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Question
Treating capital expenditures of a small dollar amount as revenue expenditures is likely to mislead the users of financial statements.
Answer
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Related questions
Q:
Periods
12 Percent 1
8929 2
1.6901 3
2.4018 4
3.0373 Assuming all revenue is to be received at the end of each year, what are the net cash flows for this investment if net present value equals ($11,790)?
A. $78,210
B. $10,920
C. $25,750
D. $237,547
E. $33,513
Q:
Scott Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of three years and a $4,000 salvage value. Scott requires a 12% return on its investments. The factors for the present value of $1 for different periods follow: Periods 12 Percent 1 8929 2 0.7972 3 0.7118 4 0.6355 What is the net present value of the machine and what is the maximum Scott would have been willing to pay for it?
A. $(251.52) but Scott would not pay any amount to acquire the machine because the NPV is negative.
B. $(251.52) and Scott would be willing to pay $29,748.48 for the machine.
C. $(251.52) but the price Scott would pay cannot be determined. D. $900 and Scott would be willing to pay $30,900 to acquire the machine
E. $900 but Scott would not be willing to acquire the machine.
Q:
A disadvantage of using the payback period to compare investment alternatives is that:
A. It ignores cash flows beyond the payback period.
B. It includes the time value of money.
C. It cannot be used when cash flows are not uniform.
D. It cannot be used if a company records depreciation.
E. It cannot be used to compare investments with different initial investments.
Q:
A given project requires a $25,000 investment and is expected to generate end-of-period annual cash inflows as follows: Year 1
Year 2
Year 3
Total $4,000
$15,000
$6,000
$25,000 Assuming a discount rate of 10%, what is the net present value of this investment? Selected present value factors for a single sum are shown in the table below: i = 10% n = 1
i = 10% n = 2
i = 10% n = 3 .9091
.8264
.7513 A. $6,217.50
B. ($4,459.80)
C. ($6,217.50)
D. $8,275.00
E. $0.00
Q:
Which methods of evaluating a capital investment project use cash flows as a measurement basis?
A. Net present value, accounting rate of return, and internal rate of return.
B. Internal rate of return, payback period, and accounting rate of return.
C. Accounting rate of return, net present value, and payback period.
D. Payback period, internal rate of return, and net present value.
E. Net present value, payback period, accounting rate of return, and internal rate of return.
Q:
Which of the following is an objective of capital budgeting?
A. To eliminate all risk.
B. To discount all future and past cash flows.
C. To earn a satisfactory return on investment.
D. To reverse past decisions.
E. To reduce the number of investment activities.
Q:
A company purchases a machine for $84,000. The machine has an expected life of 12 years and no salvage value. The company anticipates a yearly net income of $41,000 after taxes of 32% to be received uniformly throughout each year. What is the accounting rate of return?
Q:
A company is evaluating the purchase of a machine for $750,000 with a nine-year useful life and no salvage value. The company uses straight-line depreciation and it assumes that the annual net cash flow from using the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is the company's average investment?
Q:
A company is evaluating the purchase of a machine for $900,000 with a six-year useful life and no salvage value. The company uses straight-line depreciation and it assumes that the annual net cash flow from using the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is the company's average investment?
Q:
. A company is considering a proposal to invest $73,000 in a project that would provide the following net cash flows: Year 1 $ 5,000 Year 2 12,000 Year 3 25,000 Year 4 29,000 Year 5 8,000 Compute the project's payback period
Q:
A company is considering purchasing a machine for $123,000. The machine is expected to generate a net after-tax income of $8,200 per year. Depreciation expense would be $12,300. What is the payback period for this machine?
Q:
A company is considering purchasing a machine for $75,000. The machine is expected to generate a net after-tax income of $11,250 per year. Depreciation expense would be $7,500. What is the payback period for this machine?
Q:
For each of the capital budgeting methods listed below, place an X in the correct column, indicating the measurement basis of each, the ability to make comparison among projects, and whether each method reflects or ignores the time value of money. Measurement Basis
Comparison among Projects
Time Value of Money Cash Flows
Accrual Income
Allows Comparison
Difficult to Compare
Reflects Time Value of Money
Ignores Time Value of Money Payback period Accounting rate of return Net present value Internal rate of return
Q:
The _______________________________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.
Q:
The _______________________________ is computed by dividing a project's after-tax net income by the average amount invested in it.
Q:
In evaluating capital budgeting alternatives, there are two primary methods that do not consider the time value of money. These methods are _______________ and __________________. There are also two primary methods that consider the time value of money; these are ___________________ and _______________________.
Q:
The process of restating future cash flows in terms of their present value is called _____________________.
Q:
The usual budget period is:
A. An annual period of 250 working days.
B. A monthly period separated into daily budgets.
C. A quarterly period separated into weekly budgets.
D. An annual period separated into weekly budgets.
E. An annual period separated into quarterly and monthly budgets.
Q:
The most useful budget figures are developed:
A. From the top down.
B. From the bottom up following a participatory process.
C. Solely by the budget committee.
D. By the CEO.
E. After the accounting period has begun.
Q:
Preparing a master budget is usually the responsibility of:
A. The company CEO.
B. The marketing department.
C. A budget committee.
D. The chief financial officer.
E. Lower level management.
Q:
Part of the cash budget is based on information drawn from the capital expenditures budget.
Q:
Activity-based budgeting is a budget system based on expected activities and their activity levels, which helps management plan for the resources required.
Q:
The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.
Q:
The ______________________________ shows the budgeted costs for direct materials, direct labor, and overhead based on the budgeted production volume from the production budget.
Q:
Clic, Inc. provides the following data for the next four months: March
April
May
June
July Unit Sales 500
580
530
600 Ending Raw Materials Inventory
663 lbs. Ending Finished Goods Inventory
174 units Desired ending inventory:
Raw materials = 30% of next month's production needs
Finished goods = 20% of next month's sales
Pounds of raw material required for each finished Unit = 5 lbs.
Direct labor hours per unit = 0.5 hrs
Direct labor rate = $12/hour
Required:
a. Calculate the budgeted production for April and May.
b. Calculate the amount of purchases of raw materials in pounds for April and May.
c. Calculate the cost of direct labor for May.
Q:
Sweeny Co. is preparing a cash budget for the second quarter of the coming year. The following data have been forecasted: April May Sales
$150,000 $157,500 Merchandise purchases
107,000 112,400 Operating expenses: Payroll
13,600 14,280 Advertising
5,400 5,700 Rent
1,500 1,500 Depreciation
7,500 7,500 End of April balances: Cash
40,000 Bank loan payable
16,000 Additional data:
(1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000.
(2) Purchases are all on credit, with 40% paid in the month of purchase and the balance paid in the following month.
(3) Operating expenses are paid in the month they are incurred.
(4) A minimum cash balance of $40,000 is required at the end of each month.
(5) Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made whenever excess cash is available. Prepare the company's cash budget for May. Show the ending loan balance at May 31.
Q:
Which of the following statements is true regarding absorption costing?
A. It is a not the traditional costing approach.
B. It is not permitted to be used for financial reporting.
C. It is not permitted to be used for tax reporting.
D. It assigns all manufacturing costs to products.
E. It requires only variable costs to be treated as product costs.
Q:
Which of the following is not a product cost?
A. Direct labor.
B. Indirect manufacturing costs.
C. Direct materials.
D. Manufacturing overhead.
E. Advertising costs.
Q:
Contribution margin divided by sales equals contribution margin ratio.
Q:
When units produced exceed the units sold, income under absorption costing is higher than income under variable costing.