ASHWORTH A04 ONLINE EXAM 7

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ASHWORTH A04 ONLINE EXAM 7

Question # 00177252 Posted By: paul911 Updated on: 01/21/2016 02:25 AM Due on: 01/22/2016

Subject Accounting Topic Accounting Tutorials:

Question

Question 1 of 40

0.0/ 5.0 Points

Which of the following is NOT an example of a negative covenant provision?

A. Limits on capital expenditures
B. Limits on the borrower’s total indebtedness
C. Limits the use of the loan to an agreed-upon purpose
D. Restricts the payment of cash dividends

Question 2 of 40

5.0/ 5.0 Points

A compensation committee should be comprised of:

A. the CEO and the CFO of the company.
B. the CEO of the company and the outside attorney.
C. members of the Board of Directors who are also officers of the company.
D. members of the Board of Directors who are outside (non-management) directors.

Question 3 of 40

5.0/ 5.0 Points

Most executive compensation plans link bonus awards to one or more __________
performance measures.

A. non-accounting based
B. accounting-based
C. marketing-based
D. management-based

Question 4 of 40

5.0/ 5.0 Points

In the utilities industry, rate formulas are established to allow the utilities to set total allowed revenues to recover:

A. only the administrative costs of operations.
B. only the operating costs associated with operations.
C. all operating costs, depreciation, taxes, and a fair return on invested capital.
D. all operating costs other than depreciation and taxes, and a fair return on invested capital.

Question 5 of 40

5.0/ 5.0 Points

One low-cost, effective way of eliminating or reducing conflicts of interest in business relationships is to:

A. only deal with related parties.
B. carefully specify mutual expectations in contract terms.
C. use lawyers to negotiate all terms.
D. use an arbitrator for all negotiations.

Question 6 of 40

5.0/ 5.0 Points

Affirmative covenants generally would NOT include which of the following stipulations?

A. The lender has the right to inspect business assets and business contracts.
B. Limits on the borrower’s total indebtedness
C. The borrower must maintain insurance on business properties.
D. Specific financial covenants and reporting requirements

Question 7 of 40

5.0/ 5.0 Points

A decrease in market-wide interest rates will result in a/an:

A. increase in the cost of equity capital.
B. decrease in the cost of equity capital.
C. increase in the cost of debt.
D. decrease in the demand for fixed-rate bond investments.

Question 8 of 40

5.0/ 5.0 Points

Discretionary accounting accruals are:

A. cash financial statement adjustments, which accrue revenue or expenses.
B. noncash financial statement adjustments, which accrue revenue or expenses.
C. cash financial statement adjustments, which accrue only revenue.
D. noncash financial statement adjustments, which accrue only expenses.

Question 9 of 40

5.0/ 5.0 Points

Potential conflicts of interest between shareholders and managers may be overcome if managers are given incentives which cause them to behave as if they were:

A. creditors.
B. owners.
C. debtors.
D. vendors.

Question 10 of 40

0.0/ 5.0 Points

The widespread use of accounting-based incentives to determine executive compensation is controversial for which one of the following reasons?

A. Earnings growth automatically increases shareholder value.
B. Accounting based incentive plans can encourage managers to adopt a long-term business focus.
C. Executives can use their discretion over the accounting policies.
D. Managers do not have accounting flexibility.

Question 11 of 40

5.0/ 5.0 Points

When faced with falling short of a desired earnings target, financial executives reportedly might consider any of the following actions EXCEPT:

A. prematurely taking an accounting charge.
B. providing incentives for customers to buy more product this quarter.
C. decreasing discretionary spending.
D. delaying the start of a new project.

Question 12 of 40

5.0/ 5.0 Points

Rate regulation provides incentives for public utility managers to artificially:

A. decrease the asset base.
B. increase the asset base.
C. decrease operating expenses.
D. decrease taxes.

Question 13 of 40

5.0/ 5.0 Points

In a study of discretionary accounting accruals, it was found that abnormal accruals in the year prior to reporting covenant violations significantly:

A. decreased the company’s current ratio but significantly increased the company’s reported earnings.
B. decreased the company’s net worth.
C. increased reported earnings and increased working capital.
D. increased reported earnings but decreased working capital.

Question 14 of 40

5.0/ 5.0 Points

Debt covenants benefit:

A. lenders.
B. borrowers.
C. both lenders and borrowers.
D. neither borrowers nor lenders, but are required by the SEC as a condition of issuing debt securities.

Question 15 of 40

5.0/ 5.0 Points

Stock options:

A. have value only if the market price of the stock declines.
B. have value only if the market price of the stock rises.
C. are taxed at ordinary rates.
D. do not qualify for favorable tax treatment.

Question 16 of 40

0.0/ 5.0 Points

A financial covenant would stipulate all of the following EXCEPT:

A. financial statements must be prepared in accordance with GAAP.
B. specific levels of performance to be met.
C. which accounting methods are to be used.
D. conditions that must be met.

Question 17 of 40

5.0/ 5.0 Points

Covenants that place direct restrictions on managerial decisions are called:

A. affirmative restrictions.
B. affirmative covenants.
C. negative restrictions.
D. negative covenants.

Question 18 of 40

5.0/ 5.0 Points

Compensation plans should:

A. not link incentive plans to financial performance.
B. not be based on long-term business goals.
C. align shareholders’ incentives with the objectives of managers.
D. align managers’ incentives with the objectives of shareholders.

Question 19 of 40

5.0/ 5.0 Points

When one party to a business relationship can make decisions that benefit him or her but harm the other party a:

A. lawsuit is automatically filed.
B. contract arises.
C. conflict of interest arises.
D. contingent liability arises.

Question 20 of 40

5.0/ 5.0 Points

A covenant that specifies a required minimum level of net worth and working capital is a/an __________ covenant.

A. compliance
B. financial
C. implicit
D. negative

Part 2 of 2 - 90.0/ 100.0 Points

Question 21 of 40

5.0/ 5.0 Points

Guthrie Corporation reports accounts receivable at a net realizable value of $2,940,000 (gross receivable of $3,000,000 minus allowance for uncollectible accounts of $60,000). Assume that there is an active market for these types of receivables and that the price is 94% of face value. To adjust the receivable’s carrying value to fair value Guthrie would make which of the following entries?

A.

DR Realized loss on receivables	180,000
CR Accounts receivable		180,000

B.

DR Unrealized loss on receivables	120,000
CR Fair value adjustment--accounts receivable		120,000

C.

DR Unrealized loss on receivables	180,000
CR Fair value adjustment--accounts receivable		180,000

D.

DR Realized loss on receivables	120,000
CR Accounts receivable		120,000

Question 22 of 40

5.0/ 5.0 Points

The determining factor for accounting treatment of a troubled debt restructuring when there is a continuation with modification of terms is whether:

A. there is a gain or loss on the transaction to the debtor.
B. there is a gain or loss on the transaction to the lender.
C. the undiscounted sum of the future cash flows under the restructured note is above or below the note’s book value (including accrued interest) at the restructuring date.
D. the discounted sum of the future cash flows under the restructured note is above or below the note’s book value (including accrued interest) at the restructuring date.

Question 23 of 40

5.0/ 5.0 Points

Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus $8,000 accrued interest on October 1, 2014. Island and Mutual Bank enter into an agreement whereby Island will pay Mutual $128,000 on the due date of the note on October 1, 2016.

Island will record this transaction to recognize:

A. an extraordinary debt restructuring gain of $20,000.
B. an extraordinary debt restructuring loss of $20,000.
C. an ordinary debt restructuring gain of $20,000.
D. neither a gain nor a loss from debt restructuring.

Question 24 of 40

5.0/ 5.0 Points

Research evidence suggests that:

A. companies increase bad debt expense when earnings are otherwise low and then decrease the expense when earnings are high.
B. companies reduce bad debt expense when earnings are otherwise low and then increase the expense when earnings are high.
C. there is no correlation between bad debt expense and earnings levels.
D. a company’s ratio of allowance for uncollectibles to gross receivables should always be close to the average for its industry.

Question 25 of 40

5.0/ 5.0 Points

Jones Co. sells on credit and maintains an allowance for doubtful accounts equal to 2% of the company’s $3,450,000 receivables balance. Due to a cash shortfall, Jones sells $275,000 of its receivables with recourse to Ninth National Bank, and the bank withholds $12,000 from the factoring proceeds to cover possible noncollections. If the noncollections eventually amount to $15,000, the entry on Jones’ books when notified of this fact would be:

A.

DR Allowance for doubtful accounts	3,000
CR Accounts receivable (specific customers)		3,000

B.

DR Allowance for doubtful accounts	15,000
CR Accounts receivable (specific customers)		15,000

C.

DR Bad Debt expense	3,000
CR Cash		3,000

D.

DR Allowance for doubtful accounts	15,000
CR Due from Ninth National Bank		12,000
CR Cash		3,000

Question 26 of 40

5.0/ 5.0 Points

What will be the balance in the Notes Receivable—Lewisburg Fabricators account at the end of 2015?

A. $54,447
B. $58,802
C. $63,507
D. $80,000

Question 27 of 40

5.0/ 5.0 Points

The sales returns and allowances account is:

A. a contra-asset account.
B. a contra-revenue account.
C. on the balance sheet.
D. on the statement of shareholders’ equity.

Question 28 of 40

5.0/ 5.0 Points

Management must periodically assess the reasonableness of the allowance for uncollectibles if it uses the:

A. direct write-off method.
B. percent of sales method only.
C. percent of gross receivables method only.
D. percent of sales or the percent of gross receivables method.

Question 29 of 40

5.0/ 5.0 Points

When receivables are bundled together and transferred to another organization that issues securities collateralized by the transferred receivables, the arrangement is:

A. collateralization.
B. discounting.
C. factoring.
D. securitization.

Question 30 of 40

0.0/ 5.0 Points

What amount will Palmer use to record the sale to Perez?

A. $90,000
B. $90,595
C. $100,000
D. $110,381

Question 31 of 40

5.0/ 5.0 Points

When a note receivable has a stated interest rate that is lower than the prevailing rate for similar loans, it is recorded at:

A. present value based on the stated interest rate.
B. present value based on the prevailing rate of interest.
C. maturity value.
D. net realizable value.

Question 32 of 40

5.0/ 5.0 Points

At the end of the first quarter, which one of the following entries will be made to record the interest earned by Palmer on the Berg note?

A.

DR Cash	2,500
CRInterest Income		2,500

B.

DR Accrued interest receivable	2,500
CRInterest Income		2,500

C.

DR Notes receivable - Berg	2,265
CRInterest Income		2,265

D. There is no entry because the note is non-interest bearing.

Question 33 of 40

5.0/ 5.0 Points

Net realizable value of receivables is gross receivables minus:

A. bad debt expense and sales returns.
B. bad debt expense and estimated returns and allowances.
C. estimated uncollectibles and estimated returns and allowances.
D. proven uncollectibles and estimated returns and allowances.

Question 34 of 40

5.0/ 5.0 Points

The Fair value adjustment—accounts receivable account is an asset valuation account that:

A. would be adjusted upward or downward as fair values change and as the receivables are collected.
B. is created when fair value accounting is adopted but is not subsequently adjusted.
C. can only be adjusted downward.
D. is unaffected by the subsequent collection of receivables.

Question 35 of 40

5.0/ 5.0 Points

The sale of receivables to a third party is called:

A. factoring.
B. collateralizing.
C. discounting.
D. securitization.

Question 36 of 40

0.0/ 5.0 Points

What effective interest rate will Mutual Bank use for the restructured note?

A. 8.7%
B. 8.9%
C. 10.0%
D. 13.1%

Question 37 of 40

5.0/ 5.0 Points

Reference the following unadjusted year end trial balance information available for Edsel Company’s 2014 finances:

If Edsel uses the sales revenue approach for estimating bad debt expense, the income statement should show an expense of:

A. $10,000.
B. $12,000.
C. $14,000.
D. $20,000.

Question 38 of 40

5.0/ 5.0 Points

Harry Jones accepted a six-month, 8%, $40,000 note receivable from a customer on July 1, 2014. Jones has an arrangement with the National Bank to discount selected customer notes at 10%.

On August 1, 2014, Jones discounted the note under the arrangement with National Bank. How much were the proceeds of the discounted note?

A. $38,267
B. $39,867
C. $40,000
D. $41,600

Question 39 of 40

5.0/ 5.0 Points

Harry Jones accepted a six-month, 8%, $40,000 note receivable from a customer on July 1, 2014. Jones has an arrangement with the National Bank to discount selected customer notes at 10%.

If the note were discounted on August 1 under the terms of agreement with National Bank, which one of the following journal entries would Jones record?

A.

DR Cash	39,867
CR Note payable - National Bank		39,867

B.

DR Cash	40,000
CR Note receivable		40,000

C.

DR Cash	39,867
DR Interest Expense	123
CR Note receivable		40,000

D.

DR Cash	39,867
DR Interest Expense	123
CR Note payable - National Bank		40,000

Question 40 of 40

5.0/ 5.0 Points

If a bank sells a mortgage portfolio at a price that yields the purchasers a return that is lower than that yielded, on average, by the mortgages in the portfolio, the selling price:

A. is equal to the carrying value of the mortgages on the bank’s books.
B. is lower than the carrying value of the mortgages on the bank’s books.
C. is higher than the carrying value of the mortgages on the bank’s books.
D. cannot be determined by examining the carrying value of the mortgages on the bank’s books because the selling price is determined purely by the market.

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score 3 · Accepted Answer · 01/21/2016 02:31 AM

Solution: ASHWORTH A04 ONLINE EXAM 7

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ASHWORTH A04 ONLINE EXAM 7

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Solution: ASHWORTH A04 ONLINE EXAM 7

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