Which of the following is an
example of a cash outflow?
ANSWER
INCORRECT
·
The
future residual value of the asset
·
YOU WERE SURE AND INCORRECT
Future
cash revenue generated from an investment
·
Future
savings in ongoing cash operating costs from an investment
·
THE CORRECT ANSWER
The
amount of initial investment in an asset
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The amount of initial investment is an example of a cash outflow. Cash inflows include future
cash revenue generated from an investment, future savings in ongoing cash
operating costs from an investment, and the future residual value of the asset.
Which
of the following is a TRUE statement about the accounting rate of return?
ANSWER
INCORRECT
·
Noncash expenses such as
depreciation expense are added to the asset’s net cash inflows to arrive at its
operating income.
·
THE CORRECT ANSWER
The accounting rate of return
(ARR) focuses on the operating income instead of the net cash inflow of an
asset.
·
YOU WERE SURE AND INCORRECT
The accounting rate of return
(ARR) is complex and takes too much time to compute.
·
The accounting rate of return
(ARR) fails to measure the profitability of an asset over its entire life when
using accrual accounting figures.
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The accounting rate of return (ARR) focuses on
the operating income instead of the net cash inflow of an asset is
a TRUE statement about the accounting rate of return.
Noncash expenses such as depreciation expense
are added to the asset’s net cash inflows to arrive at its operating income.
The accounting rate of return (ARR) measures
the profitability of an asset over its entire life using accrual accounting
figures.
The
accounting rate of return (ARR) is simple and quick to compute.
What
is the payback period for the new nail machine?
ANSWER
INCORRECT
·
4 years
·
THE CORRECT ANSWER
3 years
·
YOU WERE SURE AND INCORRECT
2 years
·
1 year
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The payback period for the new nail machine
is 3 years. The other answers are not correct.
Payback period = Initial investment / Expected
annual net cash inflow
Payback
period for the new nail machine = $270,000 / $90,000 = 3 years
The
time value of money ________.
ANSWER
INCORRECT
·
THE CORRECT ANSWER
explains why a manager may
prefer to receive cash sooner or later and also depends on the key factors of
the principal amount (p), the number of periods (n),
and interest rate (i).
·
YOU WERE SURE AND INCORRECT
is interest computed only on
the principal amount of the investment.
·
represents the installments of
an investment that occur only at the end of each period.
·
is the amount of interest an
investment may earn and is computed by adding the principal amount of an
investment plus the amount of interest earned on an investment.
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The time value of money explains
why a manager may prefer to receive cash sooner or later and also depends on
the key factors of the principal amount (p), the number of periods (n),
and interest rate (i).
Simple interest is interest computed only on
the principal amount of an investment.
Compound interest is the amount of interest an
investment may earn and is computed by adding the principal amount of an
investment plus the amount of interest earned on an investment.
The
installments of an ordinary annuity occur at the end of each period.
What
is the annual depreciation expense using the straight-line depreciation method?
ANSWER
INCORRECT
·
THE CORRECT ANSWER
$33,000
·
$28,000
·
$22,000
·
YOU WERE SURE AND INCORRECT
$45,000
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The annual depreciation expense using the
straight-line depreciation expense method is $33,000.
The other answers are not correct.
Annual depreciation expense = (Initial cost of
asset – Residual value) / Useful life of asset
= ($200,000 - $35,000) / 5
= $165,000 / 5
=
$33,000
________
is the only capital budgeting method that uses accrual accounting figures.
ANSWER
INCORRECT
·
Payback period
·
Internal rate of return (IRR)
·
YOU WERE SURE AND INCORRECT
Net present value (NPV)
·
THE CORRECT ANSWER
Accounting rate of return (ARR)
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The accounting rate of return (ARR)
is the only capital budgeting method that uses accrual accounting figures. The
other answers are not correct.
The net present value (NPV) is the difference
between the present value of the investment’s net cash inflows and the
investment’s cost.
The internal rate of return (IRR) incorporates
the time value of money. Recall the internal rate of return (IRR) is the rate
of return, based on discounted cash flows, that a company can expect to earn by
investing in a capital asset.
The
payback period is a capital budgeting method that ignores the time value of
money and focuses on the time it takes to recover the company’s cash
investment.
Which
of the following is a TRUE statement about the accounting rate of return?
ANSWER
INCORRECT
·
THE CORRECT ANSWER
The accounting rate of return
(ARR) focuses on the operating income instead of the net cash inflow of an
asset.
·
YOU WERE SURE AND INCORRECT
Noncash expenses such as
depreciation expense are added to the asset’s net cash inflows to arrive at its
operating income.
·
The accounting rate of return
(ARR) is complex and takes too much time to compute.
·
The accounting rate of return
(ARR) fails to measure the profitability of an asset over its entire life when
using accrual accounting figures.
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The accounting rate of return (ARR) focuses on
the operating income instead of the net cash inflow of an asset is
a TRUE statement about the accounting rate of return.
Noncash expenses such as depreciation expense
are added to the asset’s net cash inflows to arrive at its operating income.
The accounting rate of return (ARR) measures
the profitability of an asset over its entire life using accrual accounting
figures.
The
accounting rate of return (ARR) is simple and quick to compute.
________
is the only capital budgeting method that uses accrual accounting figures.
ANSWER
INCORRECT
·
THE CORRECT ANSWER
Accounting rate of return (ARR)
·
Payback period
·
Net present value (NPV)
·
YOU WERE SURE AND INCORRECT
Internal rate of return (IRR)
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The accounting rate of return (ARR)
is the only capital budgeting method that uses accrual accounting figures. The
other answers are not correct.
The net present value (NPV) is the difference
between the present value of the investment’s net cash inflows and the
investment’s cost.
The internal rate of return (IRR) incorporates
the time value of money. Recall the internal rate of return (IRR) is the rate
of return, based on discounted cash flows, that a company can expect to earn by
investing in a capital asset.
The
payback period is a capital budgeting method that ignores the time value of
money and focuses on the time it takes to recover the company’s cash
investment.
The
________ is also known as the required rate of return.
ANSWER
INCORRECT
·
annuity
·
THE CORRECT ANSWER
discount rate
·
YOU WERE SURE AND INCORRECT
payback
·
profitability index
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The discount rate is
also known as the require rate of return. The discount rate is the minimum rate
of return on an investment.
An annuity is a stream of equal installments
made at equal time intervals.
Payback is the length of time it takes to
recover, in net cash flows, the cost of a capital outlay.
The
profitability index is an index computed in present value dollars that computes
the number of dollars returned for every dollar invested.
The
payback period is ________.
ANSWER
INCORRECT
·
THE CORRECT ANSWER
a capital budgeting method that
ignores the time value of money and focuses on the time it takes to recover the
company’s cash investment
·
YOU WERE SURE AND INCORRECT
is the difference between the
present value of the investment’s net cash inflows and the investment’s cost
·
is a capital budgeting method
that ignores the time value of money
·
is the rate of return, based on
discounted cash flows, that a company can expect to earn by investing in a
capital asset
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The payback period is a
capital budgeting method that ignores the time value of money and focuses on
the time it takes to recover the company’s cash investment.
The accounting rate of return (ARR) is a
capital budgeting method that ignores the time value of money.
The net present value (NPV) is the difference
between the present value of the investment’s net cash inflows and the
investment’s cost.
The
internal rate of return (IRR) incorporates the time value of money. Recall the
internal rate of return (IRR) is the rate of return, based on discounted cash
flows, that a company can expect to earn by investing in a capital asset.
Which
of the following is a TRUE statement about the payback period?
ANSWER
INCORRECT
·
The longer an investment takes
to pay itself back, the less risk there is of an investment becoming
unprofitable.
·
THE CORRECT ANSWER
The payback period measures how
quickly a manager may expect to recover their investment dollars.
·
YOU WERE SURE AND INCORRECT
The longer the payback period,
the more attractive the asset.
·
The payback formula only works
when net cash inflows are different each period.
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The payback period measures how quickly a
manager may expect to recover their investment dollars is
a TRUE statement about the payback period. The other answers are not correct.
The shorter the payback period, the more
attractive an asset.
The more quickly an investment pays itself
back, the less risk there is of an investment becoming unprofitable.
The
payback formula only works when net cash inflows are the same each period.
The
accounting rate of return (ARR) is the capital budgeting method that ________.
ANSWER
INCORRECT
·
THE CORRECT ANSWER
measures the average
profitability of the asset over its life.
·
YOU WERE SURE AND INCORRECT
focuses on the time it takes to
recover the company’s cash investment.
·
computes a project’s unique
rate of return.
·
indicates whether the asset
will earn the company’s minimum required rate of return.
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The accounting rate of return (ARR) is the
capital budgeting method that measures the average
profitability of the asset over its life.
The net present value (NPV) indicates whether
the asset will earn the company’s minimum required rate of return.
The internal rate of return (IRR) computes a
project’s unique rate of return.
The
payback period focuses on the time it takes to recover the company’s cash
investment.
________
is the only capital budgeting method that uses accrual accounting figures.
ANSWER
INCORRECT
·
THE CORRECT ANSWER
Accounting rate of return (ARR)
·
Payback period
·
YOU WERE SURE AND INCORRECT
Net present value (NPV)
·
Internal rate of return (IRR)
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The accounting rate of return (ARR)
is the only capital budgeting method that uses accrual accounting figures. The
other answers are not correct.
The net present value (NPV) is the difference
between the present value of the investment’s net cash inflows and the
investment’s cost.
The internal rate of return (IRR) incorporates
the time value of money. Recall the internal rate of return (IRR) is the rate
of return, based on discounted cash flows, that a company can expect to earn by
investing in a capital asset.
The
payback period is a capital budgeting method that ignores the time value of
money and focuses on the time it takes to recover the company’s cash
investment.
An
example of a change in current assets that would be added to net income is
a(an) ________.
ANSWER
INCORRECT
·
increase in accounts receivable
·
decrease in accounts payable
·
THE CORRECT ANSWER
increase in interest payable
·
YOU WERE SURE AND INCORRECT
amortization of a bond premium
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
An
example of a change in current assets that would be added to net income is
an increase in interest payable.
The other answers are not correct.
Comet
Metropolitan’s accountant reported $10,500,000 for the beginning investments
balance, sales of investments with a book value of $500,000, and a $15,500,000
ending balance for investments.
What
is the value of investments the company purchased during the year?
ANSWER
INCORRECT
·
THE CORRECT ANSWER
$5,500,000
·
YOU WERE SURE AND INCORRECT
$5,005,000
·
$5,050,000
·
$5,500,500
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The company purchased $5,500,000 of
investments during the year. The other answers are not correct.
Beginning balance of investments + Purchases
of investments – Book value of investments sold = Ending balance of investments
$10,500,000 + ? - $500,000 = $15,500,000
Purchases
of investments = $15,500,000 + $500,000 -$10,500,000 = $5,500,000
Which
of the following transactions is classified as an operating activity on the
statement of cash flows?
ANSWER
INCORRECT
·
YOU WERE SURE AND INCORRECT
A purchase of a long-term
investment
·
A loan repayment of principal
·
A buyback of company stock
·
THE CORRECT ANSWER
A payroll payment to an
employee
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
A payroll payment to an employee is
classified as an operating activity on the statement of cash flows.
A buyback of company stock is classified as a
financing activity on the statement of cash flows.
A purchase of a long-term investment is
classified as an investing activity on the statement of cash flows.
A
loan repayment of principal is classified as a financing activity on the
statement of cash flows.
Which
of the following transactions is classified as an investing activity on the
statement of cash flows?
ANSWER
INCORRECT
·
The cash used to pay back
long-term debt
·
The cash used to pay dividends
·
YOU WERE SURE AND INCORRECT
The cash received from issuing
stock
·
THE CORRECT ANSWER
The cash received from collection
of long-term loans
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
The cash
received from collection of long-term loans is classified as an
investing activity on the statement of cash flows. The other answers are not
correct. Cash used to pay dividends, cash received from issuing stock, and cash
used to pay back long-term debt are examples of financing activity transactions
on the statement of cash flows.
Which
of the following transactions is classified as an operating activity on the
statement of cash flows?
ANSWER
INCORRECT
·
A buyback of company stock
·
THE CORRECT ANSWER
A payroll payment to an
employee
·
YOU WERE SURE AND INCORRECT
A loan repayment of principal
·
A purchase of a long-term
investment
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
A payroll payment to an employee is
classified as an operating activity on the statement of cash flows.
A buyback of company stock is classified as a
financing activity on the statement of cash flows.
A purchase of a long-term investment is
classified as an investing activity on the statement of cash flows.
A
loan repayment of principal is classified as a financing activity on the
statement of cash flows.
Which
of the following rules is a general rule for changes in current asset and
liability accounts?
ANSWER
INCORRECT
·
THE CORRECT ANSWER
If a current asset account
increases, then subtract the change from the net income.
·
YOU WERE SURE AND INCORRECT
If a current liability account
increases, then subtract the change from the net income.
·
If a current liability account
decreases, then add the change to the net income.
·
If a current asset account
increases, then add the change to the net income.
·
I DON'T KNOW YET
WHAT
YOU NEED TO KNOW
If a current asset account increases, then
subtract the change from the net income is the general rule for
increases in current asset accounts. The other answers are not correct.
If a current asset account decreases, then add
the change to the net income is the general rule for decreases in current asset
accounts.
If a current liability account decreases, then
subtract the change from net income is the general rule for decreases in
current liability accounts.
If
a current liability account increases, then add the change to the net income is
the general rule for increases in current liability accounts.
