Q7. Which of the following statements regarding the capitalization of an expense is least accurate? A) Capitalizing an expense creates an asset. B) Capitalized expenses increases equity. C) Capitalizing an expense lowers current period net income.
Q8. Dobkin Company decides to expense costs that it would have otherwise capitalized. Compared to capitalizing, expensing these costs will result in:
A) lower asset levels and higher equity levels. B) lower asset levels and lower equity levels. C) lower asset levels and lower liability levels.
Q9. Selected information from Yorktown Corp.’s financial statements for the year ended December 31, 2004 was as follows (in $ millions): Accounts Payable | 8 | Long-term Debt | 9 | Common Stock | 17 | Retained Earnings | 23 | Total Liabilities & Equity | 57 |
In 2004, Yorktown paid $10 million cash to purchase a franchise. The franchise cost was fully expensed in 2004. If the company had elected to amortize the franchise cost over 5 years instead of expensing it, Yorktown’s total debt ratio (total debt-to-total capital) would: A) increase from 0.474 to 0.551. B) decrease from 0.474 to 0.403. C) decrease from 0.298 to 0.262.
Q10. Selected information from the financial statements of Salvo Company for the years ended December 31, 2003 and 2004 is as follows (in $ millions): | 2003 | 2004 | Sales | $21 | $23 | Cost of Goods Sold | (8) | (9) | Gross Profit | 13 | 14 | Cost of Franchise | (6) | 0 | Other Expenses | (6) | (6) | Net Income | $1 | $8 | | | | Cash | $4 | $5 | Accounts Receivable | 6 | 5 | Inventory | 9 | 7 | Property, Plant & Equip. (net) | 12 | 15 | Total Assets | $31 | $32 | | | | Accounts Payable | $7 | $5 | Long-term Debt | 10 | 5 | Common Stock | 8 | 8 | Retained Earnings | 6 | 14 | Total Liabilities and Equity | $31 | $32 |
Salvo’s return on average total equity for 2004 was ($8 / (($8 + $6) + ($8 + $14)) / 2 =) 44.4%. If Salvo had amortized the cost of the franchise acquired in 2003 over six years instead of expensing it, Salvo’s return on average total equity for 2004 would have decreased from 44.4% to: A) 35.6%. B) 38.9%. C) 31.1%.
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发表于 2009-1-19 10:07
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