Download MBA 601 EXAM 1 and 2 (Latest Versions 2025)| Featuring Topics such as Managerial Economics and more Exams Business Administration in PDF only on Docsity!
MBA 601 EXAM 1 and 2 (Latest Versions 2025)| Featuring
Topics such as Managerial Economics, Organizational
Behavior, Marketing Principles, Financial Analysis, and
Strategic Decision-Making
MBA 601 EXAM 1
John borrowed $500,000 from Stone Creek Bank to open a new restaurant called Sauce-it-up. John transferred $450,000 of the cash he borrowed to the restaurant on the first day of the year. How many reporting entities will exist in this scenario? ---------CORRECT ANSWER-----------------3, John, the bank, and the restaurant. Ellen and her brother Buster started Elder Company when they each invested $600 in the company. After the investments there will be how many entities? ----- ----CORRECT ANSWER----------------- 3 Paul purchased a restaurant named Burger Haven from Larry. The purchase would cause the number of reporting entities to ---------CORRECT ANSWER----------------- remain constant. There are 3 reporting entities that existed before and after the purchase. What is the accurate definition of the term asset? ---------CORRECT ANSWER-------- ---------A resource that will be used to produce revenue.
Which of the following is not a source of assets? Creditors Investors Operations All are sources of assets ---------CORRECT ANSWER-----------------All are sources of assets. Businesses can borrow assets from creditors, acquire them from investors (owners), or generate them through operations. If total assets increase then, ---------CORRECT ANSWER-----------------liabilities, common stock, or retained earnings must increase. What are the characteristics of liabilites? ---------CORRECT ANSWER----------------- Represent obligations to repay debts. May increase when assets increase. Are found on the claims side of the accounting equation. Which term describes assets earned from operations that have been reinvested into the business? ---------CORRECT ANSWER-----------------retained earnings
You can make money investing in stocks by.... ---------CORRECT ANSWER-------------- ---1. Collecting dividends
- Stock Price Appreciation (buy low, sell high) The advantage of a sole proprietorship is ---------CORRECT ANSWER----------------- Complete control. (Owners = managers) The primary reason for starting a corporation is ---------CORRECT ANSWER----------- ------To raise a lot of capital. (T/F): A corporation is its own legal entity. ---------CORRECT ANSWER----------------- True. (T/F): In a corporation, the owner is also the manager. ---------CORRECT ANSWER-- ---------------False. If you are an investor in a corporation, limited liability means ---------CORRECT ANSWER-----------------You are only liable for your investment in the company.
What are the disadvantages of a corporate entity ---------CORRECT ANSWER--------- --------Double taxation Increased regulation Less control If a corporation had pre-tax earnings of $40,000 and paid all of this out as a dividend, how much tax would the federal government collect? Assume a 20% federal income tax rate and a 15% dividend tax rate. ---------CORRECT ANSWER----- ------------12, (40,000 x .20 = 8,000) (32,000 x .15 = 4,800) The primary advantages of investing in stock are ---------CORRECT ANSWER---------- -------unlimited upside voting rights The primary advantages of investing in bonds are ---------CORRECT ANSWER--------- --------Easier to value than stock Known payment amount Know when you are going to get paid Less risk than investing in stock. Priority over stockholders in bankruptcy
Which of the following are secondary markets? S & P 500 NASDAQ Dow Jones Industrial Average American Stock Exchange (AMEX) New York Stock Exchange (NYSE) ---------CORRECT ANSWER-----------------NASDAQ NYSE AMEX (T/F): You should believe anything you read from sell-side analytics. --------- CORRECT ANSWER-----------------False!! Why do companies care about their stock price on the secondary market? --------- CORRECT ANSWER-----------------It will affect them if they need to issue more stock. When you buy a stock you are typically buying it ---------CORRECT ANSWER---------- -------On a secondary stock exchange/secondary market The largest stock exchanges in the world are located in ---------CORRECT ANSWER- ----------------United States
What is the future value of $500 today 1 year from now? Assume a risk-free rate of 6%. ---------CORRECT ANSWER----------------- 530 FV=PV(1+i)^n FV=500(1.06) FV= The present value of $2,220 discounted 1 year at 5%. Round to the nearest dollar. ---------CORRECT ANSWER-----------------PV= FV/(1+i)^N PV=2,220/(1.05) PV=2, Which of the following will give you the present value of a future amount discounted 1 year? A. PV(1+i) B. FV/(1+i) C. PV/(1+i) D. FV(1+i) ---------CORRECT ANSWER-----------------B. FV/(1+i) Assuming a discount rate of 9% choice is better: Choice A: $500 today Choice B: $540 1 year from now. ---------CORRECT ANSWER-----------------Choice A.
PV=
You have the opportunity to pay $2,000 to invest in a company. You estimate that this co will earn a total of $12k during its life. You expect the company to pay all of these earnings to you as a dividend 12 years from today. Currently, the risk free rate is 6% but this investment is really risky and you feel that a 16% discount rate is appropriate. Given you assumptions, should you make this investment. --------- CORRECT ANSWER-----------------Yes. The FV of 2,000 is less than 12k, so you would want to invest. You have the opportunity to pay $2,000 to invest in a company. You estimate that this co will earn a total of $10k during its life. You expect the company to pay all of these earnings to you as a dividend 10 years from today. Currently, the risk free rate is 6% but this investment is really risky and you feel that a 14% discount rate is appropriate. How much would you earn from this investment in today's dollars (i.e. PV)? ---------CORRECT ANSWER----------------- 697 You are considering purchasing a bond. The bond will pay you $100 at the end of each year for 3 years. At the end of the third year, the bond will also pay you back its $1,000 face value. Assuming a 10% discount rate, how much is this bond worth today? Round to nearest dollar. ---------CORRECT ANSWER-----------------$1, (find PV of each $100, and the PV of the $1,000 and add)
If interest rates go up ---------CORRECT ANSWER-----------------asset prices go down You are considering purchasing a bond. The bond will pay you $100 at the end of each year for 3 years. At the end of the third year, the bond will also pay you back its $1,000 face value. Assuming a 8% discount rate, how much is this bond worth today? Round to nearest dollar. ---------CORRECT ANSWER-----------------$1, In order to value a bond, you must estimate? ---------CORRECT ANSWER-------------- ---discount rate hold ---------CORRECT ANSWER----------------- How will lowering the discount rate affect the present value of an annuity? --------- CORRECT ANSWER-----------------Increase the present value. How will lowering the discount rate affect the present value of a perpetuity? ------ ---CORRECT ANSWER-----------------Increase the present value You are considering purchasing a bond. The bond will pay you $100 at the end of each year for 20 yrs. At the end of the 20th year, the bond will also pay you back
(T/F): The primary purpose of managerial accounting is to prepare financial statements in accordance with a reporting framework. ---------CORRECT ANSWER-- ---------------False. The primary purpose is to assist managers within the company in determining how much it costs to acquire resources and convert them into saleable goods and services. Generally Accepted Accounting Principles (GAAP) are designed to provide guidance for ---------CORRECT ANSWER-----------------financial accounting. Which of the following types of businesses require financial information to operate effectively? ---------CORRECT ANSWER-----------------All businesses require financial information. Public accountants perform which of the following functions to ensure that financial information provided by a company to investors is in accordance with GAAP? ---------CORRECT ANSWER-----------------Conduct an audit. How accounting transactions are recorded will vary depending on the entity perspective taken. ---------CORRECT ANSWER-----------------True
The three primary types of reporting entities are consumers, resource owners, and businesses. ---------CORRECT ANSWER-----------------True Assets = ---------CORRECT ANSWER-----------------Assets= Liabilities + Common Stock
- Retained Earnings What term describes a distribution of the company's assets back to the owners of the business? ---------CORRECT ANSWER-----------------dividends T/F: Owners of the business who contribute money to the business take more risk than creditors who loan money to the business. ---------CORRECT ANSWER----------- ------True. Owners share both the gains and losses of a business, and a company is under no obligation to repay owners of the business regardless of success. Sims CO. received cash from the issue of common stock. This event is --------- CORRECT ANSWER-----------------Asset Source transaction. Sims CO. received cash from the issue of a note payable to a bank. This event is --- ------CORRECT ANSWER-----------------asset source transaction
$20,000 in cash from operations and paid $15,000 in cash expenses during the year. During its first year of operations, Smokey Enterprises would report net income of ---------CORRECT ANSWER-----------------$5, (T/F) Certain transactions entered into the accounting equation will cause the equation not to balance. ---------CORRECT ANSWER-----------------FALSE!!! The equation must always balance. The balance sheet presents ---------CORRECT ANSWER-----------------a list of a company's assets and the sources of those assets. The following items were drawn from the financial statements of Rogers Company:
- Assets
- Stockholders Equity
- Salary Expense
- Land
- Rent Revenue
- Notes Payable
- Cash collected from the issue of stock
- Common stock
- Cash paid for dividends
- Cash
- Liabilites
- Dividends
- Cash paid to purchase land
- Retained Earnings Which items are drawn from the Balance Sheet? ---------CORRECT ANSWER---------- -------1. Assets
- Stockholders Equity
- Land
- Note payable
- Common stock
- Cash
- Liabilities
- Retained Earnings Kilgore Company experienced the following events during its first accounting period. (1) Issued common stock for $5,000 cash. (2) Earned $3,000 of cash revenue. (3) Paid a $4,000 cash to purchase land. (4) Paid cash dividends amounting to $400. (5) Paid $2,200 of cash expenses.
(3) Paid a $4,000 cash to purchase land. (4) Paid cash dividends amounting to $400. (5) Paid $2,200 of cash expenses. Based on this information the amount of net income is ---------CORRECT ANSWER-- ---------------$ Only calculating Rev-Exp (3000-2200) Which of the following is an example of revenue? A. Cash received from a bank loan B. Cash received from investors from the sale of common stock C. Cash received from the sale of land D. Cash received from customers at the time services were provided --------- CORRECT ANSWER-----------------D. Cash received from customers at the time services were provided. Retained earnings at the beginning of the period was $300. During the period, Kilgore CO earned revenue of $1,100 and incurred expenses of $400. Assuming dividend paid to stockholders were $200, the ending balance in retained earnings must have been: ---------CORRECT ANSWER-----------------$ Beg ret. earn + Net income - dividends = end retained earnings.
Which of the following financial statements provides information about a company as of a specific point of time? Income statement Balance Sheet Statement of Cash Flows None of these ---------CORRECT ANSWER-----------------Balance Sheet, provides info about a company at a specific point in time. Kilgore Company experienced the following events during its first accounting period. (1) Borrowed 10k cash from creditor (2) Earned $5,000 of cash revenue. (3) Paid a $2,000 cash to pay off portion of note payable (4) Paid cash dividends amounting to $100. (5) Paid $2,200 of cash expenses. Based on this info, what is the amount of expense shown on the income statement? ---------CORRECT ANSWER-----------------$2, Expenses are economic sacrifices to produce revenue. In this case, the company's sacrifice was a decrease of assets (cash). Dividends are not expenses, they are not
