ACC 599 Midterm Exam (100% Solution) - 90466

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Question 1 Dawn Alive reported the following for 2012. Ending market price $40.75 Earnings per share: Basic 2.50 Diluted 2.08 Dividends per share 1.10 The price/earnings ratio and dividend payout were: Answer 19.59 and 52.88% 16.30 and 52.88% 16.30 and 44.00% 19.59 and 44.00% 37.04 and 52.88% Question 2 The ratio percentage of earnings retained is the same as that termed: Answer dividend yield. dividend payout. this year's retained earnings to net income. return on common equity. book value. Question 3 What is the effect of the exercise of stock options? Answer They generate cash to the issuing firm and therefore increase profit per share. They are an expense at the time of exercise. This lowers net income. They increase debt and lower borrowing capacity but have no effect on profit. They increase the number of shares outstanding. They have no immediate effect on profitability Question 4 Interest expense creates magnification of earnings through financial leverage because: Answer the interest rate is variable. interest accompanies debt financing. the use of interest causes higher earnings. interest costs are cheaper than the required rate of return to equity owners. while earnings available to pay interest rise, earnings to residual owners rise faster. Question 5 Book value per share may not approximate market value per share because: Answer the book value is after tax. book values are based on replacement costs rather than market values. book value is related to book figures and market value is related to the future potential as seen by investors. investors do not understand book value. book value is not related to dividends. Question 6 The price/earnings ratio: Answer measures the past earning ability of the firm. is a gauge of future earning power as seen by investors. relates price to dividends. relates price to total net income. Question 7 Which of the following ratios appears most frequently in annual reports? Answer Earnings per Share Return on Equity Profit Margin Effective Tax Rate Debt/Equity Question 8 Which of the following ratios is rated to be a primary measure of liquidity and the highest significance rating of the liquidity ratios according to commercial loan departments? Answer Debt/Equity Current Ratio Degree of Financial Leverage Inventory Turnover in Days Accounts Receivable Turnover in Days Question 9 Which of the following ratios is given the highest significance rating by controllers? Answer Current Ratio Earning Per Share Return on Equity - After Tax Return on Assets - After Tax Price/Earnings Ratio Question 10 There are many definitions or descriptions given to financial failure. Which of the following does not appear to be a reasonable definition or description: Answer refinancing of bonds payable. liquidation. deferment of payments to short-term creditors. deferment of payments of interest on bonds. deferment of payments of principal on bonds Question 11 Which of the following ratios is a primary measure of liquidity according to the corporate controller survey? Answer Earnings per Share Debt/Equity Ratio Return on Equity after Tax Current Ratio None of the answers are correct Question 12 Which of the following ratios is given the highest significance rating by Certified Public Accountants? Answer Quick Ratio Debt/Equity Net Profit Margin Current Ratio Times Interest Earned Question 13 The identification and elimination of activities that fail to add value refers to Answer external failures. activity reduction. internal failures. activity elimination. Question 14 ____ can help a company become more competitive by providing more accurate cost data. Answer Unit-based costing Volume-based costing Kaizen costing Production costing Activity-based costing Question 15 A(n) ____ ratio measures the proportion of an activity consumed by a product. Answer production consumption efficiency quality usage Question 16 Costs incurred when products and services fail to conform to requirements or satisfy customer needs after being delivered to customers are Answer prevention costs. appraisal costs. internal failure costs. external failure costs. a different category of quality-related costs. Question 17 ____ is present whenever products have different consumption ratios for different overhead activities. Answer Environmental costs Activity sharing Product diversity Activity inputs Control costs Question 18 Increasing the efficiency of necessary activities by using economies of scale is known as Answer activity inputs. activity sharing. control activities. cycle time. Question 19 Costs incurred when products and services prior to being delivered do not conform to specifications or customer needs are Answer prevention costs. appraisal costs. a different category of quality-related costs. external failure costs. internal failure costs. Question 20 The earning of interest on interest is Answer present value. future value. discount rate. compounding of interest. interest earned. Question 21 Which of the following provides an absolute dollar measure? Answer internal rate of return net present value payback period accounting rate of return Question 22 The interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost is called the ____. Answer present value discount rate company cost of capital payback period internal rate of return Question 23 The reason that a discount factor in Year 3 is less than a discount factor in Year 2 is that Answer cash flows are uneven. compounding does not occur. cash flows are even. present value is positive. a dollar received in 3 years is worth less than a dollar received in 2 years. Question 24 Which of the following is a drawback of the payback period? Answer It ignores a project's total profitability. It uses a set discount rate. It considers total profitability, requiring the forecasting of all future cash flows. It uses before-tax cash flows rather than after-tax cash flows. It uses operating income rather than cash flows. Question 25 A formula for the accounting rate of return is Answer average income/initial investment. initial investment/annual cash flow. annual cash flow/initial investment. initial investment/average income. (average income + initial investment)/initial investment
Solution Description

Question 1
Dawn Alive reported the following for 2012.
Ending market price $40.75
Earnings per share: 
Basic 2.50
Diluted 2.08
Dividends per share 1.10
The price/earnings ratio and dividend payout were:
Answer
19.59 and 52.88%
16.30 and 52.88%
16.30 and 44.00%
19.59 and 44.00%
37.04 and 52.88%
Question 2
The ratio percentage of earnings retained is the same as that termed:
Answer
dividend yield.
dividend payout.
this year's retained earnings to net income.
return on common equity.
book value.
Question 3
What is the effect of the exercise of stock options?
Answer
They generate cash to the issuing firm and therefore increase profit per share.
They are an expense at the time of exercise. This lowers net income.
They increase debt and lower borrowing capacity but have no effect on profit.
They increase the number of shares outstanding.
They have no immediate effect on profitability
Question 4
Interest expense creates magnification of earnings through financial leverage because:
Answer
the interest rate is variable.
interest accompanies debt financing.
the use of interest causes higher earnings.
interest costs are cheaper than the required rate of return to equity owners.
while earnings available to pay interest rise, earnings

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