the accretion in shares for Mott stockholders will be from 8,000,000 to:
(a) 12,000,000 shares.
(b) 6,666,667 shares.
(c) 9,333,333 shares.
(d) 10,666,667 shares.
Mound company is considering acquiring ground company the market prices of the common stock of the two companies are $60 and $15 respectively. if an exchange of stock is made at these prices, ground stockholders will receive approximately how many shares of Mound for every 100 of their shares?
(a) 4
(b) 25
(c) 240
(d) 400
if a merger immediately increases a company’s net income and earnings per share, one may conclude that:
(a) a successful merger has occurred.
(b) things will only get better in the future.
(c) earnings per share will never be diluted.
(d) earnings per share will decrease in the future.
When evaluating any financial problem, the analyst must consider the worth of the proposed investment:
(a) before considering the method of financing.
(b) and the method of financing simultaneously.
(c) after the method of financing has been determined.
(d) without considering the method of financing
After a two-for-one stock split, a shareholder who had twenty shares with a market value of $70 per share is more likely to have:
(a) forty shares with a market value of $35 per share.
(b) forty shares with a market value of $70 per share.
(c) twenty shares with a market value of $35 per share.
(d) twenty shares with a market value of $140 per share.
Companies tend to have more debt if they have:
(a) more volatile operating income.
(b) higher amounts of fixed assets.
(c) lower cash flows.
(d) lower profits.
Stockholders and managers not always agreeing on decisions pertaining to a company’s activities is called:
(a) business risk.
(b) leverage.
(c) financial risk.
(d) agency risk.
Financial leverage increases return on equity because the:
(a) cost of debt is lower than the cost of equity.
(b) cost of equity is lower than the cost of debt.
(c) interest expense lowers the profit.
(d) interest rate is lower than the tax rate
Trading on the equity refers to:
(a) the cost of debt exceeding the return on assets.
(b) the after-tax cost of debt being lower if the tax rate is lower.
(c) the return on assets being greater than the after-tax-cost of debt.
(d) unfavorable financial leverage.
Additional financing needed reflects the:
(a) amount needed to balance the balance sheet.
(b) amount that must be raised in the next year.
(c) cost of the fixed assets needed to produce next year’s sales.
(d) amount needed from shareholders to preserve their ownership share.
The value of the firm is derived from:
(a) the current profit and loss forecast.
(b) the current price/earnings ratio of a company’s principal competitors.
(c) the present value of projected future cash flows.
(d) competitive bidding of potential acquirers.
Incremental fixed assets included in the financial forecast are:
(a) proportional to incremental sales, in the same proportion as base fixed assets are to base year sales.
(b) drawn from the capital budget which is prepared before the financial forecast.
(c) the result of a complex proposal and approval process.
(d) forecasts based on the results of the completed annual budget.
Sales forecasts are:
(a) best determined by statistical analysis of past performance.
(b) best drawn from those responsible for sales.
(c) best drawn from those responsible for managing the sales force.
(d) best if developed after extensive market research.
Sales driven assets are:
(a) all assets on the balance sheet.
(b) fixed asset increases necessitated by sales growth.
(c) those assets expected to change in proportion to the sales change.
(d) those assets that are converted to sales quickly.
Assume that a company is considering an investment that costs $50,000 has a life span of ten years, and has a calculated ncB of $7,000 for each of those years. Assuming a 9 percent discount rate, what is the npv of the investment?
(a) $(5,076.1)
(b) $(848.8)
(c) $245.2
(d) $4,145.5
Why might a company choose a required rate of return higher than the cost of equity?
(a) to penalize the investment manager
(b) to offset the optimism bias of the investment manager
(c) to limit the benefit to shareholders
(d) to reduce the number of projects accepted
A company uses debt to finance 30 percent of its operations and uses stocks to finance the remaining 70 percent. if the cost of the stock averages 15 percent and the after-tax cost of the debt is 10 percent, what is the average cost of capital for the company?
(a) 13.5 percent
(b) 15.2 percent
(c) 18.5 percent
(d) 19.0 percent
Treasury bills are popular money market instruments even though they do not offer:
(a) high yield.
(b) price stability.
(c) flexible maturities.
(d) good marketability
The cost of carrying inventory is estimated to be:
(a) 10 to 20 percent.
(b) 20 to 30 percent.
(c) 30 to 40 percent.
(d) 100 percent.
If a company has a current ratio of 1.2, a quick ratio of .8, and current assets of $600,000, what is their investment in inventory?
(a) $200,000
(b) $400,000
(c) $500,000
(d) $720,000
If a firm is unable to take a trade discount (2/10, net 30), the effective annual cost, assuming the firm pays the bill on time, is:
(a) usually lower than the prime rate.
(b) about 10 percent.
(c) about 25 percent.
(d) about 37 percent.
One method of improving accounts receivable turnover is to institute:
(a) a checking account system.
(b) a savings account system.
(c) an accounts payable system.
(d) a lockbox system.
What is the quick ratio for Firm A?
(a) 1.45 times
(b) 1.04 times
(c) 0.95 times
(d) the ratio cannot be calculated because the exhibits do not give sufficient information
What is the times-interest-earned ratio for Firm A?
(a) 3.61 times
(b) 9.20 times
(c) 2.55 times
(d) 1.01 times
What is the current ratio for Firm A?
(a) 1.0
(b) 1.6
(c) 2.1
(d) 1.4
In general, ____________ ratios are used to measure a company’s ability to pay its bills on time.
(a) profitability
(b) activity
(c) leverage
(d) liquidity
the following are all profitability ratios except:
(a) return on assets ratio.
(b) debt-to-equity ratio.
(c) net operating margin.
(d) net profit margin.
On a comparative basis:
(a) net sales increased more than cost of goods sold.
(b) income before taxes increased less than gross profit.
(c) operating expenses decreased more than gross profit increased.
(d) income before taxes increased more than net income.
As a percentage of total assets in 2013 compared to 2012:
(a) current assets increased.
(b) plant and equipment increased.
(c) current liabilities decreased.
(d) long-term liabilities increased.
Which one of the following is true?
(a) Net sales increased more in terms of percentages than cost of goods sold.
(b) Income before taxes increased more in terms of percentages than net sales.
(c) The provision for income taxes increased more in terms of percentages than income before taxes.
(d) Net income increased less in terms of percentages than income before taxes.
Gross profit:
(a) rose by a greater percentage than sales.
(b) rose by a greater percentage than cost of sales.
(c) fell as a percentage of sales.
(d) fell by more than operating expenses.
Whether or not potential profits are kept by the industry is partly determined by:
(a) threat of new entrants.
(b) rivalry among existing firms.
(c) bargaining power of buyers.
(d) threat of substitute products.
A company’s operating activities include:
(a) producing goods or services.
(b) retiring long-term notes.
(c) acquiring plant and equipment.
(d) following gAAP
the main decisions in financial management do not include
(a) the investment decision
(b) the dividend policy.
(c) the personnel policy.
(d) the financing decision.
Financial management is not concerned with:
(a) increasing the overall valuation of the company.
(b) the investment of funds in capital assets.
(c) obtaining the best mix of financing.
(d) preparing financial statements.
An advantage of placing the role of financial analysis in a decentralized position is that it:
(a) increases the objectivity of analyses.
(b) pools expertise and encourages cooperation among analysts.
(c) facilitates multi departmental assignments.
(d) allows for necessary research to be conducted for a unit’s operations that are highly complex.
On January 4, 2015, a research project undertaken by Nasja Ltd. was completed and a patent was approved. The research phase of the project incurred costs of $150,000, and legal costs incurred to obtain the patent approval were $20,000. The patent is assessed to have a useful life to 2025, or for ten years. Early in 2016, Nasja successfully defended the patent against a competitor, incurring a legal cost of $22,000. This set a precedent for Nasja who was able to reassess the patent’s useful life to 2030. During 2017, Nasja was able to create a product design that was feasible for commercialization, but no more certainty was known at that time. Costs to get the product design to this stage were $250,000. Additional engineering and consulting fees of $50,000 were incurred to advance the design to the manufacturing stage. Nasja follows IFRS.
Required:
a. Prepare all the relevant journal entries for the project for 2015 to 2017, inclusive.
b. What is the accounting treatment for the engineering and consulting fees of $50,000?