Question : 5) One way to achieve greater comparability of historical-cost based : 1186233

 

5) One way to achieve greater comparability of historical-cost based ROIs is to restate performance in dollars.

Use the information below to answer the following question(s).

 

The following data are available for a foundry operation started as a new company four years ago when the construction cost index was 125:

 

Current liabilities

$170,000

Operating income

$176,200

NBV long-term assets (end year 3)

$687,500

Current assets

$300,000

Gross book value *

$1,100,000

Estimated total useful life *

8 years

Age of assets *

4 years

Construction cost index end of year 4

150

 

* = long-term assets at historical cost

 

6) What is the NBV of the long-term assets at current cost at the end of year 4?

A) $660,000

B) $800,000

C) $960,000

D) $1,180,000

E) $1,760,000

 

7) What is the current-cost depreciation in year 4 dollars?

A) $165,000

B) $200,000

C) $240,000

D) $295,000

E) $440,000

Use the information below to answer the following question(s).

 

Ruth Cleaning Products manufactures home cleaning products. The company has two divisions, Bleach and Bleach-2. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for the year just ended:

 

 

Assets

Book value

Assets

Current value

Income

Book value

Income

Current value

Bleach

$225,000

$300,000

$150,000

$155,000

Bleach-2

450,000

250,000

100,000

105,000

 

The company is currently using a required rate of return of 15 percent.

 

8) What are Bleach’s and Bleach-2’s return on investment based on current values?

A) 0.22; 0.67

B) 0.42; 0.52

C) 0.52; 0.42

D) 0.67; 0.22

E) 0.50; 0.45

 

9) What are Bleach’s and Bleach-2’s residual incomes, based on current values, respectively?

A) $116,250; $37,500

B) $110,000; $67,500

C) $67,500; $110,000

D) $37,500; $116,250

E) $115,340; $80,000

Answer the following question(s) using the information below:

 

Carriage Ltd. manufactures baby carriages. The company has two divisions, Wheels and Assembly. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for the year just ended:

 

 

ASSETS

INCOME

 

Book value

Current value

Book value

Current value

Wheels

$485,000

$550,000

$120,000

$160,000

Assembly

$750,000

$1,200,000

$160,000

$172,500

 

The company is currently using a 12% required rate of return.

 

10) What are Wheels’s and Assembly’s return on investment based on book values, respectively?

A) 0.21; 0.25

B) 0.25; 0.21

C) 0.14; 0.29

D) 0.29; 0.14

E) 0.33; 0.23

 

11) What are Wheels’s and Assembly’s return on investment based on current values, respectively?

A) 0.21; 0.25

B) 0.25; 0.21

C) 0.14; 0.29

D) 0.29; 0.14

E) 0.33; 0.23

12) What are Wheels’s and Assembly’s residual incomes based on book values, respectively?

A) $74,000; $28,500

B) $61,800; $70,000

C) $63,500; $59.500

D) $28,500; $74,000

E) $101,800; $70,000

 

13) What are Wheels’s and Assembly’s residual incomes based on current values, respectively?

A) $70,000; $28,500

B) $94,000; $28,500

C) $94,000; $70,000

D) $28,500; $94,000

E) $61,800; $70,000

 

14) The cost today of purchasing an asset identical to the one currently held is called a(n)

A) actual cost.

B) current cost.

C) dual cost.

D) fixed cost.

E) sunk cost.