Management Accounting Exam 3: Chp 12, 13,14, 15

24 Questions | Total Attempts: 51

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Management Accounting Exam 3: Chp 12, 13,14, 15

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Questions and Answers
  • 1. 
    Jones Company is a merchandiser whose income statement for Year 2 follows: The company's selling and administrative expense for Year 2 includes $80 of depreciation expense. Selected balance sheet accounts for Jones at the end of Years 1 and 2 are as shown on next page: Required: 1.    Using the direct method, convert the company's income statement to a cash basis. 2.    Assume that during Year 2 Jones has a $7,000 gain on the sale of investments and a $2,000 loss on the sale of equipment. Explain how these two transactions would affect your computations in (1) above.
  • 2. 
    Cung Inc. has some material that originally cost $68,400. The material has a scrap value of $30,100 as is, but if reworked at a cost of $1,400, it could be sold for $30,800. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?
  • 3. 
  • 4. 
    Management at Kelsh is pondering the elimination of North Division. If North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of North Division would result in an overall company net operating income of:
  • 5. 
    In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $172,000 of the fixed selling and administrative expenses are avoidable if product J14V is discontinued. What would be the effect on the company's overall net operating income if product J14V were dropped?
  • 6. 
    Beilke Corporation processes sugar beets in batches that it purchases from farmers for $53 a batch. A batch of sugar beets costs $12 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20 or processed further for $10 to make the end product industrial fiber that is sold for $26. The beet juice can be sold as is for $30 or processed further for $29 to make the end product refined sugar that is sold for $79. Which of the intermediate products should be processed further?
  • 7. 
    Minden Company’s required rate of return is 7%. The company can purchase a new machine at a cost of $41,900. The new machine would generate cash inflows of $11,000 per year and have a four-year life with no salvage value. Compute the machine’s net present value. (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Negative amount should be indicated with minus sign. Omit the "$" sign in your response.)
  • 8. 
    Invest in Project A Invest in Project B   Investment required $ 13,000    $ 13,000     Annual cash inflows $ 2,000      $ 0     Single cash inflow at the end of 15 years     $ 51,000     Life of the project 15 years   15 years   Sharp Company has $13,000 to invest. The company is trying to decide between two alternative uses of the funds as follows: Sharp Company uses a 11% discount rate. (Ignore income taxes.) Determine the net present value. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
  • 9. 
    A B   Cost of equipment required $360,000     $0       Working capital investment required $0     $360,000       Annual cash inflows $97,000     $76,000       Salvage value of equipment in eleven years $38,000     $0       Life of the project 11 years     11 years     Wriston Company has $360,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows: The working capital needed for project B will be released for investment elsewhere at the end of eleven years. Wriston Company uses a 15% discount rate. (Ignore income taxes.) Calculate net present value for each project. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.Omit the "$" sign in your response.)  
  • 10. 
    Cost of equipment required $ 790,000      Annual net cash receipts $ 335,000*     Working capital required $ 240,000      Cost of road repairs in three years $ 69,000      Salvage value of equipment in ten years $ 100,000      Renfree Mines, Inc., owns the mining rights to a large tract of land in a mountainous area. The tract contains a mineral deposit that the company believes might be commercially attractive to mine and sell. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after ten years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 16%. (Ignore income taxes.) Determine the net present value of the proposed mining project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
  • 11. 
    Purchase cost of the plane $ 870,000     Annual cost of servicing, licenses, and taxes $ 9,000     Repairs:         First three years, per year $ 3,000       Fourth year $ 5,000       Fifth year $ 10,000   Blinko Products wants an airplane for use by its corporate staff. The airplane that the company wishes to acquire, a Zephyr II, can be either purchased or leased from the manufacturer. The company has made the following evaluation of the two alternatives:      Purchase alternative. If the Zephyr II is purchased, then the costs incurred by the company would be as follows: The plane would be sold after five years. Based on current resale values, the company would be able to sell it for about one-half of its original cost at the end of the five-year period.   Lease alternative. If the Zephyr II is leased, then the company would have to make an immediate deposit of $62,000 to cover any damage during use. The lease would run for five years, at the end of which time the deposit would be refunded. The lease would require an annual rental payment of $170,000 (the first payment is due at the end of Year 1). As part of this lease cost, the manufacturer would provide all servicing and repairs, license the plane, and pay all taxes. At the end of the five-year period, the plane would revert to the manufacturer, as owner.      Blinko Products’ required rate of return is 10%. (Ignore income taxes.) Use the total-cost approach to determine the present value of the cash flows associated with purchase alternative. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Use the total-cost approach to determine the present value of the cash flows associated with lease alternative. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
  • 12. 
    "Round to nearest one decimal point" The gross margin percentage is closest to:
  • 13. 
    Crandler Company's net income last year was $60,000. The company paid preferred dividends of $20,000 and its average common stockholders' equity was $500,000. The company's return on common stockholders' equity for the year was closest to:
  • 14. 
    Artist Company's net income last year was $500,000. The company has 150,000 shares of common stock and 40,000 shares of preferred stock outstanding. There was no change in the number of common or preferred shares outstanding during the year. The company declared and paid dividends last year of $1.70 per share on the common stock and $0.70 per share on the preferred stock. The earnings per share of common stock is closest to:
  • 15. 
    The price-earnings ratio is:
  • 16. 
    Boggs Company has 40,000 shares of common stock outstanding. The book value per share of this stock was $60.00 and the market value per share was $75.00 at the end of the year. Net income for the year was $400,000. Interest on long term debt was $40,000. Dividends paid to common stockholders were $3.00 per share. The tax rate was 30%. The company's price-earnings ratio at the end of the year was:
  • 17. 
    Brandon Company's net income last year was $65,000 and its interest expense was $20,000. Total assets at the beginning of the year were $640,000 and total assets at the end of the year were $690,000. The company's income tax rate was 30%. The company's return on total assets for the year was closest to:
  • 18. 
    Vessels Corporation's net income for the most recent year was $2,532,000. A total of 200,000 shares of common stock and 200,000 shares of preferred stock were outstanding throughout the year. Dividends on common stock were $3.80 per share and dividends on preferred stock were $1.25 per share. The earnings per share of common stock is closest to:
  • 19. 
    Delatrinidad Corporation's net income last year was $7,736,000. The dividend on common stock was $12.60 per share and the dividend on preferred stock was $2.80 per share. The market price of common stock at the end of the year was $53.30 per share. Throughout the year, 400,000 shares of common stock and 200,000 shares of preferred stock were outstanding. The dividend payout ratio is closest to:
  • 20. 
    Last year, Shadow Corporation's dividend on common stock was $9.90 per share and the dividend on preferred stock was $1.00 per share. The market price of common stock at the end of the year was $68.10 per share. The dividend yield ratio is closest to:
  • 21. 
    The beginning balance of total assets was $140,000 and the ending balance was $90,000. The return on total assets is closest to:
  • 22. 
    Net income for Year 2 was $145,000. Dividends on common stock were $55,000 in total and dividends on preferred stock were $20,000 in total. The return on common stockholders' equity for Year 2 is closest to:
  • 23. 
    Grasse Company had $160,000 in sales on account last year. The beginning accounts receivable balance was $10,000 and the ending accounts receivable balance was $12,000. The company's average collection period was closest to:
  • 24. 
    Irastan Company, a retailer, had cost of goods sold of $250,000 last year. The beginning inventory balance was $28,000 and the ending inventory balance was $20,000. The company's average sale period was closest to: