Q&A Hero

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Q: Which of the following is FALSE regarding the general rule for hiring?A) Virtually every optimizing rule in economics involves comparing marginal benefits with marginal cost.B) The benefit from added workers is extra output and consequently more revenues.C) The firm hires workers up to the point at which the additional cost associated with hiring the last worker is equal to the additional revenue generated by that worker.D) If any firm hired fewer workers over time, profits would definitely increase at that firm.

Q: Money market securities are sometimes referred to as cash equivalents because _____. A. they are safe and marketable B. they are not liquid C. they are high-risk D. they are low-denomination

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Q: A dollar-denominated deposit at a London bank is called _____. A. eurodollars B. LIBOR C. fed funds D. bankers' acceptance

Q: Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known asA) social policy. B) antitrust policy. C) inherent policy. D) goodwill policy.

Q: When computing the bank discount yield, you would use ____ days in the year. A. 260 B. 360 C. 365 D. 366

Q: ʺA firm should always make complementary products incompatible with those of other firms.ʺ Do you agree or disagree? Why?

Q: Use the following information to answer the question(s) below.Plenty Corporation issued six thousand, $1,000 par, 6% bonds on January 1, 2010, at par. Interest is paid on January 1 and July 1 of each year; the bonds mature on January 1, 2015. On January 2, 2012, Scrawn Corporation, a 75%-owned subsidiary of Plenty, purchased 3,000 of the bonds on the open market at 102.50. Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds. Scrawn's separate net income for 2012 was $400,000, which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31. Both companies use straight-line amortization of bond discounts/premiums.Using the original information, the amount of consolidated Interest Expense for 2012 wasA) $ 135,000.B) $ 180,000.C) $ 270,000.D) $ 360,000.

Q: T-bills are issued with initial maturities of: I. 4 weeks II. 16 weeks III. 26 weeks IV. 32 weeks A. I and II only B. I and III only C. I, II, and III only D. I, II, III, and IV

Q: If Ford Motor Company and General Motors Corporation were to merge, this would representA) a vertical merger. B) a horizontal merger.C) a cartel. D) an up-and-down merger.

Q: Which of the following is not a money market instrument? A. Treasury bill B. commercial paper C. preferred stock D. bankers' acceptance

Q: What are the implications of there being a large number of firms in a monopolistically competitive market?

Q: Which insurance company sold more than $400 billion of CDS contracts on subprime mortgages prior to the 2008 market crash?A. MetlifeB. AIGC. Northwestern MutualD. New York Life

Q: If a monopolist is producing the quantity at which marginal revenue exceeds marginal cost, it shouldA) continue to produce this amount if it wants to maximize profits.B) reduce output if it wants to maximize profits.C) reduce price and keep output unchanged if it wants to maximize profits.D) increase output if it wants to maximize profits.

Q: The Dodd-Frank Reform Act does all of the following except: A. reduces capital requirements for banks. B. increases transparency in the derivatives market C. limits the risk-taking in which banks can engage D. requires public companies to set "claw-back" provisions E. creates an office within the SEC to oversee credit rating agencies.

Q: What are signals? How do profits function as signals?

Q: Use the following information to answer the question(s) below.Pfadt Inc. had $600,000 par of 8% bonds payable outstanding on January 1, 2011 due January 1, 2015 with an unamortized discount of $12,000. Senat is a 90%-owned subsidiary of Pfadt. On January 2, 2011, Senat Corporation purchased $150,000 par value of Pfadt's outstanding bonds for $152,000. The bonds have interest payment dates of January 1 and July 1. Straight-line amortization is used.Bonds Payable appeared in the December 31, 2011 consolidated balance sheet of Pfadt Corporation and Subsidiary in the amount ofA) $398,925.B) $441,000.C) $443,250.D) $450,000.

Q: The difference between LIBOR and the Treasury-bill rate A. is called the TED spread. B. measures credit risk in the banking sector. C. was very low just before the 2008 financial crisis. D. All of the options.

Q: When price and marginal cost are equal for a perfectly competitive firm, the firm isA) minimizing average total cost. B) maximizing total revenue.C) maximizing economic profit. D) earning negative economic profit.

Q: Until 1999, the __________ Act separated commercial banking and investment banking activities. A. Dodd-Frank Wall Street Reform and Consumer Protection B. Sarbanes-Oxley C. Glass-Steagall D. Volker Rule

Q: The average fixed cost curveA) is parallel to the x-axis.B) is the distance between the TC and TVC curves.C) slopes downward as output increases. D) increases as the cost of inputs rise.

Q: The Volker Rule A. prohibits banks from proprietary trading. B. restricts banks' investments in hedge funds. C. restricts banks' investments in private equity funds. D. All of the options.

Q: What is the random walk theory?

Q: An investment adviser has decided to purchase gold, real estate, stocks, and bonds in equal amounts. This decision reflects which part of the investment process? A. asset allocation B. investment analysis C. portfolio analysis D. security selection

Q: Prussia Corporation owns 80% the voting stock of Stad Corporation. On January 1, 2010, Prussia paid $391,000 cash for $400,000 par of Stad's 10% $1,000,000 par value outstanding bonds, due on April 1, 2015. Stad's bonds had a book value of $1,045,000 on January 1, 2010. Straight-line amortization is used. The gain or loss on the constructive retirement of $400,000 of Stad bonds on January 1, 2010 was reported in the 2010 consolidated income statement in the amount ofA) $14,000.B) $21,600.C) $23,000.D) $27,000.

Q: Compared to a proprietorship, a disadvantage of a partnership isA) that profits are taxed twice.B) that it is harder to keep the firm going after the death of an owner. C) unlimited liability.D) that potential liability to each partner is greater.

Q: The systemic risk that led to the financial crisis of 2008 was increased by _____ . A. collateralized debt obligations B. subprime mortgages C. credit default swaps D. all of the options

Q: Use the following information to answer the question(s) below.Pascalian Company owns a 90% interest in Sapp Company. On January 1, 2010, Pascalian had $300,000, 6% bonds outstanding with an unamortized premium of $9,000. The bonds mature on December 31, 2014. Sapp acquired one-third of Pascalian's bonds in the open market for $97,000 on January 1, 2010. Both companies use straight-line amortization of bond discounts/premiums. Interest is paid on December 31. On December 31, 2010, the books of the two affiliates held the following balances:Pascalian's books6% bonds payable $300,000Premium on bonds 7,200Interest expense 16,200Sapp's booksInvestment in Pascalian bonds $ 97,600Interest income 6,600Consolidated Interest Expense and consolidated Interest Income, respectively, that appeared on the consolidated income statement for the year ended December 31, 2010 wasA) $10,800 and $0.B) $10,800 and $6,600.C) $0 and $0.D) $16,200 and $6,600.

Q: Basket of goods A is on an indifference curve that lies closer to the origin than basket B. From this we know thatA) the prices of the goods in A are less than the prices of the goods in B.B) the satisfaction from consuming A is more than the satisfaction from consuming B. C) the marginal utility from consuming A is less than the marginal utility from consuming B.D) the satisfaction from consuming A is less than the satisfaction from consuming B.

Q: Which of the following is (are) true about nonconforming mortgage loans? A. They are also known as subprime loans. B. They have higher default risk than conforming loans. C. They were able to be offered without due diligence. D. All of the options are true.

Q: QuantityPer WeekTotal UtilityAmyRobertDavidMichelle0000015.01006006029.91901200130314.72701800220419.43402400310524.04003000425628.54503600575732.94904200900837.252048001275941.451054001770Refer to the above table. Which of the four people have utility schedules characterized by the law of diminishing marginal utility?A) Amy, Robert, and David only B) Michelle onlyC) Michelle and David only D) Amy and Robert only

Q: In recent years the greatest dollar amount of securitization occurred for which type of loan? A. home mortgages B. credit card debt C. automobile loans D. equipment leasing

Q: Bonds issued by a company remain on their books as a liability, but are considered constructively retired whenA) the company borrows money from unaffiliated entities to re-purchase its own bonds at a gain.B) The company borrows money from an affiliate to re-purchase its own bonds at a gain.C) The company's parent or subsidiary purchases the bonds from outside entities.D) The company borrows money from an affiliate to repurchase its own bonds at a gain or at a loss.

Q: MonthPXQXPYQYPZQZJan$10100$2050$25200Feb1090186025225Mar1070159025275Apr12501510025290May15251512025320In the above table, the cross price elasticity of demand (using averages) for Z with good X, when PX increases from $12 to $15, is approximately equal toA) +1.03 B) +2.26. C) +0.44. D) -0.44.

Q: A major cause of the mortgage market meltdown in 2007 and 2008 was linked to ________. A. private equity investments B. securitization C. negative analyst recommendations D. online trading

Q: If an affiliate purchases bonds in the open market, the book value of the intercompany bond liability at the time of purchase isA) always assigned to the parent company because it has control.B) the par value of the bonds less the unamortized discount or plus the unamortized premium.C) par value.D) the par value of the bonds plus the unamortized discount or less the unamortized premium.

Q: A 3 percent increase in the price of neckties leads to a 6 percent decrease in the quantity demanded of neckties. The absolute price elasticity of demand isA) 3. B) 2. C) 0.5. D) 0.33.

Q: Real assets are ______. A. assets used to produce goods and services B. always the same as financial assets C. always equal to liabilities D. claims on a company's income

Q: If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability, a ________ occurs.A) realized loss on the retirement of debt from the viewpoint of the subsidiaryB) realized gain on the retirement of debt from the viewpoint of the subsidiaryC) constructive loss on the retirement of debt from the viewpoint of the consolidated entityD) constructive gain on the retirement of debt from the viewpoint of the consolidated entity

Q: Generally, as levels of pollution are reduced,A) marginal benefits from the reduction decrease.B) marginal benefits from the reduction increase. C) marginal costs from the reduction decrease.D) marginal cost from the reduction are constant.

Q: The inability of shareholders to influence the decisions of managers, despite overwhelming shareholder support, is a breakdown in what process or mechanism? A. auditing B. public finance C. corporate governance D. public reporting

Q: On January 1, 2011, Bigg Corporation sold equipment with a book value of $20,000 and a 10-year remaining useful life to its wholly-owned subsidiary, Little Corporation, for $30,000. Both Bigg and Little use the straight-line depreciation method, assuming no salvage value. On December 31, 2011, the separate company financial statements held the following balances associated with the equipment:Bigg LittleGain on sale of equipment $10,000Depreciation expense $3,000Equipment 30,000Accumulated depreciation 3,000A working paper entry to consolidate the financial statements of Bigg and Little on December 31, 2011 included aA) debit to equipment for $10,000.B) credit to gain on sale of equipment for $10,000.C) debit to accumulated depreciation for $1,000.D) credit to depreciation expense for $3,000.

Q: The official poverty rate in the United States includesA) less than 5 percent of the population.B) between 10 and 15 percent of the population.C) between 20 to 25 percent of the population. D) over 35 percent of the population.

Q: In 2008 the largest corporate bankruptcy in U.S. history involved the investment banking firm of ______. A. Goldman Sachs B. Lehman Brothers C. Morgan Stanley D. Merrill Lynch

Q: Use the following information to answer the question(s) below.In 2011, Parla Corporation sold land to its subsidiary, Sidd Corporation, for $38,000. It had a book value of $24,000. In the next year, Sidd sold the land for $41,000 to an unaffiliated firm.The 2011 unrealized gain from the intercompany saleA) should be recognized in consolidation in 2011 by a working paper entry.B) should be eliminated from consolidated net income by a working paper entry that credits land for $14,000.C) should be eliminated from consolidated net income by a working paper entry that debits land for $14,000.D) should be eliminated from consolidated net income by a working paper entry that credits gain on sale of land for $14,000.

Q: Quantity of LaborHourly Wage RateTotal Marginal Wage Bill Factor Cost0-- -1$10 212 314 416 518 620 In the above table, if the marginal revenue product is $18, how many workers will the profit maximizing monopsonist hire?A) 2 B) 3 C) 4 D) 5

Q: When a pass-through mortgage security is issued, what does the issuing agency expect to receive? A. the amount of the original loan plus a servicing fee B. the principal and interest that are paid by the homeowner C. the principal and interest that are paid by the homeowner, minus a servicing fee D. the interest paid by the homeowner, plus a servicing fee

Q: Labor unions are organizations thatA) try to secure more opportunities for more workers in the economy. B) try to secure economic improvements for all workers.C) try to secure economic improvements for their members. D) try to make labor markets more competitive.

Q: Financial institutions that specialize in assisting corporations in primary market transactions are called _______. A. mutual funds B. investment bankers C. pension funds D. globalization specialists

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Q: An intermediary that pools and manages funds for many investors is called ______. A. an investment company B. a credit union C. an investment banker D. a commercial bank

Q: Suppose the MRP of the 49th worker at a firm is $25 and that the market wage rate is $15. We know that if this firm operates in perfectly competitive product and labor markets,A) the firm is paying wages above the minimum wages.B) the firmʹs profits would increase if it fired some workers.C) the firm would be more profitable if it hired more workers.D) the firm should use more capital.

Q: On January 2, 2012, Pal Corporation sold warehouse equipment to SimCo, a wholly-owned subsidiary. The equipment had an original cost of $130,000 and a net book value of $100,000 when it was sold to SimCo for $150,000. Both companies agreed that the equipment had a five-year remaining life and compute depreciation on the straight-line method. The equipment has no salvage value.Pal reported $470,000 in net income in 2012 (prior to reporting any income from SimCo), and SimCo reported $160,000 in net income.Required:1. Calculate consolidated net income for 2012.2. Determine the controlling share of net income for the year if Pal only owned 75% of SimCo.3. Determine the controlling share of net income for the year if Pal only owned 75% of SimCo AND the equipment transfer was upstream.

Q: Accounting scandals can often be attributed to a particular concept in the study of finance known as the _____ . A. agency problem B. risk-return trade-off C. allocation of risk D. securitization

Q: ʺAs compared to the benefits of economic and social regulation, the costs are minimal.ʺ Do you agree or disagree? Why?

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Q: Which of the following firms was not engaged in a major accounting scandal between 2000 and 2005? A. General Electric B. Parmalat C. Enron D. WorldCom

Q: Which of the following provides firms incentives to work together to develop one common product format?A) a Tweedle Dee-Tweedle Dum game B) a Battle of the Sexes gameC) prisonersʹ dilemma D) none of the above

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Q: When U.S. Steel, a steel producer, bought control of iron ore companies at the beginning of the 20th century, the company was initiatingA) a horizontal merger. B) a vertical merger.C) a cartel. D) an expropriation.

Q: Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years. In this transaction, _____ . A. a new financial asset was created B. a financial asset was traded for a real asset C. a financial asset was destroyed D. a real asset was created

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Q: Surf City Software Company develops new surf forecasting software. It sells the software to Microsoft in exchange for 1,000 shares of Microsoft common stock. Surf City Software has exchanged a _____ asset for a _____ asset in this transaction. A. real; real B. financial; financial C. real; financial D. financial; real

Q: What is the most important characteristic of monopolistic competition? How do firms behave differently from perfect competitors?

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Q: Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets because: I. Intermediaries are better diversified than most individuals. II. Intermediaries can exploit economies of scale in investing that individual investors cannot. III. Intermediated investments usually offer higher rates of return than direct capital market claims. A. I only B. I and II only C. II and III only D. I, II, and III

Q: If a monopolist is producing the quantity at which marginal revenue equals marginal cost, it shouldA) continue to produce this amount if it wants to maximize profits. B) reduce output if it wants to maximize profits.C) increase price and keep output unchanged if it wants to maximize profits. D) increase output if it wants to maximize profits.

Q: Separate income statements of Plantation Corporation and its 90%-owned subsidiary, Savannah Corporation, for 2011 are as follows, prior to Plantation recording any income related to its subsidiary:Plantation SavannahSales Revenue $870,000 $230,000Gain on equipment 35,000Gain on land 20,000Cost of sales (470,000) (90,000)Other expenses (265,000) (60,000)Separate incomes $170,000 $100,000Additional information:1. Plantation acquired its 90% interest in Savannah Corporation when the book values were equal to the fair values.2. The gain on equipment relates to equipment with a book value of $95,000 and a 7-year remaining useful life that Plantation sold to Savannah for $130,000 on January 1, 2011. The straight-line depreciation method was used and the equipment has no salvage value.3. On January 1, 2011, Savannah sold land to an outside entity for $90,000. The land was acquired from Plantation in 2009 for $70,000. The original cost of the land to Plantation was $45,000.4. Savannah did not declare or distribute dividends in 2011.Required:1. Prepare elimination/adjusting entries on the consolidated worksheet for the year 2011.2. Prepare the consolidated income statement for the year ended December 31, 2011.

Q: Venture capital is _________. A. frequently used to expand the businesses of well-established companies B. supplied by venture capital funds and individuals to start-up companies C. illegal under current U.S. laws D. most frequently issued with the help of investment bankers

Q: ʺBecause a firmʹs supply curve slopes upward, the long-run supply curve of an industry must also slope upward.ʺ Do you agree or disagree? Explain.

Q: Piglet Incorporated purchased 90% of the outstanding stock of Sourgrape Company several years ago at book value. At January 1, 2010, Sourgrape sold land with a book value of $30,000 to Piglet at its fair market value of $40,000. At the same time, Sourgrape sold the building that was on the land to Piglet. The building had a book value of $80,000 and was sold at its fair value of $120,000. The building had a remaining useful life of 8 years and is depreciated using the straight-line method. The building has no salvage value. On January 1, 2012, Piglet sold the land and building to a third party. The sales price was allocated so that the land was sold for $50,000 and the building was sold for $150,000. Income statements for Piglet and Sourgrape for the year ended December 31, 2012 are summarized below:Piglet SourgrapeSales $252,000 $90,000Gain on sale of land and building 40,000Cost of sales (140,000) (40,000)Depreciation expense (60,000) (20,000)Other expenses (20,000) (10,000)Net income $72,000 $20,000Required:Prepare the eliminating/adjusting entries related to the land and building on the consolidated working papers on the following dates:1. December 31, 20102. December 31, 20113. December 31, 2012

Q: Which of the following is (are) true about hedge funds? I. They are open to institutional investors. II. They are open to wealthy individuals. III. They are more likely than mutual funds to pursue simple strategies. A. I and II only B. I and III only C. II and III only D. I, II, and III

Q: For a perfectly competitive firm, profit maximization occurs whenA) marginal revenue equals average total cost.B) marginal revenue equals marginal cost.C) marginal cost is equal to average total cost.D) average total cost is at its minimum.

Q: Prey Corporation created a wholly owned subsidiary, Sage Corporation, on January 1, 2010, at which time Prey sold land with a book value of $90,000 to Sage at its fair market value of $140,000. Also, on January 1, 2010, Prey sold to Sage equipment with a book value of $130,000 and a selling price of $165,000. The equipment had a remaining useful life of 4 years and is being depreciated under the straight-line method. The equipment has no salvage value. On January 1, 2012, Sage resold the land to an outside entity for $150,000. Sage continues to use the equipment purchased from Prey. Income statements for Prey and Sage for the year ended December 31, 2012 are summarized below:Prey SageSales $450,000 $100,000Gain on sale of land 10,000Cost of sales (220,000) (50,000)Depreciation expense (95,000) (32,000)Other expenses (37,000) (8,000)Net income $98,000 $20,000Required:At what amounts did the following items appear on the consolidated income statement for Prey and Subsidiary for the year ended December 31, 2012?1. Gain on Sale of Land2. Depreciation Expense3. Consolidated net income4. Controlling interest share of consolidated net income

Q: Market signals will help to allocate capital efficiently only if investors are acting _____ . A. on the basis of their individual hunches B. as directed by financial experts C. as dominant forces in the economy D. on accurate information

Q: Which of the following would be an example of a fixed cost?A) the electric and gas billsB) wages paid to temporary workersC) property insurance premiumsD) expenditures on imported raw materials

Q: In a perfectly efficient market the best investment strategy is probably _____ . A. an active strategy B. a passive strategy C. asset allocation D. market timing

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Q: The stock market showed a PE for BluarCo equal to 17. What does PE mean?A) price-earnings ratio B) profit-earnings ratioC) perfect-earnings ratio D) price-equity ratio