173. Hakik Enterprises offers rug cleaning services to business clients. Below is the work sheet containing the trial balance for the month ended July 31, 2012. Hakik EnterprisesWork SheetFor the Month Ended July 31, 2012 Trial Balance Adjustments Adjusted Trial Balance Debit Credit Debit Credit Debit Credit Cash 36 Prepaid Insurance 12 […]
67. The acid-test ratio is most similar to the: a.Current ratio. b.Debt to equity ratio. c.Times interest earned ratio. d.Inventory turnover ratio. 68. The acid-test ratio is: a.The liquidity ratio divided by the equity ratio. b.Current assets minus inventory divided by current liabilities minus accounts payable. c.Cash, net receivables, and current investments divided by current liabilities. d.Cash divided by accounts payable. […]
41) When the present value of expected cash inflows from a project equals the present value of expected cash outflows of a project, the discount rate is the 41) ______ A) net present value rate. B) universal rate. C) required rate of return. D) required rate. E) inflation rate. Use the information below to answer the following question(s). Wet Water Company drills residential […]
76.On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the maturity value of the note on March 1? A.$9,000 B.$720 C.$9,120 D.$9,720 E.$9,240 77.On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. Alan made the appropriate year-end accrual. What is the journal entry as of […]
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 21) Quality of design measures 21) ______ A) how closely the characteristics of products or services match the needs and wants of the Board of Directors. B) how closely the characteristics of products or services match the needs and wants of competitors. C) how closely the characteristics of products […]
35.In May, a retailer recorded credit sales of $10,000. Assuming the sales tax rate is 7 percent, the entry to record the sales in the sales journal would include: A. a debit to Accounts Receivable of $10,700. B. a debit to Accounts Receivable of $10,000. C. a credit to Sales of $10,700. D. a debit to Sales Tax Payable of $700. […]
71. Rock Aerospace CompanyRock Aerospace Company signed a contract on April 1, Year 4, to build a satellite for $28,000,000. Estimated costs for the contract are: Year 4 $ 5,600,000 Year 5 $11,200,000 Year 6 $ 5,600,000 Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: Year 4 $ 4,200,000 Year 5 $ 7,000,000 Year 6 $16,800,000 […]
9) To give more weight to the product that most likely drives the sales of the bundled product, the revenue allocation should be weighted using: A) selling prices B) unit costs C) physical units D) stand-alone product revenues 10) The revenue allocation may be weighted using physical units when: A) the individual products within the bundle have approximately the same value B) selling […]
177.Rising Sun, Inc. produces granola that requires two processes, mixing and baking, to complete. The best-selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown in the following table: Direct materials$230,000 Direct labor Mixing Department (600 DLH × $24 per DLH)$14,400 Baking Department (400 DLH × $22 per DLH)$8,800 Machine hours Mixing […]
21. Which of the following is true regarding income recognition? A. The seller must have substantially performed its obligations to the customer (for example, by transferring ownership of goods to the customer). B. The seller must have obtained an asset from the customer that it can reliably measure. If the asset is not cash, the seller must be reasonably certain of converting it into cash. C. The […]
MULTIPLE CHOICE
1.Quiz Company has a 12 year lease, with payments of $250,000 made at the beginning of each year. If no purchase option exists, and the company is in the 40% tax bracket, what is the annual after-tax cash outflow on the lease?
a.$416,667
b.$250,000
c.$150,000
d.$100,000
Loose Cannon Co.
Loose Cannon Co. is evaluating a new $75 million bond issue, the proceeds of which would be used to call and retire its outstanding $75 million bonds. Details on both bond issues are presented below. The firm is in the 35% tax bracket.
Old Bonds The old issue sold at par, with a coupon rate of 11 percent. It was issued five years ago with a twenty year maturity. The issue had $350,000 in flotation costs and carries a call price of $1150.
New Bonds The new issue are expected to sell at par with an 8.5 percent coupon rate and a 15 year maturity. Flotation costs are forecast to be $500,000. Interest payments will overlap for 2 months while the old bonds are retired.
2.Refer to Loose Cannon Co. What is the initial investment required to refund the bonds?
a.$11,250,000
b.$8,614,375
c.$7,312,500
d.$3,937,500
3.Refer to Loose Cannon Co. What are the annual cash flows associated with the new bonds?
a.$4,143,750
b.$6,375,000
c.$4,132,083
d.$6,357,051
4.Refer to Loose Cannon Co. What is the NPV of the refunding decision?
a.$3,654,164
b.$5,356,375
c.$1,224,292
d.$8,614,375
5.Booyah Company has a callable bond issue, with 55,000 bonds with $1000 par outstanding. If the call price is $1125 per bond, and Booyah’s tax rate is 35%, what is the after-tax cost of calling the bonds?
a.$10,576,925
b.$2,406,250
c.$6,875,000
d.$4,468,750
Bear Lake Equipment Company (BLEC)
Bear Lake Equipment Company (BLEC) is considering an expansion which will require a new machine that costs $125,000. BLEC can either lease or buy the equipment. The company’s tax rate is 40% and its after tax cost of debt is 5%.
Lease: Annual payments of $26,400 made at the beginning of each year over five years. The lessor covers all maintenance, while the lessee covers insurance and other costs. The lessee has the option to purchase the machine for $31,250 paid along with the final lease payment.
Purchase: The $125,000 cost will be financed over five years with annual end of year payments of $31,580. The machine will be depreciated on the five year MACRS schedule, and the firm will pay $3,500 per year for a service contract to cover all maintenance. The company will cover all insurance and other costs.
6.Refer to BLEC. What is the after-tax cash flow per year for the lease?
a.$26,400
b.$15,840
c.$10,560
d.$39,600
7.Refer to BLEC. What is the after tax cash flow for the first year from a purchase of the machine?
a.$31,583
b.$21,167
c.$19,515
d.$25,000
8.Refer to BLEC. What is the present value of the five years of after-tax cash flows from purchasing the machine?
a.$92,504
b.$108,120
c.$77,351
d.$123,273
9.If a 9%, $100,000 loan has a balance of $83,724 and an annual payment of $13,965 is to be made, what will the allocation of principal and interest be?
a.$9,000 interest, $4,965 principal
b.$7,535 interest, $6,430 principal
c.$6,430 interest, $7,535 principal
d.$4,965 interest, $9,000 principal
10.Contract terms that specify things a borrower “must”do are referred to as
a.instructive covenants
b.informative covenants
c.negative covenants
d.positive covenants
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