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Questions
Q:
Consider the one-factor APT. The variance of the return on the factor portfolio is .08. The beta of a well-diversified portfolio on the factor is 1.2. The variance of the return on the well-diversified portfolio is approximately _________.A. .1152B. .1270C. .1521D. .1342
Q:
Consider the multifactor APT with two factors. Portfolio A has a beta of .5 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.
A. 13.5%
B. 15%
C. 16.25%
D. 23%
Q:
Which type of fund is used to account for a government activity that sells goods or services either solely or almost solely to external customers?A) A temporary fundB) A general fundC) An agency fundD) An enterprise fund
Q:
The cross price elasticity of demand is defined asA) the percentage change in the supply for one good (a shift in the supply curve) divided by the percentage change in price of a related good.B) the percentage change in demand for two different commodities.C) the percentage change in the demand for one good (a shift in the demand curve) divided by the percentage change in price of a related good.D) the percentage change in price for two different commodities.
Q:
Which fund would most likely report depreciation expense?A) A special revenue fundB) An enterprise fundC) A capital projects fundD) A debt service fund
Q:
Consider the single factor APT. Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio
__________ and a long position in portfolio _________.
A. A; A
B. A; B
C. B; A
D. B; B
Q:
Price elasticity of demand basically measuresA) the reliability of a product.B) the responsiveness of consumers to price changes. C) the variability of price changes.D) the percentage change in market price as a result of a change in demand.
Q:
When examining revenue transactions, which of the following transactions is classified as an exchange transaction?A) When a homeowner pays property taxesB) When a university receives a federal grant that mandates a certain type of research activityC) When an aquatic center receives cash for a group swimD) When an employer deducts money for state tax withholding
Q:
Consider the single factor APT. Portfolio A has a beta of 1.3 and an expected return of 21%. Portfolio B has a beta of .7 and an expected return of 17%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________.
A. A; A
B. A; B
C. B; A
D. B; B
Q:
The costs associated with reaching and enforcing agreements are calledA) private property costs. B) common property costs.C) transaction costs. D) public costs.
Q:
In a world where the CAPM holds, which one of the following is not a true statement regarding the capital market line?
A. The capital market line always has a positive slope.
B. The capital market line is also called the security market line.
C. The capital market line is the best-attainable capital allocation line.
D. The capital market line is the line from the risk-free rate through the market portfolio.
Q:
Under the modified accrual basis of accounting, revenues are recognized in the periodA) when the relevant service is done.B) when they are collected.C) when the paying entity is billed.D) when they become both measurable and available.
Q:
One problem with third-party financing of health care is thatA) people have more incentive to utilize health care.B) demand falls so that suppliers cannot take advantage of economies of scale. C) it reduces the quality of health care people receive.D) it discourages people from relying on their physiciansʹ advice in making health care decisions.
Q:
Internal Service Funds differ from Enterprise Funds because Internal Service FundsA) are a proprietary fund.B) are intended to show a profit.C) charge for their services.D) provide goods and services primarily to other government agencies.
Q:
According to the CAPM, which of the following is not a true statement regarding the market portfolio.
A. All securities in the market portfolio are held in proportion to their market values.
B. It includes all risky assets in the world, including human capital.
C. It is always the minimum-variance portfolio on the efficient frontier.
D. It lies on the efficient frontier.
Q:
According to the text, the lower half of U.S. households earn about what percentage of total income?A) 4 percent B) 9 percent C) 15 percent D) 28 percent
Q:
According to the capital asset pricing model, in equilibrium _________.
A. all securities' returns must lie below the capital market line
B. all securities' returns must lie on the security market line
C. the slope of the security market line must be less than the market risk premium
D. any security with a beta of 1 must have an excess return of zero
Q:
Because a fund is an accounting entity, each fund hasI. its own accounting equation.II. its own journals, ledgers, and other accounting records.III. its own separate auditor.A) I onlyB) II onlyC) I and IID) I, II and III
Q:
A right-to-work law makes it illegalA) to prevent union members from working in any firm.B) to fire a worker who has joined a union or who tries to organize a union at any firm. C) to inquire whether a prospective employee is a member of a union or not.D) for union membership to be a requirement for continued employment in any firm.
Q:
Research has revealed that regardless of what the current estimate of a firm's beta is, beta will tend to move closer to ______ over time.
A. 1
B. 0
C. -1
D. .5
Q:
Which of the following statements is true about the market demand curve for labor?A) The market demand curve is the sum of the individual firmʹs demand curve.B) The market demand curve will be perfectly inelastic since firms need labor.C) The market demand curve shows the quantities of labor demanded by all firms in the industry at various marginal products.D) The market demand curve depends upon labor productivity, the wage rate and the price of the final product.
Q:
Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to asA) appropriations.B) allotments.C) allocations.D) encumbrances
Q:
The graph of the relationship between expected return and beta in the CAPM context is called the _________.
A. CML
B. CAL
C. SML
D. SCL
Q:
Governmental accounting differs from corporate financial accounting primarily becauseA) the size of the government and the various levels would make it unreasonable to use corporate GAAP.B) governments lack a profit motive and must focus on accountability to the public they serve.C) the government has no stakeholders who require financial reporting.D) the government has too many types of organizations to use one type of corporate GAAP.
Q:
Why is antitrust legislation necessary?
A) Monopolies tend to misallocate resources.
B) All monopolies are unlawful in the United States.
C) Monopolies tend to allocate resources in a socially optimal manner.
D) Monopolies will always make a profit in the long run.
Q:
You have a $50,000 portfolio consisting of Intel, GE, and Con Edison. You put $20,000 in Intel, $12,000 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?
A. 1.048
B. 1.033
C. 1
D. 1.037
Q:
Governmental fund financial statements are prepared on the ________ basis of accounting. Proprietary fund financial statements are prepared on the ________ basis of accounting.A) modified accrual; modified accrualB) accrual; fundC) modified accrual; accrualD) blended; discrete
Q:
In which market structures does a firm have at least some ability to set the market price?A) Perfect competition and monopolistic competition.B) Monopolistic competition and oligopoly. C) Oligopoly and monopoly.D) Monopolistic competition, oligopoly and monopoly.
Q:
According to the capital asset pricing model, fairly priced securities have _________.
A. negative betas
B. positive alphas
C. positive betas
D. zero alphas
Q:
The key focus of government fund accounting concernsA) capital expenditures.B) intergovernmental transfers from the general fund.C) income measurement.D) the current ability to provide and fund services and goods.
Q:
Oligopoly is a situation when thereA) is one firm in the industry that is fairly large.B) are a few large firms in the industry.C) are too many firms in the industry and there is excess capacity.D) is one giant firm and many smaller firms forming a competitive fringe.
Q:
According to the capital asset pricing model, a fairly priced security will plot _________.
A. above the security market line
B. along the security market line
C. below the security market line
D. at no relation to the security market line
Q:
In both a monopolistically competitive market and a pure monopoly market, firmsA) can make long-run profits. B) set price greater than marginal cost. C) are protected by entry barriers. D) advertise extensively.
Q:
Which pronouncements have the highest level of authority for state and local governments?A) Financial Accounting Standards Board StatementsB) GASB StatementsC) Consensus Positions of GASB Emerging Issues Task ForceD) GASB Technical Bulletins
Q:
Investors require a risk premium as compensation for bearing ______________.
A. unsystematic risk
B. alpha risk
C. residual risk
D. systematic risk
Q:
A monopolist is producing at an output level at which MR = $9 and MC = $8. It could increase profitsA) by increasing both output and price.B) by reducing output and by increasing price. C) by reducing both output and price.D) by increasing output and by reducing price.
Q:
Ohio Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.05 on the dollar. Lender Bank holds a $100,000 mortgage note receivable from Ohio that is secured by equipment with a $120,000 book value and a $90,000 fair value, and a second mortgage on the same equipment amounting to $50,000. Required:How much of the mortgage receivable will be recovered by Lender?
Q:
Arbitrage is based on the idea that _________.
A. assets with identical risks must have the same expected rate of return
B. securities with similar risk should sell at different prices
C. the expected returns from equally risky assets are different
D. markets are perfectly efficient
Q:
Hilfmir Corporation filed for Chapter 11 bankruptcy on January 1, 2011. A summary of their financial status is shown below on June 30, 2011, at the date of the approved reorganization, along with the fair value of their assets.Per Books Fair ValueCash $ 134,000 $ 134,000A/R - net 20,000 20,000Inventory 32,000 40,000Plant Assets - net 114,000 106,000Patent 80,000 0$ 380,000A/P $ 60,000Wages Payable 20,000Prepetition liab. 250,000Common Stock 140,000Deficit (90,000)$ 380,000Under the reorganization plan, the reorganization value has been set at $320,000. Prepetition liabilities include $30,000 of trade Accounts Payable and a $220,000 Note Payable to Bigg Bank. The reorganization plan calls for the Prepetition accounts payable to be paid at 80% at a later date, and the Note Payable for $220,000 to be replaced by a Note Payable for $76,000 and the issuance of common stock of the new entity for $100,000. The former stockholders will receive $40,000 in common stock of the new entity, Hilfmir, in exchange for their shares.Required:Show the calculations to determine if Hilfmir is eligible for fresh-start accounting, and prepare a fresh-start balance sheet for the new entity, Hilfmir, as of July 1, 2011.
Q:
In a long-run equilibrium, a perfectly competitive firmʹs average total cost isA) minimized. B) maximized.C) zero. D) equal to average fixed cost.
Q:
According to the capital asset pricing model, a security with a _________.
A. negative alpha is considered a good buy
B. positive alpha is considered overpriced
C. positive alpha is considered underpriced
D. zero alpha is considered a good buy
Q:
If marginal revenue is greater than marginal cost, the firm shouldA) raise price. B) raise marginal revenue.C) increase its rate of output. D) decrease its rate of output.
Q:
Pasten Corporation is liquidating under Chapter 7 of the Bankruptcy Act. The accounts of Pasten at the time of filing are summarized as follows:EstimatedRealizableBook Value ValueCash $ 65,000 $ 65,000Accounts receivable-net 15,000 13,000Inventory 280,000 190,000Land 20,000 28,000Building 210,000 220,000Goodwill 595,000 0$ 1,185,000Accounts payable $ 800,000Wages and salaries 21,000Taxes payable 12,000Accrued mortgage interest payable 16,000Mortgage payable 304,000Capital stock 100,000Deficit (68,000)$ 1,185,000The land and building are pledged as security for the mortgage payable as well as any accrued interest on the mortgage. Wages and salaries were earned within 90 days of filing the bankruptcy petition and do not exceed $10,000 per employee. Liquidation expenses are expected to be $35,000.Required:1. Prepare a schedule showing the priority rankings of the creditors and the expected payouts.2. Yuomi Corporation was a supplier to Pasten Corporation and at the time of Pasten's bankruptcy filing, Yuomi's account receivable from Pasten was $500,000. On the basis of the estimates, how much can Yuomi expect to receive?
Q:
If all investors become more risk averse, the SML will _______________ and stock prices will _______________.
A. shift upward; rise
B. shift downward; fall
C. have the same intercept with a steeper slope; fall
D. have the same intercept with a flatter slope; rise
Q:
Use the above figure. At an output equal to ʺQʺ the average fixed cost for the firm will be the line segmentA) DE. B) AB. C) BE. D) CD.
Q:
Oceana Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.35 on the dollar. Loans-R-Us holds a $1,000,000 mortgage note receivable from Oceana that is secured by building and equipment with a $1,200,000 book value and a $900,000 fair value. Required:How much of the mortgage receivable will Loans-R-Us recover?
Q:
The capital asset pricing model was developed by _________.
A. Kenneth French
B. Stephen Ross
C. William Sharpe
D. Eugene Fama
Q:
Rank the following claims 1 through 5, with 1 being the first priority claim, under Chapter 7 of the bankruptcy code._____ A. Trustee fees for administration of the estate._____ B. Accounts payable for goods delivered prior to filing an involuntary petition for bankruptcy_____ C. Customer deposits for services never rendered._____ D. First mortgage on the company's real estate._____ E. Income taxes owed for the prior year.
Q:
The difference between the short run and the long run isA) economic profits are negative in the short run and positive in the long run.B) economic and accounting profits are not equal in the short run but are equal in the long run.C) that in the short run at least one factor of production cannot be varied while in the long run all factors of production can be varied.D) the short run is a period less than a year while the long run is a period greater than a year.
Q:
In a well-diversified portfolio, __________ risk is negligible.
A. nondiversifiable
B. market
C. systematic
D. unsystematic
Q:
Aqua Corporation filed a petition under Chapter 7 of the bankruptcy act in January, 2011. On February 28, the following information was presented regarding Aqua's financial status.Book Values Fair ValuesCash $ 50,000 $ 50,000A/R - net 100,000 90,000Inventories 80,000 60,000Fixed Assets - net 200,000 230,000Priority Claims 80,000A/P 100,000N/P 110,000Mortgage Payable 200,000The Note Payable is secured by Accounts Receivable, and the Mortgage Payable is secured by the Fixed Assets.Required:Calculate the amount expected to be available for unsecured claims and the percentage recovery that the unsecured class should expect to receive.
Q:
When economic profits are zero, accounting profitsA) must be positive. B) will be negative.C) will equal zero. D) could be positive, negative or zero.
Q:
The market portfolio has a beta of _________.
A. -1
B. 0
C. .5
D. 1
Q:
The budget lineA) shifts to the left as income increases. B) has a positive slope.C) is a vertical line.D) shows the combination of goods that can be purchased at fixed prices and with a given income.
Q:
Gargantuan Bank has loaned money in two separate loans to Little Company, which is now in Chapter 7 bankruptcy. Little Company has the following assets and liabilities, stated at fair value in liquidation.Assets pledged with secured creditors $ 190,000Assets pledged with partially secured creditors 70,000Other assets 30,000Secured debt to Gargantuan 130,000Partially secured debt to Gargantuan 110,000Unsecured liabilities with priority 50,000Unsecured liabilities 160,000Required:Determine the amount of cash that Gargantuan will collect from these two pieces of debt.
Q:
If enough investors decide to purchase stocks, they are likely to drive up stock prices, thereby causing _____________ and ___________.
A. expected returns to fall; risk premiums to fall
B. expected returns to rise; risk premiums to fall
C. expected returns to rise; risk premiums to rise
D. expected returns to fall; risk premiums to rise
Q:
Using the above table, what is the total utility of the first piece of pizza?A) 0 utils B) 50 utils C) 75 utils D) 100 utils
Q:
Faled Company has the following assets and liabilities, stated at fair value in liquidation.Assets pledged with secured creditors $ 100,000Assets pledged with partially secured creditors 75,000Other assets 160,000Secured liabilities 50,000Partially secured liabilities 110,000Unsecured liabilities with priority 80,000Unsecured liabilities 215,000Required:Determine the amount of cash that will be available to pay unsecured creditors, and the percentage of unsecured liabilities that will be paid.
Q:
Empirical results estimated from historical data indicate that betas _________.
A. are always close to zero
B. are constant over time
C. of all securities are always between zero and 1
D. seem to regress toward 1 over time
Q:
Dip Corporation is in a Chapter 11 bankruptcy reorganization. For each of the following transactions relating to the reorganization, show the journal entry that would be required by Dip. Assume that all unsecured liabilities were not reclassified to Prepetition Claims Subject to Compromise.Dip has $200,000 in bonds payable which mature at the end of the current year. The bondholders agree to accept $100,000 of new common stock and $75,000 cash, payable immediately.2. Accrued interest on the bonds recorded at $20,000 will not be paid.3. Recorded patents in the amount of $15,000 are determined to be worthless and are written off.4. Equipment recorded net at $24,000 is appraised at $30,000.5. A building recorded net at $78,000 is appraised for $87,000.6. Creditors owed $120,000 recorded in accounts payable are paid $96,000 in full settlement.7. Property taxes and payroll taxes withheld are paid in full at $12,000.8. A capital lease recorded at $48,000 is re-negotiated, and the resulting operating lease will require monthly lease payments of $500.9. An unsecured bank note amounting to $180,000 will be exchanged for $120,000 note secured by the building and equipment.10. Current stockholders will exchange their stock which has a current book value of $300,000 for $100,000 common stock of the new entity.
Q:
If the value of the cross elasticity of demand is negative, the two goods areA) complementary goods. B) substitute goods. C) normal goods. D) inferior goods.
Q:
In the context of the capital asset pricing model, the systematic measure of risk is captured by _________.
A. unique risk
B. beta
C. the standard deviation of returns
D. the variance of returns
Q:
The result of the calculation of the price elasticity of demand isA) always positive.B) always negative.C) sometimes positive, sometimes negative.D) always greater than one.
Q:
Trustin Corporation is in a Chapter 7 bankruptcy liquidation. For each of the following transactions, show the journal entry that would be required by the trustee of the estate.1. An electric bill is received for $1,000 which had not yet been recorded by Trustin.2. Inventory recorded net at $18,000 is sold for $16,000 cash.3. Recorded patents in the amount of $7,000 are determined to be worthless and are written off.4. Equipment recorded net at $24,000 is sold for $20,000 cash.5. A building recorded net at $78,000 is sold for $87,000 cash.6. Trustee fees of $2,500 are accrued.7. The fully secured mortgage is paid in the amount of $70,000.8. Wages payable that were recorded in the amount of $9,000 are paid.9. An equipment lease, which was recorded as prepaid equipment lease, is cancelled and a $1,500 refund is received.10. Accounts receivable amounting to $12,000 are collected, and an additional $3,000 is determined to be uncollectible.
Q:
The arbitrage pricing theory was developed by _________.
A. Henry Markowitz
B. Stephen Ross
C. William Sharpe
D. Eugene Fama
Q:
DeFunk Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.18 on the dollar. Magma Corporation holds a $200,000 mortgage receivable from DeFunk that is secured by the land and buildings with a book value of $180,000 and a fair value of $190,000. Magma also holds an $80,000 unsecured note receivable from Defunk. Mortgage interest owed, which is secured with the mortgage note, is $4,000. Note interest owed, which is unsecured, is $2,000.Required:How much of the amounts owed will Magma recover?
Q:
Government intervention will not be necessary when voluntary contracting internalizes an externality. Which of the following is NOT a necessary condition for this to occur?
A) Well-defined private property rights
B) Low transaction costs
C) Large numbers of individuals involved in the transactions
D) Low contract enforcement costs
Q:
Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?
A. 2%
B. 6%
C. 8%
D. 12%
Q:
Moddle Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.20 on the dollar. National Corporation holds a $500,000 mortgage note receivable from Moddle that is secured by equipment with a $550,000 book value and a $430,000 fair value.Required:How much of the mortgage receivable will National recover?
Q:
An example of third-party financing of health care isA) patients paying for their visit to the doctor.B) patients not going to the doctor in order to save money.C) a patient going to another doctor for a second or a third opinion.D) Medicare.
Q:
Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?
A. .5
B. .7
C. 1
D. 1.2
Q:
According to the text, todayʹs Lorenz curve isA) a straight line.B) a vertical line.C) more bowed than in 1929. D) less bowed than in 1929.
Q:
Lesher Corporation lost their primary contract and entered into voluntary Chapter 7 bankruptcy in the early part of 2012. By July 1, all assets were converted into cash, the secured creditors were paid, and $124,500 in cash was left to pay the remaining claims as follows:Accounts payable $ 50,000Claims incurred between the date of filing an involuntarybankruptcy petition and the date an interim trustee is appointed 8,000Payroll taxes withheld 14,000Wages payable (all under $10,000 per employee; earned within90 days of filing bankruptcy petition) 56,000Unsecured note payable 37,500Accrued interest on the note payable 2,000Administrative expenses of the trustee 22,000Total $ 189,500Required:Classify the claims by their Chapter 7 priority ranking, and analyze which amounts will be paid and which amounts will be written off.
Q:
Kline Corporation incurred major losses in 2011 and entered into voluntary Chapter 7 bankruptcy in the early part of 2012. By July 1, all assets were converted into cash, the secured creditors were paid, and $122,700 in cash was left to pay the remaining claims as follows:Accounts payable $ 37,000Claims incurred between the date of filing an involuntary 5,000petition and the date an interim trustee is appointedProperty taxes payable 8,000Wages payable (all under $10,000 per employee; 74,000earned within 90 days of filing bankruptcy petition)Unsecured note payable 19,000Accrued interest on the note payable 2,000Administrative expenses of the trustee 12,180Total $ 157,180Required:Classify the claims by their Chapter 7 priority ranking, and analyze which amounts will be paid and which amounts will be written off.
Q:
The weldersʹ union at Ajax is on strike. The maintenance union has decided to walk out in support of the weldersʹ union. This is known asA) a closed shop. B) a union shop.C) a sympathy strike. D) a secondary boycott.
Q:
In a simple CAPM world which of the following statements is (are) correct?
I. All investors will choose to hold the market portfolio, which includes all risky assets in the world.
II. Investors' complete portfolio will vary depending on their risk aversion.
III. The return per unit of risk will be identical for all individual assets.
IV. The market portfolio will be on the efficient frontier, and it will be the optimal risky portfolio.
A. I, II, and III only
B. II, III, and IV only
C. I, III, and IV only
D. I, II, III, and IV
Q:
Gonne Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.35 on the dollar. Odemay Corporation holds a $100,000 mortgage note receivable from Gonne that is secured by equipment with a $120,000 book value and a $75,000 fair value.Required:How much of the mortgage receivable will be recovered by Odemay?
Q:
Which of the following will cause a shift in the demand curve of labor?A) An increase or decrease in the productivity of labor.B) An increase or decrease in the demand for the product labor produces. C) A decline in the price of a complementary input .D) all of the above
Q:
When all investors analyze securities in the same way and share the same economic view of the world, we say they have
____________________.
A. heterogeneous expectations
B. equal risk aversion
C. asymmetric information
D. homogeneous expectations
Q:
Finale Company is in bankruptcy and is being liquidated under the provisions of Chapter 7 of the bankruptcy code. The trustee has converted all assets into $180,000 cash and has prepared the following list of approved claims:Customer deposits ($1,000 from each of three customersthat ordered products that were never delivered) $ 3,000Property taxes payable 6,000Accounts payable, unsecured 45,000Trustee's fees and other costs of liquidation 24,000Mortgage payable, secured by property that was sold for $120,000 90,000Note payable to bank, secured by all accounts receivable of which $45,000were collected and $15,000 were written off as uncollectible 60,000Required:How much will the bank receive on the note payable?