Q&A Hero

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Q: The efficient market hypothesis suggests that _______. A. active portfolio management strategies are the most appropriate investment strategies B. passive portfolio management strategies are the most appropriate investment strategies C. either active or passive strategies may be appropriate, depending on the expected direction of the market D. a bottom-up approach is the most appropriate investment strategy

Q: The owner(s) of a corporationA) is the entrepreneur. B) are the shareholders. C) are the bondholders. D) is the CEO.

Q: Separate income statements of Pingair Corporation and its 90%-owned subsidiary, Staunch Inc., for 2011 were as follows:Pingair StaunchSales Revenue $2,200,000 $1,000,000Cost of sales (1,400,000) (600,000)Other expenses (400,000) (200,000)Gain on equipment 80,000Income from Staunch 128,000Net income $608,000 $200,000Additional information:1. Pingair acquired its 90% interest in Staunch Inc. when the book values were equal to the fair values.2. The gain on equipment relates to equipment with a book value of $120,000 and a 4-year remaining useful life that Pingair sold to Staunch for $200,000 on January 2, 2011. The straight-line depreciation method is used. The equipment has no salvage value.3. Pingair sold inventory to Staunch in 2010 and 2011 as shown in the table below. (The 2010 ending inventory is sold in 2011.) 2010 2011Intercompany sales $300,000 200,000Original cost from third-party 180,000 120,000Percentage unsold at year-end 40 504. Staunch did not declare or pay dividends in 2010 and 2011.Required:1. Prepare adjusting/eliminating entries for the consolidation worksheet at December 31, 2011.2. Prepare a consolidated income statement for Pingair Corporation and Subsidiary for the year ended December 31, 2011.

Q: Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to _____ . A. earn no more than the Treasury-bill rate on either security. B. pay less for the security that has higher risk. C. pay less for the security that has lower risk. D. earn more if interest rates are lower.

Q: Basket of goods A is on an indifference curve that lies further from the origin than basket B. From this we know thatA) the prices of the goods in A are more 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 more than the marginal utility from consuming B.D) all other consumers would also rank B above A.

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Q: After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds. This is an example of _____ . A. asset allocation B. security analysis C. top-down portfolio management D. passive management

Q: QuantityTotal Utility00110225345460568672Refer to the above table. At what quantity does diminishing marginal utility set in?A) After 3. B) After 2. C) After 10. D) After 15.

Q: Snow Company is a wholly owned subsidiary of Penguin Corporation. On January 1, 2009, Penguin transferred equipment to Snow for $195,000. The equipment had originally cost $250,000, but at the time of transfer, had a $180,000 book value and a five year remaining life. Both companies use the straight-line method of depreciation and assume no salvage value for the equipment. Required: Prepare the consolidation worksheet entries for this asset on the following dates:1. December 31, 20092. December 31, 20103. December 31, 2011

Q: After much investigation, an investor finds that Intel stock is currently underpriced. This is an example of ______. A. asset allocation B. security analysis C. top-down portfolio management D. passive management

Q: MonthPXQXPYQYPZQZJan$10100$2050$25200Feb1090186025225Mar1070159025275Apr12501510025290May15251512025320In the above table, the cross price elasticity of demand for good Z with good Y when P Y rises from $15 to $18 isA) -2.20. B) +2.20. C) +1.10. D) -1.10.

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Q: Money market securities are characterized by: I. Maturity less than 1 year II. Safety of the principal investment III. Low rates of return A. I only B. I and II only C. I and III only D. I, II, and III

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

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Q: Real assets represent about ____ of total assets for commercial banks. A. 1% B. 15% C. 25% D. 40%

Q: Voluntary agreements about cleaning up pollution attempt toA) internalize externalities. B) internalize private costs.C) externalize social costs. D) externalize private costs.

Q: Which of the following is not an example of a financial intermediary? A. Goldman Sachs B. Allstate Insurance C. First Interstate Bank D. IBM

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Q: All of the following are governmental efforts to decrease poverty EXCEPTA) Supplemental Security Income B) the earned income program.C) transfer payments. D) tariffs.

Q: Liabilities equal approximately _____ of total assets for nonfinancial U.S. businesses. A. 10% B. 25% C. 45% D. 75%

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Q: Quantity of LaborHourly Wage RateTotal Marginal Wage Bill Factor Cost0-- -1$10 212 314 416 518 620 In the above table, what is the marginal factor cost of the 6th worker?A) $30 B) $18 C) $120 D) $20

Q: In 2014 mortgages represented approximately __________ of total liabilities and net worth of American households. A. 10% B. 14% C. 28% D. 42%

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Q: The first labor unions in the United States wereA) public-sector unions. B) industrial unions. C) guilds. D) craft unions.

Q: In 2014 real assets represented approximately __________ of the total asset holdings of American households. A. 30% B. 42% C. 48% D. 55%

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Q: If the demand for hamburgers increases, it is likely that the demand for fast -food employees willA) increase. B) decrease.C) stay the same. D) increase at first but then fall rapidly.

Q: The combined liabilities of American households represent approximately __________ of combined assets. A. 11% B. 14% C. 25% D. 33%

Q: On January 1, 2012 Saffron Co. recorded a $40,000 profit on the upstream sale of some equipment that had a remaining four-year life under the straight-line depreciation method. The equipment has no salvage value. Saffron had separate income of $100,000 in 2012. The parent company, Pommel Incorporated, owns 90% of Saffron. Pommel would report investment income from Saffron in 2012 ofA) $54,000.B) $63,000.C) $90,000.D) $126,000.

Q: ʺRegulations do not always have the intended result.ʺ Do you agree or disagree? Why?

Q: Which of the following is not a financial intermediary? A. a mutual fund B. an insurance company C. a real estate brokerage firm D. a credit union

Q: Pogo Corporation acquired a 75% interest in Sperry Corporation on January 1, 2009 at a cost equal to book value and fair value. In the same year Sperry sold land costing $25,000 to Pogo for $50,000. On July 1, 2012, Pogo sold the land to an unrelated party for $85,000. What was the gain on the sale of the land on the consolidated income statement for 2012?A) $25,000B) $35,000C) $45,000D) $60,000

Q: A Tweedle Dee-Tweedle Dum game situation occurs when A) two firms choose incompatible product formats. B) two firms choose compatible product formats. C) two firms produces products that are complementary to each otherʹs products. D) the game is a positive sum.

Q: The 2002 law designed to improve corporate governance is titled the _____ . A. Pension Reform Act B. ERISA C. Financial Services Modernization Act D. Sarbanes-Oxley Act

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Q: Oligopolies can result from any of the following EXCEPTA) economies of scale. B) vertical mergers.C) government regulation. D) diseconomies of scale.

Q: An example of a real asset is: I. A college education II. Customer goodwill III. A patent A. I only B. II only C. I and III only D. I, II, and III

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Q: Compared with a monopolist, the demand curve faced by a monopolistically competitive firm isA) more elastic. B) more inelastic.C) perfectly elastic. D) perfectly inelastic.

Q: The average rate of return on U.S. Treasury bills since 1926 was _________. A. less than 1% B. less than 3% C. less than 4% D. less than 7%

Q: Petrol Company acquired an 90% interest in Seadig Corporation on January 1, 2010. On January 1, 2011, Seadig sold a building with a book value of $120,000 to Petrol for $150,000. The building had a remaining useful life of ten years and no salvage value. Straight-line depreciation is used. The separate balance sheets of Petrol and Seadig on December 31, 2011 included the following balances:Petrol SeadigBuildings $500,000 $230,000Accumulated Depr. - Buildings 180,000 79,000The consolidated amounts for Buildings and Accumulated Depreciation - Buildings that appeared, respectively, on the balance sheet at December 31, 2011, wereA) $700,000 and $256,000.B) $700,000 and $259,000.C) $730,000 and $256,000.D) $730,000 and $259,000.

Q: PQMRMC$720$12$2$621$14$5$522$16$10$423$18$15$324$20$20$225$22$26If a monopolist is producing the quantity at which price 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) reduce price and keep output unchanged if it wants to maximize profits. D) increase output if it wants to maximize profits.

Q: The historical average rate of return on large company stocks since 1926 has been _____ . A. 5% B. 8% C. 11.5% D. 20%

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Q: The success of common stock investments depends on the success of _________. A. derivative securities B. fixed-income securities C. the firm and its real assets D. government methods of allocating capital

Q: The long-run industry supply curve in a decreasing-cost, perfectly competitive industry isA) negatively sloped. B) perfectly elastic.C) positively sloped. D) perfectly inelastic.

Q: Plenny Corporation sold equipment to its 90%-owned subsidiary, Sourdough Corp., on January 1, 2012. Plenny sold the equipment for $100,000 when its book value was $75,000 and it had a 5-year remaining useful life with no expected salvage value. Straight-line depreciation is used by both companies. Separate balance sheets for Plenny and Sourdough included the following equipment and accumulated depreciation amounts on December 31, 2012:Plenny SourdoughEquipment $850,000 $300,000Less: Accumulated depreciation (200,000) (60,000)Equipment-net $650,000 $240,000Consolidated amounts for equipment and accumulated depreciation at December 31, 2012 were respectivelyA) $1,125,000 and $255,000.B) $1,125,000 and $260,000.C) $1,150,000 and $255,000.D) $1,150,000 and $260,000.

Q: The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following? A. Required that corporations have more independent directors. B. Required that the CFO personally vouch for the corporation's financial statements. C. Required that firms could no longer employ investment bankers to sell securities to the public. D. Required the creation of a new board to oversee the auditing of public companies.

Q: A perfectly competitive firm will maximize profits whenA) average cost is greater than marginal revenue.B) marginal cost is greater than marginal revenue. C) marginal cost is equal to marginal revenue.D) average cost is equal to average revenue.

Q: Assume an upstream sale of machinery occurs on January 1, 2011. The parent owns 70% of the subsidiary. There is a gain on the intercompany transfer and the machine has five remaining years of useful life and no salvage value. Straight-line depreciation is used. Which of the following statements is correct?A) Noncontrolling interest share for 2011 is equal to: subsidiary income for 2011 multiplied by 30%.B) Noncontrolling interest share for 2011 is equal to: (subsidiary income for 2011 minus the gain on sale plus the excess depreciation expense) multiplied by 30%.C) Noncontrolling interest share for 2011 is equal to: (subsidiary income for 2011 minus the gain on sale) multiplied by 30%.D) Noncontrolling interest share for 2011 is equal to: (subsidiary income for 2011 plus the excess depreciation expense) multiplied by 30%.

Q: Debt securities promise: I. A fixed stream of income. II. A stream of income that is determined according to a specific formula. III. A share in the profits of the issuing entity. A. I only B. I or II only C. I and III only D. II or III only

Q: Total fixed cost isA) the cost of buying and installing new machinery.B) the cost that does not change as output changes. C) the expenditure on imported raw materials.D) the wages paid to consultants.

Q: Parrot Company owns all the outstanding voting stock of Southern Manufacturing. On January 1, 2012, Parrot sold machinery to Southern at its book value of $24,000. Parrot had the machinery three years before selling it and used an eight-year straight-line depreciation method, with zero salvage value. Southern will use the straight-line depreciation method, and assumes the machine has five years remaining and no salvage value. In the 2012 consolidating working papers, the depreciation expenseA) required no adjustment.B) decreased by $4,800.C) increased by $4,800D) increased by $8,000.

Q: The price of the stock divided by the profits per share of stock is known as theA) price-earnings ratio. B) dividend.C) yield in percent per year.D) number of shares traded during the day.

Q: Which one of the following firms falsely claimed to have a $4.8 billion bank account at Bank of America and vastly understated its debts, eventually resulting in the firm's bankruptcy? A. WorldCom B. Enron C. Parmalat D. Global Crossing

Q: __________ portfolio construction starts with asset allocation. A. Bottom-up B. Top-down C. Upside-down D. Side-to-side

Q: An advantage of a partnership over a proprietorship isA) limited liability.B) that profits are not taxed twice.C) the ability to take advantage of greater specialization. D) that it is easier to dissolve.

Q: An example of a derivative security is _________. A. a common share of General Motors B. a call option on Intel stock C. a Ford bond D. a U.S. Treasury bond

Q: A set of indifference curves on a graph is calledA) a difference map. B) an indifference map.C) a budget map. D) a cluster.

Q: Security selection refers to _________. A. choosing specific securities within each asset class B. deciding how much to invest in each asset class C. deciding how much to invest in the market portfolio versus the riskless asset D. deciding how much to hedge

Q: QuantityTotal Utility00110225335442547649Refer to the above table. At what quantity does diminishing marginal utility set in?A) After 0. B) After 1. C) After 2. D) After 10.

Q: When the market is more optimistic about a firm, its share price will ______; as a result, it will need to issue _______ shares to raise funds that are needed. A. rise; fewer B. fall; fewer C. rise; more D. fall; more

Q: MonthPXQXPYQYPZQZJan$10100$2050$25200Feb1090186025225Mar1070159025275Apr12501510025290May15251512025320In the above table, the cross price elasticity of demand for good Y with good X when P X rises from $10 to $12 isA) +0.29. B) +1.83. C) +0.58. D) -0.58.

Q: In securities markets, there should be a risk-return trade-off with higher-risk assets having _________ expected returns than lower-risk assets. A. higher B. lower C. the same D. The answer cannot be determined from the information given.

Q: A 3 percent increase in the price of neckties leads to a 3 percent decrease in the quantity demanded of neckties. The absolute price elasticity of demand isA) 3. B) 0.3. C) 1.0. D) 0.01.

Q: Firms that specialize in helping companies raise capital by selling securities to the public are called _________. A. pension funds B. investment banks C. savings banks D. REITs

Q: The marginal benefit of the pollution abatement curveA) has a zero slope. B) has a positive slope. C) slopes upward. D) slopes downward.

Q: Methods of encouraging managers to act in shareholders' best interest include: I. Threat of takeover. II. Proxy fights for control of the board of directors. III. Tying managers' compensation to stock price performance. A. I only B. I and II only C. II and III only D. I, II, and III

Q: In a growing economy, it is possible to eliminateA) absolute poverty. B) relative poverty.C) both absolute and relative poverty. D) either absolute nor relative poverty.

Q: Financial intermediaries exist because small investors cannot efficiently _________. A. diversify their portfolios B. gather information C. assess and monitor the credit risk of borrowers D. all of the options

Q: Quantity of LaborHourly Wage RateTotal Marginal Wage Bill Factor Cost0-- -1$10 212 314 416 518 620 In the above table, what is the marginal factor cost of the 5th worker?A) $22 B) $18 C) $90 D) $26

Q: Upstream sale: Plock's separate net income $400,000 Seraphim's separate net income 80,000 Less: Unrealized gain on vehicle (4,000) Plus: Excess depreciation Consolidated Net income Noncontrolling interest share ($80,000 - 4,000 + 1,000) 25% Controlling share of consolidated net income

Q: Financial markets allow for all but which one of the following? A. shift consumption through time from higher-income periods to lower B. price securities according to their riskiness C. channel funds from lenders of funds to borrowers of funds D. allow most participants to routinely earn high returns with low risk

Q: A craft labor union is made up ofA) groups of workers in an individual trade.B) all the workers in a firm such as General Motors.C) firms that employ similar labor skills.D) an organization that controls the labor market in a particular industry.

Q: Plateau Incorporated bought 60% of the common stock of Sachet Company several years ago. At the time of purchase, the fair value and book value of Sachet's net assets were equal. The cost of the 60% investment was equal to 60% of the book value of Sachet's net assets. Plateau sells merchandise to Sachet at 125% above Plateau's cost. Intercompany sales from Plateau to Sachet for 2012 were $60,000. Unrealized profits in Sachet's December 31, 2011 inventory and December 31, 2012 inventory were $6,000 and $4,500, respectively. Sachet reported net income of $120,000 for 2012. Required: In General Journal format, prepare consolidation working paper entries at December 31, 2012 to eliminate the effects of the intercompany inventory sales.

Q: __________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis. A. Active B. Momentum C. Passive D. Market-timing

Q: Number of WorkersTotal OutputNumber of WorkersTotal Output0065401100760022208650332096904400107005475 According to the above table, if the wage rate is $400 a week and the price of the good produced is $5, the perfectly competitive firm should hireA) 3 workers. B) 4 workers. C) 5 workers. D) 6 workers.