The Impact of Management and decisions
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Student ID: 21458913
Exam: 061524RR - The Impact of Management Decisions and Other Topics
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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.
Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands)
Year 2 Year 1
Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net
$180
210 130 50
570
1,540
$180 180 120
50 530
1,480
Total assets $2,110 $2,010
Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Noncurrent liabilities: Bonds payable Total liabilities Stockholders' equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital--common stock Retained earnings Total stockholders' equity Total liabilities & stockholders' equity
$100
60 90
250
480 730
120 180 240 840
1,380 $2,110
$130
60 120 310
500 810
120 180 240 660
1,200 $2,010
Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income
$2,760 1,930
830 330 500
50 450 135
$315
1. Larkins Company's dividend payout ratio for Year 2 was closest to: A. 42.9%
B. 14.8%
C. 24.6%
D. 40.6%
Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands)
Year 2 Year 1
Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net
$180
210 130 50
570
1,540
$180 180 120
50 530
1,480
Total assets $2,110 $2,010
Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Noncurrent liabilities: Bonds payable Total liabilities Stockholders' equity: Preferred stock, $20 par, 10% Common stock, $10 par
$100
60 90
250
480 730
120 180
$130
60 120 310
500 810
120 180
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
Additional paid-in capital--common stock Retained earnings Total stockholders' equity Total liabilities & stockholders' equity
240 840
1,380 $2,110
240 660
1,200 $2,010
Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)
Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income
$2,760 1,930
830 330 500
50 450 135
$315
2. Larkins Company's earnings per share of common stock for Year 2 was closest to: A. $16.83.
B. $25.00.
C. $7.21.
D. $17.50.
3. A company's current ratio and acid-test ratios are both greater than 1. If obsolete inventory is written off, this would A. increase the acid-test ratio.
B. increase net working capital.
C. decrease the current ratio.
D. decrease the acid-test ratio.
Use the following information to answer this question. The most recent balance sheet and income statement of Teramoto Corporation appear below:
Comparative Balance Sheet Ending
Balance
Beginning Balance
Assets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment Less accumulated depreciation Total assets
$43
53 73
582 301
$450
$35
59 69
490 286
$367
Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock Retained earnings Total liabilities and stockholders' equity
$57
21 15 21 20 55
261 $450
$48
18 13 20 21 50
197 $367
Income Statement
Sales Cost of good sold Gross margin Selling and administrative expense Net operating income Income taxes Net income
$893 587 306 189 117 35
$82
4. The net cash provided by (used by) operations for the year was A. $52.
B. $30.
C. $112.
D. $117.
5. Kava Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as K65. Data concerning this product are given below:
The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost. (Source: CMA, adapted) The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling expense on this special order, and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company wouldn't be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company shouldn't go?
Per Unit
Selling price $180
Direct materials $29
Direct labor $5
Variable manufacturing overhead $4
Fixed manufacturing overhead $21
Variable selling expense $2
Fixed selling and administrative expense $17
A. $38
B. $78
C. $180
D. $59
Use the following information to answer this question. The most recent balance sheet and income statement of Teramoto Corporation appear below:
Comparative Balance Sheet Ending
Balance
Beginning Balance
Assets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment Less accumulated depreciation Total assets
$43
53 73
582 301
$450
$35
59 69
490 286
$367
Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock Retained earnings Total liabilities and stockholders' equity
$57
21 15 21 20 55
261 $450
$48
18 13 20 21 50
197 $367
Income Statement
Sales Cost of good sold Gross margin Selling and administrative expense Net operating income Income taxes Net income
$893 587 306 189 117 35
$82
6. The net cash provided by (used by) investing activities for the year was A. $77.
B. $92.
C. ($77).
D. ($92).
7. Fonics Corporation is considering the following three competing investment proposals:
Using the project profitability index, how would the above investments be ranked (highest to lowest)?
Aye Bee Cee
Initial investment required $62,000 $74,000 $95,000
Net present value $10,000 $8,000 $12,000
Internal rate of return 15% 17% 18%
A. Aye, Bee, Cee
B. Aye, Cee, Bee
C. Bee, Cee, Aye
D. Cee, Bee, Aye
8. A weakness of the internal rate of return method for screening investment projects is that it A. doesn't take into account all of the cash flows from a project.
B. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.
C. implicitly assumes that the company is able to reinvest cash flows from the project at the company's discount rate.
D. doesn't consider the time value of money.
9. Cridwell Company's selling and administrative expenses for last year totaled $210,000. During the year, the company's prepaid expense account balance increased by $18,000, and accrued liabilities increased by $12,000. Depreciation charges for the year were $24,000. Based on this information, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be A. $192,000.
B. $240,000.
C. $180,000.
D. $228,000.
Use the following information to answer this question. The most recent balance sheet and income statement of Teramoto Corporation appear below:
Comparative Balance Sheet Ending
Balance
Beginning Balance
Assets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment Less accumulated depreciation Total assets
$43
53 73
582 301
$450
$35
59 69
490 286
$367
Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock Retained earnings Total liabilities and stockholders' equity
$57
21 15 21 20 55
261 $450
$48
18 13 20 21 50
197 $367
Income Statement
Sales Cost of good sold Gross margin Selling and administrative expense Net operating income
$893 587 306 189 117
Income taxes Net income
35 $82
10. The net cash provided by (used by) financing activities for the year was A. $1.
B. ($18).
C. $5.
D. ($12).
11. The net present value method assumes that the project's cash flows are reinvested at the A. discount rate used in the net present value calculation.
B. internal rate of return.
C. simple rate of return.
D. payback rate of return.
12. Which of the following would be classified as a financing activity on the statement of cash flows? A. Interest received on investments in another company's bonds
B. Interest paid on bonds issued by the reporting company
C. Dividends received on investments in another company's common stock
D. Dividends paid to shareholders of the company on the company's common stock
Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands)
Year 2 Year 1
Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net
$180
210 130 50
570
1,540
$180 180 120
50 530
1,480
Total assets $2,110 $2,010
Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Noncurrent liabilities: Bonds payable
$100
60 90
250
480
$130
60 120 310
500
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
Total liabilities Stockholders' equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital--common stock Retained earnings Total stockholders' equity Total liabilities & stockholders' equity
730
120 180 240 840
1,380 $2,110
810
120 180 240 660
1,200 $2,010
Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)
Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income
$2,760 1,930
830 330 500
50 450 135
$315
13. Larkins Company's book value per share at the end of Year 2 was closest to: A. $70.00.
B. $10.00.
C. $23.33.
D. $76.67.
Use the following information to answer this question. Financial statements for Larkins Company appear below: Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1
Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net
$180
210 130 50
570
1,540
$180 180 120
50 530
1,480
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
Total assets $2,110 $2,010
Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Noncurrent liabilities: Bonds payable Total liabilities Stockholders' equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital--common stock Retained earnings Total stockholders' equity Total liabilities & stockholders' equity
$100
60 90
250
480 730
120 180 240 840
1,380 $2,110
$130
60 120 310
500 810
120 180 240 660
1,200 $2,010
Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)
Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income
$2,760 1,930
830 330 500
50 450 135
$315
14. Larkins Company's return on total assets for Year 2 was closest to: A. 15.3%.
B. 13.6%.
C. 16.0%.
D. 17.0%.
15. Brittman Corporation makes three products that use the current constraint-a particular type of machine. Data concerning those products appear below:
IP NI YD
Selling price per unit $183.57 $207.74 $348.15
Variable cost per unit $144.42 $155.04 $269.50
Minutes on the constraint 2.90 3.40 5.50
Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? A. $78.65 per unit
B. $15.50 per minute
C. $39.15 per unit
D. $13.50 per minute
16. Degner Inc. has some material that originally cost $19,500. The material has a scrap value of $13,300 as is, but if reworked at a cost of $2,100, it could be sold for $14,000. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap? A. -$1,400
B. $11,900
C. -$20,900
D. -$7,600
17. (Ignore income taxes in this problem.) The following data pertain to an investment:
The net present value of the proposed investment is
Cost of the investment $18,955
Life of the project 5 years
Annual cost savings $5,000
Estimated salvage value $1,000
Discount rate 10%
A. $3,355.
B. $(3,430).
C. $0.
D. $621.
18. (Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment:
Assuming that the cash inflows occur evenly over the year, the payback period for the investment is _______ years.
Year Cash Inflows
1 $120,000
2 60,000
3 40,000
4 40,000
5 40,000
Total $300,000
A. 0.75
End of exam
B. 1.67
C. 2.50
D. 4.91
19. Products A, B, and C are produced from a single raw material input. The raw material costs $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. Product A should be A. processed further, since this will increase profits by $12,500 each period.
B. sold at the split-off point, since further processing would result in a loss of $0.50 per unit.
C. processed further, since this will increase profits by $2,500 each period.
D. sold at the split-off point, since further processing will result in a loss of $2,500 each period.
20. VIM Company purchased $100,000 in inventory from its suppliers on credit terms. The company's acid-test ratio would most likely A. increase.
B. decrease.
C. be unchanged.
D. be impossible to determine without more information.