QUESTION 1 GIVEN THE FOLLOWING DATA PLEASE CALCULATE THE ESTIMATED BAD DEBT EXPENSE RESERVE

QUESTION 1

GIVEN THE FOLLOWING DATA PLEASE CALCULATE THE ESTIMATED BAD DEBT EXPENSE RESERVEUSING THE AGING METHOD. THE APPLICABLE PERCENTAGES ARE SHOWN:

RECEIVABLESBALANCE       CURRENT      MORE THAN 90 DAYS          MORE THAN 120 DAYS

                                4%                              7%                                         12%

1 $1,000.00        1000

2 $2,520.00                                   $2,520.00

3 $2,552.00                                   $2,552.00

4 $4,000.00                                    $4,000.00

5 $562.00                                                                               $562.00 

6 $5,488.00                                                                     $5,488.00 

7 $1,266.00             $1,266.00

8 $5,488.00             $5,488.00

9 $888.00                 $888.00

10 $963.00                                                                               $963.00 

           $24,727.00              $8,642.00            $9,072.00                        $7,013.00 

                                       345.68              635.04                                  841.56

A)   $24,727.00 

B)   $9,072.00 

C)   $1,822.28        

D)   $980.72

QUESTION 2

THE ALLOWANCE FOR BAD DEBTS IS FREQUENTLY USED BY BUSINESS. WHICH OF THE FOLLOWING

IS NOT ONE OF ITS MAIN CHARACTERISTICS

A)  IT IS ACCEPTABLE FOR TAX PURPOSES

B)  IT IS REQUIRED UNDER G.A.A.P.

C)  IT CAN BE CALCULATED USING A PERCENTAGE OF SALES DEEMED UNCOLLECTIBLE

D)  IT TAKES INTO ACCOUNT THE MATCHING PRINCIPLE

QUESTION 3

THE FOLLOWING ASSET WAS PURCHASED BY ABC CO. ON JAN 1ST, 2012.

MANUFACTURING    MACHINERY

COST $25,000.00 

ESTIMATED USEFUL LIFE  5 YEARS

SALVAGE VALUE  $5,000.00 

DEPRECIATION FOR 2012 WOULD BE:

METHOD     STRAIGHT LINE      DDB

A)   $4,000.00 $9,500.00 

B)   $4,000.00 $4,000.00 

C)   $5,000.00 $8,000.00 

D)   $4,000.00 $10,000.00   

QUESTION 4

THIS METHOD OF DEPRECIATION DOES NOT TAKE INTO ACCOUNT SALVAGE VALUE WHEN CALCULATING ANNUAL DEPRECIATION

A)  STRAIGHT LINE METHOD

B)  SUM OF THE DIGITS

C)  DOUBLE-DECLINING BALANCE

D)  MODIFIED ACCELERATED COST RECOVERY METHOD

QUESTION 5

A CALLABLE BOND IS A DEBT INSTRUMENT THAT HAS THE FOLLOWING CHARACTERISTIC:

A)  IT CAN BE REDEEMED AT THE MATURITY DATE

B)  IT CAN BE CONVERTED INTO THE STOCK OF THE COMPANY

C)  IT HAS A HIGHER MARKET PRICE THAN A BEARER BOND

D)  IT CAN BE CALLED BY THE ISSUER AT A CONTRACTED PRICE

QUESTION 6

COMPANIES OFTEN USE DEBT FINANCING AS A MEANS OF FINANCING THEIR OPERATIONS AND EXPANSION. ALL OF THE FOLLOWING ARE ADVANTAGES OF USING DEBT EXCEPT:

A)  DEBT PAYMENTS ARE TAX DEDUCTIBLE

B)  CASH FLOW FOR THE BUSINESS IS NOT COMPROMISED LONG-TERM

C)  THERE IS NO NEED TO DEAL WITH CHANGES IN OWNERSHIP STRUCTURES

D)  DEBT ARRANGEMENTS GENERALLY PROVIDE FOR RESTRUCTURING TROUBLED BORROWINGS

QUESTION 7

THE FOLLOWING ARE CHARACTERISTICS OF THE CORPORATE FORM OF DOING BUSINESS, EXCEPT

A)  PERPETUAL LIFE

B)  PROTECTION FROM DOUBLE TAXATION ON COMPANY PROFITS

C)  LIMITED LIABILITY FOR THE OWNERS

D)  SEPARATE LEGAL EXISTENCE

QUESTION 8

THE CONCEPT OF DOUBLE TAXATION IN THE CONTEXT OF CORPORATIONS MEANS THAT:

A)  TAX RATES ARE TWICE AS HIGH ON CORPORATE PROFITS AS COMPARED TO INDIVIDUALS

B)  TAXES ARE LEVIED ONLY ON CORPORATE PROFITS BUT NOT DISTRIBUTIONS

C)  CORPORATE PROFITS ARE TOTALLY EXEMPT FROM TAXATION 

D)  TAXES ARE LEVIED BOTH ON CORPORATE PROFITS AND DISTRIBUTIONS TO SHAREHOLDERS

QUESTION 9

THE MARKET PRICE FOR A GIVEN STOCK WAS 170 DOLLARS. A STOCK SPLIT OF 2:1 WILL:

A)  REDUCE THE TOTAL MARKET VALUE OF THIS STOCK

B)  INCREASE THE PRICE PER SHARE BY 85 DOLLARS PER SHARE

C)  DECREASE THE MARKETABILITY OF THE STOCK

D)  DECREASE THE PRICE PER SHARE TO 85 DOLLARS PER SHARE

QUESTION 10

THE FOLLOWING DATA FOR ABC COMPANY DISPLAYS SALES FOR MULTIPLE YEARS PLEASE DETERMINE THE PERCENTAGE CHANGE GIVEN THE DATA

SALES 2010 $1,200,000.00

SALES 2011 $1,500,000.00

PERCENTAGE CHANGE

A)  25%  

B)  15%

C)  17.5%

D)  -20%

QUESTION 11

THIS TYPE OF ANALYSIS ALLOWS BUSINESSES TO IDENTIFY POSITIVE AND NEGATIVE TRENDS IN A PARTICULAR FINANCIAL STMT. ELEMENT BY CALCULATING CHANGES AND % CHANGES FROM ONE YEAR TO THE NEXT.

A) RATIO ANALYSIS

B) HORIZONTAL ANALYSIS

C) VERTICAL ANALYSIS

D) COMMON-SIZE ANALYSIS

QUESTION 12

ABC COMPANY HAS A CURRENT RATIO OF 1.4 AND THE INDUSTRY RATIO,  COMPILED FOR A LIST OF COMPETITORS IS 5. IT IS VERY PROBABLE THAT ABC'S LOW CURRENT RATIO

A)  DEMONSTRATES A STRONGER LIQUIDITY POSITION THAN THE INDUSTRY

B)  SHOWS A POTENTIAL LIQUIDITY PROBLEM THAT SHOULD BE INVESTIGATED

C)  IS WITHIN THE INDUSTRY STANDARD

D)  MEANS THAT AN APPROPRIATE LEVEL OF CURRENT ASSETS EXISTS TO PAY OFF CURRENT LIABILITIES

QUESTION 13

ALL OF THE FOLLOWING EXCEPT ONE IS AN INTERNAL CONTROL ACTIVITY THAT HELPS BUSINESSES ACHIEVE GOOD CONTROL OVER FINANCIAL REPORTING

A)  SEGREGATION OF DUTIES

B)  PHYSICAL CONTROLS

C)  INDEPENDENT VERIFICATION

D)  MISAPPROPIATION OF ASSETS

QUESTION 14

A COMPANY'S _______________________ ALLOWS US TO GAUGE HOW MUCH CASH IS AVAILABLE

AFTER THE BUSINESS HAS PAID DIVIDENDS (SHAREHOLDERS) AND INCURRED CAPITAL EXPENDITURES

NEEDED TO EXPAND - MAINTAIN OPERATIONS

A)  NPV - NET PRESENT VALUE

B)  OCF - OPERATING CASH FLOW

C)  FCF - FREE CASH FLOW

D)  CASH FROM OPERATING ACTIVITIES

QUESTION 15

ALL OF THE FOLLOWING ARE ADVANTAGES OF LEASING EQUIPMENT USING A CAPITAL LEASE IN A BUSINESS EXCEPT:

A)  REPAIRS AND MAINTENANCE ARE PERFORMED BY LESSEE

B)  THE BURDENS OF OWNERSHIP STAY WITH SELLER - LESSEE

C)  THERE IS NO PROTECTION AGAINST OWNING OBSOLETE ASSETS

D)  ASSETS ARE DEPRECIATED AND GENERATE DEPRECIATION DEDUCTIONS FOR THE BUSINESS