a right to be born.
b. future generations have no moral rights.
c. we have no duties to future generations.
d. the rights of future generations are contingent upon those people coming into existence.

18. William F. Baxter addresses environmental ethics by noting
a. the best ethical position to adopt on environmental issues is a naturalistic position.
b. non-human animals have intrinsic value.
c. judgments about environmental problems ought to be people-oriented.
d. damage to geological “marvels” is inherently wrong and should be prevented.

19. The philosopher Tom Regan
a. claims that no impartial morally sensitive person could approve of the treatment of animals in factory farms if he or she knew what was going on.
b. argues against the use of governmental regulations to control the actions of businesses.
c. believes that the FTC should be abolished.
d. denies that non-human animals have any moral rights.

20. According to Holmes Rolston III,
a. naturalistic ethics ought to be abandoned.
b. some natural objects are morally considerable in their own right, apart from human interests.
c. all moral rights are derived from the interests of human beings.
d. nature has no value apart from human beings.

21. A decade after wolves were reintroduced to Yellowstone Park, their presence was discovered to
a. not change anything. c. have changed the behavior of elk.
b. have stabilized their own population. d. be disruptive.

22. Business has considered the environment to be
a. a scarce commodity. c. a limited supply.
b. free and nearly limitless. d. costly.

23. An assessment of costs and benefits inevitably involves
a. facts. c. false opinions.
b. monetary costs only. d. value judgments and factual uncertainties

24. Which of the following is a drawback to the regulatory approach?
a. regulation can take away an industry’s incentive to do more than the minimum
b. regulation is an incentive to an industry to do more than the minimum
c. regulation does not apply to all equally
d. does not require polluters to use the strongest most feasible means of pollution control.

25. A moral vegetarian
a. rejects eating meat based on moral grounds.
b. only eats animal that were raised humanely.
c. does not believe animals suffer.
d. the pleasure we get from eating a hamburger justifies the price the animals pay.

TRUE/FALSE

1. The new discipline of “ecological economics” calculates the value of an ecosystem, not in terms of what people are willing to pay for it, but in terms of what it would cost to provide the benefits and services that the ecosystem now furnishes us.

2. Regulation is always the most effective way to allocate the costs of environmental protection.

3. Advocates of a “naturalistic ethic” believe that penguins are important only because people like them.

4. Cost-benefit analyses of rival environmental policies inevitably involve making value judgments about nonmonetary costs and benefits.

5. The word “ecology” refers to the science of the interrelationships among organisms and their environment.

6. The word “ecosystem” refers to a total ecological community, both living and non-living.

7. The disparity between private industrial costs and public social costs is what economists call an “internality.”

8. Cost-benefit analysis is a device used to determine whether it’s worthwhile to incur a particular cost.

9. Tampering with the ecosystem always has injurious effects.

10. When it comes to the protecting animal interests, the United States is far ahead of Europe.

11. According to Jeremy Bentham, the question is not whether animals can feel pain, but whether they can talk and reason.

12. Advocates of a naturalistic ethic contend that some natural objects are morally considerable in their own right, apart from human interests.

13. Moral vegetarians are people who reject the eating of meat on moral grounds.

14. According to William F. Baxter, we ought to respect the “balance of nature” and “preserve the environment” even if doing so brings no benefit to human beings.

15. A moral of Garrett Hardin’s parable “The Tragedy of the Commons” is that there can be a difference between the private costs and the social costs of a business activity.

16. William T. Blackstone rejects the idea that each person has a human right to a livable environment on the grounds that it is technically infeasible.

17. Three approaches have gained the most attention when it comes to achieving our environmental goals: the use of regulations, incentives, and pricing mechanisms.

18. According to Joel Feinberg, we can predict various interests of future generations.

19. Thanks to the EPA, the federal government long ago eliminated the problem of potentially harmful pesticides and other chemical residues in food.

20. According to Cambridge University biologist Andrew Balmford, the loss of nature’s services is usually outweighed by the benefits of development.

21. An ordinary example of an ecosystem is a pond.

22. One of the attitudes prevalent in business that has led to increased environmental problems is the tendency to view the natural world as a free and unlimited good.

23. The international fishing industry as it exists today gives us good reason to reject the moral of Garrett Hardin’s “Parable of the Commons.”

24. The rising affluence of people in the United States has meant a corresponding decrease in pollution and its attendant environmental problems in the United States.

25. Any equitable solution to the problem of who should pay the bill for environmental cleanup should take into account responsibility as well as benefit.

SHORT ANSWER

1. What is the meaning of “ecology”?

2. What’s an “externality”? Give an environmental example of an externality.

3. Explain a cost-benefit analysis, and how is it relevant to environmental issues?

4. What’s a “free rider”?

5. Briefly describe the two popular answers to the question of who should pay the costs of environmental protections and restorations.

ESSAY

1. Is it appropriate to have a “valley of death” as described in Case 7.2? If you worked for one of the factories how would you justify the fumes? If you take an environmental view, how would confront the problem?

2. Is it a moral right or privilege for human beings to live in a clean environment? Defend your answer.

3. Does that fact that McDonald’s gave in to public opinion mean that all businesses should do the same? Is there ever a time that a business can tell environmentalists that they will not abide by the regulations or requests? Defend your answers.

4. Are there any differences between environment ethics for humans and animals? Defend your answers.

5. Would you propose an incentive based program to challenge companies to reduce their environmental liability? Give an example of how this can be done and whether it could ever be effective. Defend your answer.

BUS 230 Week 7 Quiz Chapters 8 and 9 – Strayer

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CHAPTER 9

Delivery

44. One of the advantages of integrated carriers (truck-air) like UPS and Federal Express is that they:

a. utilize commercial airlines for air service.
b. outsource much of their air network..
c. own their own aircraft.
d. rely more on air than ground transportation.
e. outsource much of their ground network.

45. Outsourcing or using third party logistics services has:

a. remained flat due to increased challenges of international logistics.
b. become increasingly popular with small organizations, but not large ones.
c. declined in popularity due to declining service provider performance.
d. declined as transportation has been re-regulated.
e. increased as organizations focus on core competencies.

46. Organizations operating under a just-in-time system, require:

i. international coverage.
ii. heightened security.
iii. lowest price.
iv. on-time deliveries.
v. real-time package tracking.

47. When assessing the quality of a telecommunications provider, a key indicator of superior quality to a competitor is the ability to:

a. own and operate the largest network of land and sea cable.
b. compress more high resolution information on the same bandwidth.
c. have the leanest network of repeater stations.
d. have the most extensive intermodal operations.
e. own radio frequencies with greater range.

48.Fuel efficiency and energy consumption considerations:

a. have no impact on transportation strategy in most organizations.
b. are a factor in transportation strategy development in many organizations.
c. encourage shippers to focus on increasing LTL shipments.
d. lead to disintermediation in the supply chain.
e. result in lower use of third party logistics providers.

49. Over the past two decades, logistics costs as a percent of the U.S. gross domestic product (GDP) have:

a. been extremely volatile due to international events.
b. increased due to transportation deregulation and technology investments.
c. declined due to deregulation, technology investment, and e-commerce.
d. doubled due to growth in international sourcing.
e. remained constant due to a stagnant global economy.

50. When selecting freight carriers, buyers are most concerned with:

a. best overall value.
b. intermodal capabilities.
c. supply chain and delivery speed.
d. geographic coverage.
e. shipment security.

51. Transportation rates:

a. are established primarily through negotiation.
b. are established primarily by government regulation.
c. are lower for LTL than TL shipments.
d. typically decrease as delivery speed increases.
e. typically do not change when smaller shipments are consolidated.

52. Supply’s involvement in transportation decisions is:

a. insignificant and declining due to the growth of supply chain management.
b. growing due to the increase in the number of railroads and trucking companies throughout the world..
c. growing due to the deterioration of roads, bridges, and highways in North America.
d. declining due to the growth of outsourcing transportation decisions to third party logistics providers.
e. growing in terms of direct functional responsibility and cross-functional efforts to devise solutions with logistics services providers.

10. The selection of the FOB point is important to the purchaser, for it determines:

a. who pays the carrier.
b. when legal title to goods being shipped passes to the buyer.
c. who is responsible for preparing and pursuing loss or damage claims.
d. who routes the freight.
e. all of the above.

True and False

1. The bill of lading is the key document in the movement of goods.

2. One of the advantages of shipping by air carrier is that it is inexpensive compared to other modes of transportation.
3. One of the disadvantages of intermodal frieght services is higher damage rates due to more handling.

4. Transportation costs increase as distance, quantity, and speed increase.

5. Third-party logistics service providers are carriers that always own assets (trucks, airplanes, railcars) and act as intermediaries between trading partners, for example, shippers and carriers.

6. When contracting with logistics services providers, supply managers are limited by Federal regulations in their use of standard supply techniques such as negotiation, systems contracts, and supplier evalaution.

7. Carriers for RF waves are air, copper wire and fiberoptic cable.

8. Two effective cost reduction strategies are partnering agreements with logistics services provider and long-term contracts.

9. Radio frequency (RF) waves are a mode of transportation for information.

10. A mode of transportation is any means of conveyance (truck, auto, taxi, bus, railroad, ship, airplane) of people or property.

ACC 410 Week 7 Quiz 5 Chapters 8 and 9 – Strayer

ACC 410 Government and Not-for-Profit Accounting Week 7 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 8

Governmental Activities – Long-Term Obligations

TRUE/FALSE (CHAPTER 8)

1. Unlike individuals and businesses, governments cannot seek protection under the Federal Bankruptcy Code.

2. General obligation debt is the obligation of the government at large and is thereby backed by the government’s general credit and revenue-raising powers.

3. Revenue debt is secured only by designated revenue streams.

4. When the proceeds of general long-term debt are received by a governmental fund, rather than reporting a liability on the balance sheet, the inflow of resources is treated as another financing source on the operating statement.

5. Per GASB Statement No. 34, governments generally should report their bonds, notes, and comparable long-term obligations at present value.

6. A government is prohibited from ever recognizing bond anticipation notes (BANs) as long-term obligations.

7. Tax anticipation notes (TANs) must be reported as current liabilities of the governmental funds in which the related revenues will be reported, as well as in the government-wide statements.

8. Governments may enter into operating leases, but may not enter into capital leases.

9. In accounting for operating leases, the rental payments should be recognized in a governmental fund and as expenses in the government-wide statement of activities in the periods in which they apply.

10. Because they are not obligations of the government at large, revenue bonds are usually not subject to voter approvals or other forms of voter oversight.

11. Although governments may elect to report conduit obligations in their government-wide and proprietary fund statements, the GASB has ruled that note disclosure is sufficient.

MULTIPLE CHOICE (CHAPTER 8)

1. A governmental entity that is unable to satisfy claims against it
a) Is prohibited from filing bankruptcy.
b) May not seek protection under the Federal Bankruptcy Code.
c) May seek protection under the Federal Bankruptcy Code, using a special section directed to governments.
d) Is automatically placed under the jurisdiction of a higher level of government.

2. To seek protection under the Federal Bankruptcy Code, a governmental entity must
a) Be unable to provide the level of services it has provided in the recent past.
b) Be unable to pay its debt in its current year.
c) Have budgeted expenditures in excess of revenues.
d) Both (b) and (c).

3. General long-term debt of a governmental entity includes
a) All future financial obligations.
b) All future financial obligations that result from past transactions.
c) All future financial obligations that result from past transactions for which the government has already received a benefit.
d) All future financial obligations that are backed by the government’s general credit and revenue raising power and that result from past transactions for which the government has already received a benefit.

4. In governmental fund-type financial statements, the assets acquired under a capital lease would be reported at
a) They are not reported in the fund financial statements.
b) The present value of the required lease payments.
c) The undiscounted total of required lease payments.
d) The total of all payments required under the lease.

5. In the government-wide financial statements, the assets acquired under a capital lease would be reported at
a) They are not reported in the fund financial statements.
b) The present value of the required lease payments.
c) The undiscounted total of required lease payments.
d) The total of all payments required under the lease.

6. In the government-wide financial statements, long-term liabilities of governmental entities are generally reported at
a) Face value.
b) Face value plus (minus) unamortized premium (discount).
c) Present value.
d) Market value of the obligation.

7. Pulling County has a December 31 fiscal year-end. In November, the County borrowed $8 million from a local bank, due in six months at 6% interest, to finance general government operations. The county pledges property tax revenues to secure the loan. At year-end, how should the bank note be displayed in the fund financial statements?
a) Nothing in the General Fund; Nothing in a Schedule of Changes in Long-Term Obligations.
b) General Fund–$8 million in Other Financing Sources; Nothing in a Schedule of Changes in Long-Term Obligations.
c) General Fund–$8 million in Other Financing Sources; $8 million in a Schedule of Changes in Long-Term Obligations.
d) General Fund–$8 million in Notes Payable; Nothing in a Schedule of Changes in Long-Term Obligations.

8. Governmental entities enter into capital leases, rather than conventional buy and borrow arrangements for which of the following reasons? Capital leases
a) May be an effective means of circumventing debt limitations.
b) Are less expensive overall than buy and borrow arrangements.
c) Reduce the cash outflows related to the asset acquisition.
d) Have less impact on fund balance than buy and borrow arrangements.

9. New City entered into a lease agreement for several new dump trucks to be used in general government activities. Assuming the City maintains its books and records in a manner that facilitates the preparation of the fund financial statements, acquisition of these dump trucks would require entries in which of the following funds and/or schedules?
a) General Fund only.
b) General Fund AND Schedule of Changes in Long-Term Debt Obligations.
c) General Fund AND Schedule of General Fixed Assets.
d) General Fund, Schedule of General Fixed Assets AND Schedule of General Long-Term Debt Obligations.

10. Southwest City enters into a lease agreement that contains a nonappropriation clause. The clause
a) Has been held by courts in 26 states to effectively cancel the lease.
b) Stipulates that the yearly lease payment must be appropriated by the City Council each year.
c) Prohibits the city from replacing leased property with similar property.
d) Permits the city to lease at lower rates than would be possible without the presence of the clause.

11. Why would a government issue revenue bonds (which generally are issued at a higher rate of interest than general obligation bonds) even though the government knows that if revenues from the project are not sufficient to cover principal and interest payments, the government will use resources from general government activities to fund the principal and interest payments?
a) Revenue bonds may not require approval of the voters.
b) Revenue bonds may not be considered in legal debt limitations.
c) Revenue bonds may permit the interest costs to be passed on to the users.
d) All of the above.

12. Which of the following funds is most likely to receive the proceeds of revenue bonds?
a) General Fund.
b) Capital Project Fund.
c) City Utility Enterprise Fund.
d) Highway Department Special Revenue Fund.

13. Sun City is located in Hailey County. Sun Valley School District encompasses all of Sun City and some of Hailey County. Property in Sun City is assessed at $400 million; property in Hailey County is assessed at $800 million; property in Sun Valley School District is assessed at $600 million. The total debt outstanding for Sun City is $30 million; Hailey County is $50 million; Sun Valley School District is $45 million. Compute the amount of direct and overlapping debt for Sun City.
a) $ 30 million.
b) $ 75 million.
c) $ 85 million.
d) $125 million.

14. Obligations of property owners within a particular government for their proportionate share of debts of other governments with whom they share boundaries is
a) Overlapping debt.
b) Conduit debt.
c) Committed debt.
d) Moral obligation debt.

15. Overlapping debt should be reported in which of the following ways?
a) It should be reported in the Schedule of Changes in Long-Term Obligations.
b) It should be disclosed as a note to the financial statements.
c) It should be reported in a schedule in the statistical section of the annual report.
d) It should not be reported in the financial statements of the reporting entity.

16. An obligation issued in the name of a government on behalf of a nongovernmental entity is called
a) Overlapping debt.
b) Conduit debt.
c) Committed debt.
d) Moral obligation debt.

17. The City of Pocahontas issued $20 million in general obligation bonds at par. The City loaned the proceeds to Domsee Fish Processors to expand the size of their facility, which would allow Domsee to hire additional workers. The loan payments from Domsee to the City are established to match the principal and interest payments on the bond issue. The bonds are payable exclusively from the loan repayments by Domsee. The bonds are secured by the additional plant facilities built by Domsee. Where should the City report the bonds on the annual financial report?
a) In the government-wide financial statements.
b) In the notes to the financial statements.
c) In the proprietary fund financial statements.
d) In any of the above ways.

18. Industrial development bonds are issued in the name of a government with the proceeds used to attract private businesses to a community. Which of the following is a true statement about industrial development bonds?
a) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation. The government backs the bonds in the event of default by the private corporation.
b) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation. The government does not back the bonds in the event of default by the private corporation.
c) The proceeds are used by the government to build infrastructure to service private corporations with principal and interest payments made by the government out of the additional tax revenues received from the private corporation.
d) The proceeds are used by the government to build infrastructure to service private corporations with principal and interest payments made by the private corporation in lieu of property taxes.

19. The Southside City has $95 million of debt recorded in its Schedule of Changes in Long-Term Obligations, made up of $60 million of general obligation debt, $2 million of compensated absences payable, $8 million claims and judgments, and $25 million of obligations under capital leases. The State limits the amount of general obligation debt that can be issued by a City to 20% of the assessed value of taxable property. The assessed value of property in Southside City is $500 million. The amount of legal debt margin for Southside City is
a) $ 5 million.
b) $ 40 million.
c) $ 60 million.
d) $100 million.

20. A state created a Housing Authority to provide financing for low-income housing. The Authority issues bonds and uses the proceeds for that purpose. Currently the Authority has outstanding $200 million in bonds backed by the State’s promise to cover debt service shortages should they arise. The State Constitution specifically limits the State to no more than $2 million in general obligation debt. How can the state officials defend the $200 million in debt outstanding?
a) The debt is not general obligation debt.
b) The State is only morally obligated on the debt.
c) The debt is the debt of the Authority not the State.
d) All of the above.

21. Debt that is issued by one entity but backed by the promise of another entity to make up any debt service deficiency is
a) Committed debt.
b) Overlapping debt.
c) Conduit debt.
d) Moral obligation debt.

22. A City entered into a long-term capital lease for some office equipment. Assuming the city maintains its books and records in a manner to facilitate preparation of fund financial statements, what entry would be made in the General Fund to record this event?
a) Debit Expenditures; Credit Other Financing Sources—Leases.
b) Debit Equipment; Credit Other Financing Sources—Leases.
c) Debit Equipment; Credit Leases Payable.
d) No entry since it this event had no impact on financial resources.

23. Which of the following is likely to be used by a bond-rating agency to rate the general obligation bonds of a governmental entity?
a) A review of the Basic Financial Statements.
b) Consideration of economic statistics such as unemployment rates.
c) Consideration of legal debt margin.
d) All of the above.

PROBLEMS (CHAPTER 8)

1. During the fiscal year ended 6/30/02 the City of Hartsville engaged in the following transactions. Assuming the city maintains its books and records in a manner that facilitates the preparation of its fund financial statement, prepare all necessary journal entries that the City should make for each transaction. Clearly indicate in which fund the entry is being made. If no entry is required, write ‘No Entry Required’.

a) In July 2001, the City issued $20 million in 6% general obligation term bonds to finance construction of a new building to house City offices. The bonds were issued at a premium of $200,000.

b) In September, 2001 the City transferred $1 million from the General Fund to cover the $.6 million principal and $.4 million interest payments due that month on debt issued in previous years.

c) In September, 2001 the City paid the principal and interest due from (b).

d) In June 2002, the City transferred $2 million from the General Fund to cover the $1.2 million interest payment and the $.8 million principal payment due in July on the bonds issued in July 2001.

2. A city enters into the following transactions during the current year. Assuming that the City maintains its books and records in a manner that facilitates the preparation of its fund financial statements, prepare entries to record the following transactions. Indicate the fund in which the entry is being made.

a) The City issues $5 million of tax anticipation notes, backed by property taxes that will be recorded in the General Fund.

b) The City issues $2 million of 90-day bond anticipation notes that it expects to roll over into long-term bonds.

c) The City repays the $5 million in (a)

d) The City successfully issues $20 million in long-term bonds and uses some of the proceeds to repay the notes in (c).

3. Young County engaged in the following debt-related transactions during the year. Assuming that Young County maintains its books and records in a manner that facilitates the preparation of its government-wide financial statement, prepare the necessary journal entries to record these transactions. Clearly indicate if debt is long-term or short-term (current). If no entry is required, write ‘No Entry Required’.

a) The County issued $5 million in 6%, 20-year bonds for $5,117,466 to yield 5.8 % to the investor.

b) The County made the first semi-annual interest payment on the bonds in (a). Assume an amount of $1,594 for amortization of the premium.

c) The County issues $3 million in 6% demand bonds for which it does not enter into a take-out agreement.

d) In anticipation of property tax revenues being received several months after fiscal year-end, the County borrows $2 million from a local bank payable in nine months.

e) The County leased a new machine for its County Highway Department in an arrangement that qualified as a capital lease. The present value of the minimum lease payments is $150,000, which approximates the fair value of the machine.

ESSAYS (CHAPTER 8)

1. Identify and define ‘conduit debt.’ What is/are the current reporting standards for conduit debt issued by governmental entities. Do you approve or disapprove of the use of conduit debt by governmental entities? Justify your answer. Do you approve or disapprove of the current reporting standards related to conduit debt? Why?

2. Generally accepted accounting principles require many assets to be reported at market values. However, few liabilities are reported at market value. What are the arguments for and against reporting liabilities at market value?

3. Why is information about long-term debt important to financial statement users?

Chapter 9

Business-Type Activities and Internal Services

TRUE/FALSE (CHAPTER 9)

1. In both the fund statements and the government-wide statements, business-type activities and internal services are on a full accrual basis, and their measurement focus is on all economic resources.

2. The operating statement required as one of the three basic financial statements for proprietary funds is called the statement of revenues, expenditures, and changes in fund net assets.

3. The amounts reported in proprietary fund statements are generally the same as those reported in the government-wide statements because both sets of statements are on a full accrual basis of accounting.

4. Governments are required to prepare a statement of cash flows for proprietary funds, but not for governmental funds.

5. GASB Statement No. 34 mandates that governments report their cash flows from operations using the indirect method.

6. The FASB mandates entities report their cash flows from operations using the direct method.

7. Governments generally do not have to get formal legislative approval for enterprise fund budgets or incorporate them into their accounting systems.

8. In accounting for closure and postclosure landfill costs in an enterprise fund, a government does not necessarily have to “fund” the costs during the landfill’s useful life; it merely has to report both an expense and a liability for them.

9. The revenues of an internal service fund are the expenditures and expenses of other funds of that government.

10. The proprietary fund statements do not include a total column for all proprietary funds.

MULTIPLE CHOICE (CHAPTER 9)

1. The appropriate measurement focus for the business-type activities of the City of Rockford is
a) Current financial resources.
b) Economic resources.
c) Both (a) and (b).
d) None of the above.

2. Which of the following is not a proprietary fund?
a) City Water Enterprise Fund.
b) City Motor Pool Internal Service Fund.
c) City Hall Capital Project Fund.
d) None of the above. They are all proprietary funds.

3. The appropriate basis of accounting for the proprietary funds of a governmental entity is
a) Cash basis.
b) Modified accrual.
c) Full accrual.
d) None of the above.

4. Which of the following is NOT a valid reason for governmental entities to engage in business-type activities?
a) The activities provide resources that would otherwise have to be raised in other ways.
b) The entity can provide the services more cheaply or efficiently than can a private firm.
c) The entity wants to subsidize the activity.
d) All of the above are valid reasons for governments to engage in business-type activities.

5. Which of the following is NOT a budget typically prepared for an activity accounted for in a proprietary fund?
a) Appropriation budget.
b) Cash budget.
c) Capital budget.
d) Flexible budget.

6. A proprietary fund of a governmental entity has donor-restricted assets on its balance sheet. Which of the following best describes where and how those assets will generally be displayed?
a) In a separate restricted asset category on the balance sheet.
b) Intermingled with other assets on the balance sheet.
c) Intermingled with other assets on the balance sheet but footnoted.
d) In a separate restricted fund.

Use the following information to answer #7 and #8.

The City of Brockton voted to establish an internal service fund to account for its printing services. The City transferred $500,000 cash from the General Fund to the newly created internal service fund.

7. The appropriate entry in the General Fund to account for this transfer would be a credit to cash for $500,000 and a debit for $500,000 to
a) Operating Transfer Out.
b) Nonreciprocal Transfer Out.
c) Expenditures.
d) Investment in Internal Service Fund.

8. The appropriate entry in the proprietary fund is a debit to cash for $500,000 and a credit for $500,000 to
a) Operating transfer in.
b) Nonreciprocal Transfer In.
c) Capital Contribution (Revenues).
d) Investment provided by the General Fund.

9. The City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund At the date of issue, the appropriate entry in the proprietary fund is a $ 2 million debit to cash and a $2 million credit to
a) Bonds Payable.
b) Contribution Capital (Revenues).
c) Contributed Capital (Revenues) AND show $2 million as an addition to the Schedule of Changes in Long-Term Obligations.
d) No entry in the proprietary fund. Show $2 million as an addition to the Schedule of Changes in Long-Term Obligations.

10. Which of the following is NOT a rationale/justification for reporting the business-type activities of a government in a separate fund?
a) Legally restricted resources should be reported apart from those that are unrestricted.
b) Separate funds facilitate budgeting, planning, and controlling.
c) Separate funds facilitate the assessment of performance of the activity.
d) Separate funds facilitate the assessment of fiscal status of the activity.

11. Which of the following are required basic statements of a proprietary fund?
a) Balance Sheet, Income Statement, Statement of Cash Flows.
b) Balance Sheet, Statement of Revenues, Expenses, and Changes in Equity, and a Statement of Cash Flows.
c) Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Fund Net Assets.
d) Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Fund Net Assets, and Statement of Cash Flows.

12. Franklin County operates a solid waste landfill that is accounted for in an enterprise fund. The County calculated this year’s portion of the total closure and postclosure costs associated with the landfill to be $300,000. The entry(ies) to record this cost should be
a) Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000.
b) Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000 AND include an addition of $300,000 on the Schedule of Changes in Long-Term Obligations.
c) Show only an addition of $300,000 on the Schedule of Changes in Long-Term Obligations.
d) No entry in any fund; No entry in the Schedule of Changes in Long-Term Liabilities.

13. Marsh Lake County operates a solid waste landfill that is accounted for in a governmental fund. The County calculated this year’s portion of the total closure and postclosure costs associated with the landfill to be $600,000. The entry to record this cost should be
a) Debit Landfill Expenditure $600,000; Credit Liability for Landfill Costs $600,000.
b) Debit Landfill Expenditure $600,000; Credit Liability for Landfill Costs $600,000 AND include $600,000 as an addition on the Schedule of Changes in Long-Term Obligations.
c) No entry in the fund; include $600,000 on the Schedule of Changes in Long-Term Obligations.
d) No entry in any fund or Schedule.

14. Over the long run, governmental internal service funds are intended to
a) Generate revenues sufficient to cover the full costs of providing services.
b) Generate revenues sufficient to cover the full costs of providing services and to earn a profit.
c) Generate revenues sufficient to cover the current operating costs of providing services.
d) Generate revenues sufficient to cover the current operating costs of providing services and to earn an operating profit.

15. Which of the following is NOT true about internal service funds as reported in the fund financial statements?
a) Costs reported by internal service funds are reported twice within the same set of financial statements.
b) Billing rates must be set to cover the full cost of providing the goods or services.
c) Depreciation can be charged to governmental funds through the billing rates established by the internal service fund.
d) Deficits or surpluses in the general fund can be transferred to the internal service fund by adjusting the billing rates.

16. In the Statement of Net Assets, the net assets of a proprietary fund should be displayed in which of the following categories?
a) Unrestricted Fund Balance, Restricted Fund Balance, Invested in Capital Assets.
b) Unrestricted Net Assets, Restricted Net Assets, Invested in Capital Assets Net of Related Debt.
c) Unrestricted Net Assets, Restricted Net Assets, Net Assets Available for Use.
d) Net Assets Available for Use.

17. A Statement of Revenues, Expenses, and Changes in Fund Net Assets should include which of the following in addition to operating revenues and operating expenses and ending Net Assets?
a) Nonoperating revenues and expenses.
b) Nonoperating revenues and expenses, and Other changes in Net Assets.
c) Nonoperating revenues and expenses, Capital Contribution and Other changes in Net Assets, and Beginning Net Assets.
d) None of the above.

18. In which of the following circumstances must an enterprise fund be used to account for the activity?
a) A newly created electric utility fund will finance its operations by a charge to users based on kilowatt hours used.
b) To finance the acquisition of plant facilities a newly created electric utility issues general obligation debt.
c) To finance the acquisition of plant facilities a newly created electric utility issues revenue bonds which will be repaid from operations of the electric utility.
d) To acquire needed plant facilities a newly created electric utility enters into long-term lease agreements.

19. Washington County has designated the general fund as the single fund to account for its self-insurance activities. What is the maximum amount that can be charged to expenditure in the general fund related to the self-insurance activities?
a) The amount of ‘premium’ charged to the other funds.
b) The amount of actual claims expenditures.
c) The actuarially-determined amount necessary to cover claims, expenditures, and catastrophic losses.
d) The amount transferred from other funds and activities to the general fund for self-insurance purposes.

20. Lehi City has designated an internal service fund as the single fund to account for its self-insurance activities. Most of the insured activities such as the police department, fire department, and general government functions are accounted for in the General Fund. What is the maximum amount that can be charged to expenditure in the General Fund related to the self-insurance activities?
a) The amount of ‘premium’ charged to the General Fund by the internal service fund.
b) The amount of actual losses incurred by the insurance activity.
c) The actuarially-determined amount necessary to cover claims, expenditures, and catastrophic losses.
d) The amount transferred from the General Fund to the internal service fund for self-insurance purposes.

Use the following information to answer questions #21 and #22.
During the year the City’s Self-Insurance Internal Service Fund billed the General Fund $300,000 for ‘premiums,’ of which $30,000 was for catastrophic losses and the balance was the premium computed on an actuarially-determined basis. During the year the City incurred $250,000 in claims losses. The total amount transferred to the Self-Insurance Fund by the General Fund was $310,000.

21. The amount the City Self-Insurance Fund can recognize as revenue is
a) $310,000
b) $300,000.
c) $270,000.
d) $250,000.

22. The amount the City General Fund can recognize as expenditure is
a) $310,000.
b) $300,000.
c) $270,000.
d) $250,000.

23. When a governmental enterprise fund has restricted assets on its balance sheet which of the following is a true statement?
a) The total of the restricted assets in the asset section will be equal to the “Restricted Net Assets” amount in the equity section.
b) The total of the restricted assets will be offset by a liability of an equal amount.
c) The total of the restricted assets less related liabilities will be equal to the “Restricted Net Assets” amount in the equity section.
d) None of the above statements is true.

24. Any internal service fund balances that are not eliminated in the consolidation process should generally be presented on the government-wide financial statements
a) Should not be presented on the government-wide financial statements.
b) In the internal service fund column.
c) In the governmental activities column.
d) In the business-type activities column.

25. On the fund financial statements, internal service activities should be presented
a) In the Propriety Fund statements, net of interfund eliminations.
b) In the Governmental Fund statements, net of interfund eliminations.
c) In the Proprietary fund statements, without any interfund eliminations.
d) In the Governmental Fund statements, without any interfund eliminations.

26. Cash flows from Operating Activities does NOT include which of the following as cash inflows?
a) Cash collection of receivable for sale of services.
b) Grants for operating activities.
c) Interest and dividends earned.
d) Receipts for services performed for other funds.

27. Cash flows from Operating Activities does NOT include which of the following as cash outflows?
a) Grants to other governments for operating activities.
b) Grants to other governments for capital asset acquisitions.
c) Payments for services performed by other funds.
d) Payments in lieu of taxes.

PROBLEMS (CHAPTER 9)

1. Benton County voted to establish an internal service fund to account for printing and copying for all its department and agencies. The County engaged in the following activities related to the new fund. Prepare transactions to record these events in the internal service fund. If no entry is required, write “No Entry Required.”

a) The County Commission voted to transfer $200,000 from the General Fund to the internal service fund to establish the new fund.

b) Leased equipment to be used in printing activities. The total lease obligation is $600,000.

c) Issued $1 million in general obligation bonds at 101. The bonds were issued to acquire additional equipment. The bonds are to be serviced from the internal service fund.

d) Purchased equipment at a cost of $980,000. The equipment has an estimated useful life of nine years and an estimated salvage value of $80,000.

e) Billed the General Fund for 1998 copying and printing charges, $70,000.

f) Paid salaries to printing employees, $50,000.

2. The City of Petersburg has operated a City Utility Enterprise Fund for a number of years. The fund accounts for the activities of the City-owned electric, water and sewer systems. During the current year, the City engaged in the following transactions related to the City Utility Fund. Prepare the appropriate journal entries. If none is required, write “No Entry Required.”

a) The City billed its customers $1 million for services provided during the year.

b) The City received $260,000 from a developer to connect new houses to the existing utility lines.

c) Depreciation on existing physical plant was $700,000.

d) Revenue bonds in the amount of $2 million were issued at par to finance new construction. The bond agreement requires that the City retain $200,000 of the bond proceeds for purposes of servicing the debt if revenues are not sufficient to do so.

3. The City of San Dominguez received a $500,000 federal grant to acquire several buses to be used in its public transit system. The City paid $400,000 to acquire several buses. At year-end, $100,000 of the grant had not yet been used. During the year total depreciation on the buses was $40,000. Revenues for the public system were $600,000, operating expenses (other than depreciation) were $470,000. Assuming the Public Transit Proprietary Fund began the year with Unrestricted NetAssets of $420,000, prepare the following for the Public Transit Enterprise Fund.
a) Statement of Revenues, Expenses, and Changes in Fund Net Assets.
b) Net Asset section of the Balance Sheet.

4. Greene County operates a solid waste landfill that is accounted for as an enterprise fund. At the end of 1999, the Landfill Enterprise Fund had a Liability for Landfill Costs of $50,000. The County estimated the costs associated with closing monitoring the landfill as follows. Calculate the total costs as of year-end 2000 and 2001 and the current period costs. Prepare the required journal entry(ies) at year-end 2000 and 2001. Be sure to show all of your work.
2000 2001
Costs
Equipment to be installed $2.5 million $3.0 million
Final cover $ .5 million $1.0 million
Monitoring and maintaining $4.0 million $4.0 million
Capacity used in total 30,000 58,000
Estimated total capacity 600,000 580,000

ESSAYS (CHAPTER 9)

1. Internal service funds are used by many governmental entities to account for activities that provide services to the entity itself. What are the ramifications of such an accounting arrangement? What are the effects on the entity’s financial statements?

2. Governmental entities may elect to account for their landfill activities in either of two different funds. Explain the differences that would result if one government elected to account for its landfill activities in its general fund and another government elected to account for its landfill activities in an enterprise fund.

3. Because of the rising cost of commercial insurance, many governments have elected to be ‘self-insured.’ Explain what is meant by being ‘self-insured.’ Explain the difference in the accounting for self-insurance activities between a governmental fund and a proprietary fund.

ACC 401 Week 7 Quiz 6 Chapters 8 and 10 – Strayer

ACC 401 Advanced Accounting Week 7 Quiz – Strayer

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Chapter 8

Changes in Ownership Interest

Multiple Choice

1. When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year’s income sold to noncontrolling stockholders includes a
a. debit to Subsidiary Income Sold.
b. debit to Equity in Subsidiary Income.
c. credit to Equity in Subsidiary Income.
d. credit to Subsidiary Income Sold.

2. A parent company may increase its ownership interest in a subsidiary by
a. buying additional subsidiary shares from third parties.
b. buying additional subsidiary shares from the subsidiary.
c. having the subsidiary purchase its shares from third parties.
d. all of these.

3. If a portion of an investment is sold, the value of the shares sold is determined by using the:
1. first-in, first-out method.
2. average cost method.
3. specific identification method.
a. 1
b. 2
c. 3
d. 1 and 3

4. If a parent company acquires additional shares of its subsidiary’s stock directly from the subsidiary for a price less than their book value:
1. total noncontrolling book value interest increases.
2. the controlling book value interest increases.
3. the controlling book value interest decreases.
a. 1
b. 2
c. 3
d. 1 and 3

5. If a subsidiary issues new shares of its stock to noncontrolling stockholders, the book value of the parent’s interest in the subsidiary may
a. increase.
b. decrease.
c. remain the same.
d. increase, decrease, or remain the same.

6. The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company’s share of the subsidiary’s net assets
a. increasing.
b. decreasing.
c. remaining unchanged.
d. increasing, decreasing, or remaining unchanged.

7. The computation of noncontrolling interest in net assets is made by multiplying the noncontrolling interest percentage at the
a. beginning of the year times subsidiary stockholders’ equity amounts.
b. beginning of the year times consolidated stockholders’ equity amounts.
c. end of the year times subsidiary stockholders’ equity amounts.
d. end of the year times consolidated stockholders’ equity amounts.

8. Under the partial equity method, the workpaper entry that reverses the effect of subsidiary income for the year includes a:
1. credit to Equity in Subsidiary Income.
2. debit to Subsidiary Income Sold.
3. debit to Equity in Subsidiary Income.
a. 1
b. 2
c. 3
d. both 1 and 2

9. Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan Company on January 1, 2010. Polk’s shares were purchased at book value when the fair values of Sloan’s assets and liabilities were equal to their book values. The stockholders’ equity of Sloan Company on January 1, 2010, consisted of the following:
Common stock, $15 par value $ 450,000
Other contributed capital 337,500
Retained earnings 712,500
Total $1,500,000

Sloan Company sold 7,500 additional shares of common stock for $90 per share on January 2, 2010. If Polk Company purchased all 7,500 shares, the book entry to record the purchase should increase the Investment in Sloan Company account by
a. $562,500.
b. $590,625.
c. $675,000.
d. $150,000.
e. Some other account.

10. Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan Company on January 1, 2010. Polk’s shares were purchased at book value when the fair values of Sloan’s assets and liabilities were equal to their book values. The stockholders’ equity of Sloan Company on January 1, 2010, consisted of the following:
Common stock, $15 par value $ 450,000
Other contributed capital 337,500
Retained earnings 712,500
Total $1,500,000
Sloan Company sold 7,500 additional shares of common stock for $90 per share on January 2, 2010. If all 7,500 shares were sold to noncontrolling stockholders, the workpaper adjustment needed each time a workpaper is prepared should increase (decrease) the Investment in Sloan Company by
a. ($140,625).
b. $140,625.
c. ($112,500).
d. $192,000.
e. None of these.

11. On January 1, 2006, Parent Company purchased 32,000 of the 40,000 outstanding common shares of Sims Company for $1,520,000. On January 1, 2010, Parent Company sold 4,000 of its shares of Sims Company on the open market for $90 per share. Sims Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:
1/1/06 1/1/10
Common stock, $10 par value $400,000 $ 400,000
Other contributed capital 400,000 400,000
Retained earnings 800,000 1,400,000
$1,600,000 $2,200,000

The difference between implied and book value is assigned to Sims Company’s land. The amount of the gain on sale of the 4,000 shares that should be recorded on the books of Parent Company is
a. $68,000.
b. $170,000.
c. $96,000.
d. $200,000.
e. None of these.

12. On January 1, 2006, Patterson Corporation purchased 24,000 of the 30,000 outstanding common shares of Stewart Company for $1,140,000. On January 1, 2010, Patterson Corporation sold 3,000 of its shares of Stewart Company on the open market for $90 per share. Stewart Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:
1/1/06 1/1/10
Common stock, $10 par value $ 300,000 $ 300,000
Other contributed capital 300,000 300,000
Retained earnings 600,000 1,050,000
$1,200,000 $1,650,000

The difference between implied and book value is assigned to Stewart Company’s land. As a result of the sale, Patterson Corporation’s Investment in Stewart account should be credited for
a. $165,000.
b. $206,250.
c. $120,000.
d. $142,500.
e. None of these.

13. On January 1, 2006, Peterson Company purchased 16,000 of the 20,000 outstanding common shares of Swift Company for $760,000. On January 1, 2010, Peterson Company sold 2,000 of its shares of Swift Company on the open market for $90 per share. Swift Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:
1/1/06 1/1/10
Common stock, $10 par value $200,000 $ 200,000
Other contributed capital 200,000 200,000
Retained earnings 400,000 700,000
$800,000 $1,100,000

The difference between implied and book value is assigned to Swift Company’s land. Assuming no other equity transactions, the amount of the difference between implied and book value that would be added to land on a workpaper for the preparation of consolidated statements on December 31, 2010, would be
a. $120,000.
b. $115,000.
c. $105,000.
d. $84,000.
e. None of these.

14. On January 1 2010, Paulson Company purchased 75% of Shields Corporation for $500,000. Shields’ stockholders’ equity on that date was equal to $600,000 and Shields had 60,000 shares issued and outstanding on that date. Shields Corporation sold an additional 15,000 shares of previously unissued stock on December 31, 2010.

Assume that Paulson Company purchased the additional shares what would be their current percentage ownership on December 31, 2010?
a. 92%
b. 87%
c. 80%
d. 100%

15. On January 1 2010, Powder Mill Company purchased 75% of Selfine Company for $500,000. Selfine Company’s stockholders’ equity on that date was equal to $600,000 and Selfine Company had 60,000 shares issued and outstanding on that date. Selfine Company Corporation sold an additional 15,000 shares of previously unissued stock on December 31, 2010.

Assume Selfine Company sold the 15,000 shares to outside interests, Powder Mill Company’s percent ownership would be:
a. 33 1/3%
b. 60%
c. 75%
d. 80%

16. P Corporation purchased an 80% interest in S Corporation on January 1, 2010, at book value for $300,000. S’s net income for 2010 was $90,000 and no dividends were declared. On May 1, 2010, P reduced its interest in S by selling a 20% interest, or one-fourth of its investment for $90,000. What will be the Consolidated Gain on Sale and Subsidiary Income Sold for 2010?
Consolidated Gain on Sale Subsidiary Income Sold
a. $9,000 $6,000
b. $9,000 $15,000
c. $15,000 $6,000
d. $15,000 $15,000

17. P Corporation purchased an 80% interest in S Corporation on January 1, 2010, at book value for $300,000. S’s net income for 2010 was $90,000 and no dividends were declared. On May 1, 2010, P reduced its interest in S by selling a 20% interest, or one-fourth of its investment for $90,000. What would be the balance in the Investment of S Corporation account on December 31, 2010?
a. $300,000.
b. $225,000.
c. $279,000.
d. $261,000.

18. The purchase by a subsidiary of some of its shares from the noncontrolling stockholders results in an increase in the parent’s percentage interest in the subsidiary. The parent company’s share of the subsidiary’s net assets will increase if the shares are purchased:
a. at a price equal to book value.
b. at a price below book value.
c. at a price above book value.
d. will not show an increase.

Use the following information for Questions 19-21.

On January 1, 2006, Perk Company purchased 16,000 of the 20,000 outstanding common shares of Self Company for $760,000. On January 1, 2010, Perk Company sold 2,000 of its shares of Self Company on the open market for $90 per share. Self Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:
1/1/06 1/1/10
Common stock, $10 par value $ 200,000 $ 200,000
Other contributed capital 200,000 200,000
Retained earnings 400,000 700,000
$800,000 $1,100,000

The difference between implied and book value is assigned to Self Company’s land.

19. The amount of the gain on sale of the 2,000 shares that should be recorded on the books of Perk Company is
a. $34,000.
b. $85,000.
c. $48,000.
d. $100,000.
e. None of these.

20. As a result of the sale, Perk Company’s Investment in Self account should be credited for
a. $110,000.
b. $137,500.
c. $80,000.
d. $95,000.
e. None of these.

21. Assuming no other equity transactions, the amount of the difference between implied and book value that would be added to land on a work paper for the preparation of consolidated statements on December 31, 2010 would be
a. $120,000.
b. $115,000.
c. $105,000.
d. $84,000.

22. On January 1, 2010, P Corporation purchased 75% of S Corporation for $500,000. S’s stockholders’ equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date. S Corporation sold an additional 8,000 shares of previously unissued stock on December 31, 2010.

Assume that P Corporation purchased the additional shares what would be their current percentage ownership on December 31, 2010?
a. 62 1/2%.
b. 75%
c. 79 1/6%
d. 100%

23. On January 1, 2010, P Corporation purchased 75% of S Corporation for $500,000. S’s stockholders’ equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date. S Corporation sold an additional 8,000 shares of previously unissued stock on December 31, 2010.

Assume S sold the 8,000 shares to outside interests, P’s percent ownership would be:
a. 56 1/4%
b. 62 1/2%
c. 75%
d. 79 1/6%

Problems

8-1 Piper Company purchased Snead Company common stock through open-market purchases as follows:
Acquired
Date Shares Cost
1/1/09 1,500 $ 50,000
1/1/10 3,300 $ 90,000
1/1/11 6,600 $250,000

Snead Company had 12,000 shares of $20 par value common stock outstanding during the entire period. Snead had the following retained earnings balances on the relevant dates:

January 1, 2009 $ 90,000
January 1, 2010 30,000
January 1, 2011 150,000
December 31, 2011 300,000

Snead Company declared no dividends in 2009 or 2010 but did declare $60,000 of dividends in 2011. Any difference between cost and book value is assigned to subsidiary land. Piper uses the equity method to account for its investment in Snead.

Required:
A. Prepare the journal entries Piper Company will make during 2010 and 2011 to account for its investment in Snead Company.
B. Prepare workpaper eliminating entries necessary to prepare a consolidated statements workpaper on December 31, 2011.

8-2 On January 1, 2008, Patel Company acquired 90% of the common stock of Seng Company for $650,000. At that time, Seng had common stock ($5 par) of $500,000 and retained earnings of $200,000.

On January 1, 2010, Seng issued 20,000 shares of its unissued common stock, with a market value of $7 per share, to noncontrolling stockholders. Seng’s retained earnings balance on this date was $300,000. Any difference between cost and book value relates to Seng’s land. No dividends were declared in 2010.

Required:
A. Prepare the entry on Patel’s books to record the effect of the issuance assuming the cost method.
B. Prepare the elimination entries for the preparation of a consolidated statements workpaper on December 31, 2010 assuming the cost method.

8-3 Pratt Company purchased 40,000 shares of Silas Company’s common stock for $860,000 on January 1, 2010. At that time Silas Company had $500,000 of $10 par value common stock and $300,000 of retained earnings. Silas Company’s income earned and increase in retained earnings during 2010 and 2011 were:

2010 2011
Income earned $260,000 $360,000
Increase in Retained Earnings 200,000 300,000

Silas Company income is earned evenly throughout the year.

On September 1, 2011, Pratt Company sold on the open market, 12,000 shares of its Silas Company stock for $460,000. Any difference between cost and book value relates to Silas Company land. Pratt Company uses the cost method to account for its investment in Silas Company.

Required:
A. Compute Pratt Company’s reported gain (loss) on the sale.
B. Prepare all consolidated statements workpaper eliminating entries for a workpaper on December 31, 2011.

8-4 Pelky made the following purchases of Stark Company common stock:

Date Shares Cost
1/1/10 70,000 (70%) $1,000,000
1/1/11 10,000 (10%) 160,000

Stockholders’ equity information for Stark Company for 2010 and 2011 follows:

2010 2011
Common stock, $10 par value $1,000,000 $1,000,000

1/1 Retained earnings 300,000 380,000
Net income 110,000 140,000
Dividends declared, 12/15 (30,000) (40,000)
Retained earnings, 12/31 380,000 480,000
Total stockholders’ equity, 12/31 $1,380,000 $1,480,000

On July 1, 2011, Pelky sold 14,000 shares of Stark Company common stock on the open market for $22 per share. The shares sold were purchased on January 1, 2010. Stark notified Pelky that its net income for the first six months was $70,000. Any difference between cost and book value relates to subsidiary land. Pelky uses the cost method to account for its investment in Stark Company.

Required:
A. Prepare the journal entry made by Pelky to record the sale of the 14,000 shares on July 1, 2011.
B. Prepare the workpaper eliminating entries needed for a consolidated statements workpaper on December 31, 2011.
C. Compute the amount of noncontrolling interest that would be reported on the consolidated balance sheet on December 31, 2011.

8-5 P Company purchased 96,000 shares of the common stock of S Company for $1,200,000 on January 1, 2007, when S’s stockholders’ equity consisted of $5 par value, Common Stock at $600,000 and Retained Earnings of $800,000. The difference between cost and book value relates to goodwill.

On January 2, 2010, S Company purchased 20,000 of its own shares from noncontrolling interests for cash of $300,000 to be held as treasury stock. S Company’s retained earnings had increased to $1,000,000 by January 2, 2010. S Company uses the cost method in regards to its treasury stock and P Company uses the equity method to account for its investment in S Company.

Required:
Prepare all determinable workpaper entries for the preparation of consolidated statements on December 31, 2010.

8-6 Penner Company acquired 80% of the outstanding common stock of Solk Company on January 1, 2008, for $396,000. At the date of purchase, Solk Company had a balance in its $2 par value common stock account of $360,000 and retained earnings of $90,000. On January 1, 2010, Solk Company issued 45,000 shares of its previously unissued stock to noncontrolling stockholders for $3 per share. On this date, Solk Company had a retained earnings balance of $152,000. The difference between cost and book value relates to subsidiary land. No dividends were paid in 2010. Solk Company reported income of $30,000 in 2010.

Required:
A. Prepare the journal entry on Penner’s books to record the effect of the issuance assuming the equity method.
B. Prepare the eliminating entries needed for the preparation of a consolidated statements workpaper on December 31, 2010, assuming the equity method.

8-7 Petty Company acquired 85% of the common stock of Selmon Company in two separate cash transactions. The first purchase of 108,000 shares (60%) on January 1, 2009, cost $735,000. The second purchase, one year later, of 45,000 shares (25%) cost $330,000. Selmon Company’s stockholders’ equity was as follows:

December 31 December 31
2009 2010

Common Stock, $5 par $ 900,000 $ 900,000
Retained Earnings, 1/1 262,000 302,000
Net Income 69,000 90,000
Dividends Declared, 9/30 (30,000) (38,000)
Retained Earnings, 12/31 301,000 354,000
Total Stockholders’ Equity, 12/31 $1,201,000 $1,254,000

On April 1, 2010, after a significant rise in the market price of Selmon Company’s stock, Petty Company sold 32,400 of its Selmon Company shares for $390,000. Selmon Company notified Petty Company that its net income for the first three months was $22,000. The shares sold were identified as those obtained in the first purchase. Any difference between cost and book value relates to goodwill. Petty uses the partial equity method to account for its investment in Selmon Company.

Required:
A. Prepare the journal entries Petty Company will make on its books during 2009 and 2010 to account for its investment in Selmon Company.
B. Prepare the workpaper eliminating entries needed for a consolidated statements workpaper on December 31, 2010.

Short Answer
1. A parent’s ownership percentage in a subsidiary may change for several reasons. Identify three reasons the ownership percentage may change.

2. A parent company’s equity interest in a subsidiary may change as the result of the issuance of additional shares of stock by the subsidiary. Describe the affect on the parent’s investment account when the new shares are (a) purchased ratably by the parent and noncontrolling shareholders or (b) entirely by the noncontrolling shareholders.

Short Answer Question from the Textbook

1. Identify three types of transactions that result in a change in a parent company’s ownership interest in its subsidiary.

2. Why is the date of acquisition of subsidiary stock important under the purchase method?

3. When a parent company has obtained control of a subsidiary through several purchases and subsequently sells a portion of its shares in the subsidiary, how is the carrying value of the shares sold determined?

4. When a parent company that records its investment using the cost method during a fiscal year sells a portion of its investment, explain the correct accounting for any differences between selling price and recorded values.

5. ABC Corporation purchased 10,000 shares(80%) of EZ Company at $35 per share and sold them several years later for $35 per share. The consolidated income statement reports a loss on the sale of this investment. Explain.

6. Explain how a parent company that owns less than100% of a subsidiary can purchase an entire new is-sue of common stock directly from the subsidiary.

7. When a subsidiary issues additional shares of stock to noncontrolling stockholders and such issuance results in an increase in the book value of the parent’s share of the subsidiary’s equity, how should the increase be reflected in the financial statements? What if it results in a decrease?

8. P Company holds an 80% interest in S Company. Determine the effect (that is, increase, decrease, no change, not determinable) on both the total book value of the noncontrolling interest and the noncontrolling interest’s percentage of ownership in the net assets of S Company for each of the following situations:
a. P Company acquires additional shares directly from S Company at a price equal to the book value per share of the S Company stock immediately prior to the issuance.
b. S Company acquires its own shares on the open market. The cost of these shares is less than their book value.
c. Assume the same situation as in (b) except that the cost of the shares is greater than their book value.
d. P Company and a noncontrolling stockholder each acquire 100 shares directly from S Com-pany at a price below the book value per share.

Business Ethics Question from Textbook

During a recent review of the quarterly financial statements and supporting ledgers, you noticed several un-usual journal entries. While the dollar amounts of the journal entries were not large, there did not appear to be supporting documentation. You decide to bring the matter to the attention of your immediate supervisor. After you mentioned the issue, the supervisor calmly stated that the matter would be looked into and that you should not worry about it.1.You feel a bit uncomfortable about the situation. What is your responsibility and what action, if any, should you take?

Chapter 10

Insolvency – Liquidation and Reorganization

Multiple Choice

1. A corporation that is unable to pay its debts as they become due is:
a. bankrupt.
b. overdrawn.
c. insolvent.
d. liquidating.

2. When a business becomes insolvent, it generally has three possible courses of action. Which of the following is not one of the three possible courses of action?
a. The debtor and its creditors may enter into a contractual agreement, outside of formal bankruptcy proceedings.
b. The debtor continues operating the business in the normal course of the day-to-day operations.
c. The debtor or its creditors may file a bankruptcy petition, after which the debtor is liquidated under Chapter 7.
d. The debtor or its creditors may file a petition for reorganization under Chapter 11.

3. Assets transferred by the debtor to a creditor to settle a debt are transferred at:
a. book value of the debt.
b. book value of the transferred assets.
c. fair market value of the debt.
d. fair market value of the transferred assets.

4. A composition agreement is an agreement between the debtor and its creditors whereby the creditors agree to:
a. accept less than the full amount of their claims.
b. delay settlement of the claim until a latter date.
c. force the debtor into a liquidation.
d. accrue interest at a higher rate.

5. In a troubled debt restructuring involving a modification of terms, the debtor’s gain on restructuring:
a. will equal the creditor’s gain on restructuring.
b. will equal the creditor’s loss on restructuring.
c. may not equal the creditor’s gain on restructuring.
d. may not equal the creditor’s loss on restructuring.

6. A bankruptcy petition filed by a firm is a:
a. chapter petition.
b. involuntary petition.
c. voluntary petition.
d. chapter 11 petition.

7. When a bankruptcy court enters an “order for relief” it has:
a. accepted the petition.
b. dismissed the petition.
c. appointed a trustee.
d. started legal action against the debtor by its creditors.

8. An involuntary petition filed by a firm’s creditors whereby there are twelve or more creditors must be signed by at least:
a. two creditors.
b. three creditors.
c. five creditors.
d. six creditors.

9. The duties of the trustee include:
a. appointing creditors’ committees in liquidation cases.
b. approving all payments for debts incurred before the bankruptcy filing.
c. examining claims and disallowing any that are improper.
d. calling a meeting of the debtor’s creditors.

10. Which of the following items is not a specified priority for unsecured creditors in a bankruptcy petition?
a. Administration fees incurred in administering the bankrupt’s estate.
b. Unsecured claims for wages earned within 90 days and are less than $4,650 per employee.
c. Unsecured claims of governmental units for unpaid taxes.
d. Unsecured claims on credit card charges that do not exceed $3,000.

11. Which statement with respect to gains and losses on troubled debt restructuring is correct?
a. Creditors losses on restructuring are extraordinary.
b. Debtor’s gains and losses on asset transfers and debtor’s gains on restructuring are combined and treated as extraordinary.
c. Debtor gains and creditor losses on restructuring are extraordinary, if material in amount.
d. Debtor losses on asset transfers and debtor gains on restructuring are reported as a component of net income.

12. When fresh-start reporting is used according to Statement of Position (SOP) 90-7, the implication is that a new firm exists. Which of the following statements is not correct about fresh-start accounting?
a. Assets are reported at fair values.
b. Beginning retained earnings is reported at zero.
c. The fair value of the assets must be less than the post liabilities and allowed claims.
d. The original owners must own less than 50% of the voting stock after reorganization.

13. A Statement of Affairs is a report designed to show:
a. an estimated amount that would be received by each class of creditor’s claims in the event of liquidation.
b. a balance sheet prepared on the going-concern assumption.
c. assets and liabilities classified as current and noncurrent.
d. assets and liabilities reported at their current book values.

14. When a secured claim is not fully settled by the selling of the underlying collateral, the remaining portion:
a. of the claim cannot be collected by the creditor.
b. remains as a secured claim.
c. is classified as an unsecured priority claim.
d. is classified as an unsecured nonpriority claim.

15. Layne Corporation entered into a troubled debt restructuring agreement with their local bank. The bank agreed to accept land with a carrying amount of $360,000 and a fair value of $540,000 in exchange for a note with a carrying amount of $765,000. Ignoring income taxes, what amount should Layne report as a gain on its income statement?
a. $0.
b. $180,000.
c. $225,000.
d. $405,000.

16. The following information pertains to the transfer of real estate in regards to a troubled debt restructuring by Nen Co. to Baker Co. in full settlement of Nen’s liability to Baker:

Carrying amount of liability settled $450,000
Carrying amount of real estate transferred $300,000
Fair value of real estate transferred $330,000

What amount should Nen report as ordinary gain (loss) on transfer of real estate?
a. $(30,000).
b. $30,000.
c. $120,000.
d. $150,000.

17. The following information pertains to the transfer of real estate in regards to a troubled debt restructuring by Nen Co. to Baker Co. in full settlement of Nen’s liability to Baker:

Carrying amount of liability settled $450,000
Carrying amount of real estate transferred $300,000
Fair value of real estate transferred $330,000

What amount should Baker report as a gain or (loss) on restructuring?
a. $120,000 ordinary loss.
b. $120,000 extraordinary loss.
c. $150,000 ordinary loss.
d. $150,000 extraordinary loss.

18. Dobler Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of thirty cents on the dollar. Carson holds a note receivable from Dobler for $75,000 collateralized by an asset with a book value of $50,000 and a liquidation value of $25,000. The amount to be realized by Carson on this note is:
a. $25,000.
b. $40,000.
c. $50,000.
d. $75,000.

19. Bad Company filed a voluntary bankruptcy petition, and the statement of affairs reflected the following amounts:
Estimated
Assets Book Value Current Value
Assets pledged with fully secured creditors $ 900,000 $ 1,110,000
Assets pledged partially secured creditors 540,000 360,000
Free assets 1,260,000 960,000
$2,700,000 $2,430,000
Liabilities
Liabilities with priority $ 210,000
Fully secured creditors 780,000
Partially secured creditors 600,000
Unsecured creditors 1,620,000
$3,210,000

Assume the assets are converted to cash at their estimated current values. What amount of cash will be available to pay unsecured nonpriority claims?

a. $720,000.
b. $840,000.
c. $960,000.
d. $1,080,000.

20. The final settlement with unsecured creditors is computed by dividing:
a. total net realizable value by total unsecured creditor claims.
b. net free assets by total secured creditor claims.
c. total net realizable value by total secured creditor claims.
d. net free assets by total unsecured creditor claims.

21. Dodge Corporation entered into a troubled debt restructuring agreement with their local bank. The bank agreed to accept land with a carrying value of $200,000 and a fair value of $300,000 in exchange for a note with a carrying amount of $425,000. Ignoring income taxes, what amount should Dodge report as a gain on its income statement?
a. $0.
b. $100,000.
c. $125,000.
d. $225,000.

22. The following information pertains to the transfer of real estate in regards to a troubled debt restructuring by Drier Co. to Cole Co. in full settlement of Drier’s liability to Cole:

Carrying amount of liability settled $375,000
Carrying amount of real estate transferred $250,000
Fair value of real estate transferred $275,000

What amount should Drier report as ordinary gain (loss) on transfer of real estate?
a. $(25,000).
b. $25,000.
c. $100,000.
d. $125,000.

23. The following information pertains to the transfer of real estate in regards to a troubled debt restructuring by Drier Co. to Cole Co. in full settlement of Drier’s liability to Cole:

Carrying amount of liability settled $375,000
Carrying amount of real estate transferred $250,000
Fair value of real estate transferred $275,000

What amount should Cole report as a gain or (loss) on restructuring?
a. $100,000 ordinary loss.
b. $100,000 extraordinary loss.
c. $125,000 ordinary loss.
d. $125,000 extraordinary loss.

24. Poor Company filed a voluntary bankruptcy petition, and the settlement of affairs reflected the following amounts:

Estimated
Assets Book Value Current Value
Assets pledged with fully secured creditors $ 450,000 $ 555,000
Assets pledged partially secured creditors 270,000 180,000
Free assets 630,000 480,000
$1,350,000 $1,215,000

Liabilities
Liabilities with priority $ 105,000
Fully secured creditors 390,000
Partially secured creditors 300,000
Unsecured creditors 810,000
$1,605,000

Assume the assets are converted to cash to their estimated current values. What amount of cash will be available to pay unsecured nonpriority claims?
a. $360,000.
b. $420,000.
c. $480,000.
d. $540,000.

25. Dooley Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of thirty cents on the dollar. Cerner holds a note receivable from Dooley for $90,000 collateralized by an asset with a book value of $60,000 and a liquidation value of $30,000. The amount to be realized by Cerner on this note is:
a. $30,000.
b. $48,000.
c. $60,000.
d. $90,000.

Problems

10-1 On January 1, 2011, Bargain Mart owed City Bank $1,600,000, under an 8% note with three years remaining to maturity. Due to financial difficulties, Bargain Mart was unable to pay the previous year’s interest. City Bank agreed to settle Bargain Mart’s debt in exchange for land having a fair market value of $1,310,000. Bargain Mart purchased the land in 2003 for $1,000,000.

Required:
Prepare the journal entries to record the restructuring of the debt by Bargain Mart.

10-2 On January 1, 2010, Gannon, Inc. owed BancCorp $12 million on a 10% note due December 31, 2011. Interest was last paid on December 31, 2008. Gannon was experiencing severe financial difficulties and asked BancCorp to modify the terms of the debt agreement. After negotiation BancCorp agreed to:
– Forgive the interest accrued for the year just ended,
– Reduce the remaining two years interest payments to $900,000 each and delay the first payment until December 31, 2011, and
– Reduce the unpaid principal amount to $9,600,000.

Required:
Prepare the journal entries for Gannon, Inc. necessitated by the restructuring of the debt at (1) January 1, 2010, (2) December 31, 2011, and (3) December 31, 2012.

10-3 On January 2, 2011 Stevens, Inc. was indebted to First Bank under a $12 million, 10% unsecured note. The note was signed January 2, 2005, and was due December 31, 2014. Annual interest was last paid on December 31, 2009. Stevens negotiated a restructuring of the terms of the debt agreement due to financial difficulties.

Required:
Prepare all journal entries for Stevens, Inc. to record the restructuring and any remaining transactions relating to the debt under each independent assumption.
A. First Bank agreed to settle the debt in exchange for land which cost Stevens $8,500,000 and has a fair market value of $10,000,000.
B. First Bank agreed to (1) forgive the accrued interest from last year (2) reduce the remaining four interest payments to $600,000 each, and (3) reduce the principal to $9,000,000.

10-4 On December 31, 2011, Community Bank agreed to restructure a $900,000, 8% loan receivable from Neer Corporation because of Neer’s financial problems. At December 31 there was $36,000 of accrued interest for a six-month period. Terms of the restructuring agreement are as follows:
– Reduce the loan from $900,000 to $600,000;
– Extend the maturity date by 2 years from December 31, 2011 to December 31, 2013;
– Reduce the interest rate on the loan from 8% to 6%.

Present value assumptions:
Present value of $1 for 2 years at 6% = 0.8900
Present value of $1 for 2 years at 8% = 0.8573
Present value of an ordinary annuity of $1 for 2 years at 6% = 1.8334
Present value of an ordinary annuity of $1 for 2 years at 8% = 1.7833

Required:
Compute the gain or loss that will be reported by Community Bank.

Donnelly Corporation incurred major losses in 2010 and entered into voluntary Chapter 7 bankruptcy in the early part of 2011. By June 1, all assets were converted into cash, the secured creditors were paid, and $150,000 in cash was left to pay the remaining claims as follows.

Accounts payable $ 48,000
Claims prior to the trustee’s appointment 21,000
Property taxes payable 18,000
Wages payable (all under $4,650 per employee) 54,000
Unsecured note payable 60,000
Accrued interest on the note payable 6,000
Administrative expenses of the trustee 30,000
Total $237,000

Required:
Classify the claims by their Chapter 7 priority ranking, and analyze which amounts will be paid and which amounts will be written off.

10-5 Davis Corporation filed a petition under Chapter 7 of the U.S. Bankruptcy Act on June 30, 2011. Data relevant to its financial position as of this date are:
Estimated Net
Book Value Realizable Values
Cash $ 3,000 $ 3,000
Accounts receivable-net 72,000 48,000
Inventories 60,000 72,000
Equipment-net 165,000 87,000
Total assets $300,000 $210,000

Accounts payable $ 72,000
Rent payable 21,000
Wages payable 45,000
Note payable plus accrued interest 96,000
Capital stock 180,000
Retained earnings (deficit) (120,000)
Total liabilities and equity $300,000

Required:
A. Prepare a statement of affairs assuming that the note payable and interest are secured by
a mortgage on the equipment and that wages are less than $4,650 per employee.
B. Estimate the amount that will be paid to each class of claims if priority liquidation expenses including trustee fees are $24,000 and estimated net realizable values are actually realized.

10-6 The following data are taken from the statement of affairs of Mitchell Company.

Assets pledged with fully secured creditors
(Realizable value, $635,000) $800,000
Assets pledged with partially secured creditors
(realizable value, $300,000) 365,000
Free assets (Realizable value, $340,000) 535,000
Fully secured creditor claims 316,000
Partially secured creditor claims 400,000
Unsecured creditor claims with priority 100,000
General unsecured creditor claims 1,165,000

Required:
Compute the amount that will be paid to each class of creditor.

10-8 On February 1, 2011, Hilton Company filed a petition for reorganization under the bankruptcy statutes. The court approved the plan on September 1, 2011, including the following provisions:

1. Accrued expenses of $21,930, representing priority items, are to be paid in full.
2. Hilton Company is to exchange accounts receivable in the face amount of $138,000 and an allowance for uncollectible accounts of $29,200 for the full settlement of $198,600 owed on open account to one of its major unsecured creditors. The estimated fair value of the receivables is $104,000.
3. Unsecured creditors of open accounts amounting to $91,600 and paid 40 cents on the dollar in full settlement.
4. Hilton Company’s only other major unsecured creditor agreed to a five-year extension of the $500,000 principal owed him on a 10% note payable. Accrued interest on the note on September 1, 2011, amounts to $45,000, one-third of which is to be paid in cash and the remainder canceled. In addition, no interest is to be charged during the remaining five years to maturity of the note.

Required:
Prepare journal entries on the books of Hilton Company to give effect to the preceding provisions.

Short Answer

1. The Bankruptcy Reform Act assigns priorities to certain unsecured claims, and each rank must be satisfied in full before the next–lower rank is paid. Identify the five categories of unsecured creditor claims.

2. Creditors are classified by law as either secured or unsecured. Distinguish among fully secured, partially secured, and unsecured creditors.

Short Answer Questions from the Textbook

1. List the primary types of contractual agreements between a debtor company and its creditors and briefly explain what is involved in each of them.

2. Distinguish between a voluntary and involuntary bankruptcy petition.

3. Distinguish among fully secured, partially se-cured, and unsecured claims of creditors.

4. Five priority categories of unsecured claims must be paid before general unsecured creditors are paid. Briefly describe what makes up each category.

5. What are “dividends” in a bankruptcy proceeding?

6. For each of the following debt restructurings, indicate whether a gain is recognized and, if so, how the gain is measured and reported. (a)Transfer of assets by the debtor to the creditor.(b)Grant of an equity interest by the debtor to the creditor.(c)Modification of the terms of the payable.

7. What is the purpose of a Statement of Affairs?

8. One of the officers of a corporation that had just received a discharge in bankruptcy said, “Good, now we don’t owe anyone.” Is he correct?

9. What are the duties of a trustee in a liquidation proceeding?

10. What is the purpose of a combining work paper prepared by a trustee?

11. What is the purpose of a realization and liquidation account?

Business Ethics Question from Textbook

From an ethical perspective, some believe that it is never justifiable for an individual or business to declare bankruptcy. Others believe that some actions are appropriate only in extreme circumstances. Without question, as stated in the Journal of Accountancy, November 2005,page 51, “the ease with which debtors have been able to walk away from debt has frustrated creditors for years.”
1. Describe the differences between Chapter 7 (liquidations) and Chapter 11 (reorganizations)from an ethical standpoint. Who is most likely to be hurt by a Chapter 7 bankruptcy?
2. Discuss the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Do you believe the changes wrought by this act will serve to protect creditors?
3. The Protection Act of 2005 requires individuals, but not businesses, to undergo a “means” test before they can seek Chapter 7 relief. Do you believe this change should be applied to businesses as well? Why or why not?
4. Do you think that you would ever resort to filing for bankruptcy relief yourself? Why or why not?

ACC 350 Week 7 Quiz 5 Chapter 6 – Strayer

ACC 350 Week 7 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 6

Master Budget and Responsibility Accounting

1)

Few businesses plan to fail, but many of those that don’t succeed have failed to plan.

2)

The master budget reflects the impact of operating decisions, but not financing decisions.

3)

Budgeted financial statements are also referred to as pro forma statements.

4)

Budgeting includes only the financial aspects of the plan and not any nonfinancial aspects such as the number of physical units manufactured.

5)

Budgeting helps management anticipate and adjust for trouble spots in advance.
Answer:

6)

Budgets can play both planning and control roles for management.

7)

Long-run planning and short-run planning are best performed independently of each other.

8)

Operating decisions deal with how to best use the limited resources of an organization.

9)

Investing decisions deal with how to obtain the funds to acquire resources.

10)

Budgeted financial statements are called pro forma statements.
11)

After a budget is agreed upon and finalized by the management team, the amounts should not be changed for any reason.

12)

Even in the face of changing conditions, attaining the original budget is critical.

13)

Lower-level managers will not actively participate in the budget process if they perceive upper management does not believe in the process.

14)

A four-quarter rolling budget encourages management to be thinking about the next 12 months.

15)

A rolling budget is the same as a continuous budget.

16)

Research has shown that challenging budgets (rather than budgets that can be easily attained) are energizing and improve performance.

17)

The revenue budget and the budgeted income statement are used to prepare the budgeted balance sheet and the budgeted statement of cash flows.

18)

It is best to compare this year’s performance with last year’s actual performance rather than this year’s budget.

19)

When administered wisely, budgets promote communication and coordination among the various subunits of the organization.

20)

Preparation of the budgeted income statement is the final step in preparing the operating budget.

21)

The sales forecast should primarily be based on statistical analysis with secondary input from sales managers and sales representatives.

22)

The usual starting point in budgeting is to forecast net income.

23)

The revenues budget should be based on the production budget.

24)

The operating budget is that part of the master budget that includes the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows.

25)

Since fixed manufacturing overhead is fixed, it is not normally included in the operating budget.

26)

The manufacturing labor budget depends on wage rates, production methods, and hiring plans.

27)

The manufacturing labor budget depends on wage rates, production methods, and hiring plans.

28)

If inventoriable costs in the operating budget are going to be in accordance with Generally Accepted Accounting Principles (GAAP), they include only variable manufacturing costs.

29)

Activity-based budgeting provides better decision-making information than budgeting based solely on output-based cost drivers (units produced, units sold, or revenues).

30)

Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs.
31)

Activity-based budgeting (ABB) focuses on the budgeting cost of activities necessary to produce and sell products and services.

32)

Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process.

33)

Activity-based budgeting and kaizen budgeting are really equivalent in meaning.

34)

If budgeted amounts change, the kaizen approach can be used to examine changes in the budgeted results.

35)

Computer-based financial planning models are mathematical statements of the interrelationships among operating activities, financial activities, and other factors that affect the budget.

36)

Most computer-based financial planning models have difficulty incorporating sensitivity (what-if) analysis.

37)

Sensitivity analysis is a “what-if” technique that examines how a result will change if the original prediction or assumptions change.

38)

If we increase the selling price of our product, we should probably expect a decline in the number of these products sold.

39)

If we increase the selling price of our product, we can always expect an increase in total revenue.

40)

Sensitivity analysis incorporates continuous improvement into budgeted amounts.
41)

Companies implementing kaizen budgeting believe that employees who actually do the job have the best knowledge of how the job can be done better.

42)

The Japanese use kaizen to mean financing alternatives.

43)

Kaizen budgeting does not make sense for profit centers.

44)

Kaizen budgeting encourages small incremental changes, rather than major improvements.

45)

Kaizen budgeting allows for budgeting of small incremental increases in costs each budgeting period to allow for the effects of normal inflation.

46)

A responsibility center is a part, segment, or subunit of an organization, whose manager is accountable for a specified set of activities.

47)

Each manager, regardless of level, is in charge of a responsibility center.

48)

In a profit center, a manager is responsible for investments, revenues, and costs.

49)

A packaging department is MOST likely a profit center.

50)

Variances between actual and budgeted amounts inform management about performance relative to the budget.

51)

An organization structure is an arrangement of lines of responsibility within the entity.
52)

A responsibility center can be structured to promote better alignment of individual and company goals.

53)

Management will most likely behave the same way if a department is structured as a revenue center or if the same department is structured as a profit center.

54)

Responsibility accounting focuses on control, not on information and knowledge.

55)

The fundamental purpose of responsibility accounting is to fix blame when budgets are not achieved.

56)

Human factors are crucial parts of budgeting.

57)

Budgetary slack provides management with a hedge against unexpected adverse circumstances.

58)

Most costs can be easily controlled because they are under the sole influence of one manager.

59)

Performance reports of responsibility centers may include uncontrollable items to influence behavior that is in alignment with corporate strategy.

60)

When the operating budget is used as a control device, managers are more likely to be motivated to budget higher sales than actually anticipated.

61)

Budgeting slack is most likely to occur when a firm uses the budget only as a planning device and not for control.

62)

If a cost is considered controllable, it indicates that all aspects of the cost are under the control of the manager of the responsibility center to which that cost is assigned.

63)

To create greater commitment to the budget, top-management should create the budget and then share it with lower-level managers.

64)

Budgeting for a multinational company is made more complex due to the possibility of exchange rate fluctuations.

65)

The possibility of exchange rate fluctuations does not influence the budgeting procedures in a multinational corporation.

66)

Because of the possibility of exchange rate fluctuations, managers of multinational corporations should ignore subjective factors in their performance evaluations.

67)

A key use of sensitivity analysis is for cash-flow budgeting.

68)

The self-liquidating cycle is the movement from cash to inventories to receivables and back to cash.

69)

A budget:
A)

is the quantitative expression of a proposed plan of action by management
B)

is an aid to coordinate what needs to be done
C)

generally includes both financial and nonfinancial aspects of the plan
D)

serves as a blueprint for the company to follow in an upcoming period
E)

All of the above are correct.

70)

Examples of nonfinancial budgets include all of the following EXCEPT:
A)

units manufactured
B)

cash collections from customers
C)

units sold
D)

number of new products introduced

71)

Budgeting is used to help companies:
A)

plan to better satisfy customers
B)

anticipate potential problems
C)

focus on opportunities
D)

All of these answers are correct.

72)

A master budget:
A)

includes only financial aspects of a plan and excludes nonfinancial aspects
B)

is an aid to coordinating what needs to be done to implement a plan
C)

includes broad expectations and visionary results
D)

should not be altered after it has been agreed upon

73)

Operating decisions PRIMARILY deal with:
A)

the use of scarce resources
B)

how to obtain funds to acquire resources
C)

acquiring equipment and buildings
D)

satisfying stockholders

74)

Financing decisions PRIMARILY deal with:
A)

the use of scarce resources
B)

how to obtain funds to acquire resources
C)

acquiring equipment and buildings
D)

preparing financial statements for stockholders

75)

Budgeting provides all of the following EXCEPT:
A)

a means to communicate the organization’s short-term goals to its members
B)

support for the management functions of planning and coordination
C)

a means to anticipate problems
D)

an ethical framework for decision making

76)

If initial budgets prove unacceptable, planners achieve the MOST benefit from:
A)

planning again in light of feedback and current conditions
B)

deciding not to budget this year
C)

accepting an unbalanced budget
D)

using last year’s budget

77)

Operating budgets and financial budgets:
A)

combined form the master budget
B)

are prepared before the master budget
C)

are prepared after the master budget
D)

have nothing to do with the master budget

78)

A good budgeting system forces managers to examine the business as they plan, so they can:
A)

detect inaccurate historical records
B)

set specific expectations against which actual results can be compared
C)

complete the budgeting task on time
D)

get promoted for doing a good job

79)

A budget can do all of the following EXCEPT:
A)

promote coordination among subunits
B)

determine actual profitability
C)

motivate managers
D)

motivate employees

80)

A budget should/can do all of the following EXCEPT:
A)

be prepared by managers from different functional areas working independently of each other
B)

be adjusted if new opportunities become available during the year
C)

help management allocate limited resources
D)

become the performance standard against which firms can compare the actual results

81)

A limitation of comparing a company’s performance against actual results of last year is that:
A)

it includes adjustments for future conditions
B)

feedback is no longer a possibility
C)

past results can contain inefficiencies of the past year
D)

the budgeting time period is set at one year

82)

Challenging budgets tend to:
A)

decrease line-management participation in attaining corporate goals
B)

increase failure
C)

increase anxiety without motivation
D)

motivate improved performance

83)

Actual results should NOT be compared against past performance because:
A)

past results may contain mistakes and substandard performance
B)

past results will never happen again
C)

past performance is an indicator of future performance
D)

future conditions will be similar to past conditions

84)

A company’s actual performance should be compared against budgeted amounts for the same accounting period so that:
A)

adjustments for future conditions can be included
B)

no feedback is possible
C)

inefficiencies of the past year can be included
D)

85)

It is advantageous to coordinate budgets with:
A)

suppliers
B)

customers
C)

the marketing and production departments
D)

All of these answers are correct.

86)

A budget can help implement:
A)

strategic planning
B)

long-run planning
C)

short-run planning
D)

All of these answers are correct.

87)

To gain the benefits of budgeting ________ must understand and support the budget.
A)

management at all levels
B)

customers
C)

suppliers
D)

All of these answers are correct.

88)

Participation of line managers in the budgeting process helps to create:
A)

greater commitment
B)

greater anxiety
C)

more fraud
D)

better past performance

89)

Line managers who feel that top management does not believe in the budget are MOST likely to:
A)

pick up the slack and participate in the budgeting process
B)

be motivated by the budget
C)

spend little time on the budgeting process
D)

convert the budget to a shorter more reasonable time period

90)

The time coverage of a budget should be:
A)

one year
B)

guided by the purpose of the budget
C)

cover design through manufacture and sale of the product
D)

shorter rather than longer

91)

Rolling budgets help management to:
A)

better review the past calendar year
B)

deal with a 5-year time frame
C)

focus on the upcoming budget period
D)

rigidly administer the budget

92)

Budgets should:
A)

be flexible
B)

be administered rigidly
C)

only be developed for short periods of time
D)

include only variable costs

93)

Operating budgets include all of the following EXCEPT:
A)

the revenues budget
B)

the budgeted income statement
C)

the administrative costs budget
D)

the budgeted balance sheet

94)

Operating budgets include the:
A)

budgeted balance sheet
B)

budgeted income statement
C)

capital expenditures budget
D)

budgeted statement of cash flows

95)

The operating budget process generally concludes with the preparation of the:
A)

production budget
B)

distribution budget
C)

research and development budget
D)

budgeted income statement

96)

Which budget is NOT necessary to prepare the budgeted balance sheet?
A)

cash budget
B)

budgeted statement of cash flows
C)

budgeted income statement
D)

revenues budget
97)

Financial budgets include the:
A)

capital expenditures budget
B)

production budget
C)

marketing costs budget
D)

administrative costs budget

98)

________ includes a budgeted statement of cash flows and a budgeted balance sheet.
A)

An annual report
B)

The financial budget
C)

The operating budget
D)

The capital expenditures budget

99)

The order to follow when preparing the operating budget is:
A)

revenues budget, production budget, and direct manufacturing labor costs budget
B)

costs of goods sold budget, production budget, and cash budget
C)

revenues budget, manufacturing overhead costs budget, and production budget
D)

cash expenditures budget, revenues budget, and production budget.

100)

In which order are the following developed? First to last:
A = Production budget
B = Direct materials costs budget
C = Budgeted income statement
D = Revenues budget
A)

ABDC
B)

DABC
C)

DCAB
D)

CABD

101)

The budgeting process is MOST strongly influenced by:
A)

the capital budget
B)

the budgeted statement of cash flows
C)

the sales forecast
D)

the production budget

102)

________ is the usual starting point for budgeting.
A)

The revenues budget
B)

Net income
C)

The production budget
D)

The cash budget

103)

The sales forecast should be PRIMARILY based on:
A)

statistical analysis.
B)

input from sales managers and sales representatives
C)

production capacity
D)

input from the board of directors

104)

The sales forecast is influenced by:
A)

advertising and sales promotions
B)

competition
C)

general economic conditions
D)

All of these answers are correct.

105)

A sales forecast is:
A)

often the outcome of elaborate information gathering and discussions among sales managers
B)

developed primarily to prepare next year’s marketing campaign
C)

solely based on sales of the previous year
D)

a summary of product costs that influence pricing decisions

106)

The revenues budget identifies:
A)

expected cash flows for each product
B)

actual sales from last year for each product
C)

the expected level of sales for the company
D)

the variance of sales from actual for each product

107)

The number of units in the sales budget and the production budget may differ because of a change in:
A)

finished goods inventory levels
B)

overhead charges
C)

direct material inventory levels
D)

sales returns and allowances

108)

Production is primarily based on:
A)

projected inventory levels
B)

the revenues budget
C)

the administrative costs budget
D)

the capital expenditures budget

109)

Budgeted production depends on:
A)

the direct materials usage budget and direct material purchases budget
B)

the direct manufacturing labor budget
C)

budgeted sales and expected changes in inventory levels
D)

the manufacturing overhead costs budget

110)

The direct materials usage budget is based on:
A)

the units to be produced during a period
B)

budgeted sales dollars
C)

the predetermined factory overhead rate
D)

the amount of labor-hours worked

111)

Direct material purchases equal:
A)

production needs
B)

production needs plus target ending inventories
C)

production needs plus beginning inventories
D)

production needs plus target ending inventories less beginning inventories

112)

Individual budgeted amounts included in the manufacturing overhead costs budget are based on input from:
A)

operating personnel
B)

costs incurred in prior years
C)

cost changes expected in the future
D)

All of these answers are correct.

113)

The manufacturing overhead costs budget includes budgeted amounts for:
A)

direct materials
B)

direct manufacturing labor
C)

indirect manufacturing labor
D)

All of these answers are correct.

114)

Budgeted manufacturing overhead costs include all types of factory expenses EXCEPT:
A)

fixed items such as depreciation of manufacturing machinery
B)

variable items such as plant supplies
C)

indirect labor such as the salary of the plant supervisor
D)

direct labor and direct materials

115)

The cost of goods sold budget requires all of the following budgets EXCEPT:
A)

direct material cost budget
B)

manufacturing overhead cost budget
C)

distribution cost budget
D)

direct manufacturing labor cost budget

116)

Schultz Company expects to manufacture and sell 30,000 baskets in 20X4 for $6 each. There are 3,000 baskets in beginning finished goods inventory with target ending inventory of 4,000 baskets. The company keeps no work-in-process inventory. What amount of sales revenue will be reported on the 20X4 budgeted income statement?
A)

$174,000
B)

$180,000
C)

$186,000
D)

$204,000

117)

DeArmond Corporation has budgeted sales of 18,000 units, target ending finished goods inventory of 3,000 units, and beginning finished goods inventory of 900 units. How many units should be produced next year?
A)

21,900 units
B)

20,100 units
C)

15,900 units
D)

18,000 units

118)

For next year, Galliart, Inc., has budgeted sales of 60,000 units, target ending finished goods inventory of 3,000 units, and beginning finished goods inventory of 1,800 units. All other inventories are zero. How many units should be produced next year?
A)

58,800 units
B)

60,000 units
C)

61,200 units
D)

64,800 units

119)

Wilgers Company has budgeted sales volume of 30,000 units and budgeted production of 27,000 units, while 5,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory?
A)

5,000 units
B)

8,000 units
C)

3,000 units
D)

2,000 units

Answer the following questions using the information below:

Marguerite, Inc., expects to sell 20,000 pool cues for $12.00 each. Direct materials costs are $2.00, direct manufacturing labor is $4.00, and manufacturing overhead is $0.80 per pool cue. The following inventory levels apply to 20X4:

Beginning inventory Ending inventory
Direct materials 24,000 units 24,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 2,000 units 2,500 units

120)

On the 20X5 budgeted income statement, what amount will be reported for sales?
A)

$246,000
B)

$240,000
C)

$312,000
D)

$318,000

121)

How many pool cues need to be produced in 20X5?
A)

22,500 cues
B)

22,000 cues
C)

20,500 cues
D)

19,500 cues

122)

On the 20X5 budgeted income statement, what amount will be reported for cost of goods sold?
A)

$139,400
B)

$136,000
C)

$132,600
D)

$153,000

123)

What are the 20X5 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?
A)

$0; $96,000; $19,200
B)

$39,000; $78,000; $15,600
C)

$80,000; $40,000; $16,000
D)

$41,000; $82,000; $16,400

Answer the following questions using the information below:

Daniel, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct materials costs are $2, direct manufacturing labor is $10, and manufacturing overhead is $3 per vase. The following inventory levels apply to 20X4:

Beginning inventory Ending inventory
Direct materials 1,000 units 1,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 400 units 500 units

124)

On the 20X5 budgeted income statement, what amount will be reported for sales?
A)

$122,000
B)

$118,000
C)

$140,000
D)

$120,000

125)

How many ceramic vases need to be produced in 20X5?
A)

5,900 vases
B)

6,100 vases
C)

7,000 vases
D)

6,000 vases

126)

On the 20X5 budgeted income statement, what amount will be reported for cost of goods sold?
A)

$91,500
B)

$105,000
C)

$90,000
D)

$88,500

127)

What are the 20X5 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?
A)

$12,200; $61,000; $18,300
B)

$12,000; $60,000; $18,000
C)

$2,000; $10,000; $3,000
D)

$2,000; $0; $18,000

Answer the following questions using the information below:

The following information pertains to the January operating budget for Casey Corporation, a retailer:

Budgeted sales are $200,000 for January
Collections of sales are 50% in the month of sale and 50% the next month
Cost of goods sold averages 70% of sales
Merchandise purchases total $150,000 in January
Marketing costs are $3,000 each month
Distribution costs are $5,000 each month
Administrative costs are $10,000 each month

128)

For January, budgeted gross margin is:
A)

$100,000
B)

$140,000
C)

$60,000
D)

$50,000

129)

For January, the amount budgeted for the nonmanufacturing costs budget is:
A)

$78,000
B)

$10,000
C)

$168,000
D)

$18,000

130)

For January, budgeted net income is:
A)

$42,000
B)

$60,000
C)

$50,000
D)

$52,000

131)

How many uniforms need to be produced in 20X5?
A)

26,000 uniforms
B)

34,000 uniforms
C)

30,000 uniforms
D)

29,000 uniforms

132)

What is the amount budgeted for direct material purchases in 20X5?
A)

$520,000
B)

$600,000
C)

$580,000
D)

$760,000

Answer the following questions using the information below:

Konrade, Inc., expects to sell 30,000 athletic uniforms for $80 each in 20X5. Direct materials costs are $20, direct manufacturing labor is $8, and manufacturing overhead is $6 for each uniform. The following inventory levels apply to 20X4:

Beginning inventory Ending inventory
Direct materials 12,000 units 9,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 6,000 units 5,000 units

133)

What is the amount budgeted for cost of goods manufactured in 20X5?
A)

$1,020,000
B)

$986,000
C)

$1,156,000
D)

$1,190,000

134)

What is the amount budgeted for cost of goods sold in 20X5?
A)

$1,156,000
B)

$986,000
C)

$1,020,000
D)

$2,400,000

Answer the following questions using the information below:

Furniture, Inc., estimates the following number of mattress sales for the first four months of 20X5:

Month Sales
January 5,000
February 7,000
March 6,500
April 8,000

Finished goods inventory at the end of December is 1,500 units. Target ending finished goods inventory is 30% of the next month’s sales.

135)

How many mattresses need to be produced in January 20X5?
A)

4,400 mattresses
B)

5,600 mattresses
C)

6,500 mattresses
D)

7,100 mattresses

136)

How many mattresses need to be produced in the first quarter (January, February, March) of 20X5?
A)

18,500 mattresses
B)

19,400 mattresses
C)

20,900 mattresses
D)

22,400 mattresses

Answer the following questions using the information below:

Wallace Company provides the following data for next year:

Month Budgeted Sales
January $120,000
February 108,000
March 132,000
April 144,000

The gross profit rate is 40% of sales. Inventory at the end of December is $21,600 and target ending inventory levels are 30% of next month’s sales, stated at cost.

137)

Purchases budgeted for January total:
A)

$130,800
B)

$72,000
C)

$69,840
D)

$74,160

138)

Purchases budgeted for February total:
A)

$69,120
B)

$60,480
C)

$115,200
D)

$64,800

139)

Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 10,000 units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the end of the period. Currently, Shamokin has 800 units of Bigger on hand. Bigger requires two labor operations, molding and polishing. Each unit of Bigger requires one hour of molding and two hours of polishing. The direct labor rate for molding is $20 per molding hour and the direct labor rate for polishing is $25 per polishing hour. The expected cost of direct labor for Bigger is:
A)

$224,000
B)

$560,000
C)

$616,000
D)

$784,000

140)

Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 10,000 units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the end of the period. Currently, Shamokin has 800 units of Bigger on hand. Bigger requires two labor operations, molding and polishing. Each unit of Bigger requires one hour of molding and two hours of polishing. The direct labor rate for molding is $20 per molding hour and the direct labor rate for polishing is $25 per polishing hour. The expected number of hours of direct labor for Bigger is:
A)

8,800 hours of molding; 17,600 hours of polishing
B)

11,200 hours of molding; 22,400 hours of polishing
C)

17,600 hours of molding; 8,800 hours of polishing
D)

22,400 hours of molding; 11,200 hours of polishing

141)

St. Claire Manufacturing expects to produce and sell 6,000 units of Big, its only product, for $20 each. Direct material cost is $2 per unit, direct labor cost is $8 per unit, and variable manufacturing overhead is $3 per unit. Fixed manufacturing overhead is $24,000 in total. Variable selling and administrative expenses are $1 per unit, and fixed selling and administrative costs are $3,000 in total. According to generally accepted accounting principles, inventoriable cost per unit of Big would be:
A)

$13.00 per unit
B)

$14.00 per unit
C)

$17.00 per unit
D)

$18.50 per unit

142)

Financial planning models:
A)

are not used in the budgeting process
B)

are not useful for sensitivity analysis
C)

are mathematical representations of the relationships affecting the budget process
D)

are used for nonfinancial aspects of budgeting

143)

Financial planning software packages assist management with:
A)

assigning responsibility to various levels of management
B)

identifying the target customer
C)

sensitivity analysis in their planning and budgeting activities
D)

achieving greater commitment from lower management

144)

________ uses a “what-if” technique that examines how results will change if the originally predicted data changes.
A)

A sales forecast
B)

A sensitivity analysis
C)

A pro forma financial statement
D)

The statement of cash flows

145)

When performing a sensitivity analysis, if the selling price per unit is increased, then the:
A)

per unit fixed administrative costs will increase
B)

per unit direct materials purchase price will increase
C)

total volume of sales will increase
D)

total costs for sales commissions and other nonmanufacturing variable costs will increase

146)

Sensitivity analysis is useful for examining all of the following EXCEPT:
A)

changes in employee satisfaction
B)

changes in direct material cost
C)

changes in sales price
D)

changes in direct labor cost

Answer the following questions using the information below:

Ossmann Enterprises reports year-end information from 20X4 as follows:

Sales (80,000 units) $480,000
Cost of goods sold 320,000

Gross margin 160,000
Operating expenses 130,000

Operating income $ 30,000

Ossmann is developing the 20X5 budget. In 20X5 the company would like to increase selling prices by 8%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost.

147)

What is budgeted sales for 20X5?
A)

$518,400
B)

$533,333
C)

$466,560
D)

$432,000

148)

What is budgeted cost of goods sold for 20X5?
A)

$311,040
B)

$288,000
C)

$345,600
D)

$320,000

149)

Should Ossmann increase the selling price in 20X5?
A)

Yes, because operating income is increased for 20X5.
B)

Yes, because sales revenue is increased for 20X5.
C)

No, because sales volume decreases for 20X5.
D)

No, because gross margin decreases for 20X5.

Answer the following questions using the information below:

Katie Enterprises reports the year-end information from 20X4 as follows:

Sales (70,000 units) $560,000
Cost of goods sold 210,000

Gross margin 350,000
Operating expenses 200,000

Operating income $ 150,000

Katie is developing the 20X5 budget. In 20X5 the company would like to increase selling prices by 4%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost.

150)

What is budgeted sales for 20X5?
A)

$582,400
B)

$524,160
C)

$504,000
D)

$560,000

151)

What is budgeted cost of goods sold for 20X5?
A)

$189,000
B)

$196,560
C)

$218,400
D)

$210,000

152)

Should Katie increase the selling price in 20X5?
A)

Yes, because sales revenue is increased for 20X5.
B)

Yes, because operating income is increased for 20X5.
C)

No, because sales volume decreases for 20X5.
D)

No, because gross margin decreases for 20X5.

153)

The Japanese use the term kaizen when referring to:
A)

scarce resources
B)

pro forma financial statements
C)

continuous improvement
D)

the sales forecast

154)

Kaizen refers to incorporating cost reductions:
A)

in each successive budgeting period
B)

in each successive sales forecast
C)

in all customer service centers
D)

All of these answers are correct.

155)

All of the following are encouraged with kaizen budgeting EXCEPT:
A)

better interactions with suppliers
B)

large discontinuous improvements
C)

cost reductions during manufacturing
D)

systematic monthly cost reductions

156)

Kaizen budgeting involves:
A)

large cost reductions
B)

management directed improvements
C)

continual small cost reductions
D)

continual small revenue increases

157)

Kaizen budgeting is driven by:
A)

management
B)

employees
C)

stockholders
D)

creditors

Answer the following questions using the information below:

Dan and Donna Enterprises are using the kaizen approach to budgeting for 20X5. The budgeted income statement for January 20X5 is as follows:

Sales (84,000 units) $500,000
Less: Cost of goods sold 300,000

Gross margin 200,000
Operating expenses (includes $50,000 of fixed costs) 150,000

Operating income $ 50,000

Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month.

158)

What is budgeted cost of goods sold for March 20X5?
A)

$294,030
B)

$294,000
C)

$300,000
D)

$297,000

159)

What is budgeted gross margin for March 20X5?
A)

$196,020
B)

$198,000
C)

$204,020
D)

$205,970

160)

The use of activity-based budgeting is growing because of:
A)

the increased use of activity-based costing
B)

the increased use of kaizen costing
C)

increases in work-in-process inventory
D)

increases in direct materials inventory

161)

Activity-based budgeting would separately estimate:
A)

the cost of overhead for a department
B)

a plant-wide cost-driver rate
C)

the cost of a setup activity
D)

All of these answers are correct.

162)

Activity-based-costing analysis makes no distinction between:
A)

direct-materials inventory and work-in-process inventory
B)

short-run variable costs and short-run fixed costs
C)

parts of the supply chain
D)

components of the value chain

163)

Activity-based budgeting makes it easier to:
A)

determine a rolling budget
B)

prepare pro forma financial statements
C)

determine how to reduce costs
D)

execute a financial budget

164)

Activity-based budgeting does NOT require:
A)

knowledge of the organization’s activities
B)

specialized expertise in financial management and control
C)

knowledge about how activities affect costs
D)

the ability to see how the organization’s different activities fit together

165)

Activity-based budgeting:
A)

uses one cost driver such as direct labor-hours
B)

uses only output-based cost drivers such as units sold
C)

focuses on activities necessary to produce and sell products and services
D)

classifies costs by functional area within the value chain

166)

Activity-based budgeting includes all the following steps EXCEPT:
A)

determining demands for activities from sales and production targets
B)

computing the cost of performing activities
C)

determining a separate cost-driver rate for each department
D)

describing the budget as costs of activities rather than costs of functions

167)

Responsibility accounting:
A)

is a system that measures the plans, budgets, actions, and actual results of a responsibility center
B)

is an arrangement of lines of responsibility within the organization
C)

explicitly incorporates continuous improvement anticipated during the budget period
D)

examines how a result will change if the original plan is not achieved

168)

Responsibility centers include all of the following EXCEPT:
A)

cost
B)

revenue
C)

customers
D)

investment

169)

Variances between actual and budgeted amounts can be used to:
A)

alert managers to potential problems and available opportunities
B)

inform managers about how well the company has implemented its strategies
C)

signal that company strategies are ineffective
D)

All of these answers are correct.

170)

A maintenance manager is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

171)

The regional sales office manager of a national firm is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

172)

A regional manager of a restaurant chain in charge of finding additional locations for expansion is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

173)

The manager of a hobby store that is part of a chain of stores is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

174)

A manager of a revenue center is responsible for all of the following EXCEPT:
A)

service quality and units sold
B)

the acquisition cost of the product or service sold
C)

price, product mix, and promotional activities
D)

investments of excess cash

175)

A manager of a profit center is responsible for all of the following EXCEPT:
A)

sales revenue
B)

the cost of merchandise purchased for resale
C)

expanding into new geographic areas
D)

selling and marketing costs

176)

A controllable cost is any cost that can be ________ by a responsibility center manager for a period of time.
A)

controlled
B)

influenced
C)

segregated
D)

excluded

177)

A responsibility accounting system could:
A)

exclude all uncontrollable costs
B)

exclude controllable costs
C)

segregate uncontrollable costs from controllable costs
D)

Both A and C are correct.

178)

Which statement about controllability is NOT true:
A)

few costs are clearly under the sole influence of one manager
B)

holds managers responsible for uncontrollable costs
C)

with a long enough time span, all costs will come under somebody’s control
D)

describes the degree of influence that managers have over a particular item

179)

Controllability may be difficult to pinpoint because of all the following EXCEPT:
A)

some costs depend on market conditions
B)

current managers may have inherited inefficiencies of a previous manager
C)

the current use of stretch or challenge targets
D)

few costs are under the sole influence of one manager

180)

Responsibility accounting:
A)

emphasizes controllability
B)

focuses on whom should be asked about the information
C)

attempts to assign blame for problems to a specific manager
D)

All of these answers are correct.

181)

A PRIMARY consideration in assigning a cost to a responsibility center is:
A)

whether the cost is fixed or variable
B)

whether the cost is direct or indirect
C)

who can best explain the change in that cost
D)

where in the organizational structure the cost was incurred

182)

Building in budgetary slack includes:
A)

overestimating budgeted revenues
B)

underestimating budgeted costs
C)

making budgeted targets more easily achievable
D)

All of these answers are correct.

183)

To reduce budgetary slack management may:
A)

incorporate stretch or challenge targets
B)

use external benchmark performance measures
C)

award bonuses for achieving budgeted amounts
D)

reduce projected cost targets by 10% across all areas

184)

A stretch budget is a budget that:
A)

crosses more than one responsibility center
B)

represents a challenging, but achievable level of performance
C)

is impossible to implement in a cost center
D)

is designed to include the effects of exchange rate fluctuations

185)

Multinational budgeting is more complex than budgeting in a domestic environment due to the possibility of:
A)

exchange rate fluctuations
B)

sophisticated techniques used by multinationals such as forward, future, and options contracts
C)

different political, legal, and economic environments faced by multinationals
D)

All of these answers are correct.

186)

Multinational budgeting is useful for everything EXCEPT:
A)

comparing actual to budget in volatile conditions
B)

helping managers learn and adapt to changing conditions
C)

determining the impact of currency fluctuations
D)

determining how well managers adapt to uncertain environments

187)

To prepare the cash budget, all of the following budgets are required EXCEPT:
A)

capital expenditures budget
B)

cost of goods sold budget
C)

budgeted balance sheet
D)

revenue budget

188)

Financial analysts use the projected cash flow statement to do all of the following EXCEPT:
A)

plan for when excess cash is generated
B)

plan for short-term cash investments
C)

project cash shortages and plan a strategy to deal with the shortages
D)

project depreciation expense

189)

The cash flow statement does NOT include:
A)

cash inflows from the collection of receivables
B)

cash outflows paid toward raw material purchases
C)

all sales revenues
D)

interest paid and received

190)

The cash budget is a schedule of expected cash receipts and disbursements that:
A)

requires an aging of accounts receivable and accounts payable
B)

is a self-liquidating cycle
C)

is prepared immediately after the sales forecast
D)

predicts the effect on the cash position at given levels of operations

Answer the following questions using the information below:

The following information pertains to Tiffany Company:

Month Sales Purchases
January $30,000 $16,000
February $40,000 $20,000
March $50,000 $28,000

∙ Cash is collected from customers in the following manner:
Month of sale 30%
Month following the sale 70%
∙ 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
∙ Labor costs are 20% of sales. Other operating costs are $15,000 per month (including $4,000 of depreciation). Both of these are paid in the month incurred.
∙ The cash balance on March 1 is $4,000. A minimum cash balance of $3,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.

191)

How much cash will be collected from customers in March?
A)

$47,000
B)

$43,000
C)

$50,000
D)

None of these answers are correct.

192)

How much cash will be paid to suppliers in March?
A)

$23,200
B)

$28,000
C)

$44,000
D)

None of these answers are correct.

193)

How much cash will be disbursed in total in March?
A)

$21,000
B)

$25,000
C)

$44,200
D)

$48,200

194)

What is the ending cash balance for March?
A)

($25,000)
B)

$3,000
C)

$3,200
D)

$3,800

Answer the following questions using the information below:

Fiscal Company has the following sales budget for the last six months of 20X5:

July $100,000 October $ 90,000
August 80,000 November 100,000
September 110,000 December 94,000

Historically, the cash collection of sales has been as follows:
65% of sales collected in the month of sale,
25% of sales collected in the month following the sale,
8% of sales collected in the second month following the sale, and
2% of sales are uncollectible.

195)

Cash collections for September are:
A)

$71,500
B)

$86,700
C)

$99,500
D)

$102,000

196)

What is the ending balance of accounts receivable for September, assuming uncollectible balances are written off during the second month following the sale?
A)

$99,500
B)

$48,500
C)

$44,900
D)

$46,500

197)

Cash collections for October are:
A)

$58,500
B)

$92,400
C)

$99,500
D)

$88,200

Answer the following questions using the information below:

Bear Company has the following information:

Month Budgeted Purchases
January $26,800
February 29,000
March 30,520
April 29,480
May 27,680

Purchases are paid for in the following manner:
10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount in the month after purchase

198)

What is the expected balance in Accounts Payable as of March 31?
A)

$39,068
B)

$18,312
C)

$2,900
D)

$30,520

199)

What is the expected balance in Accounts Payable as of April 30?
A)

$26,532
B)

$38,740
C)

$12,208
D)

$17,688

200)

What is the expected Accounts Payable balance as of May 31?
A)

$11,792
B)

$24,912
C)

$36,704
D)

$2,948

Answer the following questions using the information below:

The following information pertains to the January operating budget for Casey Corporation.

∙ Budgeted sales for January $100,000 and February $200,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 30% of sales.
∙ Administrative costs are $10,000 each month
∙ Beginning accounts receivable is $20,000.
∙ Beginning inventory is $14,000.
∙ Beginning accounts payable is $60,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month’s cost of goods sold (COGS).

201)

For January, budgeted cash collections are:
A)

$20,000
B)

$60,000
C)

$80,000
D)

None of these answers are correct.

202)

At the end of January, budgeted accounts receivable is:
A)

$20,000
B)

$40,000
C)

$60,000
D)

None of these answers are correct.

203)

For January, budgeted cost of goods sold is:
A)

$20,000
B)

$30,000
C)

$40,000
D)

None of these answers are correct.

204)

For January, budgeted net income is:
A)

$20,000
B)

$30,000
C)

$40,000
D)

None of these answers are correct.

205)

For January, budgeted cash payments for purchases are:
A)

$14,000
B)

$70,000
C)

$60,000
D)

None of these answers are correct.

206)

At the end of January, budgeted ending inventory is:
A)

$20,000
B)

$28,000
C)

$40,000
D)

None of these answers are correct.

207)

Listed below are elements of the master budget. Determine whether each budget is an operating budget or a financial budget. Place an O for operating budget or F for a financial budget.

1. Capital expenditures budget
2. Cost of goods sold budget
3. Revenues budget
4. Budgeted statement of cash flows
5. Distribution costs budget
6. Marketing costs budget
7. Cash budget
8. Direct materials cost budget
9. Budgeted balance sheet
10. Budgeted income statement

208)

Spirit Company sells three products with the following seasonal sales pattern:

Products
Quarter A B C
1 40% 30% 10%
2 30% 20% 40%
3 20% 20% 40%
4 10% 30% 10%

The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:

Product Units Selling Price
A 50,000 $ 4
B 125,000 10
C 62,500 6

Required:

Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.

209)

Lubriderm Corporation has the following budgeted sales for the next six-month period:

Month Unit Sales
June 90,000
July 120,000
August 210,000
September 150,000
October 180,000
November 120,000

There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.

Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds.

Required:
a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

210)

Gerdie Company has the following information:

Month Budgeted Sales
March $50,000
April 53,000
May 51,000
June 54,500
July 52,500

In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month’s cost of sales.

Required:
Prepare a purchases budget for April through June.

211)

Favata Company has the following information:

Month Budgeted Sales
June $60,000
July 51,000
August 40,000
September 70,000
October 72,000

In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month’s cost of sales.

Required:
Prepare a purchases budget for July through September.

212)

Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units of various sizes. Historically, the average frame requires four feet of framing, one square foot of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current prices are $0.30 per foot of framing, $6.00 per square foot of glass, and $2.25 per square foot of backing. Ending inventory should be 150% of beginning inventory. Purchases are paid for in the month acquired.

Required:

a. Determine the quantity of framing, glass, and backing that is to be purchased during August.
b. Determine the total costs of direct materials for August purchases.

213)

Michelle Enterprises reports the year-end information from 20X5 as follows:

Sales (100,000 units) $250,000
Less: Cost of goods sold 150,000
Gross profit 100,000
Operating expenses (includes $10,000 of Depreciation) 60,000
Net income $ 40,000

Michelle is developing the 20X6 budget. In 20X6 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.

Required:

Prepare a budgeted income statement for 20X6.

214)

Brad Corporation is using the kaizen approach to budgeting for 20X5. The budgeted income statement for January 20X5 is as follows:

Sales (240,000 units) $720,000
Less: Cost of goods sold 480,000

Gross margin 240,000
Operating expenses (includes $64,000 of fixed costs) 192,000

Net income $ 48,000

Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month.

Required:

Prepare a kaizen-based budgeted income statement for March of 20X5.

215)

Allscott Company is developing its budgets for 20X5 and, for the first time, will use the kaizen approach. The initial 20X5 income statement, based on static data from 20X4, is as follows:

Sales (140,000 units) $420,000
Less: Cost of goods sold 280,000

Gross margin 140,000
Operating expenses (includes $28,000 of depreciation) 112,000

Net income $28,000

Selling prices for 20X5 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by the kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.

Required:

Prepare a kaizen-based budgeted income statement for 20X5.

216)

Russell Company has the following projected account balances for June 30, 20X5:

Accounts payable $40,000 Sales $800,000
Accounts receivable 100,000 Capital stock 400,000
Depreciation, factory 24,000 Retained earnings ?
Inventories (5/31 & 6/30) 180,000 Cash 56,000
Direct materials used 200,000 Equipment, net 240,000
Office salaries 80,000 Buildings, net 400,000
Insurance, factory 4,000 Utilities, factory 16,000
Plant wages 140,000 Selling expenses 60,000
Bonds payable 160,000 Maintenance, factory 28,000

Required:
a. Prepare a budgeted income statement for June 20X5.
b. Prepare a budgeted balance sheet as of June 30, 20X5.

217)

Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 20,000 units of Big and 10,000 units of Bigger. Shamokin plans on having an ending inventory of 4,000 units of Big and 2,000 units of Bigger. Currently, Shamokin has 1,000 units of Big in its inventory and 800 units of Bigger. Each product requires two labor operations: molding and polishing. Product Big requires one hour of molding time and one hour of polishing time. Product Bigger requires one hour of molding time and two hours of polishing time. The direct labor rate for molders is $20 per molding hour, and the direct labor rate for polishers is $25 per polishing hour.

Required:

Prepare a direct labor budget in hours and dollars for each product.

218)

Duffy Corporation has prepared the following sales budget:

Month Cash Sales Credit Sales
May $16,000 $68,000
June 20,000 80,000
July 18,000 74,000
August 24,000 92,000
September 22,000 76,000

Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months following the sale. The remaining 5% is expected to be uncollectible.

Required:

Prepare a schedule of cash collections for July through September.

219)

The following information pertains to Amigo Corporation:

Month Sales Purchases
July $30,000 $10,000
August 34,000 12,000
September 38,000 14,000
October 42,000 16,000
November 48,000 18,000
December 60,000 20,000

∙ Cash is collected from customers in the following manner:
Month of sale (2% cash discount) 30%
Month following sale 50%
Two months following sale 15%
Amount uncollectible 5%
∙ 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Required:

a. Prepare a summary of cash collections for the 4th quarter.
b. Prepare a summary of cash disbursements for the 4th quarter.

220)

Describe the benefits to an organization of preparing an operating budget.

221)

Bob and Dale have just purchased a small honey manufacturing company that was having financial difficulties. After a brief operating period, they decided that the company’s main problem was the lack of any financial planning. The company made a good product and market potential was great.

Required:

Explain why a company needs a good budgeting plan. Specifically address the need for a master budget.

222)

Describe operating and financial budgets and give at least two examples of each discussed in the textbook.

223)

Discuss the importance of the sales forecast and items that influence its accuracy.

224)

Explain what is meant by sensitivity analysis in budgeting, and discuss how managers might use sensitivity analysis in practice.

225)

Describe the concept of kaizen budgeting.

226)

Distinguish between controllable and uncontrollable aspects of revenue and costs. Can a manager totally control all revenue and costs? Why or why not?

227)

Describe some of the drawbacks of using the operating budget as a control device.

228)

What is budget slack? What are the pros and cons of building slack into the budget from the point of view of (a) an employee and (b) a senior manager?

229)

How is budgeting for a multinational corporation different than budgeting for a corporation that is strictly domestic?

ACC 206 Week 7 Quiz 5 Chapter 15 – Strayer

ACC 206 Accounting Principles II Week 7 Quiz – Strayer (All Possible Questions With Answers)

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CHAPTER 15

LONG-TERMLIABILITIES

CHAPTERSTUDY OBJECTIVES

1. Explain why bonds are issued.

2. Prepare the entries for the issuance of bonds and interest expense.

3. Describe the entries when bonds are redeemed or converted.

4. Describe the accounting for long-term notes payable.

5. Contrast the accounting for operating and capital leases.

6. Identify the methods for the presentation and analysis of long-term liabilities.

7. Compute the market price of a bond.

8. Apply the effective-interest method of amortizing bond discount and bond premium.

a9. Apply the straight-line method of amortizing bond discount and bond premium.

TRUE-FALSESTATEMENTS

1. Each bondholder may vote for the board of directors in proportion to the number of bonds held.

2. Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

3. Registered bonds are bonds that are delivered to owners by U.S. registered mail service.

4. A debenture bond is an unsecured bond which is issued against the general credit of the borrower.

5. Bonds are a form of interest-bearingnotes payable.

6. Neither corporate bond interest nor dividends are deductible for tax purposes.

7. A 10% stock dividend is the equivalent of a $1,000 par value bond paying annual interest of 10%.

8. The holder of a convertible bond can convert an interest payment received into a cash dividend paid on common stock if the dividend is greater than the interest payment.

9. The board of directors may authorize more bonds than are issued.

10. The contractual interest rate is always equal to the market interest rate on the date that bonds are issued.

11. If $150,000 face value bonds are issued at 102, the proceeds received will be $102,000.

12. Discount on bonds is an additional cost of borrowing and should be recorded as interest expense over the life of the bonds.

13. If a corporation issued bonds at an amount less than face value, it indicates that the corporation has a weak credit rating.
Long-Term Liabilities 15 – 5

14. A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market interest rate.

15. If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date.

16. If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.

17. If the market interest rate is greater than the contractual interest rate, bonds will sell at a discount.

18. If $800,000, 8% bonds are issued on January 1, and pay interest semiannually, the amount of interest paid on July 1 will be $32,000.

19. If bonds sell at a premium, the interest expense recognized each year will be greater than the contractual interest rate.

20. The carrying value of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.

21. The loss on bond redemption is the difference between the cash paid and the carrying value of the bonds.

22. If $200,000 par value bonds with a carrying value of $190,400 are redeemed at 97, a loss on redemption will be recorded.

23. Gains and losses are not recognized when convertible bonds are converted into common stock.

24. Generally, convertible bonds do not pay interest.

25. Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

26. A long-term note that pledges title to specific property as security for a loan is known as a mortgage payable.

27. A capital lease requires the lessee to record the lease as a purchase of an asset.

28. The times interest earned ratio is computed by dividing net income by interest expense.

a29. The present value of a bond is a function of two variables: (1) the payment amounts and (2) the interest (discount) rate.

a30. The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

Additional True-False Questions

31. Bonds that mature at a single specified future date are called term bonds.
15 – 6

32. The terms of the bond issue are set forth in a formal legal document called a bond indenture.

33. The carrying value of bonds at maturity should be equal to the face value of the bonds.

34. Premium on Bonds Payable is a contra account to Bonds Payable.

35. When bonds are converted into common stock, the carrying value of the bonds is transferred to paid-in capital accounts.

36. Operating leases are leases that the lessee must capitalize on its balance sheet as an asset.

37. Under a capital lease, the lease/asset is reported on the balance sheet under plant assets.

38. Long-term liabilities are reported in a separate section of the balance sheet immediately following current liabilities.

MULTIPLECHOICE QUESTIONS

39. Each of the following is correct regarding bonds except they are a. a form of interest-bearing notes payable.
b. attractive to many investors.
c. issued by corporations and governmentalagencies. d. sold in large denominations.

40. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that
a. bond interest is deductible for tax purposes.
b. interest must be paid on a periodic basis regardless of earnings.
c. income to stockholders may increase as a result of trading on the equity. d. the bondholders do not have voting rights.

41. If a corporation issued $2,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
a. $2,000,000 b. $60,000
c. $200,000 d. $140,000
Long-Term Liabilities 15 – 7

42. Secured bonds are bonds that
a. are in the possession of a bank.
b. are registered in the name of the owner.
c. have specific assets of the issuer pledged as collateral. d. have detachable interest coupons.

43. A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitmentsof the issuing company is called
a. a bond indenture. b. a bond debenture.
c. trading on the equity. d. a term bond.

44. Stockholders of a company may be reluctant to finance expansion through issuing more equity because
a. leveraging with debt is always a better idea. b. their earnings per share may decrease.
c. the price of the stock will automaticallydecrease. d. dividends must be paid on a periodic basis.

45. Which of the following is not an advantage of issuing bonds instead of common stock? a. Stockholder control is not affected.
b. Earnings per share on common stock may be lower. c. Income to common shareholdersmay increase.
d. Tax savings result.

46. Bonds that are secured by real estate are termed a. mortgage bonds.
b. serial bonds. c. debentures. d. bearer bonds.

47. Bonds that mature at a single specified future date are called a. coupon bonds.
b. term bonds. c. serial bonds. d. debentures.

48. Bonds that may be exchanged for common stock at the option of the bondholders are called
a. options.
b. stock bonds.
c. convertible bonds. d. callable bonds.

49. Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
a. callable bonds.
b. early retirement bonds. c. options.
d. debentures.
15 – 8

50. Investors who receive checks in their names for interest earned on bonds must hold a. registered bonds.
b. coupon bonds. c. bearer bonds. d. direct bonds.

51. A bondholder that sends in a coupon to receive interest payments must have a(n) a. unsecured bond.
b. bearer bond.
c. mortgage bond. d. serial bond.

52. Bonds that may be directly transferred to another party by delivery are a. coupon bonds.
b. debentures.
c. registered bonds.
d. transportable bonds.

53. Bonds that must be cancelled and reissued as new bonds in order to have ownership interest transferred are
a. coupon bonds. b. bearer bonds. c. serial bonds.
d. registered bonds.

54. Corporations are granted the power to issue bonds through a. tax laws.
b. state laws.
c. federal security laws. d. bond debentures.

55. The party who has the right to exercise a call option on bonds is the a. investment banker.
b. bondholder. c. bearer.
d. issuer.

56. A major disadvantageresulting from the use of bonds is that a. earnings per share may be lowered.
b. interest must be paid on a periodic basis. c. bondholders have voting rights.
d. taxes may increase.

57. Bonds will always fall into all but which one of the following categories? a. Callable or convertible
b. Term or serial
c. Registered or bearer d. Secured or unsecured
Long-Term Liabilities 15 – 9

58. Which of the following statements concerning bonds is not a true statement? a. Bonds are generally sold through an investment company.
b. The bond indenture is prepared after the bonds are printed.
c. The bond indenture and bond certificate are separate documents. d. The trustee keeps records of each bondholder.

59. A bond trustee does not a. issue the bonds.
b. keep a record of each bondholder.
c. hold conditional title to pledged property. d. maintain custody of unsold bonds.

60. The contractual interest rate is always stated as a(n) a. monthly rate.
b. daily rate.
c. semiannual rate. d. annual rate.

61. When authorizing bonds to be issued, the board of directors does not specify the a. total number of bonds authorized to be sold.
b. contractual interest rate. c. selling price.
d. total face value of the bonds.

Use the following exhibit for questions 62–63.

Bonds Close K mart 8 3/8 17 100¼
Yield Volume 8.4 35
Net Change +7/8

62. The contractual interest rate of the K mart bonds is a. greater than the market interest rate.
b. less than the market interest rate. c. equal to the market interest rate. d. not determinable.

63. On the day of trading referred to above, a. no K mart bonds were traded.
b. bonds with market prices of $3,500 were traded.
c. at closing, the selling price of the bond was higher than the previous day’s price. d. the bond sold for $100.25

64. A $1,000 face value bond with a quoted price of 98 is selling for a. $1,000.
b. $980. c. $908. d. $98.

65. A bond with a face value of $100,000 and a quoted price of 102¼ has a selling price of a. $120,225.
b. $102,025. c. $100,225. d. $102,250.
15 – 10

66. Premium on Bonds Payable a. has a debit balance.
b. is a contra account.
c. is considered to be a reduction in the cost of borrowing. d. is deducted from bonds payable on the balance sheet.

67. If the market interest rate is greater than the contractual interest rate, bonds will sell a. at a premium.
b. at face value. c. at a discount.
d. only after the stated interest rate is increased.

68. On January 1, 2008, Grant Corporation issued $3,000,000, 10-year, 8% bonds at 102. Interest is payable semiannually on January 1 and July 1. The journal entry to record this transaction on January 1, 2008 is
a. Cash………………………………………………………………………… 3,000,000
Bonds Payable…………………………………………………… 3,000,000

b. Cash………………………………………………………………………… Bonds Payable……………………………………………………

c. Premiumon Bonds Payable………………………………………… Cash………………………………………………………………………… Bonds Payable……………………………………………………

d. Cash………………………………………………………………………… Bonds Payable…………………………………………………… Premiumon Bonds Payable…………………………………
3,060,000

60,000 3,000,000

3,060,000

3,060,000

3,060,000

3,000,000 60,000

69. The total cost of borrowing is increased only if the a. bonds were issued at a premium.
b. bonds were issued at a discount. c. bonds were sold at face value.
d. market interest rate is less than the contractual interest rate on that date.

70. If the market interest rate is 10%, a $10,000, 12%, 10-year bond, that pays interest semiannually would sell at an amount
a. less than face value. b. equal to face value.
c. greater than face value.
d. that cannot be determined.

71. The present value of a $10,000, 5-year bond, will be less than $10,000 if the a. contractual interest rate is less than the market interest rate.
b. contractual interest rate is greater than the market interest rate. c. bond is convertible.
d. contractual interest rate is equal to the market interest rate.

72. Gomez Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2008, at 98. The journal entry to record the issuance will show a
a. debit to Cash of $1,000,000.
b. credit to Discount on Bonds Payable for $20,000. c. credit to Bonds Payable for $980,000.
d. debit to Cash for $980,000.
Long-Term Liabilities 15 – 11

73. The market interest rate is often called the a. stated rate.
b. effective rate. c. coupon rate.
d. contractual rate.

74. If bonds are issued at a discount, it means that the a. financial strength of the issuer is suspect.
b. market interest rate is higher than the contractual interest rate. c. market interest rate is lower than the contractual interest rate.
d. bondholder will receive effectively less interest than the contractual interest rate.

75. Each of the following accounts is reported as long-term liabilities except a. Bond Interest Payable.
b. Bonds Payable.
c. Discount on Bonds Payable. d. Premium on Bonds Payable.

76. The statement that “Bond prices vary inversely with changes in the market interest rate” means that if the
a. market interest rate increases, the contractual interest rate will decrease. b. contractual interest rate increases, then bond prices will go down.
c. market interest rate decreases, then bond prices will go up.
d. contractual interest rate increases, the market interest rate will decrease.

77. The carrying value of bonds will equal the market price a. at the close of every trading day.
b. at the end of the fiscal period. c. on the date of issuance.
d. every six months on the date interest is paid.

78. The sale of bonds above face value a. is a rare occurrence.
b. will cause the total cost of borrowing to be less than the bond interest paid. c. will cause the total cost of borrowing to be more than the bond interest paid. d. will have no net effect on Interest Expense by the time the bonds mature.

79. In the balance sheet, the account, Premium on Bonds Payable, is a. added to bonds payable.
b. deducted from bonds payable.
c. classified as a stockholders’ equity account. d. classified as a revenue account.

80. Two thousand bonds with a face value of $1,000 each, are sold at 103. The entry to record the issuance is
a. Cash ………………………………………………………………………… 2,060,000
Bonds Payable ………………………………………………….. 2,060,000

b. Cash ………………………………………………………………………… 2,000,000 Premiumon Bonds Payable ………………………………………… 60,000
Bonds Payable ………………………………………………….. 2,060,000
15 – 12

c. Cash ……………………………………………………………………….. 2,060,000 Premiumon Bonds Payable ………………………………..
Bonds Payable …………………………………………………..

60,000 2,000,000

d. Cash ……………………………………………………………………….. 2,060,000 Discounton Bonds Payable …………………………………
Bonds Payable …………………………………………………..

60,000 2,000,000

81. Bond interest paid is
a. higher when bonds sell at a discount. b. lower when bonds sell at a premium.
c. the same whether bonds sell at a discount or a premium.
d. higher when bonds sell at a discount and lower when bonds sell at a premium.

82. Mendez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2008, at 103. The journal entry to record the issuance will show a
a. debit to Cash of $2,000,000.
b. credit to Premium on Bonds Payable for $60,000. c. credit to Bonds Payable for $2,030,000.
d. credit to Cash for $2,060,000.

Use the following information for questions 83–86.

Golden Company received proceeds of $94,250 on 10-year, 8% bonds issued on January 1, 2007. The bonds had a face value of $100,000, pay interest semi-annually on June 30 and December31, and have a call price of 101. Golden uses the straight-line method of amortization.

83. What is the amount of interest Golden must pay the bondholders in 2007? a. $7,540
b. $8,000 c. $8,575 d. $7,425

a84. What is the amount of interest expense Golden will show with relation to these bonds for the year ended December 31, 2008?
a. $8,000 b. $7,540 c. $8,575 d. $7,425

a85. What is the carrying value of the bonds on January 1, 2009? a. $100,000
b. $95,400 c. $98,850 d. $94,825

86. Golden Company decided to redeem the bonds on January 1, 2009. What amount of gain or loss would Golden report on its 2009 income statement?
a. $4,600 gain b. $5,600 gain c. $5,600 loss d. $4,600 loss
Long-Term Liabilities 15 – 13

87. Bryce Company has $500,000 of bonds outstanding. The unamortized premium is $7,200. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
a. $2,200 gain b. $2,200 loss c. $5,000 gain d. $5,000 loss

88. The current carrying value of Jensen’s $600,000 face value bonds is $597,750. If the bonds are retired at 102, what would be the amount Jensen would pay its bondholders? a. $597,750
b. $600,000 c. $603,000 d. $612,000

89. Lahey Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $518,725. The entry to record the redemption will include a
a. credit of $18,725 to Loss on Bond Redemption. b. debit of $18,725 to Premium on Bonds Payable. c. credit of $6,275 to Gain on Bond Redemption. d. debit of $25,000 to Premium on Bonds Payable.

90. A $900,000 bond was retired at 103 when the carrying value of the bond was $933,000. The entry to record the retirement would include a
a. gain on bond redemption of $27,000. b. loss on bond redemption of $6,000. c. loss on bond redemption of $27,000. d. gain on bond redemption of $6,000.

91. If forty $1,000 convertible bonds with a carrying value of $46,000 are converted into 6,000 shares of $5 par value common stock, the journal entry to record the conversion is
a. Bonds Payable ………………………………………………………….. 46,000 CommonStock ………………………………………………….. 46,000

b. Bonds Payable ………………………………………………………….. 40,000 Premiumon Bonds Payable ………………………………………… 6,000
CommonStock ………………………………………………….. 46,000

c. Bonds Payable ………………………………………………………….. 40,000 Premiumon Bonds Payable ………………………………………… 6,000
CommonStock ………………………………………………….. 30,000 Paid-in Capital in Excess of Par …………………………… 16,000

d. Bonds Payable ………………………………………………………….. 46,000
Discount on Bonds Payable ………………………………… 6,000 CommonStock ………………………………………………….. 30,000 Paid-in Capital in Excess of Par …………………………… 10,000

92. A corporation recognizes a gain or loss
a. only when bonds are converted into common stock. b. only when bonds are redeemed before maturity.
c. when bonds are redeemed at or before maturity.
d. when bonds are converted into common stock and when they are redeemed before maturity.
15 – 14

93. If there is a loss on bonds redeemed early, it is a. debited directly to Retained Earnings.
b. reported as an “Other Expense” on the income statement.
c. reported as an “Extraordinary Item” on the income statement. d. debited to Interest Expense, as a cost of financing.

94. If bonds can be converted into common stock,
a. they will sell at a lower price than comparable bonds without a conversion feature.
b. they will carry a higher interest rate than comparable bonds without the conversion feature.
c. they will be converted only if the issuer calls them in for conversion.
d. the bondholder may benefit if the market price of the common stock increases substantially.

95. When bonds are converted into common stock,
a. the market price of the stock on the date of conversion is credited to the Common Stock account.
b. the market price of the bonds on the date of conversion is credited to the Common Stock account.
c. the market price of the stock and the bonds is ignored when recording the conversion. d. gains or losses on the conversion are recognized.

96. If bonds with a face value of $90,000 are converted into common stock when the carrying value of the bonds is $81,000, the entry to record the conversion will include a debit to
a. Bonds Payable for $90,000. b. Bonds Payable for $81,000.
c. Discount on Bonds Payable for $9,000.
d. Bonds Payable equal to the market price of the bonds on the date of conversion.

97. A $900,000 bond was retired at 98 when the carrying value of the bond was $888,000. The entry to record the retirement would include a
a. gain on bond redemption of $12,000. b. loss on bond redemption of $6,000. c. loss on bond redemption of $12,000. d. gain on bond redemption of $6,000.

98. Twenty $1,000 bonds with a carrying value of $25,600 are converted into 2,000 shares of $5 par value common stock. The common stock had a market value of $9 per share on the date of conversion. The entry to record the conversion is
a. Bonds Payable …………………………………………………………. 25,600 CommonStock …………………………………………………. 10,000 Paid-in Capital in Excess of Par……………………………. 15,600
b. Bonds Payable …………………………………………………………. 20,000 Premiumon Bonds Payable ……………………………………….. 5,600
CommonStock …………………………………………………. 18,000 Paid-in Capital in Excess of Par …………………………… 7,600
c. Bonds Payable …………………………………………………………. 20,000 Premiumon Bonds Payable ……………………………………….. 5,600
CommonStock …………………………………………………. 10,000 Paid-in Capital in Excess of Par……………………………. 15,600
d. Bonds Payable …………………………………………………………. 25,600 CommonStock …………………………………………………. 18,000 Paid-in Capital in Excess of Par……………………………. 7,600
Long-Term Liabilities 15 – 15

99. Which one of the following amounts increases each period when accounting for long-term notes payable?
a. Cash payment b. Interest expense
c. Principal balance
d. Reduction of principal

100. In the balance sheet, mortgage notes payable are reported as a. a current liability only.
b. a long-term liability only.
c. both a current and a long-term liability.
d. a current liability except for the reduction in principal amount.

101. A mortgage note payable with a fixed interest rate requires the borrower to make installment payments over the term of the loan. Each installment payment includes interest on the unpaid balance of the loan and a payment on the principal. With each installment payment, indicate the effect on the portion allocated to interest expense and the portion allocated to principal.

Portion Allocated to Interest Expense
a. Increases b. Increases c. Decreases d. Decreases
Portion Allocated to Payment of Principal
Increases Decreases Decreases Increases

102. The entry to record an installment payment on a long-term note payable is a. Mortgage Notes Payable
Cash
b. Interest Expense Cash
c. Mortgage Notes Payable Interest Expense
Cash
d. Bonds Payable Cash

Use the following information for questions 103–104.

Delmar Company purchased a building on January 2 by signing a long-term $840,000 mortgage with monthly payments of $7,700. The mortgage carries an interest rate of 10 percent.

103. The entry to record the first monthly payment will include a a. debit to the Cash account for $7,700.
b. credit to the Cash account for $7,000.
c. debit to the Interest Expense account for $7,000. d. credit to the Mortgage Payable account for $7,700.

104. The amount owed on the mortgage after the first payment will be a. $840,000.
b. $839,300. c. $833,000. d. $832,300.
15 – 16

Use the following information for questions 105–106.

Diamond Company borrowed $500,000 from BankTwo on January 1, 2007 in order to expand its mining capabilities. The five-year note required annual payments of $130,218 and carried an annual interest rate of 9.5%.

105. What is the amount of expense Diamond must recognize on its 2008 income statement? a. $47,500
b. $39,642 c. $35,129 d. $31,037

106. What is the balance in the notes payable account at December 31, 2008? a. $500,000
b. $326,706 c. $417,282 d. $405,000

107. The lessee has substantially all of the benefits and risks of ownership in a(n) a. apartment lease.
b. capital lease.
c. operating lease.
d. operating lease and a capital lease.

108. A lease where the intent is temporary use of the property by the lessee with continued ownership of the property by the lessor is called
a. off-balance sheet financing. b. an operating lease.
c. a capital lease.
d. a purchase of property.

109. Which of the following is not a condition which would require the recording of a lease contract as a capital lease?
a. The lease transfers ownership of the property to the lessee. b. The lease contains a bargain purchase option.
c. The lease term is less than 75% of the economic life of the leased property.
d. The present value of the lease payments equals or exceeds 90% of the fair market value of the leased property.

110. In a lease contract,
a. the owner of the property is called the lessee.
b. the presence of a bargain purchase option indicates that it is a capital lease. c. the renter of the property is called the lessor.
d. there is always a transfer of ownership at the end of the lease term.

111. Which of the following statements concerning leases is true? a. Capital leases are favored by lessees.
b. The appearance of the account, Leased Asset, on the balance sheet, signifies an operating lease.
c. The portion of a lease liability expected to be paid in the next year is reported as a current liability.
d. Present value is irrelevant in accounting for leases.
Long-Term Liabilities 15 – 17

112. If the present value of lease payments equals or exceeds 90% of the fair market value of the leased property, the
a. conditions are met for the lease to be considered a capital lease. b. lease is uneconomical and should not be entered into.
c. lease may be classified as an operating lease.
d. recording of a lease liability is optional—that is, the off-balance sheet approach can be elected.

113. Each of the following may be shown in a supporting schedule instead of the balance sheet exceptthe
a. current maturities of long-term debt. b. conversion privileges.
c. interest rates. d. maturity dates.

114. The times interest earned ratio is computed by dividing a. net income by interest expense.
b. income before income taxes by interest expense.
c. income before interest expense by interest expense.
d. income before income taxes and interest expense by interest expense.

115. The discount on bonds payable or premium on bonds payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriateaddition or subtraction to bonds payable:

Premiumon Bonds Payable
a. Add b. Deduct c. Add d. Deduct
Discounton Bonds Payable Add Add Deduct Deduct

116. In a recent year Dart Corporation had net income of $140,000, interest expense of $30,000, and tax expense of $20,000. What was Dart Corporation’s times interest earned ratio for the year?
a. 6.33 b. 4.66 c. 5.33 d. 6.00

117. In a recent year Day Corporation had net income of $150,000, interest expense of $30,000, and a times interest earned ratio of 9. What was Day Corporation’s income before taxes for the year?
a. $300,000 b. $270,000 c. $240,000
d. None of the above.
15 – 18

118. The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2008, contained the following accounts.

5-year Bonds Payable 8% Bond Interest Payable Premiumon Bonds Payable Notes Payable (3 mo.) Notes Payable (5 yr.)
MortgagePayable ($15,000 due currently) Salaries Payable
Taxes Payable (due 3/15 of 2009)
$1,000,000 50,000 100,000 40,000 165,000 200,000 18,000 25,000

The total long-term liabilities reported on the balance sheet are a. $1,365,000.
b. $1,350,000. c. $1,465,000. d. $1,450,000.

119. The 2008 financial statements of Shadow Co. contain the following selected data (in millions).

Current Assets $ 75 Total Assets 120 Current Liabilities 40 Total Liabilities 85 Cash 8

The debt to total assets ratio is a. 70.8%.
b. 53.3%. c. 29.2%. d. 1.41%.

a120. The present value of a bond is also known as its a. face value.
b. market price. c. future value. d. deferred value.

a121. $3 million, 10%, 10-year bonds are issued at face value. Interest will be paid semi-annually. When calculating the market price of the bond, the present value of
a. $300,000 received for 10 periods must be calculated. b. $3 million received in 10 periods must be calculated. c. $3 million received in 20 periods must be calculated. d. $150,000 received for 10 periods must be calculated.

a122. Either the straight-line method or the effective-interest method of amortization will always result in
a. the same amount of interest expense being recognized over the term of the bonds. b. the same amount of interest expense being recognized each year.
c. more interest expense being recognized than if premium or discounts were not amortized.
d. the same carrying value each year during the term of the bonds.
Long-Term Liabilities 15 – 19

a123. A corporation issued $300,000, 10%, 5-year bonds on January 1, 2008 for $324,333, which reflects an effective-interest rate of 8%. Interest is paid semiannually on January 1 and July 1. If the corporation uses the effective-interest method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2008, is
a. $15,000. b. $12,000. c. $16,217. d. $12,973.

a124. A bond discount must
a. always be amortized using straight-line amortization.
b. always be amortized using the effective-interest method.
c. be amortized using the effective-interest method if it yields annual amounts that are materially different than the straight-line method.
d. be amortized using the straight-line method if it yields annual amounts that are materially different than the effective-interestmethod.

a125. When the effective-interestmethod of bond discount amortization is used,
a. the applicable interest rate used to compute interest expense is the prevailing market interest rate on the date of each interest payment date.
b. the carrying value of the bonds will decrease each period.
c. interest expense will not be a constant dollar amount over the life of the bond.
d. interest paid to bondholders will be a function of the effective-interest rate on the date the bonds are issued.

a126. When the effective-interest method of bond premium amortization is used, the a. amount of premium amortized will get larger with successive amortization. b. carrying value of the bonds will increase with successive amortization.
c. interest paid to bondholders will increase after each interest payment date. d. interest rate used to calculate interest expense will be the contractual rate.

Use the following information for questions 127–129.

Silcon Company issued $800,000 of 6%, 10-year bonds on one of its interest dates for $690,960 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used.

a127. What amount of discount (to the nearest dollar) should be amortized for the first interest period?
a. $22,542 b. $10,904 c. $14,554 d. $7,277

a128. The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a
a. debit to Bond Interest Expense for $48,000. b. credit to Cash for $55,277.
c. credit to Discount on Bonds Payable for $7,277. d. debit to Bond Interest Expense for $64,000.
15 – 20

a129. How much bond interest expense (to the nearest dollar) should be reported on the income statement for the end of the first year?
a. $55,422 b. $55,277 c. $55,131 d. $48,000

a130. On January 1, Jean Loptein Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Jean Loptein uses the effective-interest method of amortizing bond discount. At the end of the first year, Jean Loptein should report unamortized bond discount of
a. $164,700. b. $171,300. c. $154,830. d. $153,000.

a131. On January 1, Cleopatra Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $2,144,192. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Bond Interest Expense is for
a. $240,000. b. $251,162. c. $257,304. d. $280,000.

a132. On January 1, Hurley Corporation issues $1,000,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a
a. debit to Interest Expense, $60,000. b. debit to Interest Expense, $120,000.
c. credit to Discount on Bonds Payable, $4,000. d. credit to Discount on Bonds Payable, $8,000.

133. On January 1, 2008, $1,000,000, 10-year, 10% bonds, were issued for $970,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is
a. $9,700. b. $3,000. c. $808. d. $250.

134. A corporation issues $100,000, 10%, 5-year bonds on January 1, 2008, for $95,800. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2008’s adjusting entry is
a. $10,840. b. $10,000. c. $9,160. d. $840.
Long-Term Liabilities 15 – 21

a135. Roman Company issued $400,000 of 6%, 5-year bonds at 98, with interest paid annually. Assumingstraight-line amortization, what is the total interest cost of the bonds?
a. $120,000 b. $128,000 c. $112,000 d. $116,000

a136. Sunwood Company issued $500,000 of 6%, 5-year bonds at 98, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?
a. $490,000 b. $491,000 c. $492,000 d. $494,000

a137. Terrance Company issued $200,000 of 8%, 5-year bonds at 106. Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?
a. $16,000 b. $18,400 c. $13,600 d. $2,400

a138. Garcia Company issued $800,000 of 8%, 5-year bonds at 106, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?
a. $848,000 b. $843,200 c. $838,400 d. $852,800

a139. On January 1, 2008, $5,000,000, 5-year, 10% bonds, were issued for $4,850,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is
a. $29,040. b. $30,000. c. $2,420. d. $2,500.

a140. A corporation issues $300,000, 10%, 5-year bonds on January 1, 2008 for $287,400. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized on July 1, 2008 is
a. $31,260. b. $15,000. c. $16,260. d. $13,740.

a141. Over the term of the bonds, the balance in the Discount on Bonds Payable account will a. fluctuate up and down if the market is volatile.
b. decrease. c. increase.
d. be unaffected until the bonds mature.
15 – 22

a142. Bond discount should be amortized to comply with a. the historical cost principle.
b. the matching principle.
c. the revenue recognition principle. d. conservatism.

a143. If bonds have been issued at a discount, over the life of the bonds, the a. carrying value of the bonds will decrease.
b. carrying value of the bonds will increase.
c. interest expense will increase, if the discount is being amortized on a straight-line basis.
d. unamortized discount will increase.

Additional Multiple Choice Questions

144. The market value (present value) of a bond is a function of all of the following except the a. dollar amounts to be received.
b. length of time until the amounts are received. c. market rate of interest.
d. length of time until the bond is sold.

145. On the date of issue, Chudzick Corporation sells $2 million of 5-year bonds at 97. The entry to record the sale will include the following debits and credits:

Bonds Payable a. $1,940,000 Cr. b. $2,000,000 Cr. c. $2,000,000 Cr. d. $2,000,000 Cr.
Discount on Bonds Payable $0 Dr.
$60,000 Dr. $500,000 Dr. $6,000 Dr.

146. The market rate of interest for a bond issue which sells for more than its face value is a. independent of the interest rate stated on the bond.
b. higher than the interest rate stated on the bond. c. equal to the interest rate stated on the bond.
d. less than the interest rate stated on the bond.

147. When a company retires bonds before maturity, the gain or loss on redemption is the difference between the cash paid and the
a. carrying value of the bonds. b. face value of the bonds.
c. original selling price of the bonds. d. maturity value of the bonds.

148. Hoffman Corporation retires its bonds at 106 on January 1, following the payment of semi-annual interest. The face value of the bonds is $400,000. The carrying value of the bonds at the redemption date is $419,800.The entry to record the redemption will include a
a. credit of $19,800 to Loss on Bond Redemption. b. debit of $24,000 to Premium on Bonds Payable. c. credit of $4,200 to Gain on Bond Redemption. d. debit of $19,800 to Premium on Bonds Payable.
Long-Term Liabilities 15 – 23

149. Each payment on a mortgage note payable consists of a. interest on the original balance of the loan.
b. reduction of loan principal only.
c. interest on the original balance of the loan and reduction of loan principal. d. interest on the unpaid balance of the loan and reduction of loan principal.

150. Which of the following is not a condition under which the lessee must record the lease of an asset?
a. The lease contains a bargain purchase option.
b. The lease transfers ownership of the property to the lessee.
c. The lease term is equal to 60% of the economic life of the lease property.
d. The present value of the lease payments is 90% of the fair market value of the leased property.

151. The lessee must record a lease as an asset if the lease a. transfers ownership of the property to the lessor.
b. contains a purchase option.
c. term is 75% or more of the useful life of the leased property.
d. payments equal or exceed 90% of the fair market value of the leased property.

152. Buffon Electronics Company issues an $800,000, 10%, 20-year mortgage note on January 1. The terms provide for semiannual installment payments, exclusive of real estate taxes and insurance, of $46,621. After the first installment payment, the principal balance is
a. $800,000. b. $786,427. c. $793,379. d. $779,125.

153. The debt to total assets ratio is computed by dividing a. long-term liabilities by total assets.
b. total debt by total assets. c. total assets by total debt.
d. total assets by long-term liabilities.

a154. The market price of a bond is the
a. present value of its principal amount at maturity plus the present value of all future interest payments.
b. principal amount plus the present value of all future interest payments. c. principal amount plus all future interest payments.
d. present value of its principal amount only.

BRIEFEXERCISES
BE 155
ShafferInc. is considering two alternatives to finance its construction of a new $5 million plant. (a) Issuance of 500,000 shares of common stock at the market price of $10 per share.
(b) Issuance of $5 million, 8% bonds at par.

Instructions
Completethe following table.

Incomebefore interest and taxes

Issue Stock $1,400,000

Issue Bonds $1,400,000

Interest expense from bonds

Incomebefore income taxes $ $

Incometax expense (30%)

Net income $ $

Outstandingshares 700,000

Earningsper share

BE 156

On January 1, 2008, Beltway Enterprises issued 11%, 5-year bonds with a face amount of $900,000at par. Interest is payable semiannually on June 30 and December 31.

Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest payment.

BE 157

On January 1, 2008, Kentwood Company issued bonds with a face value of $500,000. The bonds carry a stated interest of 7% payable each January 1 and July 1.

Instructions

a. Prepare the journal entry for the issuance assuming the bonds are issued at 97. b. Prepare the journal entry for the issuance assuming the bonds are issued at 102.

BE 158

On July 1, 2008, Frodo Corporation issued $800,000, 6%, 10-year bonds at face value. Interest is payable semiannuallyon January 1 and July 1. Frodo Corporation has a calendar year end.

Instructions

Prepareall entries related to the bond issue for 2008.

BE 159

On January 1, 2008, Zooland Enterprises sold 12%, 10-year bonds with a face amount of $1,000,000for $970,000. Interest is payable semiannuallyon July 1 and January 1.

Instructions
Calculatethe carrying value of the bond at December 31, 2008 and 2009.

BE 160

Delta Company issued bonds with a face amount of $1,000,000 in 2003. As of January 1, 2008, the balance in Discount on Bonds Payable is $4,800. At that time, Delta redeemed the bonds at 102.

Instructions

Assumingthat no interest is payable, make the entry to record the redemption.

BE 161

Nicholson Inc. issues an $800,000, 10%, 10-year mortgage note on December 31, 2008, to obtain financing for a new building. The terms provide for semiannual installment payments of $64,194.

Instructions

Prepare the entry to record the mortgage loan on December 31, 2008, and the first installment payment.

BE 162

Franco Corporation reports the following selected financial statement information at December 31, 2008:
Total Assets $89,000 Total Liabilities 65,000 Net Income 27,000 InterestIncome 1,600 Interest Expense 900 Tax Expense 300

Instructions
Calculatethe debt to total assets and times interest earned ratios.

BE 163

On January 1, 2008, Fabian Enterprises issued 9%, 10-year bonds with a face amount of $700,000 at 96. Interest is payable semiannually on June 30 and December 31. The bonds were issued for an effective interest rate of 10%.

Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest payment assuming that the company uses effective-interestamortization.

BE 164

On January 1, 2008, Halston Enterprises issued 8%, 20-year bonds with a face amount of $3,000,000at 101. Interest is payable semiannuallyon June 30 and December 31.

Instructions

Prepare the entries to record the issuance of the bonds and the first semiannual interest payment assuming that the company uses straight-line amortization.

EXERCISES
Ex. 165
Banks Company is considering two alternatives to finance its purchase of a new $4,000,000 office building.
(a) Issue 400,000 shares of common stock at $10 per share. (b) Issue 8%, 10-year bonds at par ($4,000,000).

Income before interest and taxes is expected to be $2,000,000. The company has a 30% tax rate and has 600,000 shares of common stock outstanding prior to the new financing.

Instructions
Calculateeach of the following for each alternative: (1) Net income.
(2) Earnings per share.
Long-Term Liabilities 15 – 29

Ex. 166

The board of directors of Finley Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $4,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares of $5 par value common stock which is selling for $40 per share on the open market. Finley Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $700,000 if the new factory equipment is purchased.

Instructions

Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.

Ex. 167

United Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:

1. Issue 50,000 shares of $10 par value common stock at $50 per share. 2. Issue $2,500,000, 10%, 10-year bonds at par.
15 – 30

Ex. 167 (cont.)

It is estimated that the company will earn $800,000 before interest and taxes as a result of acquiring the medical equipment. The company has an estimated tax rate of 30% and has 100,000shares of common stock outstanding prior to the new financing.

Instructions
Determinethe effect on net income and earnings per share for these two methods of financing.

Ex. 168

Three plans for financing a $20,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount and the income tax rate is estimated at 30%.
Plan 1 Plan 2 Plan 3
9% Bonds — — $10,000,000 6% Preferred Stock, $100 par — $10,000,000 5,000,000 CommonStock, $10 par $20,000,000 10,000,000 5,000,000 Total $20,000,000 $20,000,000 $20,000,000

It is estimated that income before interest and taxes will be $4,000,000.

Instructions

Determinefor each plan, the expected net income and the earnings per share on common stock.
Long-Term Liabilities 15 – 31

Ex. 169

Taylor Corporation issued $3 million, 10-year, 6% bonds on January 1, 2008.

Instructions
Preparethe entry to record the sale of these bonds, assuming they were issued at (a) 98.
(b) 103.

Ex. 170

On January 1, 2008, Kohl Corporation issued $700,000, 8%, 10-year bonds at face value. Interest is payable semiannually on July 1 and January 1. Kohl Corporation has a calendar year end.

Instructions
Prepareall entries related to the bond issue for 2008.

Ex. 171

On January 1, Porter Corporation issued $800,000, 6%, 5-year bonds at face value. Interest is payable semiannuallyon July 1 and January 1.

Instructions
Preparejournal entries to record the (a) Issuance of the bonds.
(b) Payment of interest on July 1, assuming no previous accrual of interest. (c) Accrual of interest on December 31.

Ex. 172

Wood Company retired $300,000 face value, 9% bonds on June 30, 2008 at 98. The carrying value of the bonds at the redemption date was $305,000.

Instructions
Preparethe journal entry to record the redemption of the bonds.

Ex. 173

Presentedbelow are three independent situations:

(a) Howell Corporation purchased $250,000 of its bonds on June 30, 2008, at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $229,500. The bonds pay semiannual interest and the interest payment due on June 30, 2008, has been made and recorded.

(b) Justice, Inc. purchased $200,000 of its bonds at 97 on June 30, 2008, and immediately retired them. The carrying value of the bonds on the retirement date was $196,500. The bonds pay semiannual interest and the interest payment due on June 30, 2008, has been made and recorded.

(c) Starr Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay semiannual interest on June 30 and December 31 of each year. The bonds are convertible into 40 shares of Starr $5 par value common stock for each $1,000 par value bond. On December 31, 2008, after the bond interest has been paid, $30,000 par value of bonds were converted. The market value of Starr’s common stock was $38 per share on December 31, 2008.

Instructions

For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds.

Ex. 174

Riley Company issued a $1,500,000, 10%, 10-year mortgage note payable to finance the construction of a building at December 31, 2008. The terms provide for semiannual installment payments of $120,365.

Instructions
Preparethe entry to record:
(a) the mortgage loan on December 31, 2008. (b) the first installment payment.

Ex. 175

Downey Corporation issues a $2,000,000, 12%, 20-year mortgage note payable on December 31, 2008, to obtain needed financing for the construction of a building addition. The terms provide for semiannual installment payments of $132,924 on June 30 and December 31.

Instructions

(a) Prepare the journal entries to record the mortgage loan on December 31, 2008, and the first installment payment.

(b) Will the amount of principal reduction in the second installment payment be more or less than with the first installment payment?

Ex. 176

Presented below are three different aircraft lease transactions that occurred for Midwest Airways in 2008. All the leases start on January 1, 2008. In no case does Midwest receive title to the aircraft during or at the end of the lease period; nor is there a bargain purchase option.

Lessor

Type of property Yearlyrental Lease term
Estimatedeconomic life Fair market value of
leased asset Presentvalue of lease
rental payments
Vannoy Insurance

747 Aircraft $7,445,064 15 years 25 years

$69,300,000

$63,000,000
Mark Leasing

727 Aircraft $5,449,423 15 years 25 years

$54,000,000

$46,000,000
Gregg Leasing

L-1011 Aircraft $2,851,861
20 years 25 years

$32,000,000

$28,000,000

Instructions
(a) Which of the above leases are operating leases and which are capital leases? Explain your answer.
(b) How should the lease transaction with Vannoy Insurance be recorded in 2008? (c) How should the lease transaction with Mark Leasing be recorded in 2008?

Ex. 177

Ley Corporation entered into the following transactions:

1. Gant Car Rental leased a car to Ley Corporation for one year. Terms of the operating lease call for monthly payments of $750.

2. On January 1, 2008, Ley Corporation entered into an agreement to lease 20 machines from Weiss Corporation. The terms of the lease agreement require an initial payment of $300,000 and then three annual rental payments of $360,000 beginning on December 31, 2008. The present value of the three rental payments is $895,265. The lease is a capital lease.

Instructions

Prepare the appropriate journal entries to be made by Ley Corporation in January related to the lease transactions.

Ex. 178

On January 1, 2008, Rilee Inc. entered into an agreement to lease equipment from Finley Corporation. The lease agreement requires five annual rental payments of $70,000 beginning December 31, 2008. The present value of the rental payments is $265,356. The lease transfers substantially all the benefits and risks of ownership to Rilee.

Instructions
Preparethe entry to record the lease agreement on the books of Rilee Inc. on January 1, 2008.

Ex. 179

The adjusted trial balance for Payne Corporation at the end of the current year contained the following accounts:

Bonds payable, 10%……………………………………………………. Bond interest payable………………………………………………….. Discounton bonds payable………………………………………….. Lease liability……………………………………………………………… Mortgagenotes payable, 9%, due 2011…………………………. Accountspayable………………………………………………………..
$800,000 20,000 40,000 60,000 80,000 120,000

Instructions
(a) Prepare the long-term liabilities section of the balance sheet.
(b) Indicate the proper balance sheet classification for the accounts listed above that do not belong in the long-term liabilities section.

Ex. 180

On January 1, 2008, Quayle Corporation issued $400,000, 9%, 5-year bonds for $384,556. The bonds were sold to yield an effective-interest rate of 10%. Interest is paid semiannually on June 30 and December 31. The company uses the effective-interest method of amortization.

Instructions
(a) Prepare a bond discount amortization schedule which shows the amortization of discount for the first two interest payment dates. (Round to the nearest dollar.)

(b) Prepare the journal entries that Quayle Corporation would make on January 1, June 30, and December31, 2008, related to the bond issue.

Ex. 181

On June 30, 2008, Wayne, Inc. sold $2,000,000 (face value) of bonds. The bonds are dated June 30, 2008, pay interest semiannually on December 31 and June 30, and will mature on June 30, 2011. The following schedule was prepared by the accountant for 2008.

Semi-Annual Interest Period

1
Interestto

be Paid

$80,000
Interest Expense

$87,750

Amortization

$7,750
Unamortized
Amount
$50,000 42,250
Bond Carrying Value
$1,950,000 1,957,750

Instructions
On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)

1. What is the stated interest rate for this bond issue?

2. What is the market interest rate for this bond issue?

3. What was the selling price of the bonds as a percentage of the face value?

4. Prepare the journal entry to record the sale of the bond issue on June 30, 2008.

5. Prepare the journal entry to record the payment of interest and amortization on December 31, 2008.

Ex. 182

On January 1, 2008, Lester Corporation issued $2,000,000, 9%, 5-year bonds dated January 1, 2008, at 96. The bonds pay semiannual interest on January 1 and July 1. The company uses the straight-line method of amortization and has a calendar year end.

Instructions
Prepare all the journal entries that Lester Corporation would make related to this bond issue through January 1, 2009. Be sure to indicate the date on which the entries would be made.

Ex. 183

Unruh Company issued $900,000, 10%, 20-year bonds on January 1, 2008, at 104. Interest is payable semiannually on July 1 and January 1. Unruh uses the straight-line method of amortization and has a calendar year end.

Instructions

Prepareall journal entries made in 2008 related to the bond issue.

Ex. 184

Karly Company issued $250,000, 11%, 10-year bonds on December 31, 2008, for $230,000. Interest is payable semiannually on June 30 and December 31. Karly uses the straight-line method of amortization and has a calendar year end.

Instructions
Preparethe appropriatejournal entries on (a) December 31, 2008.
(b) June 30, 2009.

COMPLETION STATEMENTS

185. Bonds that mature at a single specified future date are called bonds, whereas bonds that mature in installments are called bonds.

186. The terms of a bond issue are set forth in a formal legal document called a bond

.

187. Unsecured bonds that are issued against the general credit of the borrower are called

bonds.

188. If bonds were issued at a premium, then the contractual interest rate was

than the market interest rate.

189. Discount on Bonds Payable is (from)(to) bonds payable on the balance sheet. Premium on Bonds Payable is (from)(to) bonds payable on the balance sheet.

190. If bonds are issued at face value (par), it indicates that the interest rate must be equal to the interest rate.

191. If a $1 million, 10%, 10-year bond issue was sold at 96, the cash proceeds from the issuance of the bonds amounted to $ .

192. When bonds are converted into common stock and the conversion is recorded, the

of the bonds is transferred to paid-in capital accounts.

193. A lease may be classified as an lease or as a

lease.

a194. The market price of a bond is obtained by discounting to its present value the

paid at maturity, and all payments to be made over the term of the bond.

a195. When there is a difference between the straight-line and effective-interest methods of amortization, the method is required under GAAP.

a196. A method of amortizing bond discount or premium that allocates an equal amount each period is the method.

a197. The straight-line method of amortization allocates the same amount to

in each interest period.

MATCHING

198. Match the items below by entering the appropriate code letter in the space provided.

A. Serial bonds
B. Debenturebonds C. Bond indenture
D. Premiumon bonds payable E. Discounton bonds payable
F. Effective-interestmethod of amortization
G. Straight-linemethod of amortization H. Bonds
I. Debt to total assets ratio J. Capital lease
K. Operatinglease L. Registeredbonds

1. A contractual arrangement which is in effect a purchase of property.

2. A legal document that sets forth the terms of a bond issue.

3. Bonds that mature in installments.

a4. Produces a periodic interest expense equal to a constant percentage of the carrying value of the bonds.

5. Bonds issued in the name of the owner.

6. A form of interest-bearing notes payable used by corporations.

7. Occurs when the contractual interest rate is greater than the market interest rate.

8. Unsecured bonds issued against the general credit of the borrower.

9. A contractual arrangement that gives the lessee temporary use of property.

10. A solvency measure that indicates the percentage of assets provided by creditors.

11. Occurs when the contractual interest rate is less than the market interest rate.

a12. Produces a periodic interest expense that is the same amount each interest period.

SHORT-ANSWERESSAY QUESTIONS
S-AE 199
Bonds are frequently issued at amounts greater or less than face value. Describe how the market interest rate, relative to the contractual interest rate, affects the selling price of bonds. Also explain the rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payment dates.

S-AE 200

A company desires to replace its current plant equipment with new equipment that costs $10,000,000. One possibility would be for the company to issue $10,000,000 of bonds and use the proceeds to purchase the equipment. Another possibility is to acquire the use of the equipment by signing a long-term capital lease with a leasing company. Describe and compare the financial statement effects of these two alternatives.

S-AE 201

When a bond sells at a discount, what is probably true about the market interest rate versus the stated interest rate? Discuss.

S-AE 202

Bonds may be redeemed (retired) before maturity by the issuing corporation. Explain why a company would decide to retire bonds before maturity and the necessary steps to record the redemption.

S-AE 203 (Ethics)

Jeff Weaver, a 26-year-old entrepreneur, started Bells & Whistles (B&W), Inc., a firm that specializes in top-of-the-line add-ons for computer systems. The firm has a capital structure of approximately 60% debt. This was necessitated by the rapid growth of B&W, and Mr. Weaver’s lack of personal funds to sustain the growth. The 60% debt amount is quite high for firms in this field, and in fact slightly exceeds the debt covenants negotiated with the bank. B&W recently received notice that the bank considers the company’s debt to be excessive, and that some accelerated repayment schedule will be adopted. The notice came at a particularly bad time. B&W is in the midst of a major upgrade of its own computer system. The hardware was to have been purchased outright, financed by the seller, Mike Bogg, longtime friend of Mr. Weaver.

Mr. Bogg really needs Mr. Weaver’s business. Both believe in the long-term strength of B&W. He therefore suggests to Mr. Weaver that the equipment be purchased by means of a short-term lease. Mr. Weaver could renew the lease annually.

Required:
1. Is Mr. Bogg’s suggestion ethical? Explain.
2. If Mr. Weaver accepts the suggestion, is he behaving ethically? Explain.

S-AE 204 (Communication)

Betty Jones works for Trend Press, a fairly large book publishing firm. Her best friend and rival, Rita, works for Walden Books, a smaller publisher. Both companies issue $100,000 in bonds on July 1. Trend’s bonds were issued at a discount, while Walden’s were issued at a premium. Rita sent Betty a fax the next day. She told Betty that it was obvious who the better publisher was— the market had shown its preference! She reminded Betty again of her recent increase in salary as further proof of the superiority of Walden Books.

Required:

Draft a short note for Betty to send to Rita. Explain how such a result could occur.