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Mock exam number 6 - part 3 of 6

Question 37 of 120.


Mr. Hudson notes that if he produces 10 pairs of shoes per day his average fixed cost (AFC) is $10 and his marginal cost $8; if he produces 20 pairs of shoes per day his MC is $15. What is his AFC when output is 20 pairs of shoes per day?
A. $7
B. $8
C. $5
D. $15

Question 38 of 120.

Which of the following is a basic difference between a purely competitive firm and a monopolistic firm?
A. The monopolistic firm seeks to maximize profit, while the purely competitive firm seeks to equate price and average total cost.
B. All of these answers are true.
C. The elasticity of demand facing a monopolistic firm exceeds that facing a purely competitive firm.
D. A purely competitive firm can sell as much as it wishes at the market price, whereas a monopolistic firm must lower its price to increase quantity sold by any significant amount.

Question 39 of 120.

The men's suit business is monopolistically competitive. It follows that the marginal revenue of any quantity sold for any firm in the industry:
A. will increase as the firm increases quantity.
B. is less than the price necessary to sell that quantity.
C. is equal to the price necessary to sell that quantity.
D. is greater than the price necessary to sell that quantity.

Question 40 of 120.

Which one of the following will most likely cause a depreciation in the U.S. dollar on the foreign exchange market under a system of flexible exchange rates?
A. a sudden increase in the demand for California cabernet wines by Europeans
B. an increase in real interest rates among European nations.
C. a switch from French stocks and bonds to U.S. stocks and bonds by U.S. speculators.
D. rampant inflation in Japan, a major trading partner of the U.S.

Question 41 of 120.

Which of the following is/are true about advantages of international trade?

I. It leads to lower prices for imported goods.
II. It leads to lower prices for exported goods.
III. It leads to an expansion of consumption possibilities.
IV. It leads to an expansion of the production possibility frontier.

A. I, II and III.
B. II, III and IV.
C. I, II and IV.
D. I, III and IV.

Question 42 of 120.

Under the adaptive expectations hypothesis, if an economic stimulus is applied at full employment level,
A. the economy will overheat with output first rising and then falling back to settle at the old level at higher prices.
B. the economy will expand as supply and demand expand with greater output at lower prices.
C. the economy will enter a spiral of increasing prices as consumers look at the past increases and keep increasing their demand for goods.
D. the economy will overheat but rising interest rates will reduce the demand for capital goods and the economy will settle down to a lower output level at the old price level.

Question 43 of 120.

Inflation has all of the following effects EXCEPT,
A. it distracts producers into spending time on hedging and protective strategies to minimize the ill effects of inflation on their business.
B. businesses reduce long-term investments due to greater uncertainty about future price and output levels.
C. it raises the real return on investments.
D. long-term contracts such as fixed rate mortgages, leases and throughput distort the true price level as they do not adjust immediately with inflation.

Question 44 of 120.

Comparison of money supply across time is becoming increasingly problematic due to all of the following EXCEPT,
A. regulatory changes that attracted funds to demand deposits due to their ability to pay interest.
B. shift of bank deposits into money market funds which are not counted in M1.
C. increased dollar holdings outside the US that affect measurement of M2.
D. debit cards and electronic transactions which reduce the need for cash and currency.

Question 45 of 120.

Which of the following is/are FALSE under GAAP?

I. The change in cash balances in consecutive Balance sheets equals the operating cash flow of the firm over that period.
II. The investing, financing and operating cash flows must together balance out to zero, to preserve the relationship, cash in = cash out.
III. Dividends received from investments in the stocks of other firms are classified under investing cash flows.
IV. Interest paid on debt financing is classified as operating cash flow.

A. I, II & III
B. II & IV
C. I, II & IV
D. I, II, III & IV

Question 46 of 120.

Which of the following would occur prior to the completion of a long-term contract when using the completed-contract method as opposed to the percentage-of-completion method?

I. A firm's current period revenues would be greater.
II. A firm's current period income tax liability would be lowered.
III. A firm's current period profits would be greater.

A. I and II.
B. II only.
C. II and III.
D. I and III.

Question 47 of 120.

In preparing its cash flow statement for the year ended December 31, 1998, Roman Co. collected the following data:

Gain on sale of equipment: $6,000
Proceeds from sale of equipment: 10,000
Purchase of A.S. Inc. bonds (par value $200,000): 180,000
Amortization of bond discount: 2,000
Dividends declared : 45,000
Dividends paid: 38,000
Proceeds from sale of treasury stock (carrying amount of $65,000): 75,000

In its December 31, 1998 statement of cash flows, what amount should Roman report as net cash provided by financing activities?

A. $27,000
B. $30,000
C. $37,000
D. $20,000

Question 48 of 120.

During 1996, Palliser Corp. incurred costs to develop and produce a routine, low-risk computer software product with the following costs:

Completion of detail program design: $13,000
Costs incurred for coding and testing to establish technological feasibility: $10,000
Other coding costs after establishment of technological feasibility: $24,000
Other testing costs after establishment of technological feasibility: $20,000
Costs of producing product masters for training materials: $15,000
Duplication of computer software and training materials from product masters (1,000 units): $25,000
Packaging product (500 units): $9,000

In Palliser's December 31, 1996 balance sheet, what amount should be capitalized as software cost subject to amortization?

A. $59,000
B. $54,000
C. $69,000
D. $57,000

Question 49 of 120.

Jumbotron's accountant has mistakenly understated depreciation by 125 and understated accounts payables by 65. Jumbotron's tax rate is 40%. Which of the following is/are true?

I. Assets are overstated by 125
II. Income is overstated by 125
III. Current liabilities are understated by 65
IV. Operating cash flow is understated by 125

A. III only
B. none of them
C. I & III
D. II, III & IV

Question 50 of 120.

A liability can be recognized when

I. an obligation exists to make a future payment based on a past event
II. when the identity of the creditor is uncertain
III. when the amount is uncertain

A. I and II.
B. II and III.
C. I and III.
D. I, II and III.

Question 51 of 120.

A loss contingency should be accrued on a company's records only if it is
A. probable that a liability has been incurred and the amount of the loss is unknown.
B. probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
C. reasonably possible that a liability has been incurred and the amount of the loss is known.
D. remotely probable that a liability has been incurred but the amount of the loss can be reasonably estimated.

Question 52 of 120.

Two otherwise identical firms, A and B, have one difference. A has a higher interest expense than B, arising from its higher reliance on debt financing. All other accounting statistics, including net sales and expenses are equal for the two firms. The return on total capital for firm A will be _______ that for firm B.
A. insufficient information to answer the question
B. lower than
C. higher than
D. the same as

Question 53 of 120.

Under GAAP, when interest rates rise, the carrying value of a long-term bond ________.
A. remains unchanged
B. increases
C. decreases
D. depends on the characteristics of the bond

Question 54 of 120.

Which of the following is/are true about stock dividends?

I. stock dividends lead to a decrease in the retained earnings account.
II. large stock dividends are valued at their par value.
III. small stock dividends are valued at their fair market value at the time of issuance.

A. I, II and III.
B. I and III.
C. II and III.
D. I and II.