BA 10 - Accounting and Finance - Fall 2002 - Robinson

BA 10 - Accounting and Finance - Fall 2002 - Robinson -...

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Unformatted text preview: ACCOUNTING AND FINANCE FnLL zoo z i ugba 10 "5% Principles of Business or BUSENESS October 2002 Module 3 Exam: Accounting & Finance David Robinson Make sure your family name comes first! Instructions - This is an exam—please do not talk 0 Your books and notes must be put completely a a t Of 0 You need a Scantron 882 BS or E . raise yo ur hand - While you are waiting t s #2 pencil; if you are without either, an o 'n, enter the following on your Scantron: Name: LAST, First M. Subject: 1234-5678 your Student Identification Number TcstN0.: (A, B, C, or D] This is the test version—you won’t know this until . you open the test Date: (1, 2, etc) This module number Hour: Your Section number: (101 116) ugba-1O Accounting & Finance 1 1. Public accounting firms have made more money from consulting to companies than from auditing the same firms. This raises the fear that their audits could lack objectivity. The SEC tried to ban consulting work by the auditing firms, but had to settle for a rule which requires: a. Accounting firms to give companies a discount on audits b. Accounting firms to turn over money from auditing to the Federal government ' Companies to disclose how much they pay their auditors for consulting d. That companies can no longer deduct audit expenses from taxable income. 2. Auditors have to sign a letter saying that a firm’s books are in good shape. According to a Wall Street Journal article, in the few cases where auditors have refused to sign the letter: (’52 The stock market was already aware of the firm’s problems They later went back and signed the audit—approval letter c. They had part—ownership in the firm being audited / d." This came as a complete surprise to the stock markets 3. If a US firm is “registered in the Cayman Islands”, as an investOr, a f you are likely to believe: / a. The firm is trying to reduce its US taxes b. The firm is likely to disclose more about its operations than if it were registered in Delaware c. The firm is likely to disclose less about its operations than if it were registered in Delaware d. A and B are correct We”; A and C are correct 4. The Federal Reserve is usually hailed as a model central bank, in part because of its regional structure, but one criticism is: _. a. There is only one branch of the bank in Canada . b. There are too many branches in New York 56;} There is only one branch of the bank West of the Rockies There are too many regional branches in California 5. What form of financing is commonly used by furniture and clothing manufacturers and provides short-term cash? a. Commercial paper Factoring c. A “floor plan” 0 d. None of the above 2 ugba-iO Accounting & Finance 6. A bank offers customers to re—mortgage their house for a “vacation of a lifetime”. The new mortgage will be paid off over 30 years. This \ 15: fl A good thing, as it’s “free money” b. A bad thing because mortgage interest rates are much higher than credit card interest rates % A good thing because houses always appreciate in value d." A bad thing because it’s a long-term source of money for a short-term use. 7. The best advice for equity [stock market] investment for people who are investing for long time periods is: ,a.,- Index funds are likely to beat investment in actively managed ‘ W funds b. Choosing any single stock on the NYSE is likely to do as well as the underlying index c. Actively managed funds are likely to beat index stocks (1. NYSE-listed stocks usually beat NASDAQ stocks over the long haul 8. Your bank gives you a choice on your next car loan: You can either make monthly payments over 48 months, or you can make 4 annual payments at the end of each year. Which would cost you . the most in_t_q13fi [summed over the life of the loan)? a.: “1015126: payments monthly b. Make payments at the end of each year 9. Most retirement plans allow you a choice between taking a “lump sum” (all the cash at one time) on the day you retire, or receiving an equal montth payment as long as you live. Technically, the monthly payment option is called: a. A perpetuity b; An annuity c. A mortgage d. A present value 10. 11. 12. ugba-10 Accounting 8: Finance 3 Amazon included the “fulfillment costs” (getting goods from the warehouse, packing and shipping them) as part of “SG&A” (Selling, General and Administrative expense), instead of including them as part of the COGS (Cost of Goods Sold). Andy Kessler criticized this practice because Amazon’s published figures would tend to show than otherwise: Higher net margin Higher net revenue (or “net sales”) Lower Gross Margin Higher Gross Margin (new? The process of“stuffing the channel” is a way for manufacturers to appear to sell more goods than their eventual customers are demanding. It involves: a. Treating store executives to perks, such as free dinners 1).] Shipping more goods than stores need and promising retailers they don’t have to pay immediately c. Encouraging customers to buy more on “two—for—one” specials d. Delaying shipment of goods which retailers have ordered “Guidance” is the process by which a firm makes an announcement of how Well it hopes to do in a particular time- period, such as “next quarter”, or “this year.” When investors anticipate good sales revenue for the firm, they tend to bid up the price of the firm’s stock. Last year, the CEOs of two firms, GILLETTE and USA NETWORKS, made a policy decision to “just say no” and they refused to give guidance to stock analysts. What happened to these two firms (according to Fortune columnist Geoffrey Colvin): 1a. Nothing bi” The share prices “tanked” (dropped suddenly] c. Analysts advised people holding the shares to sell at once d. Both firms are now in bankruptcy 13. 14. 15. 16a 17. ugba-tO Accounting & Finance Enron converted assets to income by appearing to sell properties it owned to Special Purpose Entities (SPEs), partnerships such as “Braveheart.” When the partnerships bought the assets, Enron treated the money from the sale as “income,” sometimes splitting it over two periods. The money from the sale came from bank loans. The banks agreed to loan huge sums (such as $100 million) to the partnerships because: a. Andrew Fastow was personally liable for the debt b. Kenneth Lay had excellent credit c. The Enron Board of directors promised to personally __ guarantee the loans to the SPEs (de Enron promised to guarantee the loans, often by promising Enron shares as collateral The rules for firms’ accounts are called the GAAP (Generally Accepted Accounting Principles) and they are formulated by: a. The US Treasury b, The Federal Reserve Board (“the Fed”) (E? The Financial Accounting Standards Board (“the FASB” (1. Each firm According to one version of history, Peter Minuit purchased Manhattan for about $24 in beads. Beads were accepted as medium of exchange because they had the properties of money. Which is not an essential property of something treated as money? a. Durability b. Portability 3C, Bright and shiny d; Functions as a unit of account Which of the following is an example ofa “non—deposit institution” also known as a “non~bank lender”? a. Krispy Kreme Donut Company bi! Prudential Insurance Company C. Bank of America (1. CUBS (Credit Union for Berkeley Students) When a company in France ships goods to the US, they want to be sure that the US company will pay them when the goods arrive so they will usually ask for: m Money to be left to them in trust A letter of credit from the US firm’s bank Electronic Funds Transfer (EFT) Vb); c. d. None of the above 18. 19. 20. 21. 22. ugba-10 Accounting & Finance 5 If a firm declares bankruptcy, in general, shareholders may lose all their investment. But an important part of the US banking system is that if a regulated commercial bank goes bankrupt, small account holders get their deposits returned to them in full from: a.) The FDIC b". The SEC c. The NYSE d. The bank’s shareholders Which of these is most likely to be smallest in value for a share of the stock of a publicly traded company? Par value b. Market value c. Book value d. The bond—equivalent value According to the text, the “most attractive feature” of Municipal Bonds is: a. They come with handsome display certificates, suitable for framing b. They are high—risk, and hence investors can expect a high— return 7c..7 Investors do not pay taxes on the interest received d. They have no par value Jeopardy: This stock index is made up of 400 industrial firms, 4O utilities, 40 financial firms and 20 transportation companies. ,_'a. What is the S&P 500, Alex? b. What is the Dow Jones Industrial Index, Alex? c. What is the NYSE composite index, Alex? d. What is the NASDAQ composite index, Alex? Your brother—in—law works in the accounts department of (21800. One night he calls you up and says: “Don’t tell anyone, but when we announce the quarterly results on Tuesday, everyone is going to be very pleasantly surprised.” You get on-line and place an order to buy Cisco shares and then immediately sell them when the earnings announcement is made. a. You have violated the “blue-sky laws” b. You have committed a felony because you haven’t read the prospectus c. You have committed a misdemeanor because you failed to report the trade to the SEC You are guilty of insider trading, although you weren’t actually “inside” CISCO. On 6 ugba-1O Accounting & Finance 23. One of the following is not usually a factor in choosing Form of Business: 226 Liability ,b'.’ Getting profits from the business for Paying taxes a". ‘ Hiring staff 24. Investors differ from one another, but they are the same in that: a. They all have a long time horizon They all want a good return - c. They all have a high risk tolerance d. They all have a low risk tolerance 25. Commercial paper is a form of financing used by the largest US companies and usually involves very interest rates: (a; Short—term, 10w b. Short—term, high c. Long—term, low (1. Long—term, high 26. Which of the following is a correct “time value of money” formula? (“*” means “multiplied by , r” is the periodic interest rate and “t” is the number of time-periods.) a. P=F*(1+r)t b. P=F+(1+r)t (5.2:: F=P*(1+r)t "a. F=P+(1+r)t 27. Which of the following is important to the purchaser ofa bond? a. Maturity date b. Coupon rate c. Par value ("d.'_'\, All of these are important 28. The Clinton administration achieved interest payments on the national debt by the average maturity of Treasury debt: v a,“ Lower, shortening bi Lower, lengthening 0. Higher, shortening d. ‘ Higher, lengthening . 29. 30. 31. 32. 33. ugba-10 Accounting & Finance 7 Why do firms have to pay a higher interest rate than the government? {all} Their debt is considered more risky Their bonds have a shorter maturity c. Their debt is considered less risky (:1. Their interest payments are not tax-deductible for the firm Suppose Starbucks started paying dividends on its common stock, and as a result it opened fewer stores next year than it has in the past few years. You would expect the Price—Earnings ratio of the stock: To go up To go down ’ To stay the same To be the same as the dividend payout ratio 910':- g 9’ What is the formula for Break-even Point (in units]? a. Total variable costs plus fixed costs ‘0. Average cost divided by selling price Average cost minus selling price d; Fixed costs divided by per—unit—contribution Financial analysts use Ratio Analysis to compare the financial performance of a firm with: a. Its own performance in earlier time periods b. The performance of similar firms in the same industry c. Government mandated norms '6‘.) A and B are correct e‘.’ A and C are correct The Statement of Cash Flows is organized according to three sources/uses of cash. Which of the following is not one of the three: a,‘ Operations 1‘ \ . . . ‘=b._,-! Litigation (2. Investing (11. Financing 34. 35W 36. 37. V mower._The initial set—up costs for the production line were A-rm“ "‘ A i ugba-1O Accounting & Finance "i r Honda has made and sold 10,000 lawnmowers at its Marysville, OH plant in one production year, at an average cost of $150,)per $109,900. Target Stores has approached Honda and wants to place an ordér for ,1__,Q_Q_Q_mowers branded with..the Target name. The cost of producing H300 more mowers is.,$50,:000; Honda is interested in keeping the facto'Wntil the next lawn—mowing season. The least Honda should charge Target per mower is: leiltu In» L )‘r i I. . r ,Itx. - m f?" .i C. $ ‘9‘LT‘A-f go {All «x: W" ' ‘ ‘*“ ‘ + 7 l J “Double taxation” means a. A firm has to pay taxes on both bond interest and common stock dividends ‘ b,.‘ Dividends are taxed once at the corporate level, then again ‘ as income to shareholders (or Bonds interest is taxed both as a Capital Gain and as Income d? Firms have to pay both Income Taxes and Corporate Taxes Why has Starbucks had 53 weeks in some fiscal years and 52 vveeks in most? 6 a. ‘ The firm ends its fiscal year on a particular day, such as the last Saturday in September, every year 9/ The government changed the accounting rules Starbucks changed their year—end date to be the same as 7' Gap Stores d: Starbucks has a lot of returns after the holiday selling '1 season Which is the correct form of the “fundamental accounting equation”? a. Income — Expenses = Revenue b, Assets = Liabilities + Equity c. Income + Revenue = Expenses d. Assets + Liabilities = Equity 38. 39. 40. b . i a: ugba-10 Accounting & Finance 9 You buy a computer for your business for $5,000 and its useful life will be 5 years. Assuming ordinary (“straight line”) depreciation of the computer as a capital good, how much depreciation will you write off on the Income Statement for this equipment in year three? a. $0 $1,000 $2,000 $5,000 There are three required Financial Statements for publicly traded firms. gives a “snapshot of the firm at a moment in time” whereas reports on a stated period of time such as a quarter or a year: Statement of Cash Flows, Balance Sheet Statement of Cash Flows, Income Statement Income Statement, Statement of Cash Flows a. b. c, 91,} Balance Sheet, Income Statement This is version D; bubble in —D— for this question and write “D” in the identification section ofyour Scantron. If you do not answer this question, you lose the point. No exceptions #fimwafi H . PAP-1T 1| .ww ma. fin Cn E F f ‘ .L. . w]. r i-;_'. * * n»... w 0 s... ,L31367 .2 2 9.1. «x. 2 2 h . “5 NIL "1‘. r5 6 111.14 ‘b ,1 [A A 18 Ili- -— .. u .. .. “EH1: E55. mauiuunhoa ...
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BA 10 - Accounting and Finance - Fall 2002 - Robinson -...

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